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Jaydevsinh Navalsinh Jadeja Versus ITO, Ward 1, Bhuj

2017 (12) TMI 525 - ITAT RAJKOT

Profit on sale of land - adventure in the nature of trade - purchase of agriculture land anticipating the sale at much higher rate- assessed as business income or under the head capital gain - Held that:- The AO has neither recorded statement of any person from CGPL nor recorded when CGPL has started its power plant; how it has expressed its desire to acquire further land for its residential colony. Whether a person of having background like the assessee could have chance to inter-act with CGPL .....

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nsactions were boon because of their geographical location of the land near to CGPL. It was not a case that they have anticipated many fold rise of agriculture land price, and therefore, ventured into trade. Therefore, we allow the appeal of the assessee and rejected appeal of the Revenue. We direct the AO to treat the profit earned by the assessee on sale of agriculture land as exempt under section 2(14) of the Income Tax Act, 1961. - Decided against revenue - ITA Nos. 486 & 496/RJT/2013 - Date .....

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ve in nature. In brief short common question involved in both the appeals relates to determination of nature of income derived by the assessee on sale of land, i.e. whether the profit on sale of land is to be assessed as business income or under the head capital gain. 3. The brief facts of the case are that assessee has filed his return of income on 2.10.2009 declaring total income at ₹ 3,49,630/-. His case was selected for scrutiny assessment and notices u/s. 143(2) and 142(1) were issued .....

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of ₹ 1,20,21,138/-. The land were mentioned as agriculture land and situated at village Sukhpur, Tal. Mundra-Kutch. Assessee has claimed the gain as exempt on the ground that said land was not a capital asset within the meaning of section 2(14) of the Income Tax Act, and therefor, gain was not liable to tax under section 45 of the Act. The ld.AO did not accept contentions of the assessee and treated him as a trader in the land. He assessed the alleged profit and sale of land as business in .....

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arned on sale of land comprised in survey no.18 and 110, the ld.CIT(A) treated the assessee as trader in land and assessed the profit as business income. In this way, both parties are challenging order of the ld.CIT(A). Thus, the issue before us is, whether total amount of ₹ 1,20,21,138/- earned by the assessee as profit from sale of land is to be assessed as business income or it is to be assessed as a capital gain, which is exempt from tax under section 2(14) r.w.s. 45 of the Act. 4. Wit .....

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o the transaction. The expression intention as defined in Meriam Webster Dictionary means, what one intends to accomplish or attain, it implies little more than what one has in mind to do or bring out. It suggests clear formulation or deliberation. Thus, it is always difficult to enter into the recess of the mind of an assessee to find out the operative forces exhibiting the intention for entering into the transaction. This would give rise a debate. Nevertheless, we have to look into the curious .....

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t by the appellant was adventure in the nature of trade and the profits thus required to be taxed as business income ? iii. Is the transaction a sham transaction and can it be labeled as a colourable device ? 6. Ld. first appellate authority has made a lucid enunciation of law and facts under each question. She accepted that the land sold by the assessee was agricultural land. She also accepted that the transaction was not sham or colourable transaction. 7. The parties are not disputing on these .....

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sset within the meaning of section 2(14)(iii) of the Act. 8. While appreciating the controversy, ld. First appellate authority took into consideration. The broad principles laid down by the Hon'ble Jurisdictional High Court in the case of CIT vs. Siddharth J. Desai [1983] 139 ITR Page 628/10. Alongwith the test propounded by Hon ble jurisdictional High Court, ld. first appellate authority has considered the reply given by the assessee as to how his transactions do not fall within the ambit o .....

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classified in the revenue record as agricultural and whether it was subject to the payment of land revenue, but this factor alone will not be conclusive; In the appellant's case, the land has been classified as agricultural land in revenue records. . b. whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time; In the appellant's case, the land was actually used for agricultural purpose at the time of purchase as well as sale. c. whether su .....

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ral income shown by the appellant is proportional to the investment made by the appellant considering the terrain and the lack of irrigation facilities. e. whether the permission under section 65 of the Bombay Land Revenue Code, was obtained for the non-agricultural use of the lands: if so, when and by whom; whether such permission was in respect of the whole or a portion of the land; if I he permission was in respect of a portion of the land and if it was obtained in past, what was the nature o .....

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y nature; In the appellant's case, this is not applicable as the land was not converted into NA and was sold as agricultural land only. g. whether the land, though entered in revenue record, had never been actually used for agriculture; whether the owner meant or intended to use it for agricultural purposes; In the appellant's case, the land has been used as agricultural land till the date of sale. h. whether the land was situate in a developed area; whether its physical characteristics, .....

