TMI Blog2019 (9) TMI 807X X X X Extracts X X X X X X X X Extracts X X X X ..... The profit arising on sale is nearly 30 times of investment in a period of 3-4 years owing to such concerted and planned action. Thus, when functional test is applied, the transaction of purchase and sale of land has been rightly regarded as business activity by the AO. The issue is essentially factual and is governed by the facts of each case. Judicial utterances made in the setting of the facts of a case would thus not supply unless it is shown that facts are identical. We are thus not required to delineate the nicety of law de hors the facts of such case. The reliance placed by the assessee on judicial precedents before the CIT(A) as well as before us are rendered in the fact situation which are substantially different. Thus, no abstract principle can be applied in the present facts. On the contrary, the fact situation is closure to the facts in Raja J. Rameshwar Rao [ 1961 (3) TMI 4 - SUPREME COURT] and therefore the issue is required to determine in parity therewith. We thus find that the CIT(A) has rightly endorsed the action of the AO. We find no reason to interfere with the conclusion drawn by the CIT(A). - Decided against assessee. - I.T.A. No. 361/Ahd/2019 - - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchased by the assessee alongwith other co-owners during FY 2011-12 through five different sale deeds, all falling in old Revenue No. 1724/2 sim of Panchot Village, Mehsana. The land so purchased had been merged with new Revenue Survey No. 1719 and sold to the purchaser namely M/s. Avenue Super Market Ltd. It was observed that the assessee has purchased the five different land parcels between 16.09.2011 to 30.10.2012. The AO tabulated the transaction details and observed that the assessee alongwith other co-holders got the lay out plan approved from the competent authority initially for plotting of land and subsequently to build residential blocks with small business centre and finally residential blocks with commercial units. The lay out plans were signed by the assessee and other co-holders and the application for change of land user was signed by Narendra Patel on behalf of all the co-holders of new RS No. 1719. It was noted by the AO that sequential action such as purchase of adjoining lands and merger of the land into new RS No., getting lay out plan approved and making application for frequent change in land use indicated the underlying intention of the assessee to do busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal gains and also denied the deductions and benefits available to capital gains. 4. Aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A) took note of various submissions made by the assessee but however did not find any merit in the case of the assessee. The relevant operative para of the order of the CIT(A) is reproduced hereunder: I have considered the facts of the case, perused the assessment order and the written submissions made by the appellant. The facts of the case are summarized as under:- 1) The appellant has declared short term capital gain of ₹ 1,36,21,351/- in the return of income which has arisen out of sale of the land at Revenue Survey No.1.719 Sim of Panchot, Mehsana which was sold on 27.11.2014 through sale deed No.MSN/10750/2014 for the total sale consideration of ₹ 12,30,49,800/- in which the appellant had share of 25%. The said land has been purchased by the co-owners during the FY 201112 through five different sale deeds, all falling in old revenue No.1724/2 of Sim of Panchot village, Mehsana. The land so purchased had been merged with new revenue Survey No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the written submissions. The appellant has also contended that he did not enter into frequent sale and purchase of lands in the past and this was the only single land transaction sold to one party, the appellant did not carry out any activity of land development on the said land by way of earth filling, construction of boundary wall, etc. , the asset was not shown as stock in trade in the books of accounts of the appellant, the business of the appellant Is only of finance, no series of transactions so as to constitute a business activity, etc. 5) The appellant has relied on the decision of HonlDle ITAT, Ahmedabad in the case of Shri Ajitkumar T. Patel Vs. DCIT for A.Y.2008-09 in ITA N0.826/AHD/2010, Deepchand Co. Vs. CTT(107-ITR-716(Allahabad High Court, CIT Vs. Rewashanker A. Kothari (2006) 155 Taxmann 214 (Gujarat High Court, JankiRam Bahadur Ram(1965) 57 ITR 21 (Supreme Court) which all have been reproduced in the case of Shri Ajitkumar T. Patel(Supra). On the strength of the contentions with judicial citations, the appellant stated that the transaction of purchase and sale of land should not be considered as adventure in the nature of business and the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e books of account and balance sheet as an investment. This inquiry, though relevant, is not conclusive. (d) The fourth test is as to how the assessee himself has returned the income from such activities and how the Department has dealt with the same in the course of preceding and succeeding assessments. This factor, though not conclusive, can afford good and cogent evidence to judge the nature of transaction and would be a relevant circumstance to be