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TMI Blog2020 (5) TMI 299X X X X Extracts X X X X X X X X Extracts X X X X ..... dently proves that the concerned land was "Capital Assets", thus the "Capital Gain"earned on its sales deserves to be accepted. 5. The learned CIT (Appeal) was not justified in confirming an addition of Rs. 2,00,000 /- related to "brokerage paid"u/s 40a(ia) of Income Tax Act, 1961." 3. Brief facts of the case are that the assesse is engaged in purchase and sale of immovable properties. During the year under consideration, the assessee sold agricultural plot at village Bhatti, Hauz Khas, New Delhi for a consideration of Rs. 10,00,00,000/-. After claiming business expenditure against the sale, the net profit of Rs. 9,63,74,327/- was claimed as exempt under section 10 of the Income Tax Act read with section 2(14 ) on the grounds that the land was located outside the municipal limits. Consequently the return of income was filed on 28.11.2011 for A.Y. 2011-12 declaring "NIL"income. The AO after due enquiries conducted during the assessment regarding the land sold was situated at village Bhatti, Tehsil Hauz Khas, Mehrauli, New Delhi and found that the agricultural land in question was within the municipal limits of South Delhi Municipal Corporation. Accordingly, the AO show-caused the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with the same in the course of preceding ad succeeding assessments. This factor, though not conclusive, can afford good and cogent evident to judge the nature of transaction and would be a relevant circumstance to be considered in the absence of any satisfactory explanation. e) The fifth test, normally applied in cases of partnership firms and companies, is whether the deed of partnership or the memorandum of association, the case may be, authorizes such an activity. f) The last test, continuity and regularity of transactions of purchase and sale of the goods concerned. In a case where there is repetition and continuity, coupled with the magnitude of transaction bearing reasonable proportion to the strength of holding, then an inference can readily be drawn that the activity is in the nature of business. 4. According to the A.O almost all the conditions exist in the assessee company's case which leads to the conclusion that the land was held as stock in trade and the resultant income was business income. That the assessee intended to sell the land at the time of purchase was clear from the fact that successive returns have been filed declaring the same as stock in trade. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icultural land which has been accepted in the earlier years. 2. The receipt on its sale neither is to be worked out as "Capital Gain"nor a "business income"as the appellant company is quite eligible to avail its exemption." 10. On going through the original grounds of appeal, we find there is no material difference between the Ground No. 1 of the original grounds and the additional grounds. Both pertains to treatment of capital gains as business income by the ld. CIT( A). 11. The second ground to be adjudicated deals with exemption available to the sale of land if so treated as capital gains. 12. During the arguments before us, the assessee argued based on the submissions and arguments taken up before the revenue authorities. He further filed his written submissions dated 15.10.2018, 24.12.2018 and also on 18.02. 2020. 13. The submissions dated 24.12.2018 consists of balance sheets for the subsequent years post the assessment and the sale deeds and purchase deeds of land in question. 14. The contentions of the assessee have been dealt hereunder alongwith the submissions of the assessee. "The matter before your honour is that the appellant sold the agricultural land for Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the head "Current Assets"but not shown as "Stock-in-trade", it has been shown as "closing stock of agricultural land". (Balance Sheet from 2001 to 2010 filed in Paper Book from pages 8 to 17). Thus, there are two factors which can give the conclusion of issue:- 1. Holding Where an assessee holds the assets for sufficient period it give the sense of "long term investment"and on its sale the profit/surplus is to be treated as "capital gain"as held by 393 ITR 132 (8 -17) Gujarat High Court 397 ITR 687 (18 -24) Gujarat High Court 334 ITR 192 (25 -26) Punjab & Haryana High Court 2. At Cost That where the assessee is regularly showing the value of capital assets "at cost"it is to be treated as "long term investment"because "stock-in- trade"not only fluctuates every year due to frequent purchase and sales rather always to be shown at "cost or market price whichever is less"or at any standard mode given for specific product. Here in the instant case there is no dispute as appellant since from its purchase in 1998 is showing at cost subject to improvement held in that very first year by installing tube-well, boundary walls, etc. and has sold it after the lapse of 13 y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in such activities regularly, thus, it is evident it is his business to purchase the land and took the benefit on its acquistion cost as well as additional compensation given by the Govt. Agricultural land - Exemption In view of the facts stated above there should be no dispute that the concerned land was a capital assets or to say "long term investment"and further the surplus/profit derived by the appellant company on its sale deserves to be exempted by taking this capital assets u/s 2 (14 ) of Income Tax Act, 1961 in view of the reasons/supporting documents given hereunder:- 1. The appellant company is regularly showing the "agricultural income"and the revenue has also accepted it as the ITR placed on the record on page 19 to 24 of "Paper Book." 2. That merely by having agricultural crops it cannot be treated as agricultural land. That land deserves to be recorded in revenue estate and such facts are recorded in "Sale Deed"( purchase) on page 84 and 96. Further on insertion of "circle rate"it was on the part of the registrar to give the status of land, thus, where the appellant company sold the concerned land on 29/01/2011 the status/ structure type is given on Page 107 