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TMI Blog2017 (12) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) and 142(1) were issued and served upon the assessee. On scrutiny of accounts it revealed to the Assessing Officer that assessee has derived income from trading in plastic, cotton and steel, also shown profit of Rs. 3,52,19,658/- from sale of agricultural land situated at village : Paddhar, Tal : Bhuj- Kutch. This profit has been claimed as exempt on the ground of that the said land is not a capital asset within the meaning of Section 2(14) of the IT Act, 1961. 4. Ld. Assessing Officer did not accept the contentions of the assessee and treated him as a trader in the land. He assessed the alleged amount as business income. 5. On appeal ld. CIT(A) has partly accepted the contention of the assessee. He confirmed the assessment of Rs. 2,60,55,922/- under the head "business income" and accepted the contention of the assessee qua the balance amount. The revenue is challenging the order of ld.CIT(A) qua the amount, which has been accepted as assessable under the head "capital gain" and exempt from tax being arisen on sale of agriculture land. On the other hand, assessee is impugning the order of the ld.CIT(A) for assessing the balance amount of Rs. 2,60,55,922/- under the head busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellate authority accepted the assessee as an investor in agriculture land, same would not result any capital gain, because the asset possessed by the assessee was not a capital asset within the meaning of section 2(14)(iii) of the Act. 10. Thus, at this stage, let us first note the facts in a little more detail. It is pertinent to observe that assessee is an agriculturalist by inheritance. He purchased agricultural land comprised in Survey No.563/2 and 564 admeasuring 10.18 Acre at village Paddhar Tal. Bhuj in Kutch District in the month of April 2005 for consideration of Rs. 84,600/-. Brother of the assessee has also purchased the adjoining agricultural land comprised at Survey No. 559/1, 562/1 and 563/1, subsequently, in the month of Feb- March 2007. They have purchased further land in Survey No. 567/1, 567/2 admeasuring 4.33 and 9.23 Acre. This land was purchased for a consideration of Rs. 22,000/- and Rs. 43,600/-. The assessee has sold the land in July-August 2008. The details have been noticed by the ld. first appellate authority, while taking cognizance of the submissions made by the assessee. Such details read as under:- Sr. No. Survey No. of Village Paddhar Name of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether such user of the land was for long period or whether it was of a temporary character or by any or a stopgap arrangement? It was not for stopgap arrangement but the intention was for longer period. 4. Whether the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land? The crop of Juwar was given to the trust/Panjarapol for cattle feeds. 5. Whether, the permission under Section 65 of the Bombay Land Revenue Code was obtained for the non-agricultural use of the land? If so, when and by whom (the vendor or the vendee)? Whether such permission was in respect of the whole or a portion of the land? If the permission was in respect of a portion of the land and if it was obtained in the past, what was the nature of the user of the said portion of the land on the material date? Not applicable as the land was converted into NA and was sold as agricultural land. 6. Whether the land, on the relevant date, had ceased to be put to agricultural use? If so, whether it was put to an alternative use? Whether such cesser and/or alternative user was of a permanent or temporary nature? Not ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f account. Whether it is treated stock-in-trade or investment. Whether shown in opening/closing stock or shown separately as investment or non-trading asset. (2) Whether assessee has borrowed money to purchase and paid interest thereon? Normally, money is borrowed to purchase goods for the purpose of trade and not for investing in an asset for retaining. (3) What is the frequency of such purchase and disposal in that particular item? If purchase and sale are frequent, or there are substantial transaction in that item, if would indicate trade. Habitual dealing in that particular item is indicative of intention of trade. Similarly, ratio between the purchases and sales and the holdings may show whether the assessee is trading or investing (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment). (4) Whether purchase and sale is for realizing profit or purchases are made for retention and appreciation its value? Former will indicate intention of trades and latter, an investment. In the case of shares whether intention was to enjoy dividend and not merely earn profit on sale and purchase of shares. A commercial motive is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax vs. Riva Sharkar A Kothari reported in 283 ITR 338. Hon'ble court has made reference to the test laid by it in its earlier decision rendered in the case of Pari Mangaldas Girdhardas vs. CIT reported in 1977 CTR 647. These tests read as under: "After analyzing various decisions of the apex court, this court has formulated certain tests to determine as to whether an assessee can be said to be carrying on business. (a) The first test is whether the initial acquisition of the subject-matter 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 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 investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... area and in respect of the six pieces of lands which have been held for less than ten to fifteen months, he has sensed the business opportunity of making a kill and has therefore purchased these lands and sold them after a short period. This conduct on the part of the appellant can definitely point to these transactions being in the nature of business activity or adventure in the nature of trade. 7.19 However, the above logic cannot be applied in entirety to all pieces of land. This can he applied only to the six pieces of land which have been held for less than ten to fifteen months. The profit from sale of these six lands, are treated as business profit arising out of transactions by way of adventure in the nature of trade. In respect of the other two lands which have been held for more than three years, it cannot be said that their sale amounts to adventure in the nature of trade. Thus, the AO is directed to recompute the business profits as above." 17. Thus, an analysis of complete record would indicate that basic point which weigh with the ld.CIT(A) for treating the assessee partly as trader is the fact that the increase in sale price is 800%. In other words, volume of prof ..... 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