TMI Blog2016 (3) TMI 449X X X X Extracts X X X X X X X X Extracts X X X X ..... ermining its profit from business on account of Provision for leave encashment but has claimed such deduction only on the basis of actual incurring of liability which is paid in accordance with Sec.43B(f) of the Act. That has got nothing to do with the write back off excess provision for leave encashment. The CIT(A) has clearly brought out these aspects in his order. We are of the view that the factual conclusions and the legal inference based on those conclusions drawn by the CIT(A) are just and proper - Decided against revenue Disallowance on account of loss in Foreign Exchange Fluctuation, a contingent liability - CIT(A) deleted the disallowance - Held that:- We are of the view that in the light of the judicial pronouncement in the case of Woodward Governor India Pvt.Ltd. (2009 (4) TMI 4 - SUPREME COURT ) for the proposition that loss or gain on account of foreign exchange fluctuation as on the last date of the accounting year has to be allowed as a deduction u/s.37(1) of the Act on accrual basis, if such loss in account of loans availed on revenue account and the decision of the Tribunal in Assessee s own case on identical issue and keeping in mind the fact that the liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pacity but it was a decision to reduce costs, improve productivity and profitability and eliminate duplication of processes and costs besides environmental considerations. Hence, it cannot be said that either there was acquisition of new asset or deriving of any enduring benefit to the Assessee. Nor can it be said that the expenditure in question was not for the purpose of business but for the purpose of selling the land over which Guindy Plant was located - Decided against assessee disallowance on account of upfront fees paid to ICICI Bank - Held that:- Similar expenditure had been allowed in the past and there can be no other reason not to allow the expenditure in question as deduction while computing income from business - Decided in favour of assessee Sale of factory land at Guindy, Chennai - Capital Gain OR business profit - Held that:- without bringing any material on record merely based on some remote circumstances, an inference cannot be drawn that the Assessees indulged in an adventure in the nature of business or trade. We are of the view that the conclusion of the AO in this regard cannot be sustained. We also find that even in the decisions referred to by the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 68.17 lakhs out of the sum of ₹ 398.17 lakhs was transferred to Tea Division consequent to demerger of the tea division, in accordance with the scheme of arrangement approved by the High Court and these details are set out in para 2.1 of Schedule 19 of the Printed Accounts. Out of the remaining balance of ₹ 330 lakhs (Rs.398. 17 - ₹ 68. 17) an amount of ₹ 31.76 lakhs was written back out of the provisions made in the earlier years. Generally provision for leave encashment is made in the books of accounts on the basis of actuarial valuation done by Acturial Valuers. The actual liability that is incurred towards leave encashment may turn out to be either less or more than the provision for leave encashment debited in the books of accounts of the Assessee. The actual liability of the Assessee turned out to be less by ₹ 31.76 lacs than the provision that was created in the books of accounts of the Assessee. Therefore to the extent the Profit and Loss Account was debited in excess in the past by a sum of ₹ 31.76 lacs. The same needed to be offset by a corresponding credit in the profit and loss account. This is what the Assessee did in the computati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y waiver or write back or allowing benefit to the party could not be called payment. The claim of reduction from the computation of income towards write back of Provision for leave encashment of ₹ 31,76,000/- was not allowed by the AO. 6. Before CIT(A), the Assessee pointed that Accounting Standard 15 (AS 15) prescribed by the Institute of Chartered Accountants' of India requires every employer company to provide in the accounts; liabilities accruing during the relevant reporting period, in respect of benefits and emoluments to be provided at the time of retirement, superannuation or termination of service. Leave encashment benefit; to which employees become entitled for the services provided during the reporting period are therefore required to be provided in the accounts. As per the accounting policy consistently followed, the Assessee provides leave encashment liability on the basis of actuarial valuation. Such liabilities were provided annually by debiting it to the Profit Loss A/c. The Assessee further submitted that according to Income Tax department, the Provision for leave encashment constituted provision for a contingent liability and therefore not permissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or making provision for leave encashment, Assessee regularly obtained actuarial valuation of the said liability. Copies of the actuarial valuation reports were furnished. In the