TaxTMI 
TaxTMI 
1985 (6) TMI 19
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....November 20, 1952. There is no clear evidence to show as to what steps were taken by these vendee-decree holders for obtaining possession of the land after the final decree was passed in their favour. There were some proceedings under the Saurashtra Agricultural Debtors Relief Act, 1954, by the sellers which are not of much consequence in the present reference. It appears that out of the aforesaid land, a portion admeasuring 18,272 sq. yards was acquired by the Government for constructing staff quarters for the Western Railways. The assessee and Shri Pancholi received compensation for the acquisition of the said land from the Government. This compensation was sought to be taxed in the hands of the association of persons comprising of the assessee and Shri Pranlal Pancholi in the assessment year 1956-57. In the course of assessment, a question arose whether the surplus arising out of the compensation paid by the Government for acquisition of the said portion of land was taxable as business profit or capital gains. The question was ultimately determined by the Appellate Tribunal which by its order of October 4, 1969, held that the land purchased by the said association of persons was....
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....e, held that the surplus arising out of the compensation is taxable as capital gains and not as business income. The Appellate Assistant Commissioner worked out the cost of the land at Rs. 4.75 per sq. yard amounting to Rs. 43,681 for the two plots, and after deducting this amount from the compensation amount, the capital gains was worked out at Rs. 35,634. The Income-tax Officer was accordingly directed to tax this sum of Rs. 35,634. The Department, therefore, preferred an appeal before the Income-tax Appellate Tribunal which reversed the order of the Appellate Assistant Commissioner and held for the reasons stated in the order that the land which came to the share of the assessee continued to be stock-in-trade and, therefore, the surplus arising out of the acquisition of such land was taxable as business income of the assessee. It is in fact in this situation that the following question has been referred to us for our opinion under section 256(1) of the Income-tax Act, 1961 : " Whether the Tribunal was right in holding that the land in question was stock-in-trade of the assessee and, therefore, the surplus arising out of the compensation received by the assessee from the....
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....ks produced by him pertaining to the periods 1948 to 1965, and that he decided to join hands with Shri Pancholi with a view to do business. The inference that was drawn from the circumstantial as well as oral evidence was to the effect that the land was stock-in-trade of the association of persons. The Tribunal thereafter posed a question as to what is the effect of partition of this stock-in-trade. After posing this question, the Tribunal considered the contention urged on behalf of the assessee that on a division of the property between the members of the association, the property coming to the share of either of them was a capital asset, which did not find favour with the Tribunal. The reasons which prompted the Tribunal to reject this contention should be set out for their appreciation : " 10. ...We do not see any substance in this contention. The land was held as stock-in-trade by the association of persons of which the assessee was a member. As pointed out above, the assessee became a member of the association of persons only with the intention of dealing in land. He was himself a dealer in land. Therefore, the only inference which can be drawn is that the land which th....
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....ne to the question which has been rightly posed by the assessee (sic) was treated as stock-in-trade. The very fact that the assessee had retained these three plots of Division-A land with him till two of them were acquired by the Government in November/December, 1966, and the possession was taken over in 1969 clearly indicates that if the assessee had really intended to treat this as his stock-in-trade, he would have at least attempted to dispose of the third plot after the two plots were put under acquisition. The very fact which has been recorded by the Tribunal that the third plot was not disposed of goes to show that the intention of the assessee was not to treat this land as stock-in-trade. The two circumstances which have been emphasised by the Tribunal in the course of its decision which had arisen before the partition was effected cannot be said to be relevant for the purposes of determining as to what was the intention of the assessee qua this Division-A land, which came to his share, on the dissolution of his association. The evidence which could have clinched the issue as to whether the property which had been allotted to the assessee on the dissolution of the associatio....