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TMI Blog2010 (9) TMI 1118X X X X Extracts X X X X X X X X Extracts X X X X ..... gned land for the sole purpose of appreciation of the investment. Under the facts and the circumstances of the case, ld. CIT(A) ought to have held the surplus arising from said land transaction as short term capital gain as computed and claimed by the assessee. 2. The learned CIT(A) has erred in law and on facts in not adjudicating the ground raised by the assessee in respect of disallowance of expenses incurred claimed as cost of improvement of the asset, for converting the impugned land from agriculture to non agriculture. Ld. CIT(A) ought to have allowed such expenditure claimed by the assessee. 2. Facts in brief as emerged from the corresponding assessment order passed u/s.143(3) of the I.T. Act, 1961 dated 24/02/2010 were that the assessee in his individual capacity has filed the return of income at ₹ 5,79,46,830/-. The appellant is stated to be a Director in several Companies, therefore, as per Income Tax Return disclosed salary income, dividend income and income from other sources. The main discussion in the assessment order was in respect of a plot of land which was sold by the assessee during the year under consideration. It was noted by the Assessing Officer that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al land into non-agricultural land. Further as per A.O. the assessee had also taken steps to get consolidated these two pieces of lands. The appellant has also made efforts to get the clearance from the AUDA Authorities. The AUDA Authorities have deducted 3174 sq.mtrs. from the total area of land of 9611 sq.mtrs. and allowed to transact the balance land admeasuring 6437 sq.mtrs. Prima-facie those were the reasons on the basis of which the Assessing Officer had issued a show-cause notice asking the assessee to explain as to why the land transaction in question be not held as 'an adventure in the nature of trade'. In compliance, the assessee has furnished the following reply:- "i. Your goodself has called for the reasons for as to why the gains occurred on account of land transactions in respect of survey No.147, Tal: Daskroi, Village Sola should not be considered as business transactions:- Please note the said show-cause notice is defective, illegal and bad in law as much as the said notice doesn't contain even single reason as to why your goodself wants to treat the aforesaid transactions, as a business transactions. Further note that the above referred transaction should never ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make a plots and then sale it to the different persons. Hence, if I had an intention of profit then I might convert the land into the small pieces, develop it and sale it to the different persons. This is not so in my case. Hence, it could never be presumed to be an adventure in nature of trade or commerce. 6. Further, I have never spent any single Rupee on of sale of my land nor devoted any time to fetch higher prices for the said land. This can be verified from my capital gain statement that I have never claim any expenditure on brokerage Exps. Nor spent single Rupee on any advertisement. This clearly shows that I have never intention to get the better price or more profit in short term. Further, I have not utilized that money to purchase again either the new agriculture or non agriculture land. This shows that intention of sale of land was not do business in land." 2.2. The Assessing Officer was not convinced and in his opinion, the transaction in question was nothing but an adventure in the nature of trade. To adopt that recourse the Assessing Officer has mentioned certain reasons, in short, as follows:- (i) Investment out of own funds without borrowing has no bearing on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration ₹ 34,32,34,800/- Less: Purchase cost & Expenses ₹ 24,29,069/- Add: Penalty paid disallowed ₹ 2,57,800/- ---------------------------- ₹ 34,10,63,211/- -------------------------------- The total income was assessed at ₹ 35,20,56,417/-, and there was a claim of Short Terms Capital Loss in share transaction of ₹ 29,29,24,958/- which was allowed to be carried forward. 3. Being aggrieved, the matter was carried before the first appellate authority. The Learned CIT(Appeals) has accorded due opportunity of hearing to the appellant as well as the Revenue Department. After narrating the facts of the case and the case laws cited from both the sides he has examined the conveyance-deeds in question. In his opinion, to determine whether or not a transaction was an adventure in the nature of trade the same depends upon commercial background and the social economic conditions. In his opinion, at the time when the investment was made, then as per the 'Banakat' the title of the venders was in dispute. The assessee has pursued the venders to get the titles cleared. The steps thereafter taken by the assessee, as per Learned CIT(Appeals), were of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks of accounts. Moreover, the assessee has filed wealth-tax return for the purpose of disclosing the asset as a capital asset and not as a business asset. Had the assessee treated the land in question as business asset, then as per the provisions of the wealth-tax Act, the same could have been claimed as an exempted asset. Instead the assessee has shown the land as a capital asset to avoid any controversy. The erudite pleading was that on one hand the asset in question was treated as a capital asset by the Rev. Deptt. hence charged Wealth Tax and on the other hand treated the same asset as a business asset for the Income tax purposes. The Learned Authorised Representative of the assessee has also mentioned that at the time of purchase, there was no serious threat to the title of the property and that fact was informed merely to substantiate the claim of expenditure incurred for the transaction of the property. However, as per Mr. Soparkar, the facts were otherwise and there was no dispute in the title and after some adjustment, that too was cleared within a short span of time. The Learned Authorised Representative of the assessee has also informed that, one, the conversion of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trs. Undisputedly, the piece of land was sold on 23/08/2007 to M/s.Urbanedge Hotels Pvt.Ltd. for a consideration of ₹ 34,32,34,800/-. It is a settled legal proposition that the objective since inception of a deal is one of the major criterion to answer the dispute in hand and therefore the circumstances present at the time of purchase have to be examined to determine as to whether the intention of the assessee was to invest the money for business purpose so as the intention was to enter into a business of Land dealing or it was an investment to en-cash at an appropriate time if the circumstances so permit as it happens generally in the case of a normal investor. We have also to ascertain whether a business like efforts have been made to earn profit on sale of land in question. 