considered in the absence of any satisfactory explanation. (e) The fifth test, normally applied in cases of partnership firms and companies, is whether the deed of partnership or the memorandum of association, as the case may be, authorises such an activity. (f) The last but not the least, rather the most important test, is as to the volume, frequency, continuity and regularity of transactions of purchase and sale of the goods concerned. In a case where there is repetition and continuity, coupled with the magnitude of the transaction, bearing reasonable proportion to the strength of holding, then an inference can readily be drawn that the activity is in the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction. e) These two plots of land were sold on 23.08.2007 to one Urbanedged Hotels Pvt. Ltd. after retaining the said plots of land for about 2 years and sold. f) The A.O. observed that investment in the purchase of plots from own funds did not have any bearing on carrying out of business or investment, the applicant took further steps for conversion of land into N.A. (commercial purposes), payment of WT did not have any bearing on investment, single transaction can also be treated as business transaction, and the intention of the applicant was to earn the profit by selling the developed lands etc. g) The Hon'ble Tribunal decided the issue in favour of the applicant with the following observations:- 11. In the light of the detailed foregoing discussion and on consideration of the evidences placed on record as well as in view of the legal propositions laid down by the Hon file Courts, we hereby hold that the asset in question was not purchased with the object to enter into the trade of landdealing; because after this transaction or before this transaction there was no evidence of any such activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng with other co-owners got this land approved for residential purposes for which the first plan was approved on 05.08.2013 and the revised plan on 06.02.2014 for converting the land for residential and small business centre and lastly on 15.09.2014 for converting the entire plot of land for commercial purpose only. The application for transfer of agricultural land to commercial purpose land (NA land) was made on 17.07.2007 and conversion fees and other charges were paid by the applicant. 3. No such deduction has been made as the land was not falling in any of the Urban Development Authority. Final order was passed by the AUDA after deduction of 20% and 40% as per order dated 24.07.2007 and there was some commercial loss in terms of land area on account of deduction. 4. The said lands were held for the period commencing from 16.09.2011 in respect of first three plots (from 30.12.2012 to 11.09,2014) which is less than 3 years and 22 months in respect of other two plots. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmovable Property in India) Regulations, 2000. The Assessing Officer thus held that the transaction was 'Adventure in the nature of Trade' and accordingly brought to tax income in question under the head 'income from business'. The Tribunal upheld the order of Assessing Officer: HELD The question of law arising in this appeal is whether the sale consideration was liable to be treated as business income of the assessee under section 28 or whether being the sale of an agricultural land, he was entitled to be exempted from capital gains tax under section 45. [Para 5] It is an undisputed fact that the assessee had purchased agricultural land on 16-8-2006 while he was still a nonresident Indian and thereafter he did not do any agricultural operations on that land. After retaining it for about two years, he sold it to T, In the meanwhile, he had also leveled the land. Admittedly, he did not obtain the permission of the RBI under rule 47 of the Foreign Exchange Management (Acquisition Transfer of Immovable Property in India) Regulations, 2000, which prohibits acquisition of agricultural land by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Immovable Property in India) Regulation, 2000. The assessing officer held that the transaction was Adventure in the nature of Trade and accordingly brought to tax the property under the head income from business and determined the total income of the appellant at ₹ 56,19,593/- apart from the agricultural income return of ₹ 28,17,500/- as per Annexure A. Aggrieved by the order, the appellant filed JTA No.345/10-11 before the Commissioner of Income Tax(Appeals)-I, Kochi, who confirmed the assessment and dismissed the appeal as per Annexure B. The appellant challenged the said order before the Income Tax Appellate Tribunal, Kochi Bench as ITA 484/Coch/2013 and it was once again confirmed that the land in question was indisputably not an agricultural land, as per Annexure C. It is this finding, which is under challenge. 3. We heard the learned counsel for the appellant and the counsel appearing for Government of India (Taxes) and records were perused. 