TMI Blog2004 (10) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee by making adjustments in the books of account. There was no conveyance deed executed or registered. Therefore, the Assessing Officer felt that the bigger HUF continued the owner of the land and the capital gains admitted by the assessee, was properly assessable in the hands of the bigger HUF. However, since the assessee admitted the capital gains, the same was included as a protective measure. The Commissioner of Income-tax felt that the said assessment as framed is erroneous and prejudicial to the interests of the Revenue and, therefore, proposed to revise the said assessment by issuing a show-cause notice to the assessee. According to the Commissioner of Income-tax, the Assessing Officer did not consider whether the gain on the sale of 7 plots have to be brought to tax under the head "Business income" or under "Capital gains". According to the Commissioner of Income-tax the assessee after purchasing of the land on 2-4-1984 from the bigger HUF, applied for conversion of the land and got the layout approved by the municipality of Adoni. So it is evident that the intention of the assessee in buying the land from the bigger HUF of which he is the kartha, was only to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade. Hence directed the Assessing Officer to compute the income under the head "Business" after ascertaining the profits in this adventure. 3. Questioning the said order, the assessee is in appeal. The learned counsel for the assessee strongly contended that the view taken by the Commissioner of Income-tax was clearly in error. It was contended that the land in question was purchased by the bigger HUF in the year 1971. If the assessee wants to convert the land into plots and sell the same to make profit, the assessee would have done it, keeping the land in the name of the HUF itself. However, otherwise also it was contended that the land was purchased in the year 1984 and the conversion of the land into plots and finally the sale of 7 plots out of 25 plots was effected only in the year 1988. If the assessee had taken this as a business venture, he would have taken steps to complete the conversion of the land into plots and would have sold within a short span of one or two year. But that was not the case here. The learned counsel for the assessee strongly contended that the purchase of the land from the bigger HUF was with an intention of setting up of an Oil Mill. But the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter obtaining the approval the assessee started selling the plots. Therefore, the transaction should be considered only as an adventure in the nature of trade and nothing else. The learned Departmental Representative contended that the Commissioner of Income-tax has considered the entire material on record showing that when the land was got converted and when the approval was obtained and based on those facts he has arrived at a finding that the transaction was one of the adventure in the nature of trade. Therefore, there is absolutely no merit in the assessee's contentions. The learned Departmental Representative relied upon the following decisions: 1. Smt. Indramani Bai v. Addl. CIT [1993] 200 ITR 594 (SC) and 2. Hemachand Hirachand Shah v. CIT [1994] 206 ITR 55 (Guj.). 5. We have heard the rival submissions and considered the material on record. The simple dispute in this case is whether the purchase of the land and sale of a few plots after converting it into plots, amounts to adventure in the nature of trade and the gains arising therefrom have to be assessed as such. Though the assessee declared the gains in the transaction under the head "Capital gains". The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s". 6. The above finding is now contested before us. The contention of the assessee was that if the assessee's intention was to plot out the land and make profits by selling the same, he would have done it without purchasing the land from the HUF as the assessee was the karta of the HUF and instead of in his individual hands, the profits would have accrued to the HUF. It was also the assessee's contention that if it is a trade transaction, the assessee would not have kept the land with him for such a long time. The land was admittedly purchased in the year 1984, yet he had not taken steps to see that the conversion was completed immediately and sold the plots to make profits. But the course of events shows, though the assessee applied for conversion and approval of the layout in August 1984 itself, it took 2 years for the municipality to approve the same. The assessee sold 7 plots out of 25 plots in the year 1988. According to the assessee the rest of the plots were not sold even now. This clearly shows that the transaction is not in the nature of trade. We find merit in the contention of the assessee. The Commissioner of Income-tax felt that the transaction is in the nature of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal and not an yield of income which may be brought to tax. The question whether a certain speculation is an adventure in the nature of trade has to be determined on a consideration of a variety of circumstances, regard being had to the nature of