Meaning of “Adventure in the nature of trade”

The meaning of adventure in the nature of trade under section 2(13) of the Income Tax Act is not defined in the act itself. But we can take guidance from decisions by various high courts. Here are excerpts of courts orders in which the Hon’ble High Court tried to explain the meaning of adventure in the nature of trade.

Meaning of adventure in the nature of trade defined by court

The phrase ‘adventure in the nature of trade’ used in section 2(13) of the Income Tax Act came up before various high courts as detailed under :

1. Hon’ble Supreme court explained the meaning of ‘adventure in the nature of trade’ while delivering judgment in G. Venkataswami naidu & co. Vs. CIT [1959] 35 ITR 594 (SC) as under :

Meaning :  The expression ‘in the nature of trade’ appearing in the definition of ‘business’ in section 2(4) of the 1922 act [corresponding to section 2(13) of the 1961 act] postulates the existence of certain elements in the adventure which in law would invest it with the character of trade or business.

2. Hon’ble Bombay high court explained the meaning of ‘adventure in the nature of trade’ while delivering judgment in Estate investment co. Ltd. V. CIT [1980] 121 ITR 580 (Bom.) as under :

Meaning: When section 2(4) of the 1922 act [corresponding to section 2(13) of the 1961 act] refers to an adventure in the nature of trade, it clearly suggests that the transaction cannot properly be regarded as trade or business. It is allied to transactions that constitute trade or business but may not be trade or business itself. It is characterised by some of the essential features that make up trade or business but not by all of them; and so, even an isolated transaction can satisfy the description of an adventure in the nature of trade.

Section 2(13) of the Income Tax Act

2. (13) “business” includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture;

In this article, you can get guidance from high courts on the meaning of adventure in the nature of trade under section 2(13) of the Income Tax Act.

Updated up to Finance Act 2021