Capital gains treatment prevails where land sale lacks genuine trading indicia and alleged stock-in-trade conversion is self-serving.

Surplus from the sale of land was treated as capital gains because the facts did not show a genuine business venture or adventure in the nature of trade. Although the assessee relied on book entries, a declaration of conversion, plotting of the land and sale deeds to claim conversion into stock-in-trade, the surrounding circumstances showed a solitary transaction completed in a short span, no real business organisation, and no market-facing trading activity. The evidence was largely self-generated and under the assessee's control, so the alleged conversion did not change the capital character of the asset.

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Issues: Whether the surplus arising from the sale of land was assessable as business income on the footing that the land had been converted into stock-in-trade or that the transaction was an adventure in the nature of trade, or whether it was taxable as capital gains.

Analysis: The assessee relied on entries in the books, a declaration of conversion, sub-division of the land into plots, and subsequent sale deeds to contend that the land had been brought into a real estate business. The surrounding circumstances, however, showed that the entire series of events was completed within a very short span, the transaction was solitary, no real business organisation or market-facing activity was established, and the evidence relied upon was largely self-generated and under the assessee's control. The sequence of conversion, plotting, sale, and later municipal approval did not present the normal indicia of a genuine trading venture. On a totality of the facts and circumstances, the material supported the inference that the transaction was not a bona fide business venture but was arranged to give a business colour to the sale of a capital asset.

Conclusion: The surplus was rightly assessed under the head capital gains and not as business income or an adventure in the nature of trade.

Ratio Decidendi: Whether a transaction constitutes business or an adventure in the nature of trade must be determined from the totality of the surrounding facts and circumstances, and a self-serving conversion of a capital asset into stock-in-trade, unsupported by genuine business indicia, does not alter its capital character.

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