CIT v. Calcutta Co Ltd
Rule established
A single transaction of purchase and sale of land can constitute an 'adventure in the nature of trade' taxable as business income, depending on intention at time of purchase.
Facts
- Calcutta Co Ltd purchased a large parcel of land
- The company subdivided the land into plots and sold them at a profit
- The company claimed the profit was a capital gain (not business income) as it was a one-time transaction
- The Revenue argued it was an adventure in the nature of trade
Issue
- Whether profit from a single transaction of purchase and resale of land constitutes business income (adventure in the nature of trade) or capital gains.
Held
- An "adventure in the nature of trade" falls within the definition of "business" even if it is a single isolated transaction
- The test is the intention at the time of purchase: if the intention was to resell at profit (not to hold as investment), it is business
- Surrounding circumstances are relevant: nature of commodity, manner of purchase, subsequent dealing, magnitude of transaction
- The company's actions (subdivision, plotting, active selling) indicated commercial intent from inception
Ratio Decidendi
Even a single, isolated transaction can constitute an "adventure in the nature of trade" and generate business income under S.28. The determinative factor is the intention of the assessee at the time of purchase. If the purchase was made with the dominant intention of resale at profit, the transaction is in the nature of trade regardless of frequency. The nature of the commodity, the manner of dealing, and the magnitude of the transaction are relevant circumstances.
How to use it in an exam
- Part A: "Even a single transaction can be business income if intention was profit on resale" (Calcutta Co).
- Part B: Use for distinguishing capital gains from business income, the concept of adventure in nature of trade, or when discussing S.2(13) definition of business.
- Key line: "The test is intention at the time of purchase, not the frequency of transactions."
Source
Source: Internal knowledge
This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.