9911796707
TMI Blog2002 (12) TMI 197X X X X Extracts X X X X X X X X Extracts X X X X ..... gains'. The learned Commissioner (A) ought to have held that as the lands sold being beyond the notified area, the surplus of sale would not be liable to tax under the head 'income from capital gains', and without prejudice, even assuming that the appellant was liable to be assessed under the head 'business', the cost of land should have been considered at the market value on the rate of conversion by division of land into small pieces and relevant expenditure incurred for improvement should have been allowed as deduction. 2. The appellant/assessee is a Karta of Hindu Undivided Family engaged in agricultural activities as well as share trading activities, filed its return of income on 2-11-1998 for the assessment year under consideration admitting a net loss of Rs. 11,21,244 from business and a loss of Rs. 7,83,457 from agriculture. The matter was processed under section 143(1)(a) on 6-10-1999 and later on taken up for scrutiny. During the course of hearing before Assessing Officer the assessee filed a revised working of income according to which the net loss was worked out at Rs. 6,97,444. As per the assessment order, it was found by the Assessing Officer that the assessee had c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm has been incurring the loss, there is no taxable income from the partnership firm." The assessee vide its letter dated 13-12-2000 further clarified as follows:- "So far as loans to others are concerned, there are several other creditors to whom the assessee has not been paying any interest. Therefore, it is difficult to specifically identify the interest bearing loan and non-interest bearing loan. The interest paid of Rs. 61,867 as already mentioned in our letter, is after deducting Rs. 70,000 interest received from Estate Club. The interest is not received from Estate Club and Resorts. Estate Club and Resorts is a separate Partnership Firm, whereas the assessee is one of the Partner. The payment of interest is in respect of certain loans, which has also been lent to Estate Club and therefore, netting off the interest is in order." 3. As per the assessment order, the assessee had claimed expenses towards sale of developed plantation land at Rs. 1,48,360 in the Capital Account furnished along with the balance sheet. Clarification was sought from the assessee and was found that the expenditure were claimed in respect of land at Hosur Road. According to copies of the deeds fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses has been incurred for the purpose of agriculture only. Even now on the balance of land the agricultural operation is being carried out. Since the assessee has been incurring loss in agricultural operation and has incurred huge liability, to clear such liability some portion of the land was made into plantation plots and sold." 4. The assessee further claimed that the capital gains arising out of the agricultural land are to be considered as capital gains and not as profit arising out of business operation and further told that since the land is situated beyond 10 kms. from the local limits, the capital gains arising out of this land is exempt from income tax. The reply of the assessee could not find favour with the Assessing Officer. The Assessing Officer opined that though the land is called plantation land, the same is sold after developing them to be fit enough for use for non-agricultural purposes, and hold that the sale of land is treated as adventure in the nature of trade and assessed accordingly. The assessee carried the same unsuccessfully before the first appellate authority. Now the assessee is in further appeal before the Tribunal. 5. At the time of hearing we hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the land was sold in hard pressed circumstances to come out of the financial crisis and plantation was made so that more amount can be fetched. Mr. Parthasarathi further told that from 1978 to 79 about 40 acres of land was purchased and later on about 7 acres. Out of total land holding, the assessee sold about 35 acres and the remaining about 14 acres is still with the assessee. The learned counsel also drawn our attention to the decision of the Apex Court in CIT v. H. Holck Larsen [1986] 160 ITR 671 and also the decision of the Tribunal in ITA No. 290/Bang./98 dated 30th January, 2002. Mr. Parthasarathi further told that the revenue has accepted the same as capital gains for earlier years. Mr. Parthasarathi further argued that the assessee planted coffee, papaya and other plants such as coconut etc. and the trees are even available today. Mr. Parthasarathi also told that there was no purchaser of land in 1977 when the assessee was having the major portion of the land and this is a part of green belt area and the assessee had to borrow loan from Vysya Bank and had to repay the same after selling of land. Mr. Parthasarathi further told that when the assessee could not get eno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, 1982 to 1990 showing a loss of Rs. 3,487,397.82 p.:- --------------------------------------------------------- Amount -------------------------------------- Sl.No. Year Profit Loss 1. 1981-82 Rs. 0.00 Rs. 189,058.57 2. 1982-83 Rs. 396,718.52 3. 1983-84 Rs. 481,200.00 4. 1984-85 Rs. 513,161.00 5. 1985-86 Rs. 127,515.00 6. 1986-87 Rs. 457,011.00 7. 1987-88 Rs. 629,084.00 8. 1988-89 Rs. 499,490.00 9. 