TMI Blog2009 (1) TMI 866X X X X Extracts X X X X X X X X Extracts X X X X ..... wife had sold housing plots, in which the share of assessee was l/3rd. The assessee disclosed the sale of housing plots under the head Capital gain and computed a long-term capital loss of ₹ 1,95,480, after availing indexation benefit. The AO treated the said transaction as adventure in the nature of trade and accordingly computed profit on sale of housing plots at ₹ 3,88,916 and assessed the same under the head income from business. The AO relied upon the decision of jurisdictional Andhra Pradesh High Court in the case of CIT v. M. Krishna Rao 1978 CTR (AP) 287 : [1979] 120 ITR 101 (AP) and the decision of Hon'ble Supreme Court in the case of G. Venkataswami Naidu Co. v. CIT [1959] 35 ITR 594 (SC). Further, during the course of assessment proceedings, the AO noticed that a sum of ₹ 45 lakhs was found credited in the capital account of the assessee on 29th Sept., 2004 in the books of his business concern, with the narration sale of land . The assessee explained that he had earlier drawn funds several times, which aggregate to ₹ 45 lakhs, from the same concern between the period from 29th April, 2004 to 8th July, 2004 and they were brought back la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plan etc., and sale thereof would amount to adventure in the nature of trade and therefore the assessee's share of income from the sale proceeds was brought to tax under the head income from business. Accordingly, a sum of ₹ 3,88,916 was brought to tax under the head business income. 4.2 Aggrieved, the assessee contended before the CIT(A) that 1/3rd share in the land admeasuring Acs. 1.89 purchased jointly along with his wife and son for a total consideration of ₹ 2,36,250 on 22nd March, 1997 with an investment motive and not with an idea to do business in the real estate and the impugned land was sold to different persons after improving the same. There are no series of transactions and since the assessee is not in the line of real estate business, an isolated transaction ought not to have been treated as an adventure in the nature of trade. It was also submitted that the land was not shown as. stock-in-trade and it was purchased ten years back with a least desire to dispose of immediately as in business. 4.3 The learned CIT(A) observed that sanction for the layout plan was granted subject to several conditions, which are summarised as under : (a) The si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 DTR (Raj.) 361 : [2008] 304 ITR 194 (Raj.), learned counsel submitted that the intention of the assessee at the time of purchase of the asset is paramount and has to be taken as a decisive factor in order to consider as to whether proceeds upon sale of such asset are taxable under the head capital gains or an adventure in the nature of trade. He further submitted that it was an isolated venture and while deciding as to whether it was an adventure in the nature of trade or mere sale of a capital asset, whether the assessee carried on multiple transactions or embarked upon a single venture should also be taken into consideration and even by applying such tests, the profits earned on the sale of land should not be assessed to tax under the head business income and thus submitted that the assessee has correctly offered the said income to tax under the head 'Capital gains'. 4.5 On the other hand, learned Departmental Representative submitted that the decision rendered by the AO as well as the learned CIT(A) is based upon the principles laid down by the apex Court in the case of G. Venkataswami Naidu Co. (supra) and in the instant case the motive is clear as could be notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it all the Judges appear, to be agreed that no principle can be evolved which would govern the decision of all cases in which the character of the impugned transaction falls to be considered. When s. 2(4) refers to an adventure in the nature of trade it clearly suggests that the transaction cannot properly be regarded as trade or business. It is allied to transactions that constitute trade or business but may not be trade or business itself. It is characterized by some of the essential features that make up trade or business but not by all of them; and so, even an isolated transaction can satisfy the description of an adventure in the nature of trade. Sometimes, it is said that a single plunge in the waters of trade may partake of the character of an adventure in the nature of trade. This statement may be true; but in its application due regard must be shown to the requirement that the single plunge must be in the waters of trade. In other words, at least some of the essential features of trade must be present in the isolated or single transaction. On the other hand, it is sometimes said that the appearance of one swallow does not make a summer. This may be true if, in the metapho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sometime, 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 realization 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of reselling the same. The Tribunal had also observed that having regard to the background of the assessees, the transaction cannot be held to be an adventure in the nature of trade. On a reference, the High Court came to a contrary conclusion and thus the assessees carried the matter to the apex Court, wherein the Court observed as under : On the facts found, we cannot say that the High Court was in error in coming to the conclusion it did. On the other hand, the Tribunal seems to have made certain assumptions while coming to the conclusion in favour of the assessees, which were not really warranted. The Tribunal refers to the 'background of the ladies' as one of the circumstances inducing it to come to the conclusion in favour of the assessees but it has not taken care to elucidate what that background was. The fact that soon after the purchase, the assessees carved out the land into plots and sold them within a few months, coupled with the other circumstances of the case, is consistent more with the theory of adventure in the nature of trade than with the other theory accepted by the Tribunal. 