Adventure in the nature of trade requires trade characteristics, not just profit motive, for taxing settlement receipts

A receipt from settlement of a disputed property claim is taxable as business income only if the revenue proves the transaction has the essential characteristics of trade and amounts to an adventure in the nature of trade. A mere profit motive is insufficient, and the transaction must be shown to be a normal trading transaction or otherwise connected with business activity such as money-lending. On the facts noted, the revenue did not discharge that burden, so the receipt was not taxable as business income under the Indian Income-tax Act, 1922.

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Issues: Whether the amount received by the assessee on settlement of the disputed property claim was taxable as income as arising from an adventure in the nature of trade under section 10 of the Indian Income-tax Act, 1922.

Analysis: The receipt could be taxed only if the revenue established that the transaction was not merely motivated by profit but had the essential characteristics of trade and therefore fell within the expression "adventure in the nature of trade" in section 2(13) of the Indian Income-tax Act, 1922. A mere profit motive was held insufficient. The transaction in question consisted of acquisition and compromise of a disputed property claim, and the material did not show that it was a normal trading transaction or one entered into in the course of a money-lending business. The burden remained on the revenue to prove that the receipt was business income, and that burden was not discharged.

Conclusion: The receipt was not taxable as business income under section 10 of the Indian Income-tax Act, 1922, and the issue was answered in favour of the assessee.

Ratio Decidendi: A receipt is taxable as business income from an adventure in the nature of trade only where the revenue proves that the transaction has the essential features of trade; a mere profit-making motive does not suffice.

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