Investment or Business: Sale of Old Building After Reconstructions

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The assessee constructed a multi-storeyed residential complex constructed on the plot of land where there was a single-storied house occupied by the assessee since 1973 . The A.O treated the income from sale as business income .When the matter reached the Tribunal held that the assessee did not enter into any adventure in the nature of trade and allowed the claim of the assessee and admitted the chargeability of the assessee’s income to capital gains and allowability for exemption under section 54E.

The issue involved before Hon’ble Court in case of B.K. Bhaumik 245ITR614 was

Whether the Income-tax Appellate Tribunal was justified in holding that the assessee did not enter into any adventure in the nature of trade and thereafter allowing the claim of the assessee and chargeability of the assessee’s income to capital gain and allowability for exemption under section 54E of the Income-tax Act ?

DELHI High Court vide its order dt 7/15/1999 held as under :

Though it is true that the question whether profit in a transaction has arisen out of adventure in the nature of trade is a mixed question of law and fact, it is equally well-settled that the expression ‘adventure in the nature of trade’ postulates the existence of certain elements in the adventure, which in law would invest it with the character of trade or business. Further, the question whether the transaction is an adventure in the nature of trade has necessarily to be determined in the light of the cumulative effect of the entire set of facts to be gathered from the relevant material brought on record.

While holding that the transaction did not constitute an adventure in the nature of trade, the Tribunal had observed that the entire exercise undertaken by the assessee was for realisation of a capital asset; the intention at the time of purchase of the house; his contemporaneous conduct and the circumstances peculiar to the assessee’s case left no room for doubt that the transaction resulted only in capital gains. These facts, found by the Tribunal, were not sought to be challenged by the revenue in the proposed question.

It was, therefore, to be held that the question proposed was not one of law fit for reference to the Court. Accordingly, the petition was to be dismissed.