TMI Blog2017 (7) TMI 536X X X X Extracts X X X X X X X X Extracts X X X X ..... sable under the head ‘income from business’ or under the head ‘ income from capital gains - application of the provisions of section 50C - Held that:- The income from sale of land is assessable under the head ‘income from business’, but not under the head ‘income from capital gains’. We further observed that the assessee has filed necessary evidences to prove, he had converted his capital asset into stock-in-trade, developed the said land before it was sold. The assessee has computed resultant profit from sale of the land by applying the provisions of section 45(2) of the Act. When the income is computed under the head ‘income from business’, the provisions of section 50C of the Act has no application for determination of full value of consideration for the purpose of computation of capital gain. The CIT(A) after considering the relevant provisions of the Act and also submissions of the assessee rightly directed the A.O. to delete additions made towards computation of capital gains. - Decided in favour of assessee. - I.T.A.No.45/Vizag/2013 - - - Dated:- 9-6-2017 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER For The Appellant : Shri T.S.N. Mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DS is not deducted on such payments. 4. The A.O. further observed that during the financial year relevant to assessment year 2007-08, the assessee has computed long term capital gain from sale of lands. Therefore, issued a show cause notice and asked to furnish necessary details of computation of capital gain along with evidences. In response to show cause notice, the assessee submitted that he had purchased an agricultural land admeasuring 2 acres 95 cents situated in survey no.215/1, Ayyappa Nagar in the year 1980. The assessee further submitted that the said land has been converted into stock-in-trade as on 31.3.2006 for the purpose of formation of lay out. The assessee further submitted that he had converted its capital asset into stock-in-trade, formed layout and sold and accordingly computed profit arising out of sale of land under the provisions of section 45(2) of the Act. 5. The A.O. after considering explanations of the assessee and also analysis of the provisions of section 194C of the Act, observed that the assessee has paid freight charges without deduction of tax at source u/s 194C of the Act, even though the payments exceeds the threshold limit fixed for deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued by the auditor u/s 44AB of the Act, clearly specified that during the financial year relevant to assessment year there is no conversion of any capital asset into stock-in-trade. Therefore, opined that the assessee has failed to file necessary evidences to prove, he had converted his capital asset into stock-intrade. The A.O. further observed that the assessee has no intention at the time of purchase of agricultural land to resale, and he has not placed any material evidence to show that the agricultural land was converted into stock-in-trade. Further, the assessee failed to place any evidence to brand the activity as business. On the contrary, the material evidence available on record show that the assessee received amount on realization of investment only. Hence, the purchase of agricultural land and holding it as capital asset till 31.3.2006 and sale of the same by marking into plots and receipt of sale consideration should be treated as income from capital gains. With these observations, and also by following certain judicial precedents, the A.O. held that the sale proceeds from sale of land should be assessed under the head income from capital gains but not under the hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the payments are coming within the ambit of the provisions of section 194C of the Act. But, the fact is that the assessee himself has undertaken the responsibility of the goods. The lorry owners does not take any responsibility, therefore, the question of application of the provisions of section194C of the Act is unwarranted. 8. In so far as computation of long term capital gain on sale of land, the assessee submitted that he had converted his capital asset into stock-in-trade and formed plots and computed resultant profit under the provisions of section 45(2) of the Act. The A.O. ignored the provisions of section 45(2) of the Act, and re-computed profit arised from the sale of land under the head income from capital gains merely on the ground that the assessee has failed to prove conversion of capital asset into stock-in-trade. But, the fact remains that he had converted capital asset into stock-in-trade as on 31.3.2006, which is evident from the fact that he had computed income arised from sale of land under the provisions of section 45(2) of the Act. The A.R. further submitted that he had developed the land into plots, and the plots were sold immediately after development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. But, the assessing officer is of the view that there is no business activity carried on by the assessee particularly in view of the fact that the stock converted on 31.3.2006 was not shown in the balance sheet. But, the assessee has filed necessary evidences to prove that he had converted his capital asset into stock-in-trade. Once conversion cannot be doubted, the provisions of section 45(2) of the Act come into play and the income is to be determined in accordance with the said section. With these observations and also by following the decision of ITAT, Mumbai bench in ACIT Vs. Jahangir reported in 20 SOT 512, held that the A.O. is incorrect to doubt the genuineness of such conversion and also compute the income under the head income from capital gains. In so far as application of the provisions of section 50C of the Act, the CIT(A) observed that when income is computed under the head income from business the provisions of section 50C of the Act has no application. Accordingly, directed the A.O. to determine the income based on the actual consideration received from sale of land. Aggrieved by the CIT(A) order, the revenue is in appeal before us. 11. The first issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) of the Act, would clearly indicate that there should be a contract between the parties for carrying out any work. If there is no contract and the amounts were paid directly for engaging the vehicles temporarily for delivering the goods, it would not fall within the provisions of section 194C of the Act. 13. In this case, on perusal of the facts available on record, we find that the assessee is entered into a transport contract with M/s. ITC Limited for transportation of goods from its manufacturing facilities to various places. In the process, the assessee has hired vehicles and deployed the vehicles to M/s. ITC Limited