organising the speculation; nurturing the property; disposing it off and also the circumstances leading to its sale; whether the article purchased in kind and in quantity is capable only of commercial disposal and not of retention as an investment or of use by the purchaser; what was the nature of occupation and profession of the assessee; whether the transaction is in the line of business or trade carried on by the purchaser, what was the dominant intention of the purchaser at the time of purchase; whether the purchaser before resale has caused expenses to be incurred in making the commodity more readily saleable; and whether the transaction is exactly of the kind that takes place in ordinary trade in which resale requires a number of separate disposals or a series of operations. These and various other considerations which the facts of the particular cause may warrant have to be kept in view in coming to the conclusion." The learned De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he intention of the assessee was to make money by converting into plots, that would have been done keeping the land in the name of the HUF itself. It is not the case of the Revenue that the transfer was effected with a view to evade tax liability. Under the above circumstances, we do not find any justification for the Commissioner of Income-tax to come to the conclusion that the transaction is an adventure in the nature of trade. 7. Under the above circumstances, we cancel the order passed under section 263 of the Income-tax Act. However, we direct the Assessing Officer to compute the gains under the head "capital gains" in the hands of the assessee. 8. In the result, the appeal of the assessee is allowed. Per P. Pradhan, Accountant Member. - With due respect to my learned brother, I am inclined to disagree with the order proposed by him in the foregoing paras. While there is no dispute either with regard to the facts of the case or the contentions of the parties before us, noted by my learned brother in the preceding paras of the order proposed by him, and as such I would not like to repeat the same, I am not in agreement with the conclusions arrived at by him with regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence, being a partner in two firms for over ten years, he was not aware of the legal hurdles in the proposed setting up of the industry on the land purchased by him from the HUF. Albeit in his representative capacity as the karta of the HUF, assessee was in possession of the land that he bought from the HUF for setting up the industry, and as such he should have been aware of its nature and suitability for the purpose for which he purchased the same. However, within few months of purchasing the land from the HUF, assessee became aware of unsuitability of the land for the industry proposed to be set up on account of policies of the Municipal Council, and takes steps for conversion and lay out of the land for the approval of the Municipal Council, by paying necessary fees in August, 1984. This version of the assessee is simply unbelievable. The contention of the assessee that if making profit out of the land by converting it into house sites was the intention of the assessee, he could have done so without purchasing the land from the HUF cannot be accepted. It may be either because he was not interested in the welfare of the HUF or because he may want to gains for himself, but that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n adventure in the nature of trade- "(i) Was the purchase a trade and were the purchase of the commodity and its resale allied to the assessee's usual trade or business or incidental to it? (ii) What is the nature of the commodity purchased and resold and in what quantity was it purchased and resold? (iii) Did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby make it more readily resaleable? (iv) What were the incidents associated with the purchase and resale? (v) Were they similar to the operations usually associated with trade or business? (vi) Are the transactions of purchase and sale repeated? (vii) In regard to the purchase of the commodity and its subsequent possession by the purchaser, does the element of pride came into the picture? (viii) Whether the finance required for the purchase of the commodity has been found from the surplus funds with the assessee or whether they represent borrowed money?" Applying the above indicia to the facts of the case on hand, I have no hesitation in concluding that the assessee in the instant case has engaged himself in an adventure in the nature of trade. Having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of land into house-sites. This version of the assessee, in the absence of any evidence, cannot be accepted as correct. As observed by the Hon'ble Gujarat High Court in the context of an agriculturist, merely on account of unsuitability of land with which the assessee was associated closely, for the industry he intended to set up, assessee cannot be accepted to be holding the asset in question as a capital asset. In the instant case, on the other hand, on finding the land as unsuitable for the industry immediately after purchase, assessee has not chosen to dispose of the same, but proceeded to make improvements thereon by taking steps for conversion of the land into house-sites to make the same readily saleable with greater profit in course of time. As such, it was not a case of assessee holding on the land in question, as a capital asset even after finding the same as unsuitable for his industry, but it was a case where the assessee embarked on an adventure in the nature of trade, according to him after finding the land unsuitable for his proposed industry. 