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TMI Blog2024 (7) TMI 1496X X X X Extracts X X X X X X X X Extracts X X X X ..... d of treating the same as 'capital gain'. Revenue contends that though the primary business activity of the assessee is that of running medical shops under the Trade name 'Sevana', he had during the relevant assessment years indulged in buying and selling of landed property with a view to earn profit. This, according to the Revenue can only be termed as an 'adventure in the nature of trade' as envisaged in Section 2 (13) of the Income Tax Act, 1961 thus making the income derived from the sale of landed property to be business income as against the claim of the assessee that it was in 'the nature of capital gains'. Brief facts : 3. The assessee, who is the respondent in these appeals, runs a medical shop and is also a partner in certain other medical shops under the trade name "SEVANA". There was a search under Section 132 of the Act in the residential and business premises of the assessee on 18.12.2013. In response to the notice u/s.153A of the Act, the assessee filed the returns of the income for the assessment year 2011-12 to 2014-15. The Assessing Officer completed the assessment u/s. 143 (3) r.w.s Section 153A of the Act on 31.03.2016 [Annexure A] by making vario ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f law have been framed in all the above appeals: (1) Whether on the facts and in the circumstances of the case, the Tribunal is right in law and fact in interfering with the action of the assessing officer in treating the activities of the assessee as 'adventure in the nature of trade'? (2) Whether on the facts and in the circumstances of the case and the nature of the issue being one depending on the facts of the case, the Tribunal is right in holding : "In our opinion this issue is squarely covered by the judgment of the jurisdictional High Court...." Is not such an approach and conclusion perverse and illogical ? (3) Whether on the facts and in the circumstances of the case are not the transactions and dealings in land, adventures in the nature of trade and hence assessable as business? 5. We have heard Smt. Susie B. Varghese, learned Standing Counsel for the appellant and Mr. Anil D. Nair, learned Senior Advocate appearing for the respondent. Appellant's contentions: 6. The learned Standing Counsel submits that ITAT erred in properly appreciating the scope and ambit of the term 'business' as defined in Section 2 (13) of the Income Tax Act, 1961. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointers to the fact that the land purchases and sale were not carried out as a business venture by the assessee. As regards the reliance placed by the Revenue on the dictum laid down by the Supreme Court in G.Venkataswami Naidu & Co. v. Commissioner of Income Tax and Smt. Indramani Bai and another v. Additional Commissioner of Income Tax, A.P. (supra), the learned Senior Advocate submits that there exists significant divergence in the facts and circumstances of the said decisions from the subject appeals, thus making reliance on the said dictum perfunctory and unsustainable. Discussion and conclusion: 8. Towards answering the substantial questions raised, it assumes relevance to understand the meaning, scope and ambit of the term 'adventure in the nature of trade' as used in Section 2 (13) of the Income Tax Act, 1961 while defining the term 'business'. Section 2 (13) reads as follows: "business" includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture; It can be seen from the above definition that it is not only a trade, commerce or manufacture that would constitute a business under the Act. Any 'adventure or con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant amount if it is held that the transaction which brought him this amount was business within the meaning of Section 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 Section 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." 10. Having answered the nature of the question, the Supreme Court in G.Venkataswami Naidu & Co. (supra) proceeded to do a detailed survey in the English and Indian precedents on the point and delineated the nature of the question and the important considerations which are to be borne in mind in determining the character of the transaction, even if it be an isolated one, as follows: "1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... something which is often loosely spoken of as capital". In our opinion, it would be unreasonable to apply the test involved in the use of this pictorial language to the decision of the question as to whether a single or an isolated transaction can be regarded as an adventure in the nature of trade. In this connection we may, with respect, refer to the comment made by Lord Wright in Raja Bahadur Kamakshya Narain Singh of Ramgarh v. CIT that "it is clear that such picturesque similes cannot be used to limit the true character of income in general ". We are inclined to think that, in dealing with the very prosaic and sometimes complex questions arising under the Income-tax Act, use of metaphors, however poetic and picturesque, may not help to clarify the position but may instead introduce an unnecessary element of confusion or doubt. 16. As we have already observed it is impossible to evolve any formula which can be applied in determining the character of isolated transactions which come before the courts in tax proceedings. It would besides be inexpedient to make any attempt to evolve such a rule or formula. Generally speaking, it would not be difficult to decide whether a given t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of them may help the court to draw a similar inference; but it is not a matter of merely counting the number of facts and circumstances pro and con; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction; and so, though we may attempt to derive some assistance from decisions bearing on this point, we cannot seek to deduce any rule from them and mechanically apply it to the facts before us. 17. In this connection it would be relevant to refer to another test which is sometimes applied in determining the character of the transaction. Was the purchase made with the intention to resell it at a profit ? It is often said that a transaction of purchase followed by resale can either be an investment or an adventure in the nature of trade. There is no middle course and no half-way house. This statement may be broadly true; and so some judicial decisions apply the test of the initial intention to resell in distinguishing adventures in the nature of trade from transactions of investment. Even in the application of this test distinction will have to be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence be relevant to examine some precedents on this point to ascertain whether any broad contours could be identified. 13. The Supreme Court had in Smt.Indramani Bai and another v. Additional Commissioner Of Income-Tax, A.P. [1994 Supp. (2) SCC 114] considered the question of intention to be drawn from the conduct of the assessee. In that case the wives of two brothers, who were partners in a firm, purchased a piece of land for a consideration of Rs. 10,620/- in the month of December, 1963. Shortly after purchase, they carved it into four plots and sold them individually in the year 1964. The Hon'ble High Court held that the fact that soon after the purchase of land, the assessee carved it into plots and sold them within a few months, coupled with the other facts of the case, establishes that the intention of the assessees even when they purchased the land, was to resell the same and not to make an investment. The Hon'ble Supreme Court affirmed the view taken by the High Court and further held as under : "The fact that soon after the purchase, the assessees carved out the land into plots and sold them within a few months, coupled with other circumstances of the case, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case, there is nothing to show that the land was purchased with the intention to sell at a profit, or with requisite intention, to bring it within the parameters of "stock-in-trade". It is not shown that the assessee is a regular dealer in real estate. It appears, that the land was purchased in 1970, which was under cloud of land ceiling laws, and after that cloud was cleared, and other adjoining lands had been developed, and since the land was not yielding any return, it was decided to be sold in piecemeal, by earmarking plots, but then nonetheless it would remain a disposal of the capital asset only, and not a transaction of any "stock-intrade" so as to be described as "adventure in the nature of trade". Obviously therefore, it is liable to be taxed only, as the capital gain. 17. In Commissioner of Income Tax v. A. Mohammed Mohideen [(1988) SCC OnLine Mad. 404], it was observed 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 acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly the family funds. The holding period of properties were very low thereby meaning that the element of risk involved in the engagement was deliberately kept low displaying the intent of such investment to be more towards creating a long term capital gain and increase in value of the capital asset rather than to engage in an adventurous pursuit of real estate trading. It has been revealed that the assessee had sufficient funds during the relevant time to purchase properties and the entire cost was paid at the time of purchase of the property itself. Availing of borrowed funds to invest in real estate purchases, which is an essential facet of commercial real estate trading, is thus absent in the forays into the real estate investment made by the assessee. It has been noted that the assessee had been devoting very less time and effort in property transactions which were isolated and once-in-a-while activities when compared to the substantial effort and time spent in focusing on the building and propagation of the medical business under the trade name 'SEVANA'. Finally and more importantly, it had been noted by the ITAT that the assessee had never treated the properties as st ..... X X X X Extracts X X X X X X X X Extracts X X X X
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