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TMI Blog1973 (5) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... 1959. He himself ran the hotel in that premises for a short time between April 23, 1959, and June 20, 1959. The said property was ultimately sold on December 17, 1959. The assessee constructed a house in 1952 at Swarnapuri in Salem at a cost of Rs. 24,000 and the same was ultimately sold in September, 1959. In December, 1959, the assessee purchased two blocks of houses in Sivaswamipuram Extension and sold the same some time later. It is in the previous year ending March 31, 1960, relevant to the assessment year 1960-61, that the assessee sold the Chinnakadai and Swarnapuri properties and realised a surplus of Rs. 16,097 over and above his cost price. The Income-tax Officer assessed the above sum as the assessee's income from his business in the purchase and sale of properties, after rejecting the contention of the assessee that the said sum represented capital gains. The assessee appealed to the Appellate Assistant Commissioner. It was contended before him that the property at Swarnapuri was constructed in the financial years 1951-52 and 1952-53 by obtaining a loan from the Government, that it has been sold after seven years, that the long lapse of time indicated that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment of the said sum as business income. The question that arises for consideration is as to whether the purchases and sales of the house properties by the assessee is only in the course of investment or whether they partake the character of business. In other words, it has to be considered as to whether the surplus realised in the assessment year by sale of house properties is a capital gain or whether it is a business income. It is urged by the assessee that unless it is shown that the house properties purchased and sold by the assessee are commercial assets, the sale proceeds of the same cannot be taken to be his business income and that the assessee is not at all a dealer in houses and house properties. It is said that he is running only a hotel business and that the purchase of houses were only in the nature of investment. In this case the profit has accrued from the sale of house properties. If the house properties sold are capital assets or capital investments, the profit accrued has to be taken as an accretion of capital, for the sale proceeds represent capital in another form. But, on the other hand, if the sale of the house properties is in the course of the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lcott (H. M. Inspector of Taxes) a builder obtained in 1927 the leasehold right of a site upon which he built a number of shops. These shops were sold at a profit in 1946 and 1948. The revenue assessed the surplus receipts as business income, rejecting the contention of the assessee that the sales in question were all realisations on investments, not being business assets. On appeal the Commissioners upheld the said assessment. The court held that the profits arose on the realisation of investments and as such were not assessable to income-tax after taking into consideration the following facts: The intention of the builder was not to treat the properties as trading stock, and that the purchase of the property was only as an investment. Commissioners of Inland Revenue v. Reinhold was a case where a director of a company carrying on business of warehousemen bought four houses in January, 1945, and sold them at a profit in December, 1957. He admitted that he had bought the properties with a view to resell and had instructed his agents to sell whenever a suitable opportunity arose. The revenue treated the profit resulting from the sale of the said houses as business income. It was con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the point the court felt that the following considerations are useful in arriving at a conclusion on the nature of the income: 1. The subject-matter of the realisation, 2. the length of the period of ownership, 3. the frequency or number of similar transactions by the same person, 4. supplementary work on or in connection with the property realised, 5. the circumstances that were responsible for the realisation, and 6. motive. While formulating the above guides as helpful, it was recognised that the question whether a particular transaction is an adventure in the nature of trade depends on its character and surrounding circumstances and no single criterion can be formulated and that the solution is left to the impression of one called upon to judge the character which is formed on the cumulative effect of all the facts and circumstances taken together and weighed. In G. Venkataswami Naidu & Co. v. Commissioner of Income-tax a managing agent of a certain mill purchased plots of land adjacent to the premises of the mills. While he was in possession he did not cultivate the plots or erect any superstructure in them but kept them unutilised except for the rent received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. But the Tribunal has held that the purchase and sale of houses form part of his whole business as his profits from hotel business have gone for the purchase of the properties. This view, of course, cannot be upheld, even on the basis that the houses had been purchased out of the undisclosed profits of his admitted business. Though the assessee's usual line of business is running coffee hotels, year after year he has been purchasing house properties and selling them later on at a profit. In the year of account he had sold two houses as mentioned above. It is also seen that the assessee purchased two blocks of houses in Sivaswamipuram Extension on October 21, 1959, and sold them in the subsequent year. Thus the assessee has been indulging in purchases and sales of houses more or less is a regular business activity. It is not a stray act of purchase or sale of houses with the only intention of investing his funds. Though the intention at the time of purchase of the houses is not the only factor to be considered, still it is one of the essential factors to be considered. The consistent and repeated activity of purchase and sale of house properties year after year shows that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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