1989-90 Rs. 194,159.73 --------------------------------------------------------- Rs. 0.00 Rs. 3,487,397.82 --------------------------------------------------------- The assessee is aggrieved by the treatment of sale of agricultural land as adventure in nature of trade and addition of Rs. 18,63,096 and further challenged the disallowance of expenditure on maintenance of office in connection with trading in shares and financing and also disallowance of interest paid. The assessee purchased the land right from the year 1977 onwards upto 1992, some plantation was made and was converted into smaller size of plots and after incurring development expenses, sold the same to different parties. The value of each plot was worked out at Rs. 1,39,544 and made 159 plots, out of which 115 plot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee would have applied for conversion of land use certainly the intention of the assessee would have been different. This is also a fact that the assessee wrote a letter to the Dy. Commissioner on 19th October, 2000 stating that the assessee purchased agriculture land in different stages during 1977 to 1992 and the entire land purchased was agricultural land and not a converted land. The assessee also enclosed purchase documents along with the mutation record and also the agriculture tax paid receipt. The assessee also informed the department of having started cultivating coffee, papaya, coconut and pepper in the said land. The assessee also enclosed a certificate/document issued by the Tahsildar of Anekkal as a proof that the entire land is plantation land owned by the assessee. The assessee has also responded to the letter of the Dy. Commissioner of Income-tax, Circle-2(1), Bangalore dated 23-11-2000 vide its letter dated 13-12-2000 wherein it was mentioned that the assessee purchased the land for regular plantation and also stating that "at the time when the land was purchased it was never the intention of the assessee to make into plots and sell. The coffee plants, coconut tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal, Pune Bench in the case of Baramati Taluka Sahakari Doodh Purvatha Sangh Ltd. v. Asstt. CIT [2000] 75 ITD 284 wherein the assessee was engaged in the business of collecting milk from primary members and supplies the same to the Government. They purchased a land for erecting cattle feed factory. The said land could not be used for constructing factory due to certain circumstances and was converted into plots which was treated by the Assessing Officer as profit arising out of the sale of land into business income, treating the profit as arising from adventure in the nature of trade. The Hon'ble Tribunal held that the mere making plots and sale cannot be considered as adventure in nature of trade because the intention of the assessee was to put up a factory and it was not the intention to sell the land by making plots, also supports the case of the assessee. Certainly in the present case before us the assessee purchased the land from 1977 onwards so we do not agree with the agreement of the learned counsel for the revenue that the intention of the assessee was to develop the land for plotting etc. Even during argument before us the learned counsel for the assessee opined that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rected building/farmhouse has changed the character of the land. Just because the building has been put up by the purchaser cannot change the character of the land as on the date of sale. As the assessee has incurred huge losses and having huge liabilities in order to acquire the same, plots were made and sold as agricultural land, it cannot be considered as adventure in the nature of trade. The assessee in its letter dated 4-2-2002 written to the learned CIT(A) also stated some facts and details which is self-evident. Regarding agricultural operation, subsequently stating that the assessee is still carrying on agricultural operation and on the balance land deriving income from agricultural operation. Nothing prevented the revenue to order for spot inspection regarding the land use. The assessee has also produced before us the statement of number of mini plantations sold during the period 1993-94 to 2000-01 and also consolidated list of sundry creditors from the years 1981-82 to 1986-87. The assessee has also drawn our attention towards sundry debtors from the years 1997-98 to 2000-01. We have also gone through the agricultural income and expenditure from 1991-2001 showing the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us a decision dated 10th March, 1978 ordered by the Karanataka Appellate Tribunal, Bangalore regarding Karnataka Land Revenue Act, 1964 as per section 95, Farm Building, that is- "Any building constructed on the land for enabling better cultivation and management of the land ought to be treated as a "Farm Building". As long as the predominant purpose of the building constructed on the land is its user by the cultivator for the purposes of dwelling, tethering of the cattle, storing of the agriculture implements and the agricultural produce, the nature of the building the material used, its size or the comforts provided therein will be immaterial. Form Building used in section 95 of the Land Revenue does not mean a poor agriculturist but without amenities. It can be a modern structure with all facilities". The order further assess- "Under section 95 of the Land Revenue Act, an occupant of land assessed or held for the purpose of agriculture is entitled to erect Farm buildings construct wells or Rank or make any other improvements thereon for the better cultivation of the land or its more convenient use for the purpose aforesaid. The phrase "Farm Buildings" is not defined anywhere. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce it was held that the assessee did not purchase the land by himself but purchased the same along with his son as joint owners. Both of them were businessmen and not agriculturists. The land purchased was located in an urban area surrounded by big factories. If the idea of the assessee was to make an investment in the land he would not have allowed it to remain uncultivated and fallow continuously for 5 years. The assessee obtained permission for conversion of the land to non-agricultural purposes and formed a layout for house sites and sold the sites to workers in nearby factories. These events clearly established that the assessee purchased the land with a view to sell it as attractive house sites at a profit. Therefore, the transaction was an adventure in the nature of trade and the profit realised from the sale was assessable as business profits. But in the case before us the land was purchased from 1977 to 1992. In the facts before us the assessee is an agriculturist, the land is on green belt, never applied for conversion of land use, not surrounded by factories etc. The assessee cultivated the land and never obtained permission for conversion of land to non-agricultural pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Smt. Indramani Bai. In this case the appellants were the wives of two brothers who were partners in a firm. In December, 1963, they purchased a piece of land for a consideration of Rs. 10,620 and shortly after purchase they carved it into four plots and sold them individually. Two agreements were entered into, one in May, 1964 and the other in July, 1964 and the sale deeds were executed in pursuance thereof on October, 9, 1954 and November 30, 1964. It was held that the transaction of the appellants was an adventure in the nature of trade and that the profit derived therefrom was liable to income-tax and assessment could be made on them in the status of an association of persons, but the facts of the case before us is quite distinguishable as discussed above. 