Supreme Court Upholds Assessee in Income Tax Adventure in Nature of Trade Case — Profit from Isolated Purchase and Sale of Jute Press Not Taxable Under Section 10 of Indian Income-tax Act, 1922. Isolated Transaction Unrelated to Assessee's Iron Scrap and Hardware Business Could Not Be Inferred as Trading Venture Despite Profit Motive and Favorable Resale.

Income-tax reference under Section 66(1) of the Indian Income-tax Act, 1922, regarding taxability of profit from the sale of a jute press as an adventure in the nature of trade.

Appellant assessee sought reversal of the High Court's affirmative answer to the referred question and a declaration that the surplus from the sale of the jute press was not taxable under Section 10 of the Indian Income-tax Act, 1922.

The Income-tax Officer brought to tax a profit of Rs. 2,24,864 arising from the sale of the jute press to Ranada Prasad Saha as business income under Section 10; the Appellate Tribunal partly modified the assessment, reducing total income by Rs. 7,000, and referred the question of law to the High Court; the High Court answered in the affirmative, leading to the present appeal by special leave.

The Income-tax Officer taxed the profit; the Appellate Tribunal partially modified the order, reducing the total income by Rs. 7,000, and referred the question to the Calcutta High Court; the High Court answered the question in the affirmative, holding that the surplus arose out of an adventure in the nature of trade.

Whether the surplus received by the assessee from the sale of the jute press arose out of an adventure in the nature of trade and was rightly assessed to tax under Section 10 of the Indian Income-tax Act, 1922. Whether an isolated transaction of purchase and sale of land or factory premises, unrelated to the assessee's normal business, can be treated as a trading venture solely on the basis of profit motive and immediate resale.

Assessee argued that the purchase and sale was an isolated transaction unrelated to its business of dealing in iron scrap and hardware; it never carried on jute pressing business; profit motive alone was not decisive, and the surplus was a capital accretion not taxable as income under Section 10. Revenue contended that the circumstances—purchase of the jute press subject to litigation, immediate acceptance of an offer to sell, absence of genuine attempt to run the press, and the profit realized—indicated that the sole object was to resell at a profit, making the transaction an adventure in the nature of trade.

A transaction of purchase and sale of property is not an adventure in the nature of trade unless it is related to the assessee's normal business or bears the stamp of a trading venture. Profit motive in entering a transaction is not decisive; an accretion to capital does not become taxable income merely because an asset was acquired with the expectation of resale at profit. The burden lies on the revenue to establish that the profit falls within the taxing provision. An isolated transaction, unrelated to the assessee's business, without more, cannot be inferred as a trading venture merely from the fact of purchase and profitable resale.

A profit motive in entering a transaction is not decisive, for, an accretion to capital does not become taxable income, merely because an asset was acquired in the expectation that it may be sold at profit. Purchase of the property by the appellant was an isolated transaction not related to the business of the appellant. Granting that the assessee made a profitable bargain when he purchased the property and granting further that the assessee had, when he purchased it, a desire to sell the property, if a favourable offer was forthcoming, these could not without other circumstances, justify an inference that the assessee intended by purchasing the property to start a venture in the nature of trade.

The Income-tax Officer, District II(1), Calcutta, assessed the profit from the sale of the jute press as business income. The Income-tax Appellate Tribunal partially modified the assessment, reducing the total income by Rs. 7,000, and at the instance of the assessee referred the question of law to the High Court of Judicature at Calcutta under Section 66(1) of the Indian Income-tax Act, 1922. The High Court answered the question in the affirmative, holding that the surplus arose from an adventure in the nature of trade. The assessee then appealed to the Supreme Court by special leave, which was granted.

• Indian Income-tax Act, 1922: 2(4), 10, 66(1)