TMI Blog2018 (2) TMI 1643X X X X Extracts X X X X X X X X Extracts X X X X ..... deration received or accruing as a result of the transfer of the capital asset. Apparently these provisions of Act have not been taken into consideration by the ld. CIT(A), therefore, in the interest of justice and equity, the Bench find deem it fit to restore the issue back to the file of the ld. CIT(A) to give effect to the provisions of Section 45(2) - Decided partly in favour of assessee for statistical purposes only. - ITA No. 329/JP/2017 - - - Dated:- 22-2-2018 - SHRI VIJAY PAL RAO, JM SHRI BHAGCHAND, AM For The Assessee : Shri Rohan Sogani (CA) For The Revenue : Smt. Neena Jeph (Jt.CIT) ORDER PER: BHAGCHAND, A.M. This is an appeal filed by the assessee emanates from the order of the ld. CIT(A), Alwar dated 06/03/2017 for the A.Y. 2007-08. 2. The assessee was having agricultural land in Dausa Khurd admeasuring 5910 Sq. yard. During the year, the assessee had developed the land into 23 plots of varying areas ranging from 182 sq. yards to 462 sq. yards and named it as Bhagwati Nagar Residential Scheme. All these plots were sold on the basis of agreement to sale to different persons and sale consideration stated was at ₹ 24,15,600/- an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the ground No. 2(a) of the appeal, the sole issue involved is sustaining addition of ₹ 23,39,100/- on the sale of plot of land under the head Profits Gains of Business or Profession . The ld. CIT(A) has decided the issue by holding as under: 6.3 I have perused the assessment order as well as submissions made by the appellant. Following facts have emerged; 1. That the appellant had inherited agricultural land at Dausa Khurd admeasuring 5910 sq. yard. 2. That during the year under consideration the appellant had developed the land into 23 plots of varying areas ranging from 182 /220/205/223/236/334/462 sq. yard. The land plots had been developed as residential plots under the name of Bhagwati Nagar Residential Scheme . 3. That the appellant had sold these plots to 23 persons through agreement to sell without registered sale deed for a total stated consideration of ₹ 24,15,600/- and declared Long Term Capital Gain of ₹ 85,258/- after indexation of cost and improvement/ Dalali exp. 4. That the A.O had called for information from the Sub-Registrar, Dausa to ascertain the prevailing market rate. On the basis of prevailing DLC rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act. 60[Explanation 1].-For the purposes of this section, Valuation Officer shall have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957). 61[Explanation 2.-For the purposes of this section, the expression assessable means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty.] ( 3) Subject to the provisions contained in sub-section (2), where the value ascertained under sub-section (2) exceeds the value adopted or assessed 61[or assessable] by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed 61[or assessable] by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer.] Thus, looking at the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgments hinge broadly on the parameters set by the Hon ble Supreme Court in the case of G. Venkataswamy Naidu vs. CIT (1959) 35 ITR 594(SC). Therefore it is pertinent to go into the rationale and the parameters set by the Apex court in the said judgment. The relevant part of the judgment is reproduced as under: The tribunal and the High Court have found that the transaction in question is an adventure in the nature of trade; and it is the correctness of this view that is challenged in the present appeal. The expression adventure in the nature of trade is used by the Act in s. 2, sub-s. (4) which defines business as including any trade, commerce or manufacture, or any adventure or concern in the nature of trade, commerce or manufacture. Under s. 10, tax shall be payable by an assessee under the head profits and gains of business, profession or vocation in respect of the profit or gains of any business, profession or vocation carried on by him. Thus the appellant would be liable to pay the tax on the relevant amount if it is held that the transaction which brought him this amount was business within the meaning of s. 2, sub-s. (4) and it can be said to be business of the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed as trade or business but are essentially of such a similar character that they are treated as in the nature of trade. It was faintly argued for the appellant that it would be difficult to regard a single or an isolated transaction as one in the nature of trade because income resulting from it would inevitably lack the characteristics attributed to it by Sir George Loundes in Commissioner of I. T. vs. Shaw Wallace and Company(l). 'Income their Lordships (1) (1932) L. R. 591.A. 206. Lord Carmont observed that he did not wish to read the said passage out of its context and without regard to the facts of the case then under consideration. Then Lord Carmont added that though the language used by Lord Dunedin may cover the purchase of houses it would not cover a situation in which a purchaser bought a commodity which from G its nature can give no annual return . This comment of mine , said Lord Carmont, is just another way of saying that certain transactions show inherently that they are not investments but incursions into the realm of trade or adventures of that nature Then reference was made to the fact that the assessee was a warehouse company director and not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioners had found that the transaction was an adventure in the nature of trade , the court would probably not have interfered with the said conclusion; but the Commissioners were equally divided and so the assessment had been discharged by them. It was under these circumstances that the point about the onus of proof became q matter of substance; and, as we have already pointed out, all tile learned judges have emphasized that the onus had not been discharged and that no case had been made out for reversing the order of discharge -passed by the Commissioners. However that may be, it would, we think, be unsafe to treat this case as laying down any general proposition the application of which would assist the appellant before us. We would also like to add that there can be no doubt that Lord Russell's criticism against the contention raised by the Lord Advocate was fully justified because the contention as raised clearly overstated the significance and effect of the initial intention. As we have already pointed I out, if it is shown that, in purchasing the commodity in question, the assessee was actuated by the sole intention to sell it at a profit, that no doubt is a relevant c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad taken no steps in that behalf for the whole of the period during which the plots remained in its possession. Besides, it would not be easy to assume in the case of a firm like the appellant that the acquisition of the open plots could involve any pride of possession to the purchaser. It is really not one transaction of purchase and resale. It is a series of four transactions undertaken by the appellant in pursuance of a scheme and it was after the appellant had consolidated its holdings that at a convenient time it sold the lands to the Janardana Mills in two lots. When