4. It is submitted by the learned counsel for the Appellant that there is no capital gains accrued, as defined under Section 45 of the Income Tax Act. The appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng shelter of section 2(14) read with section 45. b) The Assessing officer observed that (i) the land was not purchased with any intention to hold it for capital accretion, enjoyment and own use but were purchased with the sole motive of earning huge profits on immediate sale thereof as a trading asset, (ii) Major portion of these agricultural lands were not useful for cultivation (Hi) Occupation of assessee was not primarily of an agriculturist (iv) Land was acquired out of borrowed funds. Thus, the Assessing Officer concluded that entire activity of purchase and immediate sale of land by the assesses falls within the domain of 'adventure in nature of trade'. He accordingly treated the profit relatable to assessee arising on sale of land as 'business income' under sect/on 28(i) read with section 2(13). c) On appeal, the Commissioner (Appeals) held that the intention of the assessee was never to purchase the aforesaid lands with a view to cultivate the same. Hence, she confirmed the action of the Assessing Officer in holding that activities carried out by the assessee towards purchase and sale of impugned land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quence of events in the impugned transaction lends credence to the impression of an adventure in the nature of trade referred to in section 2(13) and, therefore, it is akin to 'business' giving rise to its taxability under section 28. [Para 7.1] c) The question of determination of other issues namely whether the land is agricultural land and if so whether the impugned land is outside the definition of 'capital asset' to claim exempt/on from applicability of section 45 will arise only if the impugned transaction do not bear the trappings of adventure in the nature of trade or commerce etc. Thus, in the context of case in hand, first and foremost controversy that calls for adjudication is whether the impugned transaction is a business transaction or a capital transaction. [Para 7.2] d) In this context, it is noted that there is a qualitative difference between profits arising from sale of capital assets and that of trading assets. Section 2(13) defining 'business' and section 2(14) defining capital assets operates in mutual exclusion. To put it differently, capital assets and trading assets or stockin-trade are treated dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y way of additional evidence. However, there is nothing on record to justify the circumstances which prevented the assessee to produce the impugned agreement before revenue authorities. No perceptible reasons have been assigned. Notwithstanding, purported agreement for sale of other agricultural land was not acted upon at all. No advance was received against such purported agreement either. The entire explanation for initial intention to return borrowed money which failed is thus bald and unverifiable. It also does not coincide with a normal behavior of a person of ordinary prudence. The entire explanation based on a dumb document not acted upon, thus, has no rational probative value of the purported intention to return friendly borrowals. Whether the value of existing land recorded in the purported agreement was capable of matching the borrowals is also not available on record. The relevant financial data proving the financial capacity of the assessee is not available to justify the stand. Mere averments of generic nature based on some documents which were neither verified by the revenue nor acted upon in any manner cannot be taken as source of explanation for transaction of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demand draft unlike cheque transactions. Reasons for friendly loan given by way of a demand draft without any discernible emergency is best known to the parties involved. The governing factors in the form of purchase financed entirely by the ultimate buyer and consequent transfer of land to the ultimate buyer almost immediately on its acquisition cannot be simply brushed aside. Clearly, the assessee was interested in exploiting commercial opportunity for quick gains in a very short time horizon. The attendant facts also points out that the purchase of land was far beyond the earning capacity of the assessee and, thus, claim of the assessee that the land was intended for personal use and its exploitation and for appreciation with efflux of time is utterly improbable and thus is devoid of merits. A combined reading of all connected facts warrant for an inescapable conclusion that the motive for purchase itself was for embarking in an adventure in the nature of trade. [Para 7.5] f) It is also noted that the other contentions of the assessee were that the assessee owns other tract of agricultural land apart from the impugned land and is holding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction the tests or parameters laid down by judicial precedents provides sound basis to infer the intention of commercial gain in the impugned transaction. [Para 7.9] j) Having regard to the totality of facts and circumstances, it is to be held that the impugned land was purchased with an intent/on to sell the same to the identified buyers to achieve commercial objectives outright. As noted earlier, section 2(13) seek to explain the term of 'business' by way of inclusive definition. As per section 2(13) expression 'business' include not only trade or commerce, etc. but definition further extends to encompass within its ambit an 'adventure in the nature of trade'. The entire gamut of action of the assessee in engaging in such big ticket