2003 (2) TMI 21 - HC - Income Tax

Profit arising from the sale of plot - Tribunal was justified in law in confirming the order of the learned Commissioner of Income-tax (Appeals) that the income of the assessee should be assessed under the head Capital gains and not under the head Profit arising from the adventure in the nature of trade as assessed by the Assessing Officer

Summary

Issues Involved:
1. Whether the income of the assessee should be assessed under the head 'Capital gains' or 'Profit arising from the adventure in the nature of trade'.
2. Whether the case record in CIT v. Shahsi Kumar Agrawal is distinguishable from the present case.

Issue-wise Detailed Analysis:

1. Assessment under 'Capital Gains' vs. 'Profit from Adventure in the Nature of Trade':

The Revenue contended that the transaction should be categorized as 'profit arising from the adventure in the nature of trade' rather than 'capital gains'. The assessee inherited agricultural land, which was compulsorily acquired by the Jabalpur Development Authority. Instead of accepting monetary compensation, the assessee opted for developed plots and sold them in phases. The Revenue argued that this transaction was speculative and should be taxed as business income. They relied on precedents like G. Venkataswami Naidu and Co. v. CIT and Kanwarlal Manoharwal v. CIT to support their claim.

In contrast, the assessee argued that the transaction was not speculative. The Tribunal, after detailed examination, concluded that the transaction was not an adventure in the nature of trade. The land was inherited and compulsorily acquired, and the assessee opted for plots instead of cash compensation. The Tribunal emphasized that the transaction lacked the essential features of trade, such as the purchase of land with the intention to resell at a profit. The Tribunal's decision was based on the factual matrix, indicating that the transaction was a realization of capital assets, not a business activity.

The High Court upheld the Tribunal's decision, noting that the Tribunal had thoroughly analyzed the facts and circumstances. The court referenced the Supreme Court's decision in G. Venkataswami Naidu and Co., which emphasized that the character of a transaction depends on various factors and circumstances. The High Court found that the Tribunal's conclusion was based on a proper appreciation of facts and did not warrant a legal question for further consideration.

2. Distinguishability from CIT v. Shahsi Kumar Agrawal:

The Revenue argued that the case of CIT v. Shahsi Kumar Agrawal was distinguishable because, in that case, agricultural land was sold in pieces, whereas, in the present case, developed plots were sold with an intention to earn more profit. However, the Tribunal found that the facts of the present case were similar to those in CIT v. Shahsi Kumar Agrawal, where the land was not purchased by the assessee but was received as a gift, and the sale was not considered an adventure in the nature of trade.

The High Court agreed with the Tribunal's assessment, noting that the Tribunal had carefully considered the facts and circumstances, including the compulsory acquisition and the nature of the transaction. The Tribunal's finding that the transaction was a realization of capital assets and not a business activity was based on a proper appreciation of facts, and no referable question of law arose from this finding.

Conclusion:

The High Court dismissed the income-tax reference, affirming the Tribunal's decision that the income should be assessed under 'capital gains' and not as 'profit arising from the adventure in the nature of trade'. The court found that the Tribunal's decision was based on a thorough appreciation of facts and circumstances, and no legal question warranted further consideration.