TMI Blog2005 (5) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... te Tribunal was legally justified in confirming the view of the learned Commissioner of Income-tax (Appeals) who held that the profits arising from the sale of land was not an adventure in the nature of trade and further in directing the Assessing Officer to treat the receipt of Rs. 21,30,175 during the year and the balance being receipts in the subsequent year as capital gains?" The brief facts of the case are that the assessee-applicant (hereinafter referred to as "the assessee") is a registered firm and was carrying on the business of cold storage and for the accounting period ending December, 1985 filed a return on July 31, 1987 declaring a net loss of Rs. 85,380. The assessee opted the mercantile method of accounting. The assessment was completed under section 143(3) of the Act computing the total income at Rs. 19,65,860 and during the relevant previous year, the assessee sold some land for a total consideration of Rs. 21,30,173. The sale consideration was shown under the head "Capital gains" and according to it in all the capital gains tax was attracted as the assessee purchased the capital gains units from the UTI and all conditions of the provisions of section 54E of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adventure in the nature of trade. Detailed finding has been recorded by the Commissioner of Income-tax (Appeals) vide paragraphs 6 and 6.3 the part of which will be dealt hereinafter. Consequently, the Assessing Officer was directed to treat the receipt of Rs. 21,30,173 during the year, the balance being received in the subsequent year as capital gains. However, the Assessing Officer was directed to verify the claim of exemption under section 54E of the Act to the effect that the entire sale proceeds has been invested in the capital units within a period of six months thereby there is no taxable amount of the capital gains. Aggrieved by the order of the Commissioner of Income-tax (Appeals), the Revenue filed an appeal before the Tribunal which was dismissed. The Tribunal confirmed the view of the Commissioner of Income-tax (Appeals). We have heard Sri R.K. Upadhyaya, learned standing counsel for the Revenue and Sri Rakesh Ranjan Agarwal, assisted by Sri Amitabh Agarwal, learned counsel for the assessee. Learned standing counsel submitted that the land was sold with the intent to earn profit in plots, therefore, the profit earned out of the sale of the land would amount to prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness and the land was sold as a whole by the assessee-firm to M/s. Agarwal Enterprises and not to the ultimate buyers of the plots. It was claimed that only to safeguard the interest regarding receipt of the sale consideration, the cheques/drafts were received in the name of the assessee and was sold for a fixed consideration irrespective of the ultimate amount received by M/s. Agarwal Enterprises from the purchaser of the plot. The sale deeds of the plots to the buyers of the plots as nominee of M/s. Agarwal Enterprises. The Commissioner of Income-tax (Appeals) has considered the agreement dated June 1, 1975 between the partners of the assessee and Dr. Laxmi Narain and others and held that from the perusal of the above agreement, it is clear that the partners of the appellant-firm agreed to sell the land as a whole to Dr. Laxmi Narain or their nominee subject to the execution of the sale deed within a period of nine years and as such another agreement was executed on March 11, 1985, viz., the assessee as first party, Dr. Laxmi Narain as second party and M/s. Agarwal Enterprises as third party. On a consideration of the said agreement, the Commissioner of Income-tax (Appeals) concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed into with the buyers of the plots as nominee of Agarwal Enterprises and the receipt of consideration by drafts/cheques were only to protect the interest of the appellant-firm. Thus, it is clearly a case of realisation of investment and cannot be termed as adventure in the nature of trade." The aforesaid finding of the Commissioner of Income-tax (Appeals) has been confirmed by the Tribunal and has not been challenged by the Revenue. The question is on the aforesaid facts whether in law the view taken by the Commissioner of Income-tax (Appeals) and the Tribunal is correct. In the case of CIT v. Kasturi Estates (P.) Ltd. reported in [1966] 62 ITR 578 the Madras High Court held as follows: "If a land-owner developed his land, expended money on it, laid roads, converted the land into house sites and with a view to get a better price for the land, eventually sold the plots for a consideration yielding a surplus, it could hardly be said that the transaction is anything more than a realisation of a capital investment or conversion of one form of assets into another. Obviously, the surplus in such a case will not be trading or business profit because the transaction is one of