2013 (6) TMI 401 - AT - Income Tax

Profit from sale of agriculture land - benami property - notice u/s 153A - whether the finding of the AO treating the assessee as benamidar of Sh. Rama Gameti can be justified and whether the transactions of sale and purchase of land should be treated as of capital gain nature or of business nature - It may be noted that the above mentioned agriculture land were shown to be purchased by Sh. Rama Gameti who is a domestic employee of the appellant - Held that - It is noticed that that Shri Rama Gameti, an employee of the assessee raised the loans amounting to Rs. 22.85 lacs from various parties utilized for purchase of agriculture land admeasuring 3,30,872.8 sq ft. The genuineness of the loan was not doubted by the AO. The said land purchased by Shri Rama Gameti was sold to M/s. S.S. Education Trust for a consideration of Rs. 23.87 lacs and after that the loans raised for purchase of the land were repaid by Shri Rama Gameti. AO s view that the assessee used the name of his domestic servant namely Shri Rama Gameti and Smt. Laxmi Bai to purchase the land belonging to Schedule Tribe and converted the same to the residential nature from agriculture nature is not acceptable as the land in question was purchased by Shri Rama Gameti and the purchased deed was not doubted. The conversion of land for non-agriculture purpose was got done by Shri Rama Gameti who sold this land to M/s. S.S. Education Trust which is a separate entity registered with Assistant Commisioner, Devasansthan Vibhag, Udaipur. The said trust also enjoy the benefit of registration u/s 12AA and 80G and is a separate entity from the assessee. So it cannot be said that the assessee got any benefit by purchasing the land in the name of M/s. S.S. Education Trust, a public charitable organisation. Although AO mentioned that Shri Rama Gameti was a benamidar of the assessee and had it been so then the transaction of the land which should have been purchased by a Schedule Tribe only, could easily be cancelled by the administrative authorities but no such action has been taken. Therefore, AO only presumed that Shri Rama Gameti was a benamidar of the assessee and the land purchased was actually benami property of the assessee. Shri Rama Gameti deposited the amounts received by raising the loan in his bank account and by withdrawing the amounts from the bank account, he purchased the land which was sold on profit to M/s. S.S. Education Trust after converting it into non-agriculture land and the assessee did not get any benefit from the land sold to M/s. S.S. Education Trust, a public charitable organisation. Therefore, AO was not justified in holding that the land in question was a benami asset of the assessee and capital gain., if any, was to be assessed in the hands of the assessee. No reason to discuss as to whether the profit on sale of land should be treated as business profit in the hands of the assessee or provisions of Section 50C were applicable because the said facts are to be considered in the hands of the original owner of the land i.e. Shri Rama Gameti who purchased the land by raising the loans and sold the land to M/s. S.S. Education Trust and earned profit - appeal filed by the assessee allowed.

Summary

Issues Involved:
1. Legitimacy of the transaction involving the sale of agricultural land.
2. Application of Section 50C of the Income Tax Act, 1961.
3. Determination of the real beneficiary of the land transaction.
4. Classification of the profit from the sale of land as either business income or capital gain.

Detailed Analysis:

1. Legitimacy of the Transaction Involving the Sale of Agricultural Land:
The case revolves around the sale of agricultural land by Shri Rama Gameti, an employee of the assessee. The Assessing Officer (AO) contended that the transaction was benami, with the actual beneficiary being the assessee. The AO based this on the financial incapacity of Shri Rama Gameti and the fact that the land was purchased and converted to non-agricultural land at the behest of the assessee. However, the appellant argued that Shri Rama Gameti independently undertook the transaction as a business venture, borrowing funds from various sources, including the assessee's family. The tribunal found that the loans raised for purchasing the land were genuine and that Shri Rama Gameti repaid these loans from the sale proceeds, thereby establishing the legitimacy of the transaction.

2. Application of Section 50C of the Income Tax Act, 1961:
The AO applied Section 50C, which deals with the valuation of capital assets for the purpose of calculating capital gains, to the transaction. The AO argued that the difference between the declared sale consideration and the value adopted by the Sub-Registrar should be taxed in the hands of the assessee. The appellant contended that Section 50C should not apply as the transaction was an adventure in the nature of trade, and the land was a business asset. The tribunal concluded that since the land was not related to the assessee, the applicability of Section 50C was irrelevant in this context.

3. Determination of the Real Beneficiary of the Land Transaction:
The AO asserted that Shri Rama Gameti was a benamidar for the assessee, who was the real beneficiary of the land transaction. This conclusion was based on the financial incapacity of Shri Rama Gameti and the control exercised by the assessee over the transaction. The appellant argued that Shri Rama Gameti conducted the transaction independently, with the assessee merely providing guidance and financial assistance. The tribunal found that the land transaction was conducted by Shri Rama Gameti, who raised loans and repaid them from the sale proceeds, and that the assessee did not derive any personal benefit from the transaction.

4. Classification of the Profit from the Sale of Land as Either Business Income or Capital Gain:
The AO treated the profit from the sale of land as capital gain, invoking Section 50C. The appellant argued that the transaction was a business venture, and the profit should be classified as business income. The tribunal did not delve into this issue in detail, as it concluded that the land transaction was not related to the assessee. Therefore, the classification of the profit should be considered in the hands of the original owner, Shri Rama Gameti.

Conclusion:
The tribunal allowed the appeal, concluding that the land transaction was conducted by Shri Rama Gameti independently, and the assessee was not the real beneficiary. Consequently, the addition made by the AO under Section 50C was deleted, and the profit from the sale of land was not assessed in the hands of the assessee. The judgment emphasized the importance of examining the surrounding circumstances and the financial capacity of the parties involved to determine the real nature of the transaction.