Auction allotment and capital gains: ownership from the auction date supports long-term treatment, not trading activity.

An auction allottee was treated as owner from the auction date where the governing scheme made the sale effective from that date and the later amendment did not disturb completed transactions; the holding period therefore ran from the auction date and the gain on sale was long-term capital gain. The Revenue also failed to show that the isolated purchase and sale amounted to a trading venture, because the surrounding facts indicated investment intent, instalment payments, construction activity, and no evidence of stock-in-trade treatment. The sale was therefore not an adventure in the nature of trade, and the resulting gain remained taxable as long-term capital gain.

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Issues: (i) Whether the assessees became owners of the plot from the date of auction so that the gain on sale was chargeable as long-term capital gains; (ii) Whether the sale of the plot was an adventure in the nature of trade.

Issue (i): Whether the assessees became owners of the plot from the date of auction so that the gain on sale was chargeable as long-term capital gains.

Analysis: The auction terms provided that the sale would take effect from the date of auction, with the unpaid price carrying interest and being secured by a first charge. The earlier statutory scheme, as interpreted by the Supreme Court, treated the highest bidder as owner from the date of auction once the stipulated initial payment was made. The later substituted provision, which continued title in the Government until full payment, was held not to affect completed transactions where the consideration had already been fully paid and conveyance had been executed before the amendment came into force. The asset was thus held by the assessees from the auction date, satisfying the statutory holding period for a long-term capital asset.

Conclusion: The assessees were owners from 23 July 1967 and the gain was long-term capital gain.

Issue (ii): Whether the sale of the plot was an adventure in the nature of trade.

Analysis: The Revenue had the burden to show that the isolated purchase and sale amounted to trading activity. The surrounding facts showed purchase for investment and construction, payment of instalments over time, commencement of construction on the site, and no material evidence that the plot was acquired as stock-in-trade. Mere inference from the later sale was insufficient to establish a trading adventure.

Conclusion: The transaction was not an adventure in the nature of trade.

Final Conclusion: The assessees succeeded on both the ownership and characterisation of gain issues, and the capital gain arising from the sale was assessable only as long-term capital gain.

Ratio Decidendi: Where a plot allotted on auction is treated under the governing statutory scheme as sold from the date of auction and the allottee has acquired enforceable ownership rights before a later amendment, the holding period runs from the auction date; a solitary sale will not be treated as an adventure in the nature of trade unless the Revenue establishes trading intent and surrounding trading features by evidence.

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