14. In the case of Smt. Indiramani Bai, wherein assessees, who were wives of two brothers who were partners in a firm, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Ordinarily, business implies continuous activity in carrying on a particular trade or vocation but it may also include an activity which may be called quiscent." 18. On a consideration of the ratio laid down by the Apex Court and other High Courts in the cases discussed above, I have no doubt that the activity of the assessee in the instant case constitutes an adventure in the nature of trade. As per section 2(13) of the Income-tax Act, "'business' includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture." The term 'Trade has not been defined in Income-tax Act. As per Webster's New Twentieth Century Dictionary (62nd Edn.), 'Trade' means amongst others 'means of earning one's living, occupation or work'. Black's Law Dictionary defines 'Trade' as meaning a business which a person has learnt or he carries on for procuring subsistence or profit or occupation or employment, etc. Even if the matter is examined from the angle of Dictionary meaning, it is abundantly clear that the income received by the assessee from the sale of plots carved out of the land purchased by him from the HUF of which he is the karta and making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a piece of land in 1984 and converting the same into plots in 1986 and the sale of 7 out of 25 plots amounts to adventure in the nature of trade and consequentially the profits are liable to be taxed as income from business?" THIRD MEMBER ORDER Per Shri Vimal Gandhi, President . - On account of difference between the Learned Members of the ITAT, Hyderabad Bench 'A', this matter has been referred to me under section 255(4) of the Income-tax Act, 1961. The controversy as per the learned Members is reflected in the following referred question: "Whether on the facts and in the circumstances of the case it could be held that the purchase of a piece of land in 1984 and converting the same into plots in 1986 and the sale of 7 out of 25 plots amounts to adventure in the nature of trade and consequentially the profits are liable to be taxed as income from business?" 2. The facts of the case briefly stated are that the assessee is an individual. He is also karta of two HUFs known as 'Vitta Kristappa' (smaller HUF) and 'Vitta Kristappal (bigger HUF). The bigger HUF held 21/2 acres of land within the municipal limits of Adoni having acquired the same in the year 1971. The said lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries, which had set up an oil mill in some other area in January 1985. 3(b). The assessee further emphasized that if his intention was to earn profit from the transaction of purchase of land, he would have immediately completed the formalities of conversion of land. However, the formalities for getting land converted went on till 22-2-1991 when the assessee gifted portion of property in favour of Municipality as per the condition of approved layout plan. Only 7 out of 25 plots were got converted and sold. The remaining sites were not sold. He accordingly held that the assessment be not revised on the ground that the assessee carried on an adventure in the nature of trade. 3(c). The learned CIT held that the assessment as erroneous and prejudicial to the interests of Revenue with the following observations: "(13) From the above, it may be noticed that the assessee took steps for conversion of the land and got the layout approved as early as August, 1984. The contention that the land was converted into non-agricultural use and the layout was got approved only when it became evident that; it could not be utilized for industrial purposes is not borne out by an evidence. Actually, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... communicated for compliance and report. The layout owner (i.e., Sri Vitta Kristappa) has to fulfil the layout conditions within one year from the date of receipt of this proceedings and handover the roads and reserved open spaces to the Municipality through Gift Deed. True copy Sd/ N.C. Giddaiah, Commissioner, Adoni Municipality Sd/- Town Planning Officer Sd/- 29-10-1986 To (1) Sri Vitta Kristappa, Layout owner, Adoni, (2) Copy to the Town Planning Supervisor, (3) Copy to the Revenue Officer. (4) Copy to the T.P. Officer." (14) It may be observed from the above order that the relevant resolution was passed as early as 28-11-1985. The contention that the assessee registered the gift deed in respect of the land to be used as roads in favour of the Municipality only on 22-2-1991 does not have much substance. The Council approved the layout as early as 1985 and the subsequent delay is only procedural and partly attributable to the fulfilment of the conditions by the