Capital gains treatment applies to isolated sale of fixed asset property despite development expenditure and long holding period

Profit from sale of immovable property was taxable as capital gains, not business income, because the property was shown as a fixed asset, no depreciation was claimed, and it was held for a long period. The isolated sale did not indicate an organised trading activity or property development business. For determining adventure in the nature of trade, the relevant factors were the intention at acquisition, period of holding, and treatment in the books, and the development expenditure incurred over time was insufficient by itself to convert the transaction into trade.

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Issues: Whether the profit arising from sale of the immovable property was assessable as business income as an adventure in the nature of trade or as capital gains.

Analysis: The assessee had shown the property as a fixed asset, had not claimed depreciation, and had held it for a long period. The transaction was an isolated sale. The mere fact that expenditure was incurred over time for development did not by itself establish a trading activity. For deciding whether a transaction amounts to adventure in the nature of trade, the relevant factors include the intention at the time of acquisition, the period of holding, and the treatment of the asset in the books. On the facts, the material relied upon by the revenue was insufficient to show an organised business of property development.

Conclusion: The profit from sale of the property was taxable under the head capital gains and not as business income; the assessee succeeded on the main issue.

Ratio Decidendi: An isolated sale of a capital asset, when held as a fixed asset and not shown to be acquired or dealt with as stock-in-trade, does not become an adventure in the nature of trade merely because development expenditure was incurred before sale.

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