4.6.4 In the case of M. Krishna Rao ( supra), the assessee purchased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant represent nothing more than an investment and if by resale some profit was realized that cannot impress the transaction with the character of an adventure in the nature of trade. The appellant, however, is a firm and it was not a part of its ordinary business to make investment in lands. Besides, when the first purchase was made it is difficult to treat it as a matter of investment. The property was a small piece of 280-1/4 cents and it could yield no return whatever to the purchaser. It is clear that this purchase was the first step taken by the appellant in execution of a well considered plan to acquire open plots near the mills and the whole basis for the plan was to sell the said lands to the mills at a profit. Just as the conduct of the purchaser subsequent to the purchase of a commodity in improving or converting it so as to make it more readily resalable is a relevant factor in determining the character of the transaction, so would his conduct prior to the purchase be relevant if it shows a design and a purpose. As and when plots adjoining the mills were available for sale, the appellant carried out his plan and consolidated his holding of the said plots. The appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by the Tribunal. In regard to the other relevant facts and circumstances in the case, none of them offsets or rebuts the presumption arising from the initial intention; on the other hand, most of them corroborate the said presumption. We must, therefore, hold that the High Court was right in taking the view that, on the facts and circumstances proved in this case, the transaction in question is an adventure in the nature of trade. (Emphasis, italicized in print, supplied) 4.6.7 A careful perusal of the observations of the apex Court would show that it would be impossible to formulate a single criterion to arrive at a conclusion as to whether the profit on sale of land gives raise to 'capital gains' or 'adventure in the nature of trade'. Whether the intention at the time of purchase of land was to hold it as an investment or stock-in-trade is only one test, out of a number of circumstances prescribed by the Court, to draw a presumption and as pointed out by their Lordships, the cumulative effect of all the circumstances has to be taken into account to draw a proper inference as to whether it falls in the category of an adventure in the nature of trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es considered by the apex Court in the case of Smt. Indramani Bai (supra), and by the Andhra Pradesh High Court in the case of M. Krishna Rao ( supra). 4.6.10 Since the view taken by the tax authorities on this aspect is based upon cogent reasons and in the absence of any evidence furnished by the assessee to reverse the conclusions drawn thereon, we do not find any infirmity in the order of the learned CIT(A). 5. The next issue pertains to the addition of ₹ 45 lakhs made under s. 68 of the Act. The assessee is maintaining books of account for his proprietary concern, Ramesh Auto Agencies . He has stated that he does not maintain any books of account for personal transactions except maintaining an account with Bank of Baroda, Governorpet Branch at Vijayawada. All his other transactions are routed through his capital account with Ramesh Auto Agencies and/or his bank account cited above. 5.1 The contention of the assessee is that three amounts aggregating to ₹ 45 lakhs credited in the capital account of the assessee in the books of his proprietary concern, Ramesh Auto Agencies, under the narration sale of land , are only the repayment, of amounts drawn from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The said withdrawals have not been deposited into any bank account. Such withdrawals and their redeposit without any purpose do not fit into regular trade practice. Learned Departmental Representative also relied upon following case law and submitted that the order of the tax authorities be upheld : (a) CIT v. Durga Prasad More 1973 CTR (SC) 500 : [1971] 82 ITR 540 (SC); (b )Sumati Dayal v. CIT [1995] 125 CTR (SC) 124 : [1995] 214 ITR 801 (SC). 5.3 In the rejoinder, learned Authorised Representative submitted that the assessee, though does not maintain personal books, has explained all the credits appearing in the capital account of his business concern. The transactions in the capital account have not been doubted either by AO or learned CIT(A). The narration sale of land only has created doubt in the minds of the tax authorities, which is not supported by any material. 5.4 We heard the contentions and perused the record. On a careful reading of the orders of tax authorities, we notice that the narration attached to the credit of the impugned amount of ₹ 45 lakhs viz., sale of land has prevailed over their mind in bringing the said amount to tax under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not hold good. Even if the said assumption is held to be correct, what is taxable under the IT Act is the profit element out of such transaction. Similarly, the piecemeal withdrawals spread to 22 occasions go against the claim of the assessee that they have been utilized to give advances for purchase of land, particularly in view of the absence of details about the number of deals entered for such purpose that necessitated making such withdrawals on several occasions. Certainly, for a single transaction, 22 separate payments are not normally made. 5.7 The decisions relied upon by the assessee are riot strictly applicable to the facts of the present case in the sense that in those cases, there is no claim with regard to the manner of utilization of the cash that was claimed to be available. In those cases, in the absence of any material to suggest that the assessee had spent away the cash so claimed to have been available, the Courts have accepted the claim of the assessee. In the instant case there is a possibility to conclude that the assessee has indulged into certain business activities may be related to land, by using the amounts so withdrawn from his business concern. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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