assessee himself. Even otherwise, the assessee was fully aware that in the inflationary situation, prices would be going up and he must have been waiting for suitable opportunity to sell the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ality, the assessee set up V.K. Industries in January 1985. (The learned JM described the assessee as proprietor of M/s. V.K. Industries, whereas the learned CIT held the assessee to be partner of the same). The learned JM further accepted that the assessee did not intend to make money by selling plots. If it was so, the assessee would have taken steps for completion of conversion of land into plots and sold them immediately but such formalities were completed as late as on 31-10-1986. Thereafter, 7 plots were sold. He, accordingly, held that the activity of the assessee was not an adventure in the nature of trade. The assessee sold 7 plots as late as in 1988. The above facts clearly show that the transaction was not an adventure in the nature of trade. If the transaction was business or adventure in the nature of trade, the normal natural course would have been to complete the transaction as early as possible and make profit. As this was not done, the learned JM held that the transaction involved was not an adventure in the nature of trade. For the above reasons, learned JM relied upon the decision of the jurisdiction High Court in the case of P.J. Udani. He distinguished the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese were not clinching factors, according to the learned AM. 6(b). The learned AM further observed that the claim of the assessee that he did not hasten to fulfil the conditions for approval by the Municipal Corporation of layout scheme and had no intention to make profit was rightly rejected by the learned CIT. The learned AM held that the learned CIT rightly found that approval for layout was granted by the Municipal Council as early as 31-10-1986 and the subsequent delay was procedural and partly attributable to the fulfilment of conditions by the assessee himself. In fact, the Resolution of the Municipal Council relating to approval of plan was passed as early as 28-11-1985. The assessee might be slow in fulfilling the conditions to get the benefit of inflationary trends as the prices of plots were rising. Once the assessee took steps for conversion of land into house-sites and by making payment of fees and conversion charges, he can be said to have embarked upon an adventure in the nature of trade. He agreed with the learned CIT that the assessee had purchased land from HUF with a view to make profit by converting it into housing sites and not with the intention to keep it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a right conclusion. The learned representatives carried on their obligations faithfully for which I place my thanks on record. 9. The learned counsel for assessee Shri S. Ravi submitted that the land was with the HUF of the assessee since 1971 and therefore if the assessee had intention to make profit, there was no need to transfer the land from the HUf account to the assessee. No hurry was shown in getting layout plan approved from the Corporation and so there was no hurry to make profit. In fact, the above course viz., to have a layout scheme, was adopted by the assessee when he found that oil industry could not be set up in the land on account of master plan of the Municipality. When oil industry was set up under the name and style of M/s. V.K. Industries in January 1985, the assessee thought that land purchased from HUF be converted into plots and sold. Thus, capital was realised by the assessee through sale of plots. The fact of making profit by sale of land by itself cannot be regarded as transaction amounting to an adventure in the nature of trade. In this connection, he drew my attention to observations of the learned JM at page 6 of his proposed order wherein the inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tries was actually set up in January 1985 by the assessee as a partner (or proprietor). However, when the assessee found that oil industry could not be set up in the land purchased, he thought of realizing his capital by selling that property. The profit thus made by selling land cannot be said to be adventure in the nature of trade. The above version, on facts, is not acceptable. The reason being that the assessee did not place any material on record to show that any attempt to set up oil industry in the land in question was made. Even the learned CIT, during the course of proceedings provided the assessee specific opportunity to place evidence on record in support of the claim made before him. Mo site plan or date on which action was initiated to set up industry in the plot in question or similar particulars relating to V.K. Industries were placed on record. Without material, explanation offered cannot be accepted on its face value. I am inclined to agree with the other version found in the observation of the learned CIT and the learned AM. An experienced man like the assessee could not be believed not to know that the land, as per the master plan, could not be used for setting a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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