financial 'accounts for the year ended 31 .03.2004 and earlier; Assessee debited its profit loss account with each year's incremental leave encashment liability ascertained on the basis of actuarial valuation certificates. From the documents placed before the CIT(A), the CIT(A) was of the view that in the audited accounts of the immediate preceding 2 years Assessee had made provision for leave encashment for incremental liability accruing during F.Ys 2002-03 2003-04. In the regular assessments u/s 143(3) for A.Ys 2003-04 2004- 05 the incremental liabilities debited in the profit loss accounts but remaining unpaid to the extent of ₹ 39,39,082/- ₹ 64,96,8751- were however disallowed, u/s 43B(f) of the Act. Liability for Leave Encashment outstanding in the Assessee's books as on 31.03.2004, included said two sums disallowed in A.Y. 2003-04 2004- 05 which aggregated to ₹ 1,04,35,957/-. The CIT(A) further found that the Assessee followed a consistent practice whereby it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the first aspect to be noticed is that it was not the case of the AO that the sum in question should be brought to tax u/s.41(1) of the Act. It was only a submission made by the Assessee that the sum in question cannot be brought to tax. The CIT(A) on this aspect held that ordinarily write back of a trading liability on account of its cessation or remission does not constitute income. However Sec 41 (1) of the I T Act specifically creates a deeming fiction under which cessation or remission of a trading liability is considered to be business income of the assessee. Sec 41 (1) provides that even unilateral write back of a liability constitutes accrual of income of the year in which entry therefore is made in the assessee's books. The CIT(A) held that in order to invoke deeming provisions of Sec 41 (1) it is necessary for the AO to prove that in respect of the trading liability, for which the cessation or remission is allowed, assessee was allowed deduction in computing its business income of any year. The CIT(A) found that in the case of the Assessee, admittedly in AY. 2003-04 2004-05 when the assessee created provision for leave encashment, no deduction was allowed because of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 85, than the excess provision which was made earlier and had gone to increase the profit of the Assessee, had to be neutralized and ₹ 15 should be removed from the income in the Assessment Year in which the Assessee based on actual liability discovers that excess provision made in the earlier years. The Assessee has not claimed any deduction while determining its profit from business on account of Provision for leave encashment but has claimed such deduction only on the basis of actual incurring of liability which is paid in accordance with Sec.43B(f) of the Act. That has got nothing to do with the write back off excess provision for leave encashment. The CIT(A) has clearly brought out these aspects in his order. We are of the view that the factual conclusions and the legal inference based on those conclusions drawn by the CIT(A) are just and proper. We therefore confirm the order of the CIT(A) and dismiss ground No.1 raised by the Revenue. 11. Ground No.2 raised by the Revenue reads as follows: 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in deleting the disallowance of ₹ 256.32 lakh on account of loss in Foreign E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own case for AY 98-99 in ITA No.455/Kol.2003 order dated 12.1.2007 1099/Kol/2005 for AY 2000-01 order dated 29.6.2007, the Tribunal had allowed similar deduction claimed by the Assessee. The addition made by the AO was thus deleted by the CIT(A). Aggrieved by the order of the CIT(A), the revenue has raised Gr.No.2 before the Tribunal. 14. We have heard the rival submissions. We are of the view that in the light of the judicial pronouncement in the case of Woodward Governor India Pvt.Ltd. (Supra) by the Hon ble Supreme Court and the decision of the Tribunal in Assessee s own case on identical issue and keeping in mind the fact that the liability in question is on revenue account, the order of the CIT(A) does not call for any interference. Accordingly, ground No.2 raised by the Revenue is dismissed. 15. Gr.No.3 to 5, raised by the Revenue reads as follows: 3. Whether on the facts and in the circumstances of the case, the Ld. C!T(A) is correct in deleting the disallowance of obsolete stock written off in spite of the fact that the assessee neither made provision not written off such stock in P L Account. 