for transportation of goods. As per the agreement entered into with ITC Limited, the total responsibility of transportation of goods is rest with the assessee. In the event of any damage caused to the goods, it is the responsibility of the assessee to bear the cost of goods. The lorry owners/drivers does not undertake any responsibility. They merely deploy the vehicle at the disposal of the assessee and the assessee has to hire the vehicles and make payment directly to the drivers or the lorry owner. We further observed that the A.O. has treated the said payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, telecasting, carriage of goods and passengers by any mode of transport other than by railways and catering. For the purpose of impugned controversy, the carriage of goods and passengers by any mode of transport other than by railways is considered to be the work which can be assigned to the contractor or subcontractor for its carrying out. [Para 11] In the instant case, the assessee is a transporter and books the consignment of different parties for its transportation. Sometimes, the assessee hires the trucks and lorries of others for the transportation of the consignment booked by it. The assessee has made out a case that he has simply hired the lorries and trucks to transport its consignment under its own control and supervision. The movement of trucks and lorries are governed by the assessee itself and not the truck owners. Truck owners simply hire out their trucks for its use by the assessee against certain hire charges. The revenue has not made out a case that the assessee has engaged or hired the trucks for transportation of the consignment booked by it under the control and supervision of truck owners. Therefore, the assessee has not assigned any work to the lorry/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r (Appeals) had recorded a finding of fact that there was neither any oral or written agreement between the assessee and the transporters for carriage of goods, nor had it been proved that any sum of money regarding freight charges was paid to them in pursuance of a contract for a specific period, quantity or price. That finding of fact was recorded by the Commissioner (Appeals) after considering the certificates furnished by the transporters. The Tribunal had also recorded a finding of fact that the department had not controverted the said finding of the Commissioner (Appeals) even before it. While recording the finding of fact, the Tribunal bad clearly stated that nothing had been brought on record by the Assessing Officer to prove that there was any written or oral agreement between the alleged parties for carriage of the goods. In view of that, no interference was called for with the finding of fact recorded by the Tribunal. The appeal, being without merit, was to be dismissed. 16. In this view of the matter and also considering the ratios of the case laws discussed above, we are of the view that the expenditure incurred by the assessee under the head freight charges is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort issued by the tax auditor clearly indicates that during the financial year relevant to assessment year, there is no conversion of capital assets in to stock-in-trade or vice-versa. According to the A.O., the assessee never had involved in any business activity of real estate development. The A.O. further was of the opinion that the activity undertaken by the assessee is not in the nature of adventure in the nature of trade or commerce. 18. It is the contention of the assessee that he had converted his capital asset into stock-in-trade as on 31.3.2006, developed said lands into plots before it was sold and computed resultant profit by applying the provisions of section 45(2) of the Act. The assessee further contended that he never carried out any business activity during the previous year ended 31.3.2006, except conversion of land into stock-intrade, therefore, no profit and loss account was drawn in so far as the business activity of real estate is concerned. It is also submitted that the entries in the books of accounts are not relevant for determining the nature of transactions. The tax auditor has issued audit report in respect of its transport business, therefore, he did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions, both of purchase and of sale. Even a single and isolated transaction can be held to be capable of falling within the definition of business. Whether a transaction is in the nature of trade and commerce must be decided on the facts and circumstances of each case. The activity alleged/claimed to be an adventure in the nature of trade need not be allied to be the already existing activity of the assessee. The activity or the transaction said to be an adventure in the nature of trade must be with the object of earning profit. Therefore, to decide whether a particular transaction is in the nature of trade or commerce or it is in the nature of realization of investment by sale of capital asset has to be decided based on the facts and circumstances of each case. 21. In this case, on perusal of the facts available on record, we find that the assessee has purchased an agricultural land in the year 1980. The assessee has sold the impugned land in the financial year relevant to assessment years 2007-08. The assessee claims to have converted his investment into stock-in-trade as on 31.3.2006, developed the said land into various plots before it was sold. From this, it is very c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of computation of capital gains, we find that the A.O. has adopted full value of consideration received as per the provisions of section 50C of the Act to determine the capital gain on the ground that the activity carried out by the assessee is not in the nature of adventure in the nature of trade or commerce and it is the realization of sale of capital asset. Since, we hold that the activity carried out by the assessee is in the nature of adventure in the nature of trade or commerce and the resultant profit is assessable under the head income from business the provisions of section 50C of the Act has no application, when the income is computed under the head income from business or profession . 24. Now it is pertinent to discuss case laws relied upon by the assessee. The assessee has relied upon the decision of Hon ble High Court of Andhra Pradesh, in the case of CIT Vs. M. Krishna Rao reported in 120 ITR 101. The Hon ble High Court, under similar circumstances, held that when the assessee purchased the land, divide them into plots and sold the plots within the period established, then the intention of the assessee was to carry on the adventure in the nature of trade. The re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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