TMI Blog2014 (7) TMI 995X X X X Extracts X X X X X X X X Extracts X X X X ..... urt] - the real intention of the assessee in acquiring the land was not to retain it for himself but to resell it at profit and as such the transaction was an adventure in the nature of trade – thus, order passed by the CIT(A) on does not require any interference – Decided against Revenue. - I.T.A. No. 465/JODH/2013 - - - Dated:- 13-5-2014 - Shri Hari Om Maratha And Shri N. K. Saini,JJ. For the Petitioner : Shri N. A. Joshi, D.R. For the Respondent : Shri Rajendra Jain, A.R. ORDER Per N. K. Saini: This is an appeal by the department against the order dated 31/7/2013 of Ld. CIT(Appeals)-Udaipur. Following grounds have been raised in this appeal. On the facts and in the present circumstances of the case, the Ld. CIT(A) has erred in- 1. directing the Assessing Officer to assess the income from sale of land on substantive basis without appreciating the fact that the assessee was a man of no means and was a domestic servant of Shri Manmohan Raj Singhvi getting only ₹ 50/- per day and all the activities related to conversion of land etc. were undertaken by Shri Manmohan Raj Singhvi, where substantive addition was made. 2. Directing the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention is to earn profit by trading in land. The details of land purchased and sold during the year are as follows :- 3.1 The impugned land was purchased by the assessee in the year 2007 from various scheduled tribe persons out of borrowing through his employer. These loans were repaid immediately on sale of land. 3.2 In the assessment of the assessee s employer, Shri Manmohan Raj Singhvi, it was held that the assessee was benamidar of Shri Manmohan Raj Singhvi. Accordingly, while the capital gains of ₹ 1,08,47,912/- arising on sale of the impugned land was brought to tax in the case of Shri Manmohan Raj Singhvi as undisclosed capital gains on substantive basis, the same was brought to tax as undisclosed capital gains on protective basis in the assessee's case. REASONING GIVEN BY THE ASSESSING OFFICER (PARA NO.8.1 TO 8.17. PAGE NOs.3 TO 14 OF THE ASSESSMENT ORDER): 3.3 The reasoning given by the learned assessing officer in making the above addition of ₹ 1,08,47,912/- is as follows: 8.1 During the course of survey action at business premises at Balji Raj Ka Kund, various incriminating documents pertaining to land transaction were found. Similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000/- 23,20,000/- 18,55,000/- 15.07.07 57996 4,65,000/- 23,19,840/- 18,54,840/- 15.07.07 57996 4,65,000/- 23,19,840/- 18,54,840/- 13.09.07 156880.8 9,92,000/- 62,75,232/- 52,83,232/- Total 330872.8 23,87,000/- 1,32,34,912/- 1,08,47,912/- 8.3 It deserves a mention here that the whole story is crystal clear in so far as Shri Manmohan Raj Singhvi is the actual seller and Shri Rama Gameti and Smt. Laxmi Bai Bhil who are the domestic servants of the assessee are merely name lenders for the transaction. Hence, the provisions of section 50C in respect of capital gains are to be invoked in the case of the assessee as it is more than clear that Shri Rama Gameti and Smt. Laxmi Bai are persons of petty means having no financial capacity to purchase the said land in question lest sale the same. Accordingly, in view of above, the assessee vide this office letter dated 4.10.2010 was required to give his comments/explanation on the above issue. He was also required to explain as to why difference u/s.50C at ₹ 10847912/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere opened just to purchase the land for S.S.Engineering College in year 2007 and the introducer of both these accounts is Singhvi family. The accounts reflect the money credited by Singhvi Family and withdrawn for purchase of land for S. S. Engineering College. 8.8 From the above it is to be inferred that Shri Manmohan Raj Singhvi has used his domestic servants as a medium for purchase and conversion of land for construction of Engineering College. This was necessary to purchase/transfer lands belonging to scheduled tribes. 8.9 On perusal of seized material, it is gathered that S.S.Education Trust has purchased a total land of 3,30,872.8 sq.ft. (converted area) from Sh.Rama Gameti. This land was purchased by Sh.Rama Gameti from various scheduled tribe land holders at the instance and funds provided by Shri Manmohan Raj Singhvi, as he neither has any interest nor financial capacity to carry out such purchase. After purchase this agricultural land was converted into a residential one by Shri Rama Gameti again at the instance and control of Shri Manmohan Raj Singhvi. As placed adjective conversion this land was transferred to S.S.Education Trust by Shri Rama Gameti as below: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be said that to complete the project of SS Education Trust, the assessee Shri Manmohan Raj Singhvi has purchased land in the name of his employee Shri Rama Gameti (who has no financial capacity to purchase this land as he was getting only salary of ₹ 600/-p.m. at the time of transactions). This fact was admitted by Shri Rama Gameti as stated above. Thereafter, the land was converted by Shri Manmohan Raj Singhvi in residential status and then, the land was transferred to his trust namely S.S.Education Trust. From the above, it is crystal clear that for these transactions, Shri Manmohan Raj Singhvi is the key person who provided his funds for this transaction in the name of his employee Shri Rama Gameti. 