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TMI Blog2018 (5) TMI 739X X X X Extracts X X X X X X X X Extracts X X X X ..... is in appeal before the ITAT by taking following grounds of appeal: 1. The Ld. CIT(A) has erred on facts and in law in holding that assessee has not filed any evidence that the agricultural land sold by the assessee is covered u/s 2(14) of the Act and thereby holding that assessee is liable for capital gain in respect of the agricultural land sold by him. 2. The Ld. CIT(A) has erred on facts and in law in holding that exploitation of agricultural land by converting it into residential plot before selling them is an adventure in the nature of trade and the income arising therefrom is liable to be taxed in the hands of assessee as business income as against income from long term capital gain assessed by the AO. 2.1 The Ld. CIT(A) has erred on facts and in law in adopting the sales consideration of the land u/s 50C at Rs. 33,38,015/- as against actual consideration of Rs. 28,24,000/- declared by the assessee while holding that income is assessable as business income. 2.2 The Ld. CIT(A) has erred on facts and in law in not directing the AO to assess the income as per the provisions of section 45(2) of the Act even when holding that assessee has converted his agricultural lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 9.50 lacs. 2428 11 biswa Full 11 biswa Purchased on 22/06/1986 (PB 10-17) 2417 12 biswa ½ share 6 biswa Purchased from brother on 16/07/2003 (PB 18-21) The assessee has claimed that this land was not a capital asset in terms of Section 2(14) of the Income Tax Act, 1961 (in short the Act), hence not liable to be capital gain tax. The ld. CIT(A) has taxed the sale of plots as income from profit and gain in business and profession not as a long term capital gain as assessed by the Assessing Officer. The assessee has also objected taking the sale consideration at Rs. 33,38,015/- as against the sale consideration declared at Rs. 28,24,000/-. The assessee has also contended that the ld. CIT(A) has not directed the Assessing Officer to apply provisions of Section 45(2) of the Act and the assessee has also contested that the contention U/s 54B of the Act should have been allowed. 5. On the other hand, the ld DR has relied on the orders of the authorities below. 6. The Bench have heard both the sides on this issue. It is a fact that the assessee was having agricultural land. Two pieces of the agricultural land situated at village Chakna Sarahbad were sold in the immed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Krishan Kumar 07/06/2007 150000/- 215107/- 10 Balbeer Singh 16/06/2007 100000/- 136884/- 11. Jaswant Singh 22/06/2007 160000/- 180000/- 12. Subhash Chand 11/07/2007 100000/- 154880/- 13. Savitri Devi 16/07/2007 150000/- 193000/- 14. Usha Tatwani 08/08/2007 230000/- 254214/- 15. Roshni Devi 06/09/2007 500000/- 554400/- 16. Smt. Santosh Devi 26/09/2007 124000/- 125154/- 17. Smt. Pinki Devi 26/09/2007 120000/- 132000/- Total 2824000/- 3338015/- 4. That the A.O has stated that the land was transferred /sold for residential purposes as they were divided into small plots in sq.yards. 5. That the A.O has rejected the claim of deduction u/s 54B of the Act holding that the assessee did not meet the conditions as stipulated in section 54B of the Act. The land was not being used for agricultural purpose for 2 years immediately preceding the date of transfer and that the sale proceed was not invested in new agricultural land in his own name. 6. That the appellant is claiming the land as covered u/s 2(14), hence no capital gain is leviable and alternatively claiming that the new agricultural land was purchased i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 a, 2, sub-s. (4) and it can be said to be business of the appellant if it is held that it is an adventure in the nature of trade. In other words, in reaching the conclusion that the transaction is an adventure in the nature of trade, the tribunal has to find primary evidentiary facts and then apply the legal principles involved in the expression " adventure in the nature of trade " used by s. 2. sub-s (4). It is patent that the clause " in the nature of trade " postulates the existence of certain elements in the adventure which in law would invest it with the character of a trade or business; and that would make the question and its decision one of mixed law and fact. This view has been incidentally expressed by this Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 property agent or speculator and that the only purchases of property with which he was concerned were two separated by ten years and that the first heritage was acquired without the intention to sell, which only arose fortuitously. His Lordship then put his conclusion in this way: "I would therefore say that the Commissioners of Inland Revenue have failed to prove and the onus is on them the case they sought to make out". According to Lord Carmont, Lord Dunedin's observations do not suggest that the initial declaration of intention per se leads to the conclusion that the transaction was in the nature of trade. He thought that much more was required to show that the assessee was engaged in an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant 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 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 circumstance which would raise a strong presumption that the purchase and subsequent sale are an adventure in the nature of trade; but the said presumption is not conclusive and it may be rebutted or offset by other relevant circumstances. What then are the relevant facts in the present case? The property purchased and resold is land and it must be conceded in favour of the appellant that land is generally the subjectmatter of investment. It is contended by Mr. Viswanatha Sastri that the four purchases made by the appellant represent nothing more than an investment and if by resale some profit was realised that cannot impress the transaction with the character of an adventure in the nature of trade. The appellant, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 by the tribunal; and so when the mills purchased the properties it is not shown that the sale was occasioned by any special necessity at the time. In the circumstances of the case the tribunal was obviously right in inferring that the appellant knew that it would be able to sell the lands to the mills whenever it thought it profitable so to do. Thus the appellant purchased the four plots during two years with the sole intention to sell them to the mills at a profit and this intention raises a strong presumption in favour of the view taken by the tribunal. In regard to the other relevant facts and circumstances in the case, none of them offsets or rebuts the presumption arising from the initial intention; on the other hand, most of them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equence 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. The registering and stamp duty authorities have also recognized the plotting as residential plots. 