TMI Blog2012 (10) TMI 363X X X X Extracts X X X X X X X X Extracts X X X X ..... n view of the provisions of Section 45 (2) of the Act the profits and gains arising out of transfer by way of conversion by the owner of capital asset into, or its treatment by him as stock-in-trade of business carried on by him is for and from the assessment year 1985-86 be charged to tax under the head capital gains in the previous year in which such stock-in-trade is sold or otherwise transferred by him. The income tax authorities committed no error in applying Section 45 (2) for the purposes of assessment and by adopting a notional value for the purposes of fixing the price for land as on 1.4.1974 for stamp duty for working out business income from the sale of land and applying the depreciated value by 10% of every year for the purposes of arriving at value in the year 1984 - against assessee. - IT Appeal Nos. 33 of 2002, 457 & 458 of 2007 - - - Dated:- 24-8-2012 - Sunil Ambwani and A.N. Mittal, JJ. Krishna Agarwal for the Appellant. Dhananjay Awasthi for the Respondent. JUDGMENT We have heard Shri Krishna Agrawal for the appellant-assessee. Shri Dhananjay Awasthi appears for the respondent-department. 2. These three income tax appeals under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the original assessment was made on the income at Rs.88,420/- as on 24.3.1995 by adopting income from capital gain at Rs.23,569/-, business income at Rs.48,900/- and salary income at Rs.15,950/-. The assessee preferred an appeal before the DCIT (Appeals), Kanpur, who vide his order in Appeal Nos.55, 56 and 57 dated 5.8.1996, for the assessment year 1986-87; 1988-89 and 1991-92, remanded the matter to make fresh enquiries on the issue as to whether land was assessable as business profits and whether capital gain should be worked out keeping in view that the appellant had become owner of the agricultural land as on 28.1.1977, and whether he is entitled to benefit under Section 54-F of the Act as assessee claimed that construction of residential property out of sale proceeds of the agricultural land. For this year also notices under Section 143(2)/142(1) were issued. The AO worked out capital gains at Rs.23,569/-, business income at Rs.48,900/- and salary as shown in the return of Rs.15,950/-; he thus assessed the assessee at Rs.88,420/- and directed interest to be charged under Section 234A, 234B and 234C. The A.O. also directed issuance of penalty notice under Section 271(1)(c) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drainage should be deducted, as the AO has taken into consideration the actual sale value of the plot for the purposes of computation, in the absence of any information regarding expenditure incurred on passage and drainage. 11. The Tribunal held that the assessee had become entitled to land in individual capacity, which he converted into stock-in-trade. The land being situate in urban area, it was an asset in his hand, which he fragmented into small pieces and sold them with facility of passage and drainage. The intention of the assessee was to reap business profits and not to sell any agricultural land. The A.O. had taken the actual sale consideration for the purposes of computation of income and therefore deduction of notional value of land covered under passage and drainage could not be allowed. The appeals were consequently dismissed. 12. Shri Krishna Agrawal, learned counsel appearing for the appellate assessee submits that Shri Narain Rao Sapre sublet his 'Sir-Khudkasht' to Shri Kamta Prasad, Manphoole and Bhawani before 1951. Shri Kamta Prasad, father of the appellant died in December, 1952. The appellant was only son of Shri Kamta Prasad. By two sale deeds dated 16.12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in trade, and sale of the plots as business carried out by the assessee. 15. Shri Dhananjay Awasthi appearing for the revenue submits that the appellant was engaged in the activity of selling the land and plots. The long drawn litigation does not show that he had acquired the land by inheritance, or had matured the right under the revenue laws. On his own admission he was clerk in the service of Municipal Corporation and was not carrying on any agricultural operations. The sale of land by 43 sale deeds between July, 1984 to March, 1991 by developing the land and leaving roads in between and other municipal services, was a profitable venture, which the appellant carried regularly for 7 years selling the entire land all by himself. The income tax authorities did not commit any error of law in treating the entire transaction as business. 16. The 'Capital Asset' under Section 2 (14) is defined as property of any kind held by an assessee, whether or not connected with his business or profession, but does not include, (i) any stock-in-trade, consumable stores or raw materials held for the purpose of his business or profession, Clause (iii) excludes agricultural land in India not bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing out of the land into different plots after laying down roads and selling them in a period spread out in 7 years would not amount to any such activity, which has any element of trade, commerce or business and that it cannot be said that it was an activity in the nature of a trade. He has relied upon Sri Gajalakshmi Ginning Factory Ltd. v. CIT [1952] 22 ITR 502 (Mad.); Bhogilal H. Patel v. CIT [1969] 74 ITR 692 (Bom.); Janab Abubucker Sait (supra); CIT v. V.A. Trivedi [1988] 172 ITR 95; CIT v. MLM Mahalingam Chettiar [1977] 107 ITR 69 (Mad.); Deep Chandra Co. v. CIT [1977] 107 ITR 716 (All); Kaur Singh v. CIT [1983] 144 ITR 756; Shyamala Pictures (P.) Ltd. v. CIT [1983] 142 ITR 115 and CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 (SC) and lastly on Navnitlal Sakarlal v. CIT [1994] 208 ITR 194 to support his submission. 20. It is necessary to refer to the facts and the conclusions drawn by various High Court in the matter of transactions of sale of agricultural land, as a survey of all these authorities would show that the question as to whether the sale of agricultural land of the capital asset is in the nature of trade of which profits are taxed as business profit depends ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious decisions may be summarised as follows:- "For instance, if a transaction is related to the business which is normally carried on by the assessee, though not directly a part of it, an intention to launch upon an adventure in the nature of trade may readily be inferred. A similar inference would arise where a commodity is purchased and is divided, altered, treated or repaired and sold or is converted into a distinct commodity and then sold. The magnitude of the transaction of purchase, nature of the commodity, the subsequent dealings of the assessee, the nature of the organization employed by the assessee and the manner of disposal may be such that the transaction may be stamped with the character of a trading nature." 24. In the facts of the case in Deep Chandra Co.'s case (supra) this Court held that the activity of parcelling out the land and selling them in the market was designed to enhance the value of the land in which the money was invested. A person, who has no intention of engaging himself in trade of buying and selling property cannot be considered to be a person engaged in any adventure in the nature of trade. Simply by taking some steps he might succeed in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the roads and drainage system and thus in view of the provisions of Section 45 (2) of the Act the profits and gains arising out of transfer by way of conversion by the owner of capital asset into, or its treatment by him as stock-in-trade of business carried on by him is for and from the assessment year 1985-86 be charged to tax under the head capital gains in the previous year in which such stock-in-trade is sold or otherwise transferred by him. The property shall be deemed to have been transferred in the year in which it was converted into stock-in-trade. The provision of Section 45 (2) providing for capital gains takes care of the facts, where the assessee does not transfer capital assets into stock-in-trade, but the asset is treated as stock-in-trade. Section 45(2) provides as follows:- "45(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as, stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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