TMI Blog2017 (6) TMI 521X X X X Extracts X X X X X X X X Extracts X X X X ..... received - Assessee had not furnished any explanation in respect of the intention of showing trading of share - AO has also not doubted the genuineness of the documents placed on record by the assessee - hence no disallowance can be made - Decided in favor of assessee - ITAT No. 105 of 2016, G.A. No 434 of 2016 - - - Dated:- 8-5-2017 - Aniruddha Bose And Arindam Sinha, JJ. For Appellant : Mr. Debasish Chaudhury, Adv. For Respondent : Mr. J.P. Khaitan, Senior Advocate Mr. P. Jhunjhunwala Ms. S. Das ORDER The Court : This appeal by the Revenue is against an order of the Income Tax Appellate C Bench passed on 29th April, 2015 dismissing the Revenue s appeal in relation to assessment of the assessee for three assessment years, being 2003-04, 2004-05 and 2006-07. Assailing the Tribunal s decision, argument has been made on behalf of the Revenue before us mainly on three counts. The assessee had undertaken development of its immovable property on the basis of an agreement executed on 28th January 1994 and question has arisen in course of assessment as to whether such developmental activities would constitute adventure in the nature of trade or not and profit fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 28th January 1994 in relation to that property with another company, The Right Address Ltd.(TRAL). The said development agreement was followed by a supplementary agreement dated 19th February, 1997 and a Memorandum of Understanding of 18th September, 2002. (3) The arrangement between the assessee and TRAL was that a new structure was to come up in place of the subsisting one at the cost of the developer and the assessee was to get 49.29% of the developed property along with undivided share of land in the same proportion, the rest going to the developer, though initially the agreement was that the assessee s allocation would be 59% of the Floor Area Ratio to be sanctioned by the municipal authorities. The assessing officer, treated the gain on transactions from sale of flats as business income. The Revenue s stand, as argued by Mr. Chaudhury, learned counsel is that such development arrangement was an adventure in the nature of trade and the immovable property for the relevant assessment years ought to be treated as stock in trade as it had changed its character subsequent to execution of the development agreement. Mr. Chaudhury has sought to strengthen his argument on thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his judgement, certain factors were stipulated by the Supreme court to be relevant for determining this question which would appear from the following passages of the judgement:- As we have already observed it is impossible to evolve any formula which can be applied in determining the character of isolated transactions 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. (i) 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 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. (ii) Was the purchaser a trader and were the purchase of the commodity and its resale allied to his usual trade or business or incidental t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sell 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 half-way 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 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 I no doubt a relevant factor and unless it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assets was considered to be a major factor to determine a question of this nature, and the length of time the property was held by the assessee was also considered by the Court in each case to deal with the questions raised in those cases. On that yardstick, the Commissioner and the Tribunal rightly decided the issue in favour of the assessee in this appeal. In Razia Sulaiman (supra), the fact that the assessee was not in the business of selling of sites or flats weighed in favour of the assessee. In the cases Sohan Khan (supra) and Shanti Banerjee (supra) the same factors were applied to reject Revenue s contention that development of immovable properties with aid of a builder and income generated from sale of flats of the developed property per se would not render such income to be taxable as business income. So far as assessee in this appeal is concerned, no material has been brought to our notice that it had carried on the business of property development. In the absence of any evidence that the assessee undertook the business of property development, the object clause in the memorandum cannot be treated to be determining factor to conclude that this was part of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more than 10% equity capital in the engineering company. To that extent, applicability of Section 2(22)(e) is not altogether precluded but the question here is whether this amount can be taxed at the hands of the assessee as deemed dividend. Mr. Khaitan has referred to a decision of a Coordinate Bench of this Court in ITAT No. 74 of 2013 (Commissioner of Income Tax, Kol. III Vs. M/s. Baljit Securities Pvt. Limited) decided on 24th June, 2013. In this judgment, it has been held by the Coordinate Bench that the definition of dividend has been enlarged by a legal fiction but in a situation of this nature, it would be the common shareholder who is to be taxed and not the recipient company. There are two other authorities, of the Bombay High Court in the case of Commissioner of Income Tax Vs. Universal Medicare Pvt. Ltd. reported in (2010) 324 ITR 263 (Bom.) and of the Delhi High Court in the case of Commissioner of Income Tax Vs. Ankitech Pvt. Ltd. [(2012) 340 ITR 14 (Delhi)] laying down this proposition or principle of Law. (10) Mr. Khaitan submits that three situations are conceived in Section 2(22)(e) of the Act to expand the meaning of the term Dividend beyond what is nor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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