8.12 Further, the assessee vide this office letter dated 25.11.2010 was required to furnish his explanation on the statements of Shri Rama Gameti dated 25.11.2010, in this regard, the statement of Shri Rama Gameti has also been provided to the assessee. The assessee has been also required to explain as to why it should not be treated that all the transactions pertaining to this land were made by you exclusively in the name of Shri Rama Gameti and necessary additions u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s order. Tribunal was correct in holding that the property was not a trust property. Whether the principle of res judicata or the rule of estoppel would be applicable ? Neither of these principles was applicable to assessment proceedings, but the fact that the assessee included the income of the premises in his returns for several years after objecting to its inclusion in earlier year was a circumstance which the revenue was entitled to consider in the absence of any satisfactory explanation. Whether Income-tax authorities are entitled to look into the surrounding circumstances to find out the reality ? Yes, the department is entitled to do so. It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh fraudulent means, it is upon the alleged to prove that it is so, ignores the reality. The transaction about purchase of winning ticket takes place in secret and direct evidence about such purchase would be rarely available. An inference about such a purchase has to be drawn on the basis of the circumstance available on the record. Having regard to the conduct of the appellant as disclosed in her sworn statement as well as other material on the record an inference could reasonably be drawn that the winning tickets were purchased by the appellant after the event. We are, therefore, unable to agree with the view of the Chairman in his dissenting opinion. In our opinion, the majority opinion after considering the surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winnings from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amounts has been rejected unreasonably and that the finding that the said amounts are income of the appellant from other sources is not based on evidence. 8.16 The circumstances of the above two are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, the capital gains amounting to ₹ 10847912/- is brought to tax in the hands of Shri Manmohan Raj Singhvi for A. Y.2008-09 on substantive basis as his undisclosed investment from undisclosed sources and protective addition is being made in the hands of Shri Rama Gameti for A. Y. 2008-09. ASSESSEE'S CONTENTIONS: 3.4 It is submitted that the assessee purchased agriculture land admeasuring 3,30,872.80 sq.ft. at village Umarda as a business venture. For this business venture, he borrowed funds partly from the family members of Shri Manmohan Raj Singhvi and partly from other unsecured loan creditors. The said agriculture land was registered in the name of the assessee and the entire purchase consideration was paid out of his bank account. Immediately after acquiring, the impugned agriculture land was converted into non-agricultural (N.A.) land by him. All the formalities and requirements were completed by him at his own cost. Shri Manmohan Raj Singhvi merely guided him for such conversion and provided him financial help as and when required. The intention of Shri Manmohan Raj Singhvi was merely to help economic upliftment of one of his trusted employee. After conver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eque 9. Smt. Sushi la Singhvi 1,60,000 Cheque 10. Smt. Urvashi Singhvi 1,35,000 Cheque The aforesaid loans were utilised by Shri Rama Gameti for purchase of agriculture land admeasuring 3,30,872.8 sq ft. The genuineness of the loan was not doubted by the Assessing Officer. The said land purchased by Shri Rama Gameti was sold to M/s. S. S. Education Trust for a consideration of ₹ 23.87 lacs and after that the loans raised for purchase of the land were repaid by Shri Rama Gameti. The Assessing Officer was of the view that the assesses used the name of his domestic servant namely Shri Rama Gameti and Smt. Laxmi Bai to purchase the land belonging to Schedule Tribe and converted the same to the residential nature from agriculture nature. On the other hand, the land in question was purchased by Shri Rama Gameti and the purchased deed was not doubted. The conversion of land for non-agriculture purpose was got done by Shri Rama Gameti who sold this land to M/s. S.S. Education Trust which is a separate entity registered with Assistant Commisioner, Devasansthan Vibhag, Udaipur. The said trust a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the ratio of these judgements was not applicable to the facts of the assessee's case because in the assessee's case, the entire transaction of purchase of land, its conversion into non-agriculture and its sale to M/s.S.S.Education Trust was evidenced by proper documents and the entire transaction had taken place by the assessee under his signature and his bank account. It was held by honourable Supreme Court in the case of C.W.T. Vs. Arvind Narottam (173 ITR 479) that where the true effect on the construction of deeds is clear, the appeal to discourage tax avoidance is not a relevant consideration. But the question which many ordinary taxpayers very often in a country of shortages with ostentatious consumption and deprivation for the large masses ask, is does he with taxes buy civilization or does he facilitate the wastes and ostentatiousness of