4. Whether on the facts and in the circumstances of the case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and finished goods which had become obsolete and/ or damaged, having no realizable value. These stocks were lying at plants and depots situated at different factories/ depots across the country. The Assessee submitted that during the previous year particulars of such obsolete, non-serviceable useless stocks were obtained from the factories/depots and the same were written off from Revaluation Reserve account. The same were lying in stock and had already been offered for taxation in the respective years. Since the obsolete, non-serviceable useless stocks have been written off the same was claimed as business expenditure for the year. 17.2. The AO however disallowed the claim of the Assessee for deduction for the reason that no provision or write off for such obsolete stock, has been made in profit loss Account by the assessee, therefore claim of current Assets outside the P L Account could not be considered. Hence the claim for deduction of ₹ 3,30,99,581/- in the revised return of income was denied. Expenses for shifting of Chennai Plant: 17.3. As far as the aforesaid expenditure is concerned, the Assessee pointed out that it had two manufacturing plants in Che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his claim of Rs.l,57,42,006/- in the revised return of income was denied. Upfront fees paid to ICICI Bank: 17.5. The assessee had paid Upfront fee to ICICI Bank for conversion of Rupee Loan into Foreign Currency Loan. ICICI Bank claimed upfront fee of ₹ 25 crores vide their letter No.CE/2016 dated 29.09.2001. The same fee was negotiated and brought down to ₹ 20 crores as confirmed vide the assessee's letter dated 13.11.2001. Fee of ₹ 20 crores was amortised in 59 equal monthly instalments of ₹ 33.89 lakhs per month. The reason for such conversion was that interest on rupee loan is linked to the Bank s Prime Lending Rate (BPLR) whereas if the very same loan is converted into foreign currency loan than the interest on such foreign currency loan will be linked to LIBOR (London inter-bank Official rate). Because of LIBOR the interest burden of the Assessee got reduced by 9% to 10% and that was reason that the Assessee resorted to such conversion of rupee loan into foreign currency loan. The Assessee claimed that the said fee was paid by the assessee for reducing the burden of interest cost every year and was an allowable revenue expenditure while compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts on mercantile basis; deduction is permissible once the assessee establishes that a liability or loss accrued during the relevant year. In this regard reference was made to observation of the Supreme Court in the case of, Sutlej Cotton Mills Ltd Vs CIT (116 ITR 1):- It is now well settled that the way in which entries are made by an assessee in his books of account are not determinative of the question whether the asesseee has earned profit or suffered any loss. The assessee may by making entries which are not in accordance with proper principle of accounting conceal profit or show loss and entries made by him cannot therefore be regarded as conclusive one way or the other. What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee. It was pointed that in the present case the Assessing Officer has not disputed that the Assessee did suffer loss due to damage or obsolescence in stock of raw-materials, packing materials finished goods. The fact that the relevant particulars of said loss were furnished by the Assessee was also not disputed. The AO also did not find any infirmity eith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee did not write off the obsolete stock by debiting its profit and loss account but merely reduced 'the value of current assets in the Balance Sheet. 5.3. I am unable to agree with AO s reasoning for rejecting the appellant s claim. The judicial authorities have time and again held that the manner in which entries are made by an assessee in his books of accounts are not determative of the question as whether an assessee has earned profit or suffered loss. The particular manner in which the entries are made in books of account or absence of an entry in the books by itself cannot be considered to be conclusive one way or other. What is necessary to be considered by the AO is the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee. In .the appellant's case it is not denied by the AO that it regularly followed the accounting principle of lower of the cost or market value for valuing its inventory. It is also not disputed by the AO that in the course.of business of manufacture and marketing of dry cells, batteries, torches, packet tea etc the appellant regularly carried in its stock substantial quantity of raw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facturing operations in Guindy Plant was shifted to Tiruvottiyur Plant. The expenditure was therefore claimed to have been incurred in the course of business and for improving the efficiency and increase profitability and was therefore revenue in nature and had to be allowed as deduction. Reliance was placed on the following decisions in this regard CIT Vs. Madura Coats Ltd. 253 ITR 62 (Mad) and Bombay dyeing and Manufacturing Co. Ltd. 219 ITR 521 (SC). The Assessee also pointed out that on opening up of Indian Economy, in 1990 s liberalized imports of dry cell batteries were permitted by the Government. As a result Chinese companies started dumping cheap dry cell batteries in Indian market which put huge pressure on the Assessee s market share and profitability. This was another reason for centralizing operations at Tiruvottiyur Plant instead of in two plants in the same city. The Assessee also