A) ABSTRACT / HEADNOTE

The case Saroj Kumar Mazumdar v. Commissioner of Income Tax, West Bengal, Calcutta, decided by the Hon’ble Supreme Court of India, provides a critical interpretation of whether a solitary transaction involving the purchase and sale of land constitutes an “adventure in the nature of trade” under the Indian Income Tax Act, 1922. The judgment serves as a significant precedent on the fine line distinguishing capital investment from trading activity. The appellant, an engineer and businessman with varied interests, purchased a plot of land from the Hindusthan Co-operative Insurance Society Ltd. and later sold his rights therein to a third party, earning a substantial surplus. The primary legal question revolved around whether this surplus was taxable as business income or a capital gain.

A majority of the Court, through Justices N.H. Bhagwati and B.P. Sinha, held that since the transaction was an isolated instance not linked to the appellant’s ordinary course of business, the Income Tax Department failed to establish that it was undertaken with a dominant profit-making intention. Therefore, the surplus could not be treated as income under Section 10 of the Act. However, Justice J.L. Kapur dissented, emphasizing the Tribunal’s factual findings and the appellant’s financial incapacity to complete the transaction as indicators of a profit-motive.

This decision distinctly carves out the principle that not every isolated profitable transaction amounts to a trading venture, especially where capital appreciation and shifting circumstances trigger divestment.

Keywords: Income Tax, Adventure in the Nature of Trade, Capital Gain, Isolated Transaction, Real Estate

B) CASE DETAILS

i) Judgement Cause Title
Saroj Kumar Mazumdar v. Commissioner of Income Tax, West Bengal, Calcutta

ii) Case Number
Civil Appeal No. 347 of 1955

iii) Judgement Date
4 May 1959

iv) Court
Supreme Court of India

v) Quorum
Justices N.H. Bhagwati, B.P. Sinha, and J.L. Kapur

vi) Author
Majority Opinion by Justice B.P. Sinha; Dissent by Justice J.L. Kapur

vii) Citation
AIR 1959 SC 819; [1959] Supp. 1 S.C.R. 846

viii) Legal Provisions Involved
Section 2(4) and Section 10 of the Indian Income Tax Act, 1922

ix) Judgments Overruled by the Case
None

x) Case is Related to which Law Subjects
Income Tax Law, Commercial Law, Interpretation of Statutes

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The legal issue here deals with the characterization of a profit earned from a solitary transaction involving the sale of land. This transaction is placed under judicial scrutiny to determine whether it falls within the ambit of an “adventure in the nature of trade” under the Indian Income Tax Act, 1922. The appellant, Saroj Kumar Mazumdar, was not ordinarily engaged in real estate transactions but earned a profit upon selling his rights in a land agreement. The decision scrutinizes the legal doctrine governing single transactions and tests the sufficiency of factual elements necessary to establish the existence of a trade-like character. The ruling adds clarity to judicial interpretation, previously explored in cases like G. Venkataswami Naidu & Co. v. Commissioner of Income Tax, AIR 1959 SC 359.

D) FACTS OF THE CASE

In 1946, Saroj Kumar Mazumdar, an engineer and business professional, entered into an agreement with the Hindusthan Co-operative Insurance Society Ltd. to purchase a 45.56 katha plot of land for personal use, possibly for building a house or establishing a workshop. He paid Rs. 32,748 in two instalments, which constituted 25% of the total purchase price. However, the land remained under government requisition post-World War II and was not derequisitioned until 1949. Due to the slump in his construction business, the appellant sold his contractual rights over the land to Rani Yuddha Rajya Devi of Nepal in 1947 and earned a surplus of Rs. 74,000. The sale deed was formally executed in 1950. While the Income Tax Officer treated the profit as business income taxable under Section 10, the Appellate Assistant Commissioner held it to be a capital gain. The Appellate Tribunal later reversed this, prompting the appeal to the Supreme Court.

E) LEGAL ISSUES RAISED

i) Whether the isolated transaction of selling contractual rights in land amounted to an adventure in the nature of trade under Section 10 of the Indian Income Tax Act, 1922?