8.1. It was a controverted fact that whether the title of the property at the time of purchase was disputed one or not? Though in a letter, the assessee had informed that he had to work hard to clear the title of the property, but later on, he has also informed that the steps were taken only to minimize the litigation. Those actions were stated to be taken by the vendors. According to Learned Authoris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee has never entered into any trade or business of Real Estate. It has been categorically stated before us that even those sister-concerns were never in Real Estate business. In the light of the factual analysis of all those facts of the case , following salient features have been noticed :- (i) The appellant as an individual has never entered into any sale and purchase of land in the past, hence, this assessee cannot be treated as a business man dealing in Real Estate. (ii) The land transaction in question was a single land transaction and sold to one party, which means no plotting has been done by the assessee as it generally happens in the case of Land Developers. (iii) The assessee has not made any developmental activity on the plot, such as, an earth filling, construction of boundarywall or expenditure on lay out plans etc. (iv) That, the details of expenditure have shown that apart from the investment towards cost of land, the other expenditure in the nature of payment of AUDA in consolidation, land measurement fees, and a fees paid to Collector, education cess, land tax and payment to Gram Panchayat, were nothing but in the nature of procurement of an asset ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estate or purchase & sale of land , rather they are in the business of Road construction. (xiii) The transaction in question was a solitary transaction and not the series of transaction as it happens in the normal business activity where the money is rotated by continuous cycle of trading. 9.1. In the context of the above observations, we have examined few case laws as cited from the side of the appellant. (A) Deep Chandra & Co. vs. CIT (107 ITR 716)[Allahabad] The Hon'ble Court has opined that the question whether profit earned in any transaction had arisen out of adventure in the nature of trade is a mixed question of law and facts and such a question fall within the realm exclusive facts of each case. The mere fact that the land is purchased with a view to re-selling under favourable conditions does not by itself give rise to a circumstance to hold that the land was purchased with the intention to enter into a trade. The conduct of a purchaser should be inconsonance with the investment and, thereafter realization of investment on sale and in the absence of any other circumstances it is to be held as the surplus money so received was a capital gain. The activity of parcel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction:- (a) The first test is whether the initial acquisition of the subjectmatter of transaction was with the intention of dealing in the item, or with a view to finding an investment. If the transaction, since the inception, appears to be impressed with the character of a commercial transaction entered into with a view to earn profit, it would furnish a valuable guideline. (b) The second test that is often applied is as to why and how and for what purpose the sale was effected subsequently. (c) The third test, which is frequently applied, is as to how the assessee dealt with the subject-matter of transaction during the time the asset was with the assessee. Has it been treated as stock-in-trade, or has it been shown in the books of account and balance sheet as an investment. This inquiry, though relevant, it not conclusive. (d) The fourth test is as to how the assessee himself has returned the income from such activities and how the Department has dealt with the same in the course of preceding and succeeding assessments. This factor, though not conclusive, can afford good and cogent evidence to judge the nature of transaction and would be a relevant circumstance to be consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the profit can be taxed as business otherwise not. If the transaction is frequent with a commercial spirit to make profit by trading then the settled principle is that the same is in the nature of trade but on the same breath, it is also admirable that whether the profit from such transaction is Revenue or a capital receipt and this question is always a mixed question of law and fact. 10. From the side of the Revenue, case laws relied upon has also to be discussed and if distinguishable on facts, then the distinction has to be placed on record :- A) CIT vs Jawahar Development Association 127 ITR 431 ( M.P.) It was held that the activity of purchasing of land and selling them into plots, constitutes an adventure in the nature of trade. The mere fact that the land was agriculture land could not make the profit arising from sales exempt from Income tax. Facts were altogether distinguishable reason being that in the present appeal there was no attempt what so ever to sale the land in question after converting into plots. Primarily on this basic difference the reliance can be said to be misplaced. B) R. Dalmia vs CIT 137 ITR 665 ( Del.) The observation was, " the findings of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was not a dealer in land nor treating land as stock-in-trade, therefore held not an adventure in the nature of trade. We can make a remark that this judgment rather supports the legal proposition as laid down by us hereinabove. E) JANKI RAM BAHADUE RAM vs. CIT …57 ITR 21 ( SC) ------ Assessee was a dealer in iron scrap. Assessee sold one factory. A.O. taxed the profit . It was an isolated transaction. The Honble court has held that the appellant had no intention to start a venture in the nature of trade by purchasing the property. It was held that the absence of advertisement , inviting offers , absence of broker , purchaser himself approached the assessee and the property capable of being rented out , held there was no adventure in the nature of trade involved . On examination of the facts of this precedent we can hold that the law laid down therein do support the stand of this appellant. F) Smt Parvathi Devi & Ors. Vs. CIT 164 ITR 675 (A.P): ---- Facts were that the four persons jointly purchased large chunk of lands, and converted into non-agriculture use. Lands were jointly sold to Housing Society with in a period of fifteen months. It was found from the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld thereafter through the medium of the bogus firm, then the whole transaction was adventure in nature of trade. We have carefully perused this precedent as well and have noticed that the intention from the beginning has to enter into a venture in the land purchase. Due to this reason, the land was converted into an asset of the firm. This step of converting a personal asset into a business asset of a firm itself demarked a significant difference. Primarily due to this reason, the cited decision cannot be considered at part with the present appeal. 11. In the light of the detailed foregoing discussion and on consideration of the evidences placed on record as well as in view of the legal propositions laid down by the Hon'ble Courts, we hereby hold that the asset in question was not purchased with the object to enter into the trade of land-dealing; because after this transaction or before this transaction there was no evidence of any such activity ever carried out by this assessee. We have also perused the expenses incurred by the assessee and the nature of those expenses are mainly towards payment of legal charges, or prescribed fees for consolidation of the plots, or for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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