pointed out that the Guindy Plant was in the vicinity of the city and with growing city population the area where guindy plant was located became a predominantly residential area. There were environmental issues to be dealt with because of the consumption of zinc allots, electrodes, electro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Guindy to Thiruvattiyur. It appeared from the explanations which were on record that the appellant had 2 factories in Chennai; manufacturing same products i.e. Batteries and Dry Cells. The factory at Guindy was set up in 1971 whereas the factory at Thiruvattiyur was set up in 1989 within predominantly industrial area. Both the factories were manufacturing Dry Cell Batteries using same production techniques. After opening up of the Indian Economy, Chinese Dry Cell Manufacturers resorted to export of dry cell batteries at very cheap rates which necessitated the assessee to undertake extensive cost cutting measures to retain its market share and profitability. The work studies conducted by the assessee of its manufacturing operations showed that to improve productivity and reduce costs it was necessary to eliminate duplication of certain basic processes therefore it was found advisable to have a single production facility at Chennai. In order to eliminate duplication of cost, improve productivity and efficiency and increase profitability the assessee decided to centralize its manufacturing operations only et one location in Chennai. The raw-materials consumed in manufacture of, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. The purpose for shifting of machinery to another unit was efficient utilization of the plant. Tribunal found that the shifting of the plant did not result in acquisition of new assets. The AO disallowed the shifting expenditure holding it to be capital in nature. On appeal the Special Bench of the ITAT however held that the expenditure on shifting of the plant and reinstallation of the machinery was o' revenue expenditure as no new capital asset was acquired by the assessee but it only facilitated the assessee in carrying on its existing business more efficiently and profitably. In my opinion the facts of the appellant's case are identical to the facts involved in the case of ITC Ltd. Respectfully following the decision of the Special Bench of the ITAT Kolkata I direct the AO to allow the deduction for shifting expenses of ₹ 1,57,42,006/- in computing appellant's income under the head Profits Gains of Business . In view of this finding, appellant's alternate plea for allowing deduction for the expenses in computing income under the head Capital Gains is rejected. 19.2. Aggrieved by the order of the CIT(A), the Revenue has raised Gr.No.3 before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off upfront fees paid to IClCI Bank; over the unexpired loan period which at the time of conversion was 59 months i.e. from December 2001 to October 2006. In the financial accounts of the F.Ys. 2001-02, 2002-03 2003-04 the assessee wrote off pro-rata upfront fees of ₹ 135.59 Lacs, ₹ 406.78 Lees ₹ 406.78 Lacs respectively and the deductions therefore were claimed in AYs. 2002-03, 2003-04 2004-05 respectively. In the assessments u/s 143{3) of these 3 years, deduction for upfront fees paid to IClCI Bank was also allowed by the AO in computing business income. In the F.Y. 2004-05 the assessee instead of writing off the upfront fees to its profit loss a/c; debited it to Revaluation Reserve. A/c. According to AO the assessee's act of charging upfront fees to Revaluation Reserve A/c as opposed to profit loss A/c was fatal and for that reason the deduction was denied. 8.3 In my opinion the manner in which assessee made entry in his books of account was not material in deciding the question of allowability of the expenditure. This proposition find support in the decision of the Supreme Court in the case of CIT Vs Sutlej Cotton Mills Ltd (supra). The basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lizable value. The fact that the expenditure in question was written off against revaluation reserve and not charged to profit and loss account cannot be the basis to disallow a legitimate revenue expenditure and that entries in the books of accounts are not always conclusive in the matter of deciding whether a claim for deduction has to be allowed or not. The created a value for its brand Eveready and disclosed in the Asset side of the Balance Sheet and reduced therefrom the value of obsolete stock instead of reducing from the profit and loss account. Such presentation in the books of accounts will not in any way affect the claim of the Assessee for deduction of legitimate revenue expenditure. Write off in the profit and loss account of the previous year is not a condition for allowing deduction under Chapter IV D of the Income Tax Act, 1961 (Act). Any expenditure which is otherwise to be allowed in computing income from business under Sec.28 to 43 has to be allowed as a deduction. As held by the Hon ble Supreme Court in the case of Sutlej Cotton Mills Ltd. (supra) entries in the books of accounts is not decisive or determinative of the question whether the Assessee is entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure in the nature of trade. 