INCOME-TAX OFFICER Vs. REMY PERFUMES (P ) LTD

JUDGEMENT

(1.) The appeal the Revenue and the cross objection by the assessee are directed against the order dated 31-7- 86 of the Commissioner of Income-tax (Appeals) Madras relating to the assessment year 1983-84. Since both these matters involved related questions they are considered together and disposed of by this common order.

(2.) The assessee is a company in which the public are not substantially interested and it carries on the business of manufacturing and selling perfumes. It owned property consisting of the factory building and a huge chunk of land attached thereto. During the year under consideration the assessee got the lay out of this land approved cut the trees, filled the low lying areas fixed the boundary stones provided the drainage facilities and sold this land as house sites. Treating the profit arising on the sale of this land as a long term capital gain the assessee in its return for the assessment year 1983-84 has claimed that the transaction in question does not involve any adventure in the nature of trade and the surplus money arising out of the sale of plots should be brought to tax only as capital gains. However the Income-tax Officer being of the opinion that the aforementioned activities carried on by the assessee would show that the sale of the land effect by the assessee was an adventure in the nature of trade had consequently subjected the income arising therefrom to tax treating the same as business income.

(3.) Aggrieved by this the assessee preferred appeal to the Commissioner of Income-tax (Appeals) Before the Commissioner (Appeals) it was contended on behalf of the assessee that the assessee with a view to get a better price for the lands has developed the same, prepared the lay out provided drainage facilities obtained sanction from the local authority and sold the same as house sites and there was no intention on its part to venture in any trading activity. In this view of the matter it is submitted that the transaction of the assessee did not amount to an adventure in the nature of trade and consequently the Income-tax Officer is not justified in subjecting the surplus amount to tax under the head Business income. The Commissioner (Appeals) accepted the contention of the assessee and reached the conclusion that in the absence of a regular business in lands and house sites it cannot be said that the assessee derived this income from business. He, therefore, directed the Income-tax Officer to accept the assessees claim and to treat the profit as the assessees long term capital gains.