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "which has been accepted by the revenue. The above factors evidently gives the smell of "investment"and not a "stock in trade". (iv) It has been well settled law that where the above 3 contents prevails it gives the smell of "investment"and not as "stock in trade"and further by showing it as "closing stock"the appellant cannot be held l iable by treating it as "stock in trade". A. The foremost factor is how the land has been valued since its purchase. If it had been valued "at cost"since from its purchase subject to nominal addition like boundary-wall, it will be treated as "capital gain". (i) Karnataka High Court Principal Commissioner of Income-Tax and Another vs Telestar Investments P. Ltd. 387 ITR 248 "The cost was reflected throughout in the balance- sheet and it was never treated as stock-in-trade showing cost or market price whichever is lower. The profit derived on its sale was assessable as capital gain" (ii) Delhi High Court Commissioner of Income Tax vs Jubilant Securities Pvt. Ltd. 333 ITR 445 "From the very beginning it had been valuing at cost and not on the basis of cost or market price which was lower at the end of relevant accounting years." (iii) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able way particularly in the matter of claiming and securing relief." That without prejudice to above the appellant is quite eligible to avail its exemption as the concerned land is neither capital asset nor the current asset as it is an agricultural land thus, as defined u/ s 2(14 ) is not to be treated as capital assets. The agricultural income has been accepted in the earlier years as the ITR are placed on the record on Pages 19 -24. It is also brought to your kind notice that in the year when the assessment is made the concerned land became within 8 km limit due to tremendous change of municipality location. But to assess the liability of the assessee the status of the land is to be considered for the year under assessment and not to the period when the assessment is to be assessed. The relevant documents in this respect are enclosed on Pages 19-24 and 52 -77." 15. The ld. DR relied on the orders of the ld. CIT (A). 16. Heard the arguments of both the parties and perused the material available on record. Adjudication as to whether the income earned by the assessee constitute business income or Long Term Capital Gains: 17. We find that the assessee has always shown it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ish re- erect, alter, repair, or do any other work in connection with any building or building schemes, roads, highways, sewers, bridges, canals, walls, dam, power plants, reservoirs, embankments, railways, airports irrigations, reclamations, improvements, sanitary, water and power supply works, or any other structural or architectural work and for such purpose to prepare estimates, designs, plans, specification or models." 18. We have also perused the objects incidental or ancillary to attainment of the main object. "1. To acquire by purchase, lease, exchange or otherwise any movable or immovable property and any rights or privileges which the company may think necessary or convenient for the purpose of its business and either to retain the same or turn the same to account, as may seem expedient. 2. To enter into partnership or into any arrangement for sharing profits, union of interest, joint venture, reciprocal concession or co-operation with persons or companies carrying on or engaged in any business or transaction which this company is authorized to carry on." 19. We have also perused the case laws submitted by the assessee. The case CIT Vs Tejas Securities 393 ITR 132 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal authority to determine the nature of the transactions. In this background, we have gone through the nature of the transactions independently so as to determine whether the land in question is investment or stock-in-trade irrespective of the fact whether the books of accounts have been wrongly accounted or whether the capital gains have been wrongly offered to tax. 21. The assessee has also taken plea that the land has been sold only on account of the notice received from the revenue department to surrender the land as it was an encroachment on the Gaon Sabha Land. The notice was issued in the year 1997 hence cannot be given any relevance with regard to determination for the issue before us. The fact that the land in question has been sold after obtaining NOC from the ADM, South District, New Delhi on 24.01.2011. We find that the main objects of the company are to acquire purchase take on lease are otherwise any land building, structures plot to act as real estate agents in connection with buildings schemes and also to be colonizers to sale plots and flats. Having acquired the land as stock-in-trade, the land continued to be held for business purpose and continued to be shown a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the municipal limit of Delhi can be considered as agricultural land. b. The issue of population arises if the land is situated outside the limits of the municipality. In that case the twin conditions of distance and the population have to be made to claim it as a non- capital asset." 25. The assessee's contention that South Delhi Municipal Corporation has came into existence in the year 2011 doesn' t materially support anything with regard to the municipal limit as even after bifurcation, the municipal limit remained unaltered. Hence, even based on the municipal limits of Delhi Municipal Corporation or even based on municipal limits of South Delhi Municipal Corporation, the assessee' s land which is in the Bhatti, Hauz Khas, New Delhi falls within the jurisdiction of the municipality at the time of purchase and at the time of sale as well as at the time of sale cannot escape the rigors of taxation. 26. Since, the income earned has been already adjudicated on merits to be taxed as "business income", it is hereby clarified that the treatment proposed by the assessee to consider the proceeds of the sale of land under the head "Long Term Capital Gains"and subsequent exemption from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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