realisati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be stamped with the character of a trading venture: for instance, a man who purchases a large quantity of aeroplane linen and sells it in different lots, and, for the purpose of selling starts an advertising campaign, rents offices, engages an advertising manager, a linen expert and a staff of clerks, maintains account books normally used by a trader, and passes receipts and payments in connection with the linen through a separate banking account: Martin v. Lowry [1926] 11 Tax Cas. 297 (HL): a person who carries on a money-lending business purchases very cheaply a vast quantity of toilet paper and within a short time thereafter sells the whole consignment at a considerable profit: Rutledge v. Commissioners of Inland Revenue [1929] 14 Tax Cas. 490 (C. sess): and a person, even though he has no special knowledge of the trade in wines and spirits, purchases a large quantity of whiskey and sells it without taking delivery of it at a considerable profit : Commissioners of Inland Revenue v. Fraser [1942] 24 Tax Cas. 498 (C. sess) may be presumed, having regard to the nature of the commodity and extent of the transaction coupled with the other circumstances, to be carrying on an adven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade in nature. The assessee admittedly had purchased the property in the year 1967. The Revenue has not at all brought any circumstance or evidence on the record to show that at the time of the purchase of the property in the year 1967, the assessee had an intention to sell the property. Merely carving out plots in a portion of the land, without proof of anything more, cannot give rise to the conclusion that the transaction is an adventure in the nature of trade. Our attention was pointedly drawn by learned counsel for the Revenue to a Division Bench judgment of this court in Harbans Singh v. CIT [1981] 132 ITR 77. But that decision is of no assistance to the Revenue as the facts of that case are entirely different and on the facts found in that case, the view was rightly taken that it was an adventure in the nature of trade. There can be no gainsaying that even a single venture may be regarded as a trade or business, but there have to be circumstances which may give rise to such a conclusion. As earlier observed, in this case the Tribunal has fallen in error in holding the venture as a trade or business merely on the ground that 42 plots were carved out, out of which 7 were dispos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital gain. The Income-tax Officer was of the view that the assessee has undertaken an adventure in the nature of trade and assessed the income from business. The Tribunal, however, accepted the claim of the assessee. In the reference, this court held as follows (see [1992] 195 ITR 767, 768): "On these facts, the Tribunal concluded that no intention to embark upon an adventure in the nature of trade can be attributed to the assessee. This is essentially a finding of fact. It is true that finding of this nature is held to be a mixed question of fact and law. But, in this case, it appears to be essentially a question of fact. We have seen the order of the Income-tax Officer as well. Though he says that the assessee developed the land, he has not specified what precise development was undertaken by the assessee except preparing the lay out plan. It has not shown that the assessee had laid roads or provided any other amenities before selling the plots. In the circumstances, we are of the opinion that the finding of the Tribunal is a correct one and there are no grounds to interfere with the said findings." In the case of Raja Bahadur Kamakhya Narain Singh v. CIT reported in [1970] 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee with the intention to sell the property to earn profit by involving in several transactions of sale or to earn profit on its investment. In the present case, the Commissioner of Income-tax (Appeals) and the Tribunal found as a fact that the intent was to sell the property as a whole on a fixed amount. The land in question was used as a fixed asset of the firm and exploited for the business of the firm and was not treated as stock-in-trade. The land was brought in the books of the firm not with an intention to resell for profit. The land was agreed to be sold as a whole to M/s. Agarwal Enterprises, who was a colonizer and after development asked the assessee to transfer the plot of land to its nominee. Development expenses have been borne by M/s. Agarwal Enterprises. On these facts, the view of the Commissioner of Income-tax (Appeals) and the Tribunal cannot be held to be erroneous in concluding that the profit earned was not arising from the adventure in the nature of trade, but was in the nature of capital gain. For the reasons stated above, we answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue. However, there shall ..... X X X X Extracts X X X X X X X X Extracts X X X X
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