When land is purchased in different lots and developed as a single unit, the capital gains should be computed on the basis of transactions spread over the entire period of development, rather than on the basis of transactions occurring in each assessment year.

( 1 ) AT the instance of the department, the Income-tax Appellate Tribunal, Allahabad Bench, has referred the following question for the opinion of this court:

"whether, on the facts and in the circumstances of the case, the capital gains ought to have been computed on the basis of transactions spread over a period of 27 years in question or on the basis of transactions occurring in each assessment year ?"

( 2 ) THE assessee is an HUF. It was following two different accounting years, i. e. , the calendar year for business and the financial year for property. The proceedings relate to the assessment year 1969-70. The dispute relates only to the capital gains in respect of sale of land at Amritsar.

( 3 ) THE assessee purchased land measuring 28,278 square yards during the period 1942-1947 for a sum of Rs. 1,66,273. A sum of Rs. 81,000 was spent on improvement raising the total cost of land to Rs. 2,47,723. The assessee showed a capital gain of Rs. 30 only in the return of income for the assessment year in question. The ITO, while determining the capital gains, took into account only the sale of plots measuring 5,673 square yards for Rs. 1,05,700 during the previous year relevant to the assessment year and after working out the proportionate cost held that there was a capital gain of Rs. 55,670. On appeal by the assessee, the AAC came to the conclusion that the capital gain computed by the ITO could not be sustained. The department went up in appeal to the Tribunal. The Tribunal upheld the decision of the AAC principally on the reasoning that the land purchased during the period 1942 to 1947 was developed as a single unit; that the assessee sold plots spread over a long period and still retained a considerable parcel of the land. The Tribunal also took into account the fact that in earlier years the assessees stand that loss or gain on the sale of the property would be considered when the entire plots of land were sold had been impliedly accepted by the department. In the opinion of the Tribunal, the principle adopted by the ITO by working out the cost of the land per square yard and determining the profits after adjusting it against the sale of each plot was unwarranted.

( 4 ) IN the present case although land was purchased in different lots during the period 1942 to 1947 the entire land was combined into one unit and developed as such under one scheme. The expenses incurred on the development and layout of the plots was for the whole unit and no part of it could be appropriated to a particular plot. Unless the entire transaction of sale was complete, the profit or loss earned on the venture could not be correctly determined. This view finds support from the decision in K. H. Modys case [1940] 8 ITR 179 (Bom ). In that case also land purchased was developed and divided into building sites. Some plots were sold during the assessment year and some later on. The I. T. authorities determined the profit earned on the sale of plots during the assessment year in question. Beaumont C. J. observed (p. 185) :

"it is to be noted that the whole transaction is not yet complete, which distinguishes this case from the various other cases which have been cited in which there has been a purchase of property or goods and a subsequent sale and the courts held that the transaction amounted to carrying on business. But we are not referred to any case in which only a part of the property had been sold whilst the rest remained in the hands of the assessee and might result in a profit or might result in a loss. "

( 5 ) KANIA J. observed as follows (p. 186):

"the cases to which our attention has been drawn show that when there is a single venture, i. e. , a single transaction which is treated as having been entered into in the nature of trade, the question of assessing the profits arose when the venture came to an end, i. e. , when the goods purchased were all sold. It is admitted here that about three-fourths of the area originally purchased