TMI Blog2013 (12) TMI 1256X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee having regard to the "legal requirements, which are associated with the concept of trade or business - Decided against Revenue. - Income Tax Reference No.122 of 2000 - - - Dated:- 6-8-2012 - Hon. Sunil Ambwani and Hon. A. N. Mittal, JJ. ORDER 1. We have heard Shri Shambhu Chopra for the revenue. Shri Faneesh Misra entered appearance on behalf of heirs and legal representative of the respondent assessee. 2. The substitution application was allowed on 26.7.2012 bringing on record the heirs of Shri Devendra Pal Singh-the assessee, who died in the year 2003. 3. The Income Tax Appellate Tribunal, Delhi Bench 'A', New Delhi has referred the following two questions of law in Reference No.116 DEL/98 arising out of the order of the Income Tax Appellate Tribunal dated 28th November, 1997 in ITA No.4994/DEL/92 relevant for the assessment year 1991-92 as follows:- "1. Whether, on the facts and in the circumstances of the case, Hon'ble ITAT was legally justified in confirming the order of ld. CIT (a) in directing that surplus amount of sale of land is assessable as long term capital gain and not as an adventure in the nature of trade. 2. Whether, on the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ea and for the area utilised for road and other public amenities no consideration was received. Since the assessee was in possession of the land for more than 20 years, he was entitled to get deductions under Section 48 of the Act. 7. The A.O. observed that the assessee and M/s Konark Builders had fixed a minimum period of 3 years to execute the agreements and that an amount of Rs.1 lakh had been paid by M/s Konark Builders vide bank draft as earnest money to the assessee. He also observed that as per the agreement the sale deeds were to be executed on or before 18.5.92, on payment of full or proportionate amount of consideration; in para 2 of the agreement it was explained that till execution of the sale deed, the assessee shall continue to be the owner of the land. The A.O. noted that the total area of the land under consideration was 28 bighas and 16 biswas. In view of the above facts the A.O. vide order sheet entry dated 4.10.91 required the assessee to explain as to why income should not be charged under the head "business income", since the assessee had entered into an agreement to sell land over a period of time, for which M/s Konark Builders had merely acted as developers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and selling the land. The CIT (A) referred to 135 ITR 216 and observed that for constituting an adventure in the nature of trade the transaction must be in the line of business. The intention of the purchaser had to be seen, and not the intention, which was formed subsequently. The assessee was not doing any business. He had never dealt with in any business and sale of land. He had sold away his ancestral land without any development, which was subsequently carried out by the colonisers. The CIT (A) relied upon 107 ITR 716 (Alld.) and 62 ITR 578 (Madras High Court) in support of its findings and directed the A.O. to assess surplus land as long term capital gain in the hands of the assessee. 10. The Income Tax Appellate Tribunal did not accept the contention of the revenue that the transaction was in the nature of adventure in the nature of trade. It held in para 4.2 as follows:- "4.2 We have carefully considered the rival submissions on this issue and have also perused the orders of the departmental authorities. We feel that the submissions made by the learned counsel have force. We agree with the reasoning of the ld. CIT (A) in coming to the conclusion that the income from sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction is in the nature of trade and its decision were of mixed question of law and fact. In this case the appellant's firm acting as managing agents purchased four contiguous plots of land adjacent to the mills of the company. The first purchase was made in the name of benamidar. The second and subsequent purchases were made on subsequent dates. The appellant made no efforts to cultivate them or to make any construction on them. It allowed them to remain unutilised except for the rent received from the house on the plots. He sold these plots to the company in two lots. The Tribunal held that the amount was not a capital accretion but was made in an adventure, in the nature of business and was therefore taxable. The High Court held that the transaction was an adventure in the nature of trade and that revenue was justified in taxing the amount. The Supreme Court held that the Appellate Tribunal was right in inferring that the appellant knew that it would be able to sell the land to the managed company, whenever it thought it profitable to do so. The appellant purchased four plots of land for sole intention of selling them, at a profit, which raises a strong presumption in favo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement was fixed. Since the assessee was not in the business of development and sale of land, the purchaser as coloniser with requisite expertise, was required to develop the land after taking statutory clearances. The sale deeds were to be executed in favour of purchaser of the plots, carved out by the coloniser after leaving the land for road for which the assessee was not to receive any sale consideration. The assessee was not entitled to share the profits or the increased price of plots. There was no agreement on the price of plots. It was left at the discretion of the coloniser. The assessee was only required to execute the sale deed to the nominees (allottee of the plots) of the coloniser. In such case there was no profit in addition to the agreed sale consideration. The sale deeds were to be executed on or before 18.5.1992 on payment of full or proportionate amount of consideration. In such agreement of sale there was no adventure or motive to the earn profits beyond the sale consideration. The entire benefits, if any, flowing from the transaction, after the agreement were to be appropriated by the coloniser. There was no element of business, involved in the transaction. 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be whether the operations involved in the transaction are of the same kind and carried on in the same way as those, which are characteristic of ordinary trading in the line of business." 22. In Ram Narain Sons (P) Ltd. v. IT Commissioner, AIR 1961 SC 1141 it was held that in consideration whether a transaction is or is not an adventure in the nature of trade, the problem must be approached in the light of the intention of the assessee having regard to the "legal requirements, which are associated with the concept of trade or business." 23. In the fact and circumstances of the case, the ITAT did not commit any error of law in confirming the findings of the CIT (A). 24. The questions no.1 is thus decided against the revenue and in favour of the assessee. In view of the answer to the question no.1, the ITAT was justified in upholding the order of CIT (A) in directing the A.O. to ascertain the cost of land as on 1.4.1974 and deduct the same to work out the capital gain. Questions no.2 is also decided against the revenue and in favour of the assessee. 25. The reference petition is decided accordingly. The A.O. will carry out order of CIT (A). - - TaxTMI - TMITax - Income T ..... 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