the few. Unless wastes and ostentatiousness in the Government's spendings are avoided or eschewed, no amount of moral sermons would change people's attitude to tax avoidance. Moreover, the honourable Jodhpur Bench of Income-tax Appellate Tribunal categorically held that the assessee was not benamidar of Shri Man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion whether a transaction is an adventure in the nature of trade must depend upon the collective effect of all the relevant materials brought on the record. But general criteria indicating that certain facts have dominant significance in the context of other facts have been adopted in the decided cases. If for instance, a transaction is related to the business which is normally carried on by the assessee, though not directly 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 subdivided, altered, treated or repaired and sold, or is converted into a different commodity and then sold. Magnitude of the transaction of purchase, the nature of the commodity, subsequent dealings and the manner of disposal may be such that the transaction may be stamped with the character of a trading venture; .But a transaction of purchase of land cannot be assumed without more to be a venture in the nature of trade .a profit motive in entering into a transaction is not decisive, for, an accretion to capital does not become taxable income, merely because an asset was acquired in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factors may help the Court to draw an inference that a transaction is in the nature of trade, but it is not a matter of merely counting the number of facts and circumstances pro and con; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction. 3.11 The honourable Madras High Court held in the case of Mrs. D. M. Alexander Vs. C.I.T. (22 ITR 379) as under: FACTS-I The assesses was a planter in South India. He acquired estates where rubber, tea, coffee and cardomom were raised. The assessee purchased the 'S' estate in Travancore State in 1929; he sold that in August, 1942. That estate was managed by the agents all through. Though the assessee was originally a planter himself, for a period of about 12 years, i.e., between 1930, and January, 1942, he was employed in a company. When the assessee sold the S estate in August 1942, he realised a sum of ₹ 4,46,000. Thereafter, in September, 1942, the assessee started negotiations for the purchase of four estates. The assessee paid the purchase price of ₹ 2,50,000 for all the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trade. Courts have never treated such a question as one capable of easy solution by the taxing authorities. In the instant case despite the steps taken by the assessee, to improve the C group of estates, there was certainly sufficient material on record to justify the finding of the Tribunal, that the purchase was with a view to resell the estate at a profit. In the instant case, there was certainly sufficient evidence for the Tribunal to conclude that the transaction of the purchase and sale of the C group of estates was an adventure in the nature of trade and that the profits of that transaction in the hands of the assessee, constituted assessable income. 3.12 The honourable Kerala High Court held in the case of Mohd. Meerakhan Vs. C.I.T. (63 ITR 729) (affirmed By S.C. in 73 ITR 735). Facts : There was an agreement dated the 18th May, 1956, by which the Mundakayam Valley Rubber Company Ltd. agreed to sell to one A. V. George a rubber estate called the Kuttikal Estate measuring 477.71 acres. A. V. George entered into that agreement on behalf of the Kailas Rubber Company Ltd. On the 15th August, 1955, the assessee entered into an agreement with A. V. George to pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture . . In the case before us, the adventure commenced when the assessee entered into the agreement with A. V. George to purchase the Kuttikal Estate for a sum ofRs.6 lakhs and paid an advance of ₹ 11,000. It terminated with the execution of the sale deed by the Mundakayam Valley Rubber Company Ltd. in favour of the assessee and the 22 purchasers he had found for 22 out of the 23 plots into which he had in the meanwhile divided the estate. In our view it is not possible to consider this adventure as anything other than an adventure in the nature of trade and the profit obtained by the assessee of ₹ 1,25,000 by securing 104.12 acres worth ₹ 2,08,000 for ₹ 81,500 as the profit of that adventure. The assessee apparently realised the difficulty of avoiding income-tax in respect of the profit that he had obtained. He was examined by the Income-tax Officer. His deposition was nothing less than an adventure in the nature of perjury. His statement was that there was an agreement between himself and A. V. George, that he did not pay any advance to him, and that he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chased land, converted the same into house sites and sold the same for attractive prices, then his transaction may be stamped with the character of a trade in nature. The present case appeared to be no exception to this rule. There was no need to delve deep into the matter to find out the real intention of the assessee at the time of acquiring the leasehold rights of the land. The assessee himself had revealed his case and made his intention clear in his affidavit filed in the writ petition which was filed against the Municipal Corporation challenging the validity of the levy of property tax on the vacant