Sharma J (delivering oral judgment):

This is a case stated by the Special Commissioners and the only question involved in this appeal is whether the appellants were holding their immovable properties as investments or were trading and/or carrying on a business of purchase and sale of lands they had acquired. Profits derived from the purchase and resale of property are not, per se, subject to income tax. While the Act does not specifically exempt capital gains or otherwise exclude such gains from income, the Courts have held that the mere realisation of capital appreciation is not income under the ordinary concepts and usages of mankind. However, the Act (i.e. the Income Tax Act) does require that taxable income shall include:-

(1)profit arising from the sale by the taxpayer of any property acquired by him for the purpose of profit making by sale; or

(2)profit arising from the carrying on or carrying out of any profit making undertaking or scheme.

Most of the cases which have been decided on the subject have involved the application of the first of the above requirements. In determining the application of these requirements the focal point of enquiry is the dominant purp