TMI Blog1993 (10) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... ee that Rs. 5,10,562 received as damages is not taxable. The Income-tax Officer rejected this plea. In appeal, the Commissioner of Income-tax (Appeals) held that compensation was in respect of agricultural lands and the same was not taxable either as business profit or capital gain. The assessee got relief in respect of Rs. 5,10,562. The revenue challenges the view taken by the Commissioner (Appeals). 4. Before coming to the pleas advanced before us we should note one thing. The appeal had been posted to 16-8-1993. On that day an application was moved on behalf of the assessee to seek time. The appeal was adjourned to 15-9-1993 and his representative was not only informed of the next date of hearing but about the order that a final chance was being given. On 15-9-1993, when the appeal was taken up for hearing, there was no representation on his behalf. Shri Puniha, the learned departmental representative, took us through all the factual aspects and addressed on the question of law involved. 5. The Income-tax Officer has, in his order, referred to various other transactions the assessee had entered into not only in this year but also in the years past to demonstrate that he had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erted into plots. He had agreed to sell the same to a housing co-operative society and received an advance also in 1975-76. The said transaction did not click and the assessee had to pay damages of Rs. 17,500 to the society. Subsequently the plot was sold to one Nandalal Ramdas. While calculating the income derived from that transaction for the purpose of tax, the assessee had deducted the amount paid to the housing society as damages. (c) Examination of the assessee by the Income-Tax Officer revealed that the assessee had purchased three plots of orchard agricultural lands in the outskirts of Mysore with the object of exploiting the same for non-agricultural purposes. It would appear that permission had been sought from the Government for using the land for industrial purposes and that had been refused by the Assistant Commissioner. Later, there was a writ proceeding and ultimately the State Government itself converted the land into industrial purposes vide order passed in June 1984, Subsequently, the assessee had filed a statement under the Urban Land (C R) Act, 1976, and had sought for exemption under section 20 of the Act and to accord permission to sell the land for indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and and develop into sites for sale. In addition to this the assessee runs a xerox printing unit in the name and style of Bright Blue Printers for which income is only estimated." 10. The Commissioner (Appeals) was inclined to accept the argument advanced on behalf of the assessee that the fact that the assessee was not an agriculturist earlier is irrelevant as a non-agriculturist could also take to agricultural occupation and finally he concluded that the appellant's intention to purchase agricultural lands was to keep them as agricultural lands. This conclusion is contrary to facts apparent on record. The share income from the firms in this year was little above Rs. 13,000 leaving away the loss from another firm. It is not that every one can purchase agricultural land and there is stipulation in section 79A of the Land Reforms Act according to which the income from sources other than agriculture should not exceed a sum of Rs. 12,000 as the provision then stood. No person other than a person cultivating the land personally shall be entitled to hold agricultural land and there cannot be a sale contrary to that, vide section 79B, Land Reforms Act. No sale shall be lawful if made i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes should have been sought from the revenue department under the land revenue regulations. The assessee could not have approached any authority for alienation before obtaining a sale deed in his favour. The sellers had made an application to the State Government to seek exemption under the provisions of the Urban Land (C R) Act and the Department of Development had passed an order on 17-1-1981 whereby such exemption had been granted to sell the lands subject to certain conditions. One of the conditions was that the purchaser shall utilise the lands for the purpose of agriculture only and that there should be no change in the user of the land. Obviously, the sellers had sought for permission as if they were holding "vacant land" in excess of the ceiling limit under the Urban Land (C R) Act. The land mainly used for the purpose of agriculture is not "Vacant Land" as per section 2(q), Urban Land (C R) Act. It is very clear from the record that these were lands mainly used for agriculture and it is not known why the sellers should have sought exemption under the said Act. Taking for granted that they were "Vacant Land" for the purpose of Urban Land (C R) Act, then the Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Nagasandra village land agreeing to receive liquidated damages from Chandrabai Daga and Shankerlal R. Daga. At that time, it is true, the assessee was aware that the lands, if sold, should be used for agricultural purposes only. Despite this, the assessee extended the time frame for completing the sale transaction in respect of Dasarahalli village lands. The Commissioner (Appeals) has sought to make out a point from the above and he held that the assessee must have contemplated a change in the investment and this is what he observes in para 6: "... The appellant was contemplating change in the investment. In fact his policy can be called to be that of nursing the investment. Thus the very fact that the appellant entered into and continued the agreement even after the order under the Urban Land Ceiling Act was passed and the very fact that his business in real estate was showing loss would only lead to the conclusion that the appellant was only investing in agricultural land as part of his strategy to preserve the assets." It is really not apparent from the record the real reason for not effecting the sale. The agreement for sale was cancelled by mutual consent. Whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee's line of business may constitute an adventure in the nature of trade even if the assessee does nothing to the article or commodity purchased before he sells it. Neither repetition nor continuity of similar transactions is necessary to constitute a transaction an adventure in the nature of trade. Of course if there be repetition and continuity, the assessee would be carrying on a business and in that case the question will hardly arise whether the activity is an adventure in the nature of trade." A single transaction could be an adventure in the nature of trade. In the background of the occupational activities of the assessee it should be held that the transaction was a venture forming part of his land development business. 19. The Commissioner (Appeals) refers to some decisions to which we should advert. In the case of D.L.F. Housing Construction (P.) Ltd. v. CIT [1983] 141 ITR 806 (Delhi), the assessee had purchased agricultural lands in the course of his housing development business. He had not made any development, but only agricultural operations had been carried on. The land was compulsorily acquired by the Government for which compensation was paid. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the acquisition of damages and that the said amount was neither capital gain nor revenue receipt. The question of capital gain did not arise as there was no transfer of an asset. Because there was a breach by the vendor and since the contract provided for payment of liquidated damages of Rs. 1,00,000 in the event of a breach on the part of the vendor. Their Lordships held that compensation paid to the intending purchaser was not a revenue receipt. It is true that to some extent this case supports a thinking that compensation in such situation would constitute capital receipt, though not capital gain. 23. The Supreme Court has said very much in regard to the approach to a problem of this kind in CIT v. Rai Bahadur Jairam Valji [1959] 35 ITR 148 referred to by Shri Puniha during his address. It may be useful to furnish, in brief, facts of this case to understand the principle stated. The respondent in that case had several trading activities one of which was supplying lime-stone and dolomites. He had acquired a quarry and was working it to extract lime-stone. He had entered an agreement with a company to supply its requirements of limestone and dolomite at a certain rate. At a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a trading account. 25. Returning to the case before us, the principle explained by the Supreme Court in Rai Bahadur Jairam Valji's case furnishes a key to the solution to the issue before us. That was not a payment on account of any expenditure incurred by the assessee for executing the contract. The assessee was not infrequently purchasing properties with the object of exploitation of the same after either colonising for housing or for making it available for industrial use. With the object of converting the agricultural lands into housing plots, the assessee embarked upon a transaction to purchase lands with Dagas. It is well known that agreement to purchase does not create any interest in the intending purchaser in the property to be purchased. It merely creates right in persona. That is, it establishes certain rights and obligations between the intending seller and the purchaser. Dagas agreed to pay compensation to the assessee in consideration of the assessee relinquishing or waiving his right he had by virtue of the agreement for purchase. This was, like any other act, in the ordinary course of his business and the amount received had no nexus to the capital apparatus or ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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