14. The learned counsel for the revenue also relied upon the decision of the Hon'ble High Court of Patna in the case of Eclat Construction (P.) Ltd. In this case the assessee company was formed with varied objects of buying, selling, manufacturing, repairing, letting on hire and dealing in plant, machinery and appliances. The project was undertaken to set up factory for manufacture of mosaic tiles. The factory was pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quite distinguishable from the facts of this case. 17. The learned counsel for the revenue also relied upon the decision of the Hon'ble High Court of Gujarat in the case of Hemachand Hirachand Shah. In this case the assessee claimed to be an agriculturist had entered into a series of transactions of purchase and sale of lands which were treated by the ITO as business operations and the profit arising from the sale of such lands as taxable income and this was upheld by the Tribunal. On reference, on the facts of the case and from the material on record that the explanation offered by the assessee for disposing of the lands soon after purchase were not acceptable. A situation could not be accepted where such agriculturist would purchase a land for the purpose of agriculture, on an assumption or on an observation that it would be fit for agriculture, and immediately after the purchase, arrive at a conclusion that it would be uneconomical to develop the same for agriculture and would, therefore, be required to dispose of the same. The assessee had entered into a series of transactions of purchase and sale, and in each case the sale was within a reasonably short time of the purchase. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Baramati Taluks Sahakari Doodh Parvatha Sangha Ltd. under a similar circumstance considered the following decisions: (a) Mazagaon Dock Ltd. v. CIT [1958] 34 ITR 368 (SC), (b) P. Krishna Menon v. CIT [1959] 35 ITR 48 (SC), (c) CIT v. Sutlej Cotton Mills Supply Agency Ltd. [1975] 100 ITR 706 (SC). (d) Bhogilal H. Patel v. CIT [1969] 74 ITR 692 (Bom.), (e) Saroj Kumar Mazumdar v. CIT [1959] 37 ITR 242 (SC), (f) G. Venkataswami Naidu & Co. v. CIT [1959] 35 ITR 594 (SC), (g) Indian Hume Pipe Co. Ltd. v. CIT [1992] 195 ITR 386 (Bom.), (h) Khan Bahadur Ahmed Alladin & Sons v. CIT [1968] 68 ITR 573 (SC), (i) Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21 (SC), (j) P.M. Mohammed Meerakhan v. CIT [1969] 73 ITR 735 (SC) & (k) Ramnarain Sons (P.) Ltd. v. CIT [1961] 41 ITR 534 (SC). Referred by the learned representatives and held that the question whether the transaction of purchase and sale of land is an adventure in the nature of trade or not is a question of mixed facts and law and therefore has to be decided on the facts of each case and no hard and fast rules can be laid down in deciding such question. It is also the settled law that in deciding such issue one has to conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or business or incidental to it; the nature and quantity of the commodity purchased and resold; any act subsequent to the purchase to improve the quality of the commodity purchased and thereby make it more readily resaleable any act prior to the purchase showing a design or purpose the incidents associated with the purchase and resale, the similarity of the transaction to operations usually associated with trade or business; the repetition of the transaction; the element of pride of possession. A person may purchase a piece of art, hold it for some time and if a profitable offer is received sell it. During the time that the purchaser had its possession he may be able to claim pride of possession and aesthetic satisfaction; and if such a claim is upheld that would be a factor against the transaction being in the nature of trade. The presence of all these relevant factors may help the court to draw and inference that a transaction is in the nature of trade, but it is not a matter of merely counting the number of facts and circumstances pros and con; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sell the land by parcelling it out into different plots and also by laying out roads and providing other amenities with a view to get more price, it cannot be said that the activity which he carried on has any element of trade, commerce or business and it cannot be said, therefore, that it is an activity in the nature of a trade, further-supports the case of the assessee. The Hon'ble Supreme Court of India in the case of Janki Ram Bahadur Ram has held that "if a transaction is related to the business which is normally carried on by the assessee, though not directly part of it, an intention to launch upon an adventure in the nature of trade may readily be inferred. A similar inference would arise where a commodity is purchased and sub-divided, altered, treated, or repaired and sold, or is converted into a different commodity and sold. Magnitude of the transaction of purchase, the nature of the commodity, subsequent dealings and the manner of disposal may be such that the transaction may be stamped with a character of a trading venture. But a transaction of purchase of land cannot be assumed without more to be a venture in the nature of trade. The profit motive in entering a transa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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