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s used as agricultural land till the date of sale and no plotting or other developmental activities were done. j. whether there were any previous sales of portions of the land for non- agricultural use; In the appellant's case, this is not applicable. k. whether permission under section 63 of the Bombay Tenancy and Agricultural Lands Act, was obtained because the sale or intended sale was in favour of a non-agriculturist: if so, whether the sale or intended sale to such non-agriculturist was .....

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r or investor . Though the issue involved in that case relates to investment/trading in shares, but broad principle carved out by the ITAT is applicable on all sorts of transactions, where adjudicator is required to find out whether transaction was entered into by the assessee with a pre-dominant intention of trading or investment. The following tests are worth to note: 13. After considering above rulings we cull out following principles, which can be applied on the facts of a case to find out w .....

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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 asse .....

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f trade. (5) How the value of the items has been taken in the balance sheet? If the items in question are valued at cost, it would indicate that they are investments or where they are valued at cost or market value or net realizable value (whichever is less), it will indicate that items in question are treated as stock-in-trade. (6) How the company (assessee) is authorized in memorandum of association/articles of association? Whether for trade or for investment? If authorized only for trade, the .....

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enue to prove that apparent is not real. 8. The mere fact of credit of sale proceeds of shares ( or for that matter any other item in question) in a particular account or not so much frequency of sale and purchase will alone will not be sufficient to say that assessee was holding the shares (or the items in question) for investment. 9. One has to find out what are the legal requisites for dealing as a trader in the items in question and whether the assessee is complying with them. Whether it is .....

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ve features for both and there is no intermingling of holdings in the two portfolios. 11. Not one or two factors out of above alone will be sufficient to come to a definite conclusion but the cumulative effect of several factors has to be seen. 10. The Hon ble Gujarat High Court had also an occasion to consider this issue in the case of Commissioner of Income 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 re .....

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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 t .....

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actory explanation. (e) The fifth test, normally applied in case of partnership firms and companies, is whether the deed of partnership or the memorandum of association, as the case may be, authorizes such an activity. (f) The last but not the least, rather the most important test, is as to the volume, frequency, continuity and regularity of transaction of purchase and sale of the goods concerned. In a case where there is repetition and continuity, coupled with the magnitude of the transaction, .....

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efly drawn by the CIT(A) are on page no.35 of the impugned order. It reads as under: 1. The appellant's case is required to be broken into two parts to get the correct perspective. 2. The appellant has purchased three pieces of land. The first one (Land- A) was purchased in May, 2005 while the other two (Land-B & C) were purchased in May, 2007 adjacent to Land-A. The three pieces of land were sold in July, 2008. 3. The appellant has sold the Land-A after 3 years & 2 months and Land- .....

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whose vicinity the UMPP of Tata Power was being established. Mundra Ultra Mega Power Project (Mundra UMPP) is a subbituminous coal-fired power plant in Tunda village at Mundra, Kutch district, in Gujarat, India. The coal for the power plant is imported primarily from Indonesia. The source of water for the power plant is sea water from Gulf of Kutch. The power plant is owned by Tata Power. The special purpose vehicle Coastal Gujarat Power Ltd (CGPL) was incorporated on 10 February 2006. The dista .....

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y Tatas in this region. However, as discussed earlier, this cannot be an instantaneous decision and must have been brewing for a long time. It is quite obvious that the Tata officials must have carried out proper survey of this area, must have visited the area and must have held discussions with the villagers. The Tatas must have drawn up a master plan for the power plant including the actual power plant and the other areas like the residential quarters for the officers and staff. What the appel .....

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of profit resulted to the assessee persuaded the ld.CIT(A) to habour a belief that the land purchased in the year of 2007 and sold after 15-16 months is to be treated as a trade asset. No doubt the profit on transfer of alleged agriculture land was quite high. But this is one of the corroborative evidences, amongst other, propounded in various case laws noticed by us. Merely if an assessee is getting a higher volume of sale consideration, then it could not be construed that transaction would tak .....

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rice of land in the area. There could be change of policy of Government level; introduction of some project, but that type of change in the policy whether, was in the notice of the assessee ? No such factors have been brought on record by the AO. It is also pertinent to observe that whether the assessee could anticipate such substantial increase in the sale price of the land because of any policy introduced by the Government, no such factors have been brought on record. Facts are to be viewed ke .....

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