TMI Blog2005 (12) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... as under : 4. The facts in brief are that Shri Sitaram P. Chamaria (L/H) alongwith his wife and a son Shri Sushil S. Chamaria, owned three plots of land at Malad, Mumbai. All these three persons have entered into a joint develop-ment agreement separately with M/s. Vinayak Developers to develop the land in the previous year relevant to the assessment year 1994-95. In the return of income for the assessment year under review the assessee claimed that the land situated in Malad being his capital asset and claimed to have earned profit on sale as chargeable to tax as long-term capital gain. Accordingly, a sum of Rs. 34,91,089 was offered for tax under the said head. The Assessing Officer on the other hand after due examination of the facts of the case came to the conclusion that the assessee had indulged in an adventure in the nature of trade of development of the said land and hence income arisen to the assessee by way of profit has to be charged as business income. The Assessing Officer, therefore, taxed the income under the head "Income from business and profession" and "Capital gains". In arriving at the said conclusion, the Assessing Officer further held that in the accounti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect the right given to the developer to carry on the business of joint venture as the representative of the assessee. According to the Assessing Officer, this was something unique as in other development agreements; the consideration for the land was clearly defined and is no where linked with the sale of property to be constructed thereupon. 6. In view of the aforesaid reasons, the Assessing Officer took the view that transaction did not involve the transfer of the capital asset as the consideration received or receivable cannot be quantified to a fixed sum. The considerations were to be received when only the sale of property constructed by the developers takes place. There was therefore, an element of risk and hence an adventure in the nature of business is involved. The Assessing Officer accordingly held that income accruing to the assessee is to be taxed as business profits and not under the head "Capital gains" as declared by the assessee. 7. On appeal, the assessee contended that the assessee had never carried on any business of land development or sale and purchase of immovable property in the past as alleged by the Assessing Officer. It was claimed that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction subject to the stipulation that the total build up area of new building shall not go below the permissible area allowed by the Municipal Corporation. The owner had the right to determine the area of the building to be constructed. Regarding appointment architect, it was submitted that the architects were to be nominated by the developer and the owner was to give the consent only. The gross sale proceeds on sale of flats constructed were to be received by the developer on behalf of the owner. Clause 17 specified that a part of the sale consideration was for allowing utilization and transfer of the land component. It was also submitted that merely on the term that the assessee was to get her sale consideration on transfer of land in the form of a part of the sale consideration of the flat, which had to be agreed upon in view of the circumstances prevailing it was not correct on the part of the Assessing Officer to conclude that the assessee had entered into a joint venture arrangement through the developer to carry on the business of development and consequential sale of flats. 9. After considering all the facts narrated by the assessee, the ld. CIT(A) in para 8 on pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed do not by themselves indicate to conclude that the activities of the assessee were that of a businessman. Further by ensuring that the sale consideration of land was to be a percentage of total gross sale realized by the developer the assessee never sought to share profit earned from the construction activity of the developer. 12. Finally, for the reasons given in para 11, the CIT(A) directed the Assessing Officer to take consideration as capital gains in terms of section 45(1) read with section 2( 47 )( v ) of the I.T. Act as disclosed by the assessee. The said para is reproduced in its entirety as below : "In view of the above, it is clear that in the instant case the conduct of the appellant is not that of a businessman engaged in an adventure in the nature of trade by sharing the profits earned by the developer. The appellant merely accepted the sale consideration of the land which was part of the total sale consideration of the flat sold. The Assessing Officer was therefore not correct as per law to hold that the appellant has engaged in an adventure resulting in his receipt being chargeable to tax under the head Income from business and profession . It is a cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorities below as well as the agreement entered into by both the assessees. As per development agreement, the developer, namely, M/s. Vinayak Developers was to develop the land to construct the building as per approved plan and sell the building constructed thereon to the flat owners. It was to pass 30% of the sale consideration of the flat constructed to the assessee as the sale consideration of the land trans-ferred. From the perusal of various clauses of the deed, it is clear that as on 1993, the assessee had only granted the right of a licence to the developer to carry out the work of construction. The sales took place only when the transfer of the flat had taken place by virtue of tripartite agreements entered into by the assessee as the owner, the developer and the flat owner. Till such time, the assessee contained to own the said land as capital asset as shown in the wealth tax and income-tax returns. In the sales agreement, the right of the assessee as owner has been duly recognized. In the assessment order, the Assessing Officer prima facie took the view that the assessee has indulged in an adventure in the nature of trade as the sale consideration of the land was not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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