TMI Blog2018 (5) TMI 739X X X X Extracts X X X X X X X X Extracts X X X X ..... d gain’ in business and profession. We hold that the assessee has sold small residential plots to various persons. The sale of these residential plots at his agricultural land was definitely an act of business and an adventure in the nature of trade. The ‘annexure’ to the sale deed placed in the paper book clearly establishes that the assessee has sold the residential plots of land after developing roads etc. thus, this establishes sale of the plots on this land and it was an act of adventure in nature of trade. However, we agree with the pleadings of the ld. AR that once this was an adventure in nature of trade and income is to be taxed as per the provisions of Section 45(2) of the Act. The capital gain shall be worked out on the date of conversion of agricultural land to the ‘stock in trade’ and then only work out the profit and gain of business. Therefore, the issue is restored back to the file of the Assessing Officer. The Assessing Officer will invoke the provisions of Section 45(2) of the Act and decide as per law - ITA No. 659/JP/2017 - - - Dated:- 1-5-2018 - SHRI VIJAY PAL RAO, JM AND SHRI BHAGCHAND, AM For The Assessee : Shri P.C. Parwal (CA) For The Revenue : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. 3. The assessee craves to amend, alter and modify any of the grounds of appeal. 4. The appropriate cost be awarded to the assessee. 3. In the ground No. 1 of the appeal, the issue involved is that the agricultural land sold by the assessee is covered U/s 2(14) of the Act. The ld. CIT(A) has upheld the action of the Assessing Officer by holding as under: 5.2 I have gone through the submissions made by the appellant. If an agricultural land is covered under section 2(14) of the Act, then income arisen from sale of such land is exempt from capital gain as such land is not treated as capital asset. However, in order to claim the benefit of section 2(14) of the Act, the assessee is required to submit evidences with regard to clause (iii)(a) and (iii)(b) of section 2(14) of the Act. The appellant has only submitted a general state list of Urban Area for determination of agricultural land. But on other evidence or Tehsildar report was submitted during the appellate proceedings. It is also understood that the appellant himself has declared the agricultural land as capital asset in the return of income as he has claimed deduction under section 54B of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 immediate preceding year. The assessee himself has considered this sale of the agricultural land as a sale of capital asset as per Income Tax Act and claimed deduction U/s 54B of the Act for investing in agricultural land. The assessee had also offered the sale of land in this year as sale of capital asset and claimed deduction U/s 54B of the Act. Thus, the issue of the agricultural land held by the assessee at village Chakna Sarahbad, Tehsil- Khairthal, district- Alwra is settled being the capital asset . Therefore, the issue raised in the ground No.1 of the assessee s appeal has no merit and the same stands dismissed. 7. The grounds No. 2, 2.1 and 2.2 of the appeal are interlinked and against exploitation of agricultural land by converting it into residential plot before selling them is an adventure in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gments cited by the appellant. However the gist of most of the cited judgments 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 mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions which individually cannot themselves be described 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. v. Shaw Wallace and Company (1) 'Income their Lordships (1) (1932) L. R. 59 I.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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est that, in this case, if the Commissioners 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 a 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 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 profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mills; but it had 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 v e appellant that the acquisition of the open plots could involve any pride 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 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the land which was an agricultural land at the time of inheritance. Then the appellant had developed part of the agricultural land into smaller plots, developed access road within the plotted land and sold to individual purchasers as residential plots over a period. Thus, the nature of the land had undergone irreversible change. The development of land was done with the undisputed intention of exploiting the land assets to maximize the gain. The exploitation of the land assets was done over a period of time and the entire area has been developed as a residential colony. 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. The registering and stamp duty a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain but the Ld. CIT(A) held that it is an adventure in the nature of trade and therefore, assessed it as business income. It may be noted that assessee never intended to enter into any real estate business/adventure. In the AY 2007-08, assessee has sold certain agricultural land on which no tax was levied. During the year to have a better realisation of the capital asset, the same is sold after plotting. Selling of an agricultural land after plotting in order to secure better price is not an adventure in the nature of trade or business. The word business has been defined u/s 2(13) of the IT Act, 1961 which includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. To consider the question of business, there must 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 adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s registered in land revenue records as agricultural land and it was being used by assessee as such. Later on it was sold in small plots to different purchaser. No development of land was made by assessee prior to its sale. It was held that assessee s activity could not be termed as an adventure in the nature of trade and gain/profit arising from sale could not be taxed as business income. Smt. M. Vijaya Ors. Vs DCIT (2015) 116 DTR 393 (Hyd.) (Trib.) Land in question is shown as agricultural in revenue records, not under conversion proceedings, not put to non-agricultural use, not situated in developed area and not falling in any municipality but falling in a village was agricultural land not liable to capital gain tax on sale, the fact that the land was purchased by a developer cannot be 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 can also be part of business, but 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 was purchased for the purpose of selling into plots. Basically, it is a gifted land and the land was developed and was sold after converting into the plots with a view to secure 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 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot and with borrowed funds puts up the flats and sells them, then it can be said that he is indulging in a trading activity. As pointed out by the Supreme Court in Saroj Kumar Mazumdar v. CIT [1959] 37 ITR 242, the dividing line between the two types of cases is very thin. The decision of this court in CIT v. Kasturi Estates (P.) Ltd. [1966] 62 ITR 578, has only reiterated the position that in order to hold that an activity is in the nature of an adventure, there must be positive materials to prove that the assessee intended to trade in such an activity and, in the absence of evidence, the sale of immovable property consisting of land could give rise only to capital accretions . Plotting and developing of land before sale by itself would not establish that the person concerned was indulging in a trading activity. It may be that for 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 purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eds in purchase of another agricultural land. These lands were purchased on 09.08.2007 for ₹ 22 lacs in the name of minor sons (PB 28-36) and on 21.08.2007 for ₹ 5,50,000/- in his own name (PB 37-41). The investment is made out of the withdrawal from bank of ₹ 26 lacs on 12.07.2007 and ₹ 7,60,000/- on 21.08.2007 (PB 24-26). Thus, when the investment is made in the name of minor sons and in own name from the sale proceeds of the agricultural plots, the assessee is entitled for deduction u/s 54B. Further, the observation of AO that the land sold was not used for agricultural purpose in the preceding 2 years from the date of transfer is incorrect in as much as from the Khasra Girdawari it is evident that the land was used for agricultural purpose in the preceding two years. 4. Without prejudice to above, even if it is held that assessee has 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 tre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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