lands under consideration. Though it was true that any admission made by the assessee in any proceedings could be properly explained, the assessee could not get away with the clear cut admission made by him by merely stating that those admissions were made only to get rid of the property tax. It was not his case that he was misled or forced to make such statements by the circumstances then prevailing. He was challenging the validity of the levy of property tax imposed by the corporation and he wanted to avoid that tax by stating that he acquired the leasehold rights for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d was not holding it as a matter of pride of possession and enjoy its return but to sell it and earn profit. It was clearly an adventure in the nature of trade or business venture of the assessee and profit arising therefrom constituted his business income. Applicability of Sec.50C : 3.17 It is submitted that Sec.SOC is applicable for computing capital gains on transfer of capital asset. Where an asset is held to be a business asset, Sec.SOC cannot be applied while computing business income on transfer of such business asset. In support of the above contention, we rely upon the following judgements: (a) C.I.T. vs. Thiruvengadam Investments (P) Ltd [320 ITR 345(Mad)] Facts: In this case, the assessee was engaged in the business of property development and investment in shares. Its activities were held to be business activities. In its Return of Income, the assessee claimed capital loss on sale of property. While the consideration as per sale deed was ₹ 5 crores, the value as per subregistrar was ₹ 6.94 crores, on which stamp duty and registration charges were levied. While completing the assessment, the Assessing Officer ignored the consideration of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he words 'capital asset'. For applicability of section 50C, the essential requirement is that an asset should be capital asset. Alternatively, the finding recorded by the Tribunal which is last fact-finding authorities, in this regard is essentially a finding of fact or at the most is a mixed question of fact, but it is not a substantial question of law to warrant the interference under section 260A. The view taken by the Tribunal is on terra-firma. The inference drawn by the Tribunal is based on relevant consideration. There is no merit in the appeal. (c) Inderlok Hotels (P.) Ltd. vs. I.T.O. 122 TTJ 145 (MUM) As per the legislative history, section 50C was inserted in the Act by the Finance Act, 2002 with effect from 1-4-2003 and it is in the nature of special provision which is introduced in determining the full value of the consideration in case of transfer of land or building or both. The value determined or assessed by any authority of the State Government for purpose of payment of stamp duty in respect of such registration of conveyance deed would be deemed to be full value of the consideration received or accruing as a result of such transfer. On analysing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterpretation that meaning ascribed by the authority, issuing notification of circular, is good guide of contemporaneous exposition of the position of the law and this rule is popularly known as 'contemporanea expositio'. There should not be any cloud of doubt that section 50C has application only to the extent of determining sale consideration for computation of capital gain under Chapter IV-E of the Act and it cannot be applied for determining the income under other heads. [Para 11] Therefore, when, admittedly, in the instant case the sale of the flats was treated as the business income and not as a capital gain, the provision of section 50C was not applicable. Consequently, the addition made by the Assessing Officer was to be deleted. [Para 12]. 3.18 It is submitted that in the assessee's case, the purchase of agriculture land, its conversion into non-agriculture land and its sale immediately thereafter, constituted a business venture or an adventure in the nature of trade. It was purchase and sale of stock-in-trade and therefore, Sec.SOC of the Income-tax Act, 1961 is not applicable for computing profit from transfer of land. 3.19 In view of the above facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) was not justified in directing the Assessing Officer to treat the income of the assessee from sale of the land as income from business. Reliance was placed in the case of Gaurav Kumar Sharma Vs. ACIT reported in (2014) 99 DTR (Jp) (Trib) 409. 8. In his rival submissions, the ld. counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee had shown the land as stock in trade for the assessment year 2007- 08, which was accepted by the department vide assessment order dated passed u/s 148/143(3) of the Act, therefore, the Ld. CIT(A) rightly directed the Assessing Officer to treat the income of the assessee as income from business and not as income from capital gain. It was further stated that this Bench of the ITAT while deciding the appeal of Shri Manmohan Raj Singhvi Vs. DCIT in I.T.A No. 236/Jodh/2013 vide order dated 07/6/2013 held that the original owner of the land was Shri Rama Gameti i.e. the assessee, who purchased the land by raising the loans and sold the land to M/s S.S. Education trust and earned the profit, therefore, the Ld. CIT(A) was fully justified in directing the Assessing Officer to assess t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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