TMI Blog2015 (4) TMI 634X X X X Extracts X X X X X X X X Extracts X X X X ..... capital asset. Then the amount of ₹ 5.5 crores received under the document by the owner would be liable to tax as capital gains. Now, the question before the court is not whether the ₹ 5.5 crores constitutes capital gains or not. The question is whether over and above ₹ 5.5 crores paid by the purchaser to the assessee would constitute capital gains. In that context, in the instant case, it is clear that the assessee had no intention to acquire a capital asset in lieu of transfer. His intention was only to identify a buyer for the property to bring about a sale transaction and any amount paid in excess of ₹ 5.5 crores is his profit minus the expenditure which he has incurred. It is clear from the recitals in the memorandum of understanding that even if the assessee is not able to get the purchaser who is willing to pay ₹ 5.5 crores 50,000 and pays less, the loss is to the account of the assessee. Only in the event of the purchaser is willing to pay more than ₹ 5.5 crores, that profit is his. Therefore, the transaction was entered into with a sole intention of making profits and gains from the aforesaid transaction and as such do not fall withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under the head Capital gains as ₹ 3,19,60,831. The said return was accepted under section 143(1) of the Income-tax Act, 1961 (for short hereinafter referred to as the Act ). Thereafter, the proceedings were initiated for reopening of the assessment. The assessee was issued notice. He entered appearance through a counsel, filed a detailed reply and requested to drop the proceedings. Thereafter, the assessing authority, after carefully considering all the relevant documents produced, was of the view that the transaction in question is in the nature of trade and, thus, profits/loss incurred in respect of the transaction would be business income and, accordingly, the assessee was taxed. 3. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals). The appellate authority after referring to various judgments and statutory provisions was of the view that the transaction involved could have been clearly seen as an investment transaction, had the appellant purchased it outright and then resold it. The time gap involved of over three years between purchase and sale and the fact that it is an isolated transaction made with own mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 received by the assessee for the purpose of finding a purchaser of the property of Mrs. Rubab Mohamed Ali Kazerani, at No. 1, Cubbon Road, Bangalore-01, which was sold for ₹ 11.87 crores and the owner paid ₹ 5.5 crores cannot be brought to tax under the head 'Business income' but should be brought to tax under the head 'Capital gains' ? 6. Learned counsel for the Revenue assailing the impugned orders contends that a reading of the MOU makes it clear that it is not an agreement to purchase the property. There is no intention on the part of the assessee to purchase this property as an investment. On the contrary, the terms of the MOU categorically state that the assessee offered to identify the buyer for and on behalf of the owner and, therefore, the MOU came to be entered into authorising the assessee to be the sole and exclusive person to identify the buyers for the schedule property or portion thereof. The owner informed the assessee that the total sale consideration acceptable is ₹ 5,50,00,000, which he received from the assessee. Further terms of the MOU clearly indicate that any amount in excess of ₹ 5,50,00,000 payable by a purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficulty. If a person invests money in land intending to hold it, enjoys its income for some time, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. Cases of realisation of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventures in the nature of trade. In deciding the character of such transactions several factors are treated as relevant. Was the purchaser, a trader and were the purchase of the commodity and its resale allied to his usual trade or business or incidental to it ? Affirmative answers to these questions may furnish relevant date for determining the character of the transaction. What is the nature of the commodity purchased and resold and in what quantity was it purchased and resold ? 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 for personal use, possession or enjoyment. Did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby made it more re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r words, cases do often arise where the purchaser may be willing and may intend to sell the property purchased at profit, but he would also intend and be willing to hold and enjoy it if a really high price is not offered. The intention to resell may in such cases be coupled with the intention to hold the property. Cases may, however, arise where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it. The presence of such an intention is no doubt a relevant factor and unless it is offset by the presence of other factors it would raise a strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive ; and it is conceivable that, on considering all the facts and circumstances in the case, the court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. We thus come back to the same position and that is that the decision about the character of a transaction in the context cannot be based solely on the application of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d property. As at that point of time the Urban Land (Ceiling and Regulation) Act, 1976, was in force and the property was more than ₹ 5.5 crores, the assessee agreed to obtain necessary clearance for the said Act and it was his sole responsibility. At that point of time, for completing of the sale transaction, permission of the Income-tax Department under section 269 the Urban Land (Ceiling and Regulation) Act was also necessary. Therefore, a clause was introduced stating the persons identified by the assessee should obtain the said clearance certificate and the owner in no way responsible for the same and she will only sign the requisite forms. The consideration of ₹ 5.5 crores was a net consideration and the assessee has to bear the cost of stamp duty and legal cost relating to transfer of property. As the second party will be incurring expenses for the purposes of developing and identifying buyers of the property belonging to the owner and that he has already paid ₹ 5.5 crores, the consideration the owner was expecting it was made clear the right that is conferred under the agreement is irrevocable. It was also made clear that after the second party identifies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , a registered sale deed came to be executed on May 10, 1999, both by the owner as well as the assessee in favour of said buyer. In the sale deed, it is recited that in the memorandum of understanding dated June 8, 1995, the owner appointed the assessee who was a confirming party to be the sole and exclusive person to identify buyers for the aforesaid property for a total sale transaction of ₹ 5,50,00,000 and the assessee has since paid the above sum to the vendor. Further, it is averred that the assessee has identified the purchaser and an agreement of sale dated June 30, 1998, was entered into and the purchaser got to purchase the property for a consideration of ₹ 11,87,00,776. The assessee also acknowledged a sum of ₹ 3,56,10,217 as advance payment. Therefore, through out the transaction culminating in the sale of the property in favour of the purchaser, the role of the assessee is that of a person identifying a buyer and for the services rendered by him, he is entitled to receive any amount received by him in excess of ₹ 5.5 crores. 12. As it is clear from the aforesaid judgment of the apex court that if a person invests money in a land intending to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of ₹ 5.5 crores received under the document by the owner would be liable to tax as capital gains. Now, the question before the court is not whether the ₹ 5.5 crores constitutes capital gains or not. The question is whether over and above ₹ 5.5 crores paid by the purchaser to the assessee would constitute capital gains. In that context, in the instant case, it is clear that the assessee had no intention to acquire a capital asset in lieu of transfer. His intention was only to identify a buyer for the property to bring about a sale transaction and any amount paid in excess of ₹ 5.5 crores is his profit minus the expenditure which he has incurred. It is clear from the recitals in the memorandum of understanding that even if the assessee is not able to get the purchaser who is willing to pay ₹ 5.5 crores 50,000 and pays less, the loss is to the account of the assessee. Only in the event of the purchaser is willing to pay more than ₹ 5.5 crores, that profit is his. Therefore, the transaction was entered into with a sole intention of making profits and gains from the aforesaid transaction and as such do not fall within the definition of capital ..... 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