Capital asset characterization of leasehold interest defeated business income treatment on compulsory acquisition.

Compulsory acquisition of leasehold interest was held not to produce a revenue receipt where the asset, on the facts, had become a capital asset in the assessee's hands. The court treated the character of the property as dependent on the specific facts relating to that asset, not on the assessee's general business in lands. It found no sufficient material that the asset had been converted into stock-in-trade after partition, and book entries alone were insufficient to prove such conversion. The facts also did not establish an adventure in the nature of trade, so the realization was not taxable as business income.

---

---

Issues: Whether the sum received on compulsory acquisition of the leasehold interest constituted a revenue receipt chargeable to income-tax, or whether the asset had become a capital asset in the assessees' hands so that the receipt was not taxable as business income.

Analysis: The asset was acquired long before the acquisition by Government and, on the family partition, the allotted share in the leasehold interest could no longer be treated as stock-in-trade merely because the firm carried on trade in lands. The character of the asset had to be determined on the facts relating to that asset itself, and not by any general assumption arising from the assessee's business. The record contained no sufficient material showing that after the partition the asset was treated or converted into stock-in-trade, and the book entries were not accepted as establishing such a change. The facts also did not support an inference that the transaction amounted to an adventure in the nature of trade, since the eventual acquisition was by the Government and there was no trading venture or commercial plunge in the relevant sense.

Conclusion: The receipt was not shown to be a revenue receipt, and the question was answered in favour of the assessee.

Ratio Decidendi: The character of land or leasehold property must be determined from the specific facts relating to that asset, and a prior business in land dealings does not by itself make the asset stock-in-trade or turn its realization into a taxable trading receipt.

---