F) PETITIONER/ APPELLANT’S ARGUMENTS

i) The counsels for Petitioner / Appellant submitted that the transaction was a capital investment made with the bona fide intention of personal use. At the time of the agreement, the appellant had no business dealing in land. The profit derived from the resale was incidental and not a premeditated gain. They further argued that the Government’s delay in releasing the land and the decline in construction business forced the appellant to assign the agreement to mitigate potential losses. Thus, the transaction was not undertaken with a dominant profit-making motive but was a pragmatic business decision under changing circumstances. They relied on Commissioners of Inland Revenue v. Reinhold, 34 T.C. 389, which held that an isolated transaction not in the ordinary line of the assessee’s business does not qualify as a trading venture unless a profit-motive at inception is clearly established[1].

G) RESPONDENT’S ARGUMENTS

i) The counsels for Respondent submitted that the appellant lacked financial capacity to complete the purchase or construct any building, indicating no genuine intention of investment. The advance paid was borrowed, and the property yielded no income. The mere timing of resale and magnitude of gain implied a calculated effort to earn profits. The respondent relied heavily on the precedent of G. Venkataswami Naidu & Co. v. Commissioner of Income Tax, AIR 1959 SC 359, where even an isolated transaction was treated as a trading venture because of the commercial motive evidenced from conduct and factual matrix[2].

H) RELATED LEGAL PROVISIONS

i) Section 2(4), Indian Income Tax Act, 1922 – Defines “business” to include any trade, commerce or manufacture or any adventure or concern in the nature of trade.

ii) Section 10, Indian Income Tax Act, 1922 – Tax is levied on profits or gains of any business, profession or vocation carried on by the assessee during the previous year.

I) JUDGEMENT

a. RATIO DECIDENDI

i) The majority held that the solitary transaction did not constitute an adventure in the nature of trade. It was not in line with the appellant’s ordinary business. The Revenue failed to prove a dominant profit motive at the inception of the agreement. The appreciation in land value was due to external market factors and government delay, and not by the appellant’s trading activity. Thus, the gain was capital in nature, and not taxable under Section 10. The Court placed reliance on Leeming v. Jones, (1930) AC 415, where it was held that “an accretion to capital does not become income merely because the original capital was invested in the hope and expectation that it would rise in value”[3].

b. OBITER DICTA 

i) Justice Sinha observed that the thin line distinguishing trade from investment requires a case-by-case analysis. Even the intent to resell, absent commercial planning or integration into business activity, cannot automatically classify a transaction as trade.

c. GUIDELINES 

• A single transaction is not presumed to be a trade.

• The burden lies on the Department to prove dominant profit motive.

• The context, capacity, and contemporaneous circumstances must guide the classification.

• Absence of multiple transactions or systematic planning weakens the trade argument.

J) CONCLUSION & COMMENTS

The Supreme Court’s decision in Saroj Kumar Mazumdar reinforces the principle that intent and circumstances govern taxability, not merely the profit earned. The ruling aligns Indian jurisprudence with British precedents by refusing to extend commercial character to isolated, contextually motivated transactions. It protects genuine investors from arbitrary classification and taxation. The dissent by Justice Kapur reflects a strict construction of financial capacity and circumstantial speculation, but the majority correctly refrains from stretching business inference to every profitable deal.

K) REFERENCES

a. Important Cases Referred

[1] Commissioners of Inland Revenue v. Reinhold, 34 T.C. 389
[2] G. Venkataswami Naidu & Co. v. Commissioner of Income Tax, AIR 1959 SC 359
[3] Leeming v. Jones, (1930) AC 415
[4] Jones v. Leeming, (1930) AC 415, p. 423
[5] Californian Copper Syndicate v. Harris, 5 T.C. 159
[6] Martin v. Lowry, 11 T.C. 297
[7] Commissioners of Inland Revenue v. Livingston, 11 T.C. 538
[8] Rutledge v. CIR, 14 T.C. 490
[9] CIT v. Dhakeswari Cotton Mills, [1955] 1 SCR 941
[10] CIT v. Meenakshi Mills, [1956] SCR 691

b. Important Statutes Referred

• Section 2(4), Indian Income Tax Act, 1922 – Definition of business

• Section 10, Indian Income Tax Act, 1922 – Tax on business profits

• Article 136, Constitution of India – Special Leave jurisdiction of Supreme Court

• Section 66(1) & 66(2), Indian Income Tax Act, 1922 – Reference to High Court