land purchase without employing any fund of his own and almost immediate resale thereof clearly demonstrates the implicit intention of the assessee that the transaction entered was nothing but an 'adventure in the nature of trade' i.e. a business transaction under extended definition of section 2(13). Consequently, profits arising therefrom acquires the character of 'business in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irement of purchaser and the appellant was not concerned with such act whatsoever except for deal to sail through. It was further pointed out that the sale proceeds of the said plot were not utilized for acquiring another land which is a normal course in the case of a trader. It was thus submitted that merely because the property was sold at a high profit would not give rise to any presumption towards an adventure in the nature of trade. The learned AR for the assessee relied upon the decision of the co-ordinate bench in Ram Saroop Saini HUF vs. ACIT ITA No. 1409/Del/2005 order dated 27th May, 2007 to contend that where a portion of agricultural land was converted into NA land and thereafter sold, the surplus arising therefrom should not be regarded as business activity . The learned AR assailed the action of the lower authorities and submitted that such action of the Revenue was guided by consideration of Revenue alone to gather unlawful taxes from the assessee. The learned AR accordingly urged for reversal of the action of the lower authorities and restoration of claim of the assessee for taxability of surplus arising from sale under the head capital gains . 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity of plot, such as, earth filling, construction of boundary wall etc. The land parcels were not treated as trading asset in the books. The primary business of the assessee is finance only and the assessee had acquired the land with the only motive to fetch capital appreciation. Some parcels of the land in question being an agricultural land at the time of purchase faced legal restriction of sale (only to agriculturists) and therefore, the lands were converted into NA land as per the prescribed procedure. The converted land was sold in FY 2014-15. Thus, a solitary transaction giving rise to surplus was rightly offered under the head capital gains in the circumstances of the case. 8.2 The Revenue, on the other hand, contends that the transaction of purchase and sale of land parcels is an adventure in the nature of trade as defined in Section 2(13) of the Act and consequently, the profits arising on sale of land is required to be taxed under s.28 of the Act. The pre-dominant contention of the Revenue is that the assessee has indulged in not merely purchase and sale of land but has undertaken measured steps in tandem to significantly improve th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ential events give rise to an infallible impression that the driving force for purchase of land was to exploit it commercially. The series of action taken by the assessee one after another does not bear out the contention of the assessee that the land was purchased with an idea to enjoy accretion to capital and the purchase transactions were meant for maximization of wealth. While it is the case of the assessee that the land parcels were held as capital asset prior to sale, such contention appears to be shallow. It is an admitted position that the land parcels were not subjected to wealth tax as applicable to capital assets. Coupled with this, we also fail to see anything on record to suggest the use of the land for agricultural purpose or for any purpose to enable the assessee to generate any regular yield altogether thereon. The absence of any yield also gives an impression that assessee never intended to exploit the land for its own use or enjoyment. The concerted and measured action of the assessee as noted above underscores the overriding motive of the assessee to maximize the profit with systematic action. It is thus tough to debunk the perception that the lands were purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be pertinent to notice here the purport and intent of Section 2(13) of the Act which defines the expression business in an inclusive manner. The expression business as defined in Section 2(13) of the Act does not merely include any trade, commerce or manufacture but is elastic and wider to include the adjunct adventure in the nature of trade, commerce etc. Thus, the legislature has made a conscious inclusion to expand the scope of business to include certain actions akin to business in addition to normal business. The activity of the assessee herein has engaged the time, attention and the labour of the assessee apart from money. The profit arising on sale is nearly 30 times of investment in a period of 3-4 years owing to such concerted and planned action. Thus, when functional test is applied, the transaction of purchase and sale of land has been rightly regarded as business activity by the AO. 8.7 As observed earlier, the issue is essentially factual and is governed by the facts of each case. Judicial utterances made in the setting of the facts of a case would thus not supply unless it is shown that facts are identical. We are thus not required to deli ..... X X X X Extracts X X X X X X X X Extracts X X X X
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