TMI Blog2013 (10) TMI 778X X X X Extracts X X X X X X X X Extracts X X X X ..... adventure in the nature of trade - Grounds raised by Assessee are allowed and directed the AO to treat the capital gain offered by Assessee as such and allow deduction u/s 54EC, as claimed by Assessee – Decided in favor of Assessee. - ITA No. 1698/Hyd/2012 - - - Dated:- 11-10-2013 - Shri B. Ramakotaiah And Shri Saktijit Dey,JJ. For the Petitioner : Shri V. Siva Kumar For the Respondent : Shri R. Laxman ORDER Per B. Ramakotaiah, A.M. This is an Assessee's appeal directed against the order of CIT(A)-VI, Hyderabad dated 26/09/2012 for the assessment year 2006-07. 2. The issue involved in this appeal is whether the gains received by Assessee on sale of agricultural land after plotting them into various plots is to be taxed as business income as an adventure in the nature of trade or as capital gains as offered by Assessee. 3. Briefly stated, Assessee is an individual and filed return of income for the AY 2006-07, mainly, declaring 'long term capital gains' of Rs. 3,86,15,108/- and claiming exemption u/s 54EC by depositing the capital gain in NABARD Bonds. In the return filed, the computation of 'long term capital gain' was shown as under: (Amounts in Rs.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis of the submissions and documents filed during the appeal proceedings, noticed that Assessee's mother Smt. B. Rajyalakshmi carried on agricultural operations till 1999. She entered into an MoU with one Shri D. Murali Krishna Reddy on 05-01-2004 for development of the land as per HUDA norms. She also sought HUDA permission during her life time vide an application dated 28-01-2004. Assessee inherited the land on his mother's death on 09-10-2004. The permission of HUDA was received on 16-03-2005. A total of 107 plots were developed in the area, of which 32 were sold till 31-03- 2005 and 62 during AY 2006-07. Thereafter, the CIT(A) went on discussing various case law and, ultimately agreed with the AO by holding as under: "4.30 The relevant facts in Assessee's case are as follows: 1) When Assessee acquired the land, it had already been put into the process for development into residential plots. What Assessee inherited was not agricultural land per se, but land which was in the process of conversion into residential plots, meant for sale. 2. When Assessee acquired the land, the intention to sell already existed. Indeed, the process of such sale had already been put in moti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l gains/ business income and Ground No. 8 is general in nature. Since only one common issue is involved in all these grounds, the same are considered together. 7. The learned counsel for Assessee submitted that the CIT(A) erred in holding that Assessee carried on an adventure in the nature of trade whereas it was Assessee's mother, who purchased the agricultural land cultivated for 20 years and decided to sell them by converting into plots and it was she who applied for HUDA permissions, entered into development and work was in progress. Unfortunately, she passed away and Assessee got the entire land in question, by way of inheritance. Assessee had no intention of carrying on any business. Assessee simply sold the plots made on the inherited/ancestral lands and obtained better price. The learned counsel, therefore, contended that since the intention of Assessee is not of any business in the nature of trade or commerce, the gains received on sale of plotted lands is to be taxed as 'capital gain' only. He referred to various case law and distinguished the case law relied upon by the Revenue authorities. The case law relied upon by the learned counsel are as under: 1. ITO Vs. Botc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the commodity and its resale allied to his usual trade or business or incidental to it? The answer to this in the present case is in the negative because there is no evidence to show that Assessee at any time did any business on land (b) If the commodity purchased is generally the subject-matter of trade and if it is purchased in very large quantities, it would tend to eliminate the possibility of investment? In the present, case agricultural land purchased by Assessee's mother, who had no intention of doing any business at the time of purchase and it was she, who sought HUDA permission for sale to obtain better price and Assessee has only inherited the property, therefore, it cannot be considered or treated that Assessee has the intention to indulge in trade, (c) Did the purchaser by any act subsequent to the purchase improve the quality of the commodity to make it more readily saleable ? Here it could be safely stated that Assessee has not obtained any permission from the authorities for developing residential plots as the application was made by Assessee's mother and Assessee has simply inherited the land, which is under the process of development as the development agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra 4.30 of order (supra). 11. Assessee has raised an alternate ground no.7 that the AO was not correct in assessing the entire amount as business income ignoring the provisions of section 45(2) of the IT Act. This alternate contention has validity. There is no dispute that the land of Ac.14.19 Gts. bought in 1979 remained a capital asset until the land was intended to be sold after obtaining the approval of HUDA. Assuming that the capital asset was intended to be converted in to stock in trade, the gain in relation to this transaction has to be reckoned at two stages, viz., i) ascertainment of capital gain on the date capital asset was converted into stock-in-trade in March 2005 (or earlier) as per section 45(2) and taxation of the same when the stock is sold and, ii) business income on sale of stock-in-trade. The AO, therefore, has to arrive at the value of the capital asset on the date of conversion, i.e. in March 2005, and deduct there from the indexed cost of acquisition. The resultant capital gain so computed has to be taxed proportionately only when the converted asset is ultimately sold, in this case in different assessment years. Such capital gain is also eligible for exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but, it was Assessee's mother, who purchased the agricultural land and held it for a period of more than 20 years doing agricultural operations and due to development of habitations in and around the land found it unworkable to continue agricultural operations on the land, and hence intended to sell it for better realization of the value. Therefore, reliance placed by the AO on the said case is not appropriate as there is no intention to sell at the time of purchase of land. More so in the case of Assessee, he inherited the property after demise of his mother, which was in the process of demarcation by way of development and approval from HUDA. In these facts of the case, it cannot be held that Assessee has the intention to trade on property, but, he only realized a better price by selling land as plots. 12. Similarly, in the case of Raja J. Rameswara Rao Vs. CIT, 42 ITR 179, the land in question acquired was for the purpose of reselling it, therefore, this decision does not apply to the facts of the case of Assessee. 13. The Hon'ble MP High Court in the case of CIT Vs. Suresh Chand Goyal, 298 ITR 277 (MP) has considered similar issue in detail and held that in that case the l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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