Pathak, J. - (1.) TWO questions have been referred by the Income-tax Appellate Tribunal under Section 66(1) of the Indian Income-tax Act, 1922. They are: " 1. Whether, on the facts and circumstances of the case, it could be held that the assessment made under Section 34(1)(a) of the Indian Income-tax Act, 1922, was valid ? 2. Whether, on the facts and circumstances of the case, it could be held that the surplus on the sale of land arose out of an adventure in the nature of trade and as such was rightly brought to tax ? "
(2.) THE reference relates to the assessment year 1954-55, the relevant previous year being the financial year ending March 31, 1954. THE assessee has been assessed in the status of an association of persons. On August 19, 1946, four persons, Baijnath, Hari Shanker, Panna Lal and Ratan Lal, jointly purchased a plot of land measuring 33,226 square yards from one L. C. Jain for Rs. 1,50,000 in the joint names of Baijnath and Hari Shanker. The four purchasers contributed almost equally towards the purchase money. Thereafter, the plot of land was divided into about 95 plots of different sizes. The plots were sold by auction on two occasions, one in 1947, and again in 1950, and were sold to different parties resulting in a surplus being realised over the purchase price. The sale deeds were registered on various dates between 1947 and 1957, the first sale deed being registered on October 6, 1947. It may be mentioned at this stage that in the year 1952, Ratan Lal died and his place in the group of joint purchasers was taken by his son, L. C. Jain.
(3.) FOR the assessment year 1948-49, the Income-tax Officer taxed the surplus of Rs. 71,155 under the head " capital gains ". But, subsequently, proceedings were initiated under Section 34 of the Indian Income-tax Act for bringing to tax that surplus as business income. Proceedings were also initiated under Section 34(1)(a) for the assessment years 1949-50 to 1951-52. These assessment proceedings were challenged by two writ petitions in this court, in respect of the assessment year 1948-49, on the ground that the service of the notice under Section 34 was not valid and in respect of the remaining assessment years on the ground that the proceedings under Section 34(1)(a) were invalid. The pleas found favour with Manchanda J. who heard the writ petitions, and the proceedings were quashed and the Income-tax Officer was prohibited from continuing those proceedings. The Income-tax Officer, therefore, dropped the proceedings for the assessment years 1948-49 to 1951-52. For the assessment year 1954-55, with which we are concerned here, the Income-tax Officer issued a notice under Section 34(1) on January 17, 1958. The assessee attempted to show that the surplus arising during the year from the sale of the plots was not taxable as its business income. The Income-tax Officer did not agree, and on November 30, 1952, made an assessment order treating the surplus as the assessee's taxable income. On appeal by the assessee, the Appellate Assistant Commissioner took the same view. The assessee proceeded in second appeal, and the Income-tax Appellate Tribunal has dismissed that appeal. And now this reference has been made at the instance of the assessee.;