Capital character of partitioned property prevails absent clear proof of conversion into stock-in-trade; sale surplus is not revenue income.

Property allotted on Hindu family partition retains its capital character unless clear evidence shows subsequent conversion into stock-in-trade of a continuing business. Mere entry of the property or sale proceeds in account books, or use of the income in money-lending accounts, is insufficient to establish such conversion. On the facts, there was no material to show that the assessee carried on a property business after partition, so the surplus on sale was capital accretion and not taxable as revenue profit.

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Issues: Whether the surplus realised on the sale of the house property after partition of the Hindu family was revenue profit assessable to tax or capital accretion in the assessee's hands.

Analysis: On partition, the properties allotted to the assessee were capital assets in his hands unless the revenue established by clear evidence that he had converted them into stock-in-trade of a continuing business. The facts did not show that, after partition, he carried on a business in properties or that the properties were thrown into or treated as stock-in-trade of the money-lending business. Mere entry of the properties or their sale proceeds in the account books, or utilisation of income therefrom in the money-lending accounts, was insufficient to change their capital character. The finding of the Tribunal that the assessee was a dealer in properties was unsupported by the materials on record and could not stand.

Conclusion: The surplus was not taxable as revenue profit and the answer was in favour of the assessee.

Ratio Decidendi: Property allotted on partition retains its capital character unless the revenue proves, by clear and cogent material, that it was subsequently converted into stock-in-trade of a business; mere book entries or use of income in business accounts do not effect such conversion.

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