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 prior to purchase be relevant if it shows a design and purpose. I have clearly noted a purpose and design in the utilization of the land and it all pointed towards a business sense and eventually a business transaction. The appellant has cited Hon'ble Rajasthan High Court judgment in the case of Sohan Khan and Mohan Khan as reported in 304 ITR 194(Raj.), in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be regular activity of purchasing and selling. In the present case, there is nothing on record to show that the land when acquired was with an intention to sell it by plotting. 2. In various cases it has been held that purchase of land once upon a time and thereafter selling the same in piecemeal after development, the profit arising would be taxed under the head capital gain and cannot be treated as adventure in the nature of trade. Some of these decisions are as under: Commissioner of Income-tax Vs. Sohan Khan & Mohan Khan [2008] 304 ITR 194 (Raj.) In order to arrive at a conclusion, as to whether sale consideration is to be taxed as capital gain or the sale transaction is to be treated to be an "adventure in the nature of trade", things cannot be put in any strait jacket formula, and it is dependent upon the facts and circumstances of each case to be decided on the basis of relevant considerations. One of most significant considerations would be the regularity of transaction of purchase and sale. Mere fact that there was a series of transactions of sale only, by selling the part of the whole land, purchased in one go, or purchased once upon a time, in piecemeal, would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a determining factor by itself to say that the land was converted into use for nonagricultural purposes. Saroj Kumar Mazumdar Vs. Commissioner of Income Tax 37 ITR 242 (SC) Section 2(13) of the Income-tax Act, 1961 - Adventure in nature of trade - Whether where transaction under examination is not in line of business of assessee and is an isolated or a single instance of a transaction like that, burden lies on revenue to bring case within words of statute, namely, that it was an adventure in nature of trade - Held, yes - Assessee entered into agreement with a society to purchase plot of land under development scheme offered by society and paid 25 per cent of estimated price - Assessee finding no immediate prospect of land in question being derequisitioned by Government, negotiated for assignment of his rights under agreement with society to a third party and received a sum in excess of amount paid by him to society - Whether since dealing in landed estate was not in line of assessee's business and sale transaction in question was only one of its kind and department failed to make out that dominant intention of assessee was to embark on a venture in nature of trade when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the better price, therefore, the isolated activity cannot come within the purview of adventure in the nature of trade and business. The main earning on the sale of the land was in the nature of capital gain and, therefore, not assessable as income from business and this question is essentially a question of fact". CIT Vs. A Mohammed Mohideen 176 ITR 393 (Madras) Para 14 of this order is reproduced as under: "Bearing in mind the principles laid down by the Supreme Court, it is necessary to examine the facts of the present case. Already we have noticed the contentions urged for the Revenue. The first contention is that the Tribunal is in error in holding that the Department has not established by evidence that the intention of the assessee in purchasing the property was not by way of investment but to trade in house sites. It is pointed out by learned counsel for the Revenue that the Tribunal has not considered all the aspects before holding that it was not established that the assessee intended to trade in house sites. We are of the view that this does not vitiate the conclusion reached by the Tribunal. In this content. It is worthwhile to notice the principle laid down b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... realizing the maximum price, he undertakes certain acts which any other owner would undertake. Revenue has to establish by positive evidence that the purchase and sale of property was with the view to earn profits through trading transaction. In the present case, circumstances relied on by Revenue only throw suspicion on the assessee's act of purchasing a property which did not immediately yield income, but there are no materials to further prove that assessee intended to indulge in a trading activity. Transaction of assessee in purchasing and selling the property did not, therefore, amount to an adventure in the nature of trade. B. Narasimha Reddy Vs. ITO (1994) 48 TTJ 329/47 ITD 398 (Hyd) (Trib.) The assessee was never a trader or businessman. Previously he did not carry on any business much less business in real estate. He did not purchase any land or did not sell any land. He was purely an agriculturist. The land in question represents his ancestral property. He thought that he would profit very much or would get maximum by plotting out the land and getting a lay out approved by the Gram Panchayat and, therefore, he got sanctioned the lay out from the Gram Panchayat. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entered into an adventure in the nature of trade, its taxability would be governed by section 45(2) in as much as it would be a case of conversion of agricultural land into stock in trade. As per this section, profits & 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 business carried on by him, shall be chargeable to tax as income of the previous year in which such stock in trade is sold and for the purpose of section 48, the FMV of the asset on the date of such conversion shall be deemed to be full value of consideration received as a result of the transfer of capital asset. Therefore, FMV of the asset on the date of conversion as reduced by the indexed cost of acquisition is required to be assessed under the head capital gain and excess over such FMV is required to be assessed as business income. The Ld. CIT(A) has not considered the provision of this section and therefore, the entire income assessed by him as business income is not as per law. Further, once he considered the income as business income, he cannot substitute the actual sales consideration by the value adopted/assessed u/s 50C as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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