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2017 (12) TMI 525

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 officials and only thereafter purchase land. All these factors are totally missing on record. Department has started inquiry only when huge claim was made by local persons of the area for exemption of capital gain. - The only reason adopted by the Revenue for treating all these persons as traders was that they have earned profit on sale of their land which is more than 800 times than ordinary profit in this year. In our opinion, it is one of the corroborative factors amongst other. These transactions 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 .....

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Survey No.107/1 purchased on 25.5.2005 will be treated as capital gain, and since the land was agriculture land situated beyond 8 kms. From municipal limit, and therefore, it was not capital assets within the meaning of section 2(14) of the Act. Profit arose to the assessee on sale of this land will not be taxable under section 45 of the Act or business income. However, with regard to the profit earned 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. With the assistance of ld. Representative, we have gone through the record. The issue, whether gain from sale of agricultural land is to be assessed as a business income or short term capital gain/long term capital gain, is a highly debatable issue. It always puzzled the adjudicator even after availabi .....

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e 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 of an adventure in the nature of trade. We deemed it appropriate to take note of those tests as well as the reply given by the assessee, which has been reproduced by the ld.CIT(A) in the impugned order on Page 9. They read as under:- 1. Several factors are relevant and are weighted against each other while determining the true nature and character of the land. The major factors which are considered as having a leaning on the determination of the question are as follows :- a. whether, the land was 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 la .....

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up of the Ultra Mega Power Project (UMPP) by Tata Power in 2006. i. whether the land itself was developed by plotting and providing roads and other facilities; In the appellant's case, the land was 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 for non-agricultural or agricultural user: No such permission appears to have been obtained by either seller or the purchaser. The land was purchased by Coastal Gujarat Power Ltd. (.CG'PU). a subsidiary of Tata Power with the declared intention of using it for non-agricultural purpose. 9. It is pertinent to observe that ITAT Lucknow Bench in the case of Sarnath Infrastructure (P) Ltd. v. ACIT (2009) 120 TTJ 216 has also considered issue, whether an assessee deserves to be treated as a trade .....

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tion/articles of association? Whether for trade or for investment? If authorized only for trade, then whether there are separate resolutions of the board of directors to carry out investments in that commodity? And vice verse. 7. It is for the assessee to adduce evidence to show that his holding is for investment or for trading and what distinction he has kept in the records or otherwise, between two types of holdings. If the assessee is able to discharge the primary onus and could prima facie show that particular item is held as investment (or say, stock-in-trade) then onus would shift to Revenue 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 the argument of the assessee that it is violating those legal requirements, if it is claimed that it .....

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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, bearing reasonable proposition to the strength of holding then an inference can readily be drawn that the activity is in the nature of business. 11. In the light of the above, let us examine order of the ld.CIT(A). A perusal of the impugned order would indicate that the ld.CIT(A) has devoted much energy towards highlighting position of law laid down in various judgment viz. G. Venkataswami Naidu & Co. Vs. CIT, 35 ITR 594 (SC) and Janki Ram Bahadur Ram Vs. CIT, 57 ITR 21 (SC). Conclusions briefly 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 appellan .....

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ime for entry and exit so as to earn maximum profit from the transaction. This can definitely held to be the only intention of the appellant for entering into this transaction. 12. 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 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 take colour of a business transaction. The assessee is basically an agriculturist; purchases land at a distance of more than 20 kms. away from municipality and close to his native village. After sale of this land, he has again purchases agriculture land. He has not entered into any sale/purchase of lan .....

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