TMI Blog2009 (8) TMI 758X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT-Departmental Representative, Mr. R. Kaushal has clarified that the issue before this Tribunal is whether the impugned transaction of sale of land was in the nature of capital gains or as an adventure of trade. The Revenue Department has treated the impugned sale of land as an adventure in the nature of trade as against the claim of the assessee that the profit earned on sale of land was taxable under the head capital gains. Since the issue has been concised before us therefore there is no necessity to reproduce the entire grounds of appeal which are more or less descriptive in nature to be dealt with in this judgment hereinbelow. 3. Facts in brief as emerged from the corresponding assessment order passed under s. 143(3), dt. 28th Nov., 2003 were that the assessee was stated to be an investment company. For the assessment year under consideration the respondent assessee had shown the long-term capital gain of Rs. 3,87,92,970 arrived on sale of land. The brief background was that there was a land belonging to Damley family measuring 1,365.94 sq. mts. situated at plot No. 20/B TP Scheme No. 1 Erandwane, Pune. Members of the family were co-owners. In the year 1987 an agreement wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with M/s Vastushilp Investment (P) Ltd. entered into an agreement with M/s Tata Autocomp Systems Ltd. wherein it was agreed to sell the land for a total consideration of Rs. 7,79,00,000. There was a mention of purchase of transferable development rights (TDR) and also the complete use of FSI but these factors at the moment are not relevant as far as the adjudication of the issue is concerned. Out of the total consideration as agreed upon the undisputed fact is that the assessee's share of consideration was Rs. 4,67,40,000 i.e., 60 per cent share. On this amount the assessee has disclosed the capital gain. The assessee has incurred certain expenses which were added in the cost of the land and the cost so arrived was capitalised by applying the indexation cost and thereupon the capital gain was disclosed at Rs. 3,87,92,970. 3.4 The AO was not in agreement with the contention of the assessee that the amount received on sale of land was a capital gain in nature and against that he had proceeded to assess the same as business income. He has framed a question that in the background of the several agreements the issue to be decided was whether income earned on sale of land was to be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction can be treated as an adventure in the nature of trade. (7) That to purchase the land the assessee took loan from its director which demonstrated that the intention was to carry out the business. Though there was no sale effected for nearly 10 years but attempts were made to develop the land for the purpose of construction of commercial building. (8) That at the time of sale to Tata Autocomp the land was not sold as such but with TDR. The assessee was already having commercial plan sanctioned by the PMC therefore it was transacted along with TDR to be utilized by purchaser for the purpose of construction of commercial premises. 4. After arriving at those reasons the AO has discussed few case law which shall be dealt with in the following paras, and held that the profit earned on the sale of land was adventure in the nature of trade therefore profit arrived therefrom was taxed as business profit. The entire assessee's share of Rs. 4,67,40,000 was taken as sale amount and after giving the rebate of cost of land, other expenses and interest totalling to Rs. 51,23,652 the profit was taxed as business income. Being aggrieved assessee preferred an appeal. 5. Before learned C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring plots of land, had directly purchased the plots of land which has been purchased by the appellant, then also besides taxing the profits from sale of other plots as business and taxing the plots held for investment purposes as capital gains would have been possible, but in the case of the appellant when this is a solitary transaction of business that has been carried out in the life of the company, the intention of the appellant company becoming absolutely clear from the conduct of its operations rights from 1990, the other facts available in the case of the appellant and on the basis of the principles evolved in this regard over the years in different Court decisions would tilt the balance in favour of the appellants stand. As has been pointed out by the appellant and perused by me, most of the case laws relied upon by the AO are for the period when capital gains was not a separate head of income under the IT Act (capital gains were not chargeable before 1946. They were also not chargeable between 1948 and 1956). 4.5 Thus, after going through the facts of the case and after careful examination of the law in this regard. I have to hold that the impugned transaction involving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llegations were refuted in the following manner: (1) That the assessee company has purchased the land in July/September, 1990 and after retaining the land for more than ten years it was sold to Tata Autocomp Systems Ltd. vide a conveyence deed dt. 25th July, 2000. It was a single transaction hence could not be termed as a continuous business transaction. (2) That the main object of the company is to act as an investment company, hence long-term investment was made in the said land which was never with the intention for trading activity. (3) That the investment was duly reflected in the balance sheet from the year 1991 onwards as a capital asset and not as a stock-in-trade. (4) That the impugned land was never treated as a business asset for the purpose of day-to-day business of the assessee but throughout held as a capital asset. (5) That WT returns were filed and the investment therein was disclosed as a capital asset and not as a business asset. (6) That the submission of the building plans was not the act of the assessee but a sister concern that too with the purpose to protect the investment which was not binding on the assessee and altogether an independent action. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occurred in between two independent legal entities therefore there was no scope of assumption. (5) That the argument was that though M/s Suma Engineering (P) Ltd. had made the entire payment to Damley family, land owners, way back in financial year 1991 but the assessee company had reimbursed M/s Suma Engineering (P) Ltd. as it happens in regular course of purchase of a property. (6) That merely sanctioning of the plans did not alter the intention of the assessee because getting the plans passed was similar to getting the equity share demeted, i.e., converted into electronic form. The action was merely to protect the investment but the important aspect is that even after getting the plans sanctioned nothing was executed upon by the assessee. (7) That it was an argument that the arrangement of borrowing was an internal arrangement and primarily in the nature of quasi equity held by one of the directors of the company. Such borrowings should not per se be equated with external borrowings on commercial terms. Rather it was the funds of the owners which were invested in land. This argument has legal sanction due to the reason that arrangement of funds from near ones is a general ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of the intention the Court has said that the fact that the original purchase was made with the intention to resell on an enhanced price could be obtained by itself not enough but in conjunction with the conduct of the assessee and other circumstances, it may point to the trading character of the transaction. These guidelines thus definitely support the stand taken by the assessee in this appeal. The assessee company being an investment company had made an investment in the land in question and got the enhanced price on its realization but it was not purchased with an intention to trade in the said land dealing. 9(a). We have also come across another important decision of Hon'ble Supreme Court viz. Dalhousie Investment Trust Co. Ltd. vs. CIT (1967) 66 ITR 473 (SC), wherein the verdict was like this. The mere fact that an investment company periodically varies its investment does not necessarily mean that the profit resulting from such variation is taxable under the IT Act. The observation of the Hon'ble Court was that the variation of its investment must amount to dealing in investments before such profits can be taxed as income under the IT Act. In the present appeal, this ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... improve quality of the commodity purchased, whether the commodity in question was made more readily resaleable, whether the activity and the circulation of the commodity purchased and resold indicate a trade activity, whether the other surrounding instances associated with the purchase and resell are similar to the transactions usually associated with the trade or business or whether the investment was with the element of pride possession or whether it was a repetition of the transaction of purchase and sale and so forth. The Court has thus concluded that in each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction. 10. We have applied these factors on the present case and thereupon arrived at a conclusion that neither there was a frequency of transaction nor the purchase appeared to be intended to trade in the land but it was retained for a considerable period i.e., about 10 years and if a gain was achieved on sale, the same can be said to be clearly outside the domain of business activity. 11. The first appellate authority has also cited few decisions and one of them is Dr. Indu Bala Chhabra. A question was w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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