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Smt. Heenaben B. Mehta Versus ITO, Bhuj

2017 (12) TMI 529 - ITAT RAJKOT

Determination of nature of income derived on sale of land - profit on sale of land to be assessed as business income or under the head capital gain - Held that:- 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. This transaction might be boon because of their geographical locatio .....

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evidence. It can be rebutted but by producing evidence and not by general remarks that Shri Amitabh Bacchan was also stated to be farmer. There should be spot inquiry. Presumption of truth is in favour of the record maintained by State revenue official in their official function. Thus, land is to be treated as agriculture land. Therefore, we allow the appeal of the assessee. We direct the AO to treat the profit earned by the assessee on sale of agriculture land as exempt under section 2(14) of .....

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961. Both these two appeals are disposed of by this consolidated order. First we take up quantum appeal i.e. ITA No.259/Ahd/2014. 2. Sole common issue involved in this quantum appeal of the assessee 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 her return of income on 2.10.2009 declaring tot .....

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According to the assessee, the said land was purchased by the assessee s father for ₹ 54,000/- and gifted to her. The ld.AO did not accept contentions of the assessee and treated her as a trader in the land. He assessed the alleged profit and sale of land as business income. On appeal, the ld.CIT(A) has confirmed action of the AO by treating the assessee as trader in land and assessed the profit as business income. In this way, assessee is challenging order of the ld.CIT(A). Thus, the iss .....

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able issue. It always puzzled the adjudicator even after availability of large numbers of authoritative pronouncements by the Hon ble Supreme Court/Hon ble High Court. The reason for the puzzle is, one has to gather the intention of an assessee while he entered into 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 .....

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a simplicitor agriculturist. We would like to refer the three basic questions formulated by ld. first appellate authority for adjudicating the controversy. These questions are as under:- i. Is the sold land agricultural land ? ii. Whether the transaction carried out 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 aut .....

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the nature of trade and thus the profit resulted to her has been assessed as a business income. 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 trans .....

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as been sold to SPGIL where the intention was to use the land for other than agricultural purpose. b. whether such user of the land was for a long period or whether it was of a temporary character or by way of stop-gap arrangement: In the appellant's case, the land was held only for 7 months. It can thus he said with certainty that this appears to be a stop gap arrangement and there does not appear to be any intention of holding this, as agricultural land. c. whether the income derived from .....

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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 the permission was in respect of a portion of the land and if it was obtained in past, what was the nature of the user of the said portion of the land on the material dale: In the appellant's ease, the land was sold to SPGIL. Mumbai which had clear intention of using the land for non-agricultural pur .....

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submitted. 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, it is not clear whether the land was being used for agricultural purpose or was lying vacant and unused. No evidence to that effect is available or submitted. h whether the land was situate in a developed area\ whether its physical characteristics, surrounding situation and use of the .....

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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: In the appellant's case, the land was sold to SPOIL for non- agricultural purpose only. 9. It is pertine .....

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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 whether transaction(s) in question are in the nature of trade or are merely for investment purposes: (1) What is the intention of the assessee at the time of purchase of the shares (or any other item). This can be found out from the treatment it gives to such purchase in its books of account. Whether it is t .....

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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 .....

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ted 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, 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 type .....

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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 is dealing as a trader in that item? Whether it had such an intention (to carry on illegal business in that item) since beginning or when purchases were made? 10. It is permissible as per CBDT s Circular No. .....

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ider 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 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 wheth .....

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tly 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 investment. This inquiry, though relevant, is not conclusive. (d) The fourth test is as to how the assessee himself has returned the income from such activities and how the Department has dealt with the same in the course of preceding and succeeding assessments. T .....

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uency, 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 tow .....

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ome. 2. The appellant has been shown to be an agriculturist in the purchase deed. This may be true as per Government records. However, if the profile of the appellant is carefully scrutinized, by no iota of imagination can he be described to be an agriculturist. The appellant is getting income mainly from house property and other sources. Getting herself classified as an agriculturist is very, similar to the famous case in Maharashtra of Shri Amitabh Bachchan declaring Himself to be an agricultu .....

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a big change in the environment and the location of the land is considered, there is a large element of truth in it. This is evidenced h\ the very fact that in the same area and same vicinity the appellant himself has purchased lands at phenomenal prices as compared to last year. The area of Kuteh has seen rapid strides in development especially after the functioning of the Kandla & Mundra Port Trusts, setting up of Ultra Mega Power Plants (UMPPs) and overall growth in industry. The appella .....

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h the absence of agricultural income, the inescapable conclusion that is arrived at is that this transaction is nothing but an adventure in the nature of trade. The action of the A.O. in treating this transaction as adventure in nature of trade is hereby confirmed. The grounds of appeal are dismissed. 5.20 The third point required to be considered is whether this is a sham transaction or not. The AO has taken recourse to famous McDowell decision (154 ITR 148). The applicability of McDowell decis .....

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be a colourable device. Because there was a substantial uain in a relatively short period and the gain was shown to be exempt from taxation due to the asset sold being outside the purview of S.45, it cannot be said that this is a sham transaction. There are no attributes to label it as a colourable device or a sham transaction. The contention of the A.O. is therefore not held to be correct. 5.23 In light of the above discussion, the following conclusions emerge:- 1. The land sold is NOT agricul .....

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peal is thus dismissed. 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 a short period of 7 months is to be treated as a trade asset. No doubt the profit on transfer of alleged agriculture .....

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culture land. She has not entered into any sale of land in earlier period of time or in subsequent period of time. She has purchased the land but ld.AO did not refer sale of land. She has not borrowed money for purchase of land and incurred interest expenditure. She got the land in gift from her father. There might be reasons for all of a sudden spurt in the price of land in the area. There could be change of policy at Government level; introduction of some project, but that type of change in th .....

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her educational background etc. Even the entire transaction is being looked into with that angle, then it would reveal that she has not been trading in the land, rather it was a simplicitor investment for agriculture operation, but on account of getting good price land has been sold. The ld.CIT(A) was of the view that once assessee came to know about rapid development after setting up of Ultra Megha Power Plants in the area of Kutch and functioning of Kandla and Mundra Ports she could have anti .....

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cials 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. We have come arose similar type of cases from nearby village particular. We can make reference to the case of Shri Shailesh Gangazram Ramani in ITA No.260 and 294/RJT/2014. Tribunal has earlier decided the case of Shri Dhaval Kantilal Acharya Vs. ACIT, ITA No.378/RJT/2013. The only reason .....

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