26. We have already seen while deciding Gr.No.4 that the Assessee had two plants in the city of Chennai one at Guindy and the other at Thiruvottiyur. The Plant at guindy was closed and shifted to Tiruvottiyur. In respect of the land over which the Guindy plant was located, the Assessee had entered into a Joint Development Agreement with a builder. In the Return of income filed for the A.Y.2005-06 the assessee claimed that income from transfer of the land at Guindy, Chennai gave raise to income chargeable to tax under the head Capital Gain . The Revenue however claims that the income in question gave raise to income under the head Income from Business as the Assessee by entering into a development agreement with the developer had carried out an adventure in the nature of trade. This is the dispute in Gr.No.6 raised by the Revenue. 27. The details of the transfer of land at guindy, Chennai was that land admeasuring 8.39 acres at Guindy, Chennai was acquired by the Assessee in terms of an indenture executed by the Governor of Madras dated 30.11.1971. In terms of the said Indenture, the Government of Madras assigned the said land for an aggregate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the obligation to develop the said land by constructing buildings thereon was solely on the Developer. As per Para 3.0 the developer was liable to construct the building at its own cost and expenses; in accordance with sanctioned building plan. The Assessee was not obliged to incur any cost of construction nor was the Assessee obliged to perform any work in relation to development and construction. The constructed area allotted to the Assessee, as part of owner's allocation in the new building, was to be constructed by the developer solely at developer's own cost. The Assessee had, no obligation of any nature to perform any act, deed or thing for development and construction of the new buildings. Clause 9.1 of the said Agreement categorically provided that nothing contained in the agreement construed that there was a partnership business between the Assessee and the said developer or such agreement in any manner constituted an Association of Person. The said clause 9.1, categorically established that there was no JV between the Assessee and the developer in respect of the development' of the said property. In terms of the said agreement the Assessee and M/s. Khivraj T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king of risk. The expression venture' connotates chance plus risk. Uncertainty about the return to be received from the investment made and facing many imponderables and even the risk of losing capital are inherent in the activity called as business . On the contrary safety of the principal and regularity of the return are the principal attributes of Investment. The Assessee pointed out that since 1971-72, the factory land at' Guindy appeared in the Assessee's Balance Sheet as its Fixed 'Asset and not as Current Asset . The said land never constituted Assessee's stock-in-trade. The Assessee never dealt in the said land or any part thereof as a dealer or a property developer. The Assessee also pointed that it can be seen from the past records that the Assessee has never carried on business of property dealings nor the Assessee has ever carried on construction and development of Real Estate as its business. In none of the past assessments any income has been assessed from Real Estate development activity as Assessee's business income. The property at Guindy was assigned in 1971 specifically for the purpose of setting up a manufacturing unit. All along sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the said definition is applicable only in relation to a Capital Asset and therefore can be invoked only when income is assessed under the head Capital Gains . The Assessee pointed that in case of Development Agreement arising due to transfer of capital asset, the same would be covered under the provisions of sub clauses (v) (vi) of section 2(47) of the I.T.Act, 1961. 27.4. The AO on a consideration of the above submissions, however referred to Clause 4.5 of the Agreement which provides as follows: The owner agrees to hand over peaceful and vacant possession of the said Land together with the existing structures to the Developer on or before January, 31, 2005 and clause 6.7 states that In addition to the Owner's allocation, the Developer shall pay a sum of ₹ 25,00, 00, 000/- (Rupees Twenty five crores only) to {he Owner in the manner following: (a) A sum of ₹ 4, 00, 00, 000/- (Rupees Four Crores only) already paid the receipt of which sum the Owner doth hereby admit and acknowledge (b) The balance sum of ₹ 21, 00, 00,0001- (Rupees Twenty one crore only) at the time of the Owner handing over vacant and peaceful possession of the said. