Profit-making land arrangement treated as business income where no real investment or effective capital asset existed

Profit-making arrangements in disputed property were treated as an adventure in the nature of trade, not an investment, because the assessee merely lent his name, made no own investment, and the sale proceeds were shared under the arrangement. On those facts, the receipts were taxable as business income rather than long-term capital gains. The text also notes that capital gains could not be charged where one transaction involved defective title and the other lacked valid legal transfer, so no effective capital asset arose in the assessee's hands; computation was additionally unworkable because there was no ascertainable cost of acquisition.

---

---

Issues: Whether the income arising from the sale of the two lands was assessable as business income or as long-term capital gains, and whether any capital gain could be charged when the assessee had no effective title and no cost of acquisition in relation to the transactions.

Analysis: The transactions were found to be part of an arrangement between the assessee and another person for acquisition and resale of disputed lands with a view to earn profit. The assessee had allowed his name to be used in the transactions and had not made any investment of his own. The sale proceeds were distributed in accordance with the arrangement, and the profit attributable to the other participant had already been assessed as business income. On these facts, the activity bore the character of an adventure in the nature of trade rather than an investment yielding capital gains. The findings also showed that, in one transaction, the title was defective and in the other the transfer had no valid legal effect, so the essential requirement of a capital asset giving rise to chargeable capital gains was absent. In the absence of an assessee's own cost of acquisition, computation under the capital gains provisions was also not workable.

Conclusion: The income was rightly treated as business income and not as long-term capital gains; the Revenue's challenge failed.

Final Conclusion: The appellate order deleting the additions was sustained and the Revenue's appeal was dismissed.

Ratio Decidendi: Where the surrounding circumstances show a profit-making arrangement in disputed property, with no real investment or effective transfer of a capital asset in the assessee's hands, the receipts are taxable as business income and not as capital gains.

---