Premium Received on Work For Sublease Land

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The assessee-company, Toy an agreement, took on sub-lease certain land on payment of premium and annual lease rent. Subsequently, it entered into agreements with two of its sister concerns, for giving on sub-lease some land out of the land taken earlier. It was also agreed between the parties that the assessee would undertake to lay out the adjoining roads and fill in and level the land to the road level without any extra charges. All these sub-lease deeds were not registered for certain reasons. Consequent upon these agreements the assessee-company received certain amount by way of premium from one concern in the year 1963 and another concern in the year 1967. However, since it had incurred expenditure on filling and levelling of the land, etc., the assessee-company offered the surplus for taxation as long-term capital gains in the relevant assessment years. The ITO held that as the transactions amounted to an adventure in the nature of trade, the surplus arising from the transactions was taxable as business income. On appeal, the AAC confirmed the ITO’s orders. On second appeal, the Tribunal, however, reversed the ITO’s orders on the ground that the assessee was not a dealer in lands and the two transactions of sub-leasing did not also amount to an adventure in the nature of trade. Hence, according to the Tribunal, the surplus was not taxable as its business income.

The issue involved before Hon’ble Court in case of Jolly Bros. (P.) Ltd 171ITR280 was

Whether, on the facts and in the circumstances of the case, the Tribu- nal was correct in holding that the assessee was neither carrying on any business in the purchase and sale of paintings nor was the transac- tion an adventure in the nature of trade and, therefore, the receipts
from the sale of paintings were of a casual and non-recurring nature, not arising from business, profession or vocation?”

BOMBAY High Court vide its order dt 8/27/1987 held as under :

The Tribunal found that the assessee-company’s business was not to buy and sell land, and one of its business activities was to promote companies. The assessee-company acquired certain rights over some land in terms of agreement, but the sub-lease deed was not executed and registered. Certain, portions out of this land were given on further sub-lease to its sister concerns. No doubt, the assessee-company incurred considerable expenditure in laying out the adjoining roads and in filling and levelling the land up to the road level. However, keeping in view the facts found such as the assessee was not a dealer in land, the nature of rights it acquired and the fact that the portions out of the land were sub-leased to its sister concerns only, it was difficult to find fault with the Tribunal’s finding. Accordingly, the excess amounts realised by the assessee-company was not its income from business.