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und to decide the issue based on the principles laid down in other cases. P.M. Mohammed Meerakhan vs. CIT 73 ITR 735 (SC) According to the AO, the Assessee entered into a solitary or isolated transaction and converted land into constructed commercial unit and then sold it to outside parties and therefore indulged in an adventure in the nature of trade. (iii) CIT Vs. G. Venkataswami Naidu 35 ITR 594 (SC) wherein it was observed that: it is impossible to evolve any formula which can be applied in determining the character of isolated transaction which come before the Courts in tax proceedings. It would besides be inexpedient to make any attempt to evolve such a rule or formula. Generally speaking, it would not be difficult to decide whether a given transaction is an adventure in the nature of trade or not. It is the cases on the border line that cause difficulty. 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 profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot seek to deduce any rule from them and mechanically apply it to the facts before us. In this connection it would be relevant to refer to another test which is sometimes applied in determining the character of the transaction. Was the purchase made with the intention to resell it at a profit? It is often said that a transaction of purchase followed by resale can either be an investment or an adventure in the nature of trade. There is no middle course and no halfway house. This statement may be broadly true ; and so some judicial decisions apply the test of the initial intention to resell in distinguishing adventures in the nature of trade from transactions of investment. Even in the application of this test, distinction will have to be made between initial intention to resell at a profit which is present but not dominant or sole; in other 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g but an adventure in the nature of trade and the income from which is to be assessed as income from business. 28. On appeal by the Assessee, the CIT(A) deleted the addition made by the AO and held that the income in question had to be assessed under the head Capital Gain . The following were the relevant observations of the CIT(A): 9.4 After due consideration of terms of development agreement; conduct of the assessee before and after the agreement; applicable legal provisions and case laws available on subject, I am not in agreement with AO's conclusion. In my opinion the AO applied entirely wrong criteria's in deciding appropriate head of income. It is no doubt true that the Courts have held that even a single plunge in the waters of trade by an assessee may be sufficient to constitute the same as an adventure in nature of trade. It is however required to be demonstrated by the AO from the conduct of the assessee that. the plunge in the waters of trade was taken by the .assessee himself and not by somebody else, In deciding appropriate' head of income for assessment of profit accruing .on sale of land; it is necessary to analyze the conduct and object of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee at the time of purchase of the land in 1971 was to utilize the same in the course and for the purpose of its manufacturing business. Save and except conducting manufacturing business on the said land for more than 30 years the assessee did not utilize the land for any other purpose. There was no evidence on record which in any manner established that the assessee had intention or object to deal with the said land treating it to be stock in trade of its business of real estate development. In fact no material was brought on record I do by the AO which in any manner' established that any time in the past or in subsequent years the appellant!, WGJS found to be engaged in business of real estate development. These facts therefore established that appellant's object purpose and intent at the time of purchase of Guindy land was to own, hold, enjoy and utilize it for carrying on its manufacturing business. The very fact that for more than 30 years the appellant carried on manufacturing business on the factory land at Guindy and in the audited accounts the land appeared in the Balance Sheet as fixed asset clearly established that the appellant never entertained any desire or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 507) appeared to be relevant in this regard. In this judgment the Gujarat High Court had considered the judgment of Apex Court in the case of G.Venkataswami Naidu Co. V CIT (35 ITR 594) wherein the apex court had held that normally purchase of land represents Investments of money and not as a business venture. The Gujarat High Court held that! if there is no safety of capital invested and no certainty of regular return then it would be difficult to say that such transaction is an Investment. In the appellant's case however the transaction with Developer did not involve any risk being taken by the assessee. Irrespective whether the Developer made profit or incurred loss the appellant's entitlement to receive consideration was defined and fixed. These facts , therefore showed that neither at the time of purchase of the factory land in 1971 the assessee had objective of dealing with the property by way of stock in trade nor the assessee had any objective or intent to commercially exploit the land in question by undertaking an organized activity for developing it for deriving commercial gains. Even the terms of Agreement dated 07.12.2004 proved that no business or commerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll force in the submissions of the A/R that the appellant did not acquire land at Guindy .for the purposes of' business of real estate development and therefore the profit realized on its transfer was not chargeable under the head profits gains of business. 9.10 The decision of the Supreme Court in the case of Janaki Ram Bahadur Ram Vs. CIT (57 ITR 21) also supports the appellant's claim because the appellant was never engaged in business of dealing in land nor it was a case where assessee after purchasing the land; sub divided it into plots and thereafter sold. On the con /i~ry in the present case the assessee purchased the land in 1971 for setting,! tip a factory. After conducting manufacturing operation for more than 30 years the appellant disposed off the entire land by granting development rights in respect thereof for a definite consideration which was partly receivable in cash and partly in kind. On- these facts therefore I am in agreement with the submissions for the AIR that the decisions of the Supreme Court in the case of P.M.Mohammed Meerakhan Vs. CIT ( 73 ITR 753), Dalmia Cement Ltd Vs. CIT (105 ITR 633 ) Smt. Indramani Bai Vs. CIT (200 ITR 594) were n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee reiterated submissions made before the CIT(A) and relied on the order of the CIT(A). 32. We have given a very careful consideration to the rival submissions. In this regard the requirement of law for regarding a person having ventured into trade as laid down in judicial pronouncements have to be seen. The learned counsel for the Assessee has relied on several decisions of Hon ble High Courts and Hon ble Supreme Court. In the case of G. Venkataswami Naidu Co. vs. CIT (35 ITR 594) (SC), the Hon ble Supreme Court had to deal with a question as to whether purchase of land adjacent to mills of company and sale of land to company by managing agent of the company would constitute adventure in the nature of trade. The Hon ble Supreme Court observed that the question whether gain made out of purchase and sale of lands, whether it is an accretion to capital or capital profit may depend on particular facts and circumstances. The transaction itself should be looked at to see if it is essentially of a commercial character. A purchase and sale of land may be of that character but not necessarily so. If a person is systematically engaged in a series of transactions of purchase and sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of the total land area of 8.39 acres; the Assessee entered into an agreement for sale of land admeasuring 1.10 acres with Messrs Khivraj Motor Limited. The physical possession of the said 1.10 acres was transferred in F.Y.2003-04 and the gain arising there from was reported in the return for A.Y.2004-05 under the head Capital Gains in terms of Section 53A of the Transfer of Property Act, 1882 read with Section 2(47)(iv) of the Income-tax Act, 1961. (v) In respect of the remaining area of 7.29 acres the Assessee entered into an Agreement on 07.12.2004 with Messrs. Khivraj Tech Park Pvt. Ltd., granting it rights of development and construction of new buildings at a consideration and on the terms and conditions specified therein. As per Article III of the said Agreement dated 07.12.2004, the obligation to develop the said land by constructing buildings thereon was solely on the Developer. As per Para 3.0 the developer was liable to construct the building at its own cost and expenses; in accordance with sanctioned building plan. The Assessee was not obliged to incur any cost of construction nor was the Assessee obliged to perform any work in relation to development and construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are of land. Construction over the property took place in the year 2004- 05 and 2005-06. The sale by the Assessees of their share of 20% of built-up area, undivided share of land, open terrace, car park etc., took place only in the previous year relevant to AY 2006-07. In the sale deed, the reason for the sale has been mentioned as betterment and other reasons. By entering into the Agreement with the builder it cannot be said that the Assessees took a plunge into waters of trade. It was case where the Assessee wanted the best returns for its investment. Had the property been sold outright, probably the Assessee would not have got the price it got when it sold constructed area. By bargaining for constructed area, it cannot be said that the Assessee plunged into waters of trade. They have assumed little or no risk in the process. They never indulged in any adventure. There are no circumstances or past history or future events which would indicate that the Assessees wanted to carry out business or adventure in the nature of trade by entering into agreements for putting up constructions. We find that the AO has drawn inference from circumstances without further proof or enquiry. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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