1989 (2) TMI 131 - AT - Income Tax

Summary

Issues Involved:
1. Whether the appellant had started a real estate business.
2. Whether the surplus on the sale of land should be treated as business income or capital gain.
3. Whether the sale of land was an adventure in the nature of trade.

Issue-Wise Detailed Analysis:

1. Whether the appellant had started a real estate business:
The CIT(A) held that the appellant had not started a real estate business. The appellant contended that he had converted ancestral land into stock-in-trade of a proprietary business and taken necessary steps for such business. The land was divided into plots, roads were provided, and other steps were taken, thus the surplus on sale of land was declared as business income. The ITO, however, questioned the genuineness of the business activity, noting that no business activity was conducted between 20th Aug., 1975 and 20th Oct., 1975. The ITO found that the appellant did not maintain a proper cash book and the books of account could be written at any time. No office, staff, or registration under any government authority was established for the business. The CIT(A) confirmed the ITO's view, stating that the entire process of converting capital assets into stock-in-trade was a device to evade capital gain tax.

2. Whether the surplus on the sale of land should be treated as business income or capital gain:
The appellant argued that the surplus from the sale of land should be taxed as business income rather than capital gain. The ITO taxed the surplus under "Capital gains," noting that the appellant's actions were not indicative of genuine business activity. The CIT(A) upheld this view, emphasizing that the entire transaction was completed within a month, and the appellant had never dealt in land before or after this transaction. The CIT(A) also noted that the appellant's son, a leading architect, facilitated the sale, and the plotting of the land was done before the intention to convert the land into stock-in-trade was documented. The CIT(A) concluded that the transaction was a facade to avoid capital gain tax.

3. Whether the sale of land was an adventure in the nature of trade:
The appellant submitted that even if the transaction was not considered a business, it should be classified as an adventure in the nature of trade. The CIT(A) rejected this argument, stating that the transaction