the tribunal found that, as the managing agent of the mills, the appellant was in a position to influence the mills to purchase its properties its view cannot be challenged as unreasonable. If the property had been purchased by the appellant as a matter of investment it would have tried either to cultivate the land, or to build on it; but the appellant did neither and just allowed the property to remain unutilised except for the net rent of ₹ 80 per annum which it received from the house on one of the plots. The reason given by the appellant for the purchase of the properties by the mills has been rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon ble Supreme Court in the present case, the sequence of events leading to the eventual sale of the land plots do not seem to help the cause of the appellant. The appellant had inherited an agricultural land admeasuring 5910 sq yards. The appellant had developed the land into a proper residential scheme under the name of Bhagwati Nagar Residential Scheme and carved out 23 plots and started selling those plots at a premium. If we look at the sequence of events as mentioned above, I have no doubt whatsoever, that the motive, intention and realization of the entire scheme of thing adopted by the appellant was to maximize the value of the asset and using it for business purposes. In that pursuit, the appellant had constantly tried and execute different methods at different time exploiting the resources and maximize the profit out of it. In this regard, I have also noted the above mentioned Apex court judgment where it has said that just as the conduct of the purchaser subsequent to the purchase of a commodity improving or converting it so as to make it more readily resalable is a relevant factor in determining the character of the transaction, so would is conduct pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the term 'adventure,' the scope is further enlarged. The term trade means the action of buying and selling goods and services between two or more parties in consideration of money or money s worth. 2.3.iii The Business is characterized by some of essential ventures such as repetitive transactions, business skills, risks uncertainties, holding of stock-in-trade, dealing with the customers and implied intention between the parties, etc. 2.4 Based on the above definitions, the adventure in the nature of trade or commerce can be defined as a pecuniary risk or venture of buying and selling the goods or services between two or more parties in consideration of money or money s worth, where there is a risk of loss as well as a chance of gain and these activities may be quite similar to the ordinary business. 2.5 In the instant case, the assessee had inherited the agricultural land which has been sold by him. The assessee did not get the land converted into non- agricultural land. The assessee is having his own business of plying trucks. The Business is located at Tirupati Motars, near railway crossing, Jaipur Road, Dausa. The assessee resides at Dausa, Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... October 30, 1990, made by her the late husband Bimal Prasad Jain. During the relevant year in question the assessee sold a part of this land for a consideration of ₹ 40 lakhs on February 18, 1993. She worked out the indexed cost of acquisition and disclosed income to the tune of ₹ 17,70,177 under the head Long-term capital gains . The Assessing Officer did not accept her plea and observed that the assessee had sold some parcels of land to different concerns on February 5, 1991, and February 13, 1991, and, therefore, she had a profit motive in acquiring the land and selling the same. Fie taxed the entire income of ₹ 40 lakhs as income arising from trade. Feeling aggrieved by his order the assessee filed an appeal before the Commissioner of Income- tax (Appeals) who allowed the same by is order dated November 8, 1994, holding that the land had not been purchased by the assessee but the same was acquired by virtue of a Will from her late husband. It was further held that the land had been sold in parts because the area was huge and could not be sold in one go. In this view of the matter, the Commissioner of Income-tax (Appeals) held that the income earned by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead with section 45, of the Income-tax Act, 1961 - Adventure in nature of trade - Whether profit from sale of land, after plotting it out to secure better price, can be taxed as profit from an adventure in nature of trade - Held, no - Whether it should be taxed under head Capital gains - Held, yes 2.9.iii Smt. Saraswati Jaiswal [2003] 131 Taxman 306 (MP) (Case Law Page 36) 6. On the anvil of the aforesaid law, we have to analyse the present fact situation. On a perusal of the assessment order, it is quite luminescent that she had inherited the land from Smt. Kamla Jaiswal, her mother, who expired on 18-1-1976. Her name was duly mutated in revenue records in respect of the land in question. The land was acquired by Jabalpur Development Authority which had issued a letter on 15-7-1985 to the assessee proposing allotment of certain plots in consideration of the acquisition of agricultural land. This action is purported to be taken under section 56 of the 1973 Adhiniyam. Thus, it is a compulsory acquisition. The Tribunal in paragraph 6 of its original order has held as under 6. We have carefully considered the arguments of both the sides and have perused the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Law Page 40) In this case, the assessee received some property, which is agricultural land, on gift and thereafter he got it diverted from agricultural to non- agricultural and thereafter developed as many as 40 plots in the name of Goyal Colony; and after developing the plots like making roads, providing pipelines for water drainage system, etc., the learned Tribunal has held that the activity is not the nature of adventure in trade and commerce and set aside the orders of Assessing Officer as well as CIT(A). 15. Considering the aforesaid facts and circumstances of the case, we are also of the view that the selling of own land after plotting it out in order to secure better price, is not an adventure in the nature of trade or business. The word business has been defined under section 2(13) of the Income- tax Act, 1961, which includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. An isolated transaction or activity cannot be part of business. To consider the question of business, there must be regular activity of purchasing and selling. In this case/ there is nothing on record to show that the land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Capital Gains. In view of the above, the transaction of sale of inherited agricultural land in small plots without converting these to residential plots cannot be termed as adventure in the nature of trade. Ld. A.R. has further submitted as under: Ld. CIT(A) has not considered section 45(2). The same is reproduced for ready reference: Section 45(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. It is submitted that if the conversion into stock in trade is considered to have been taken place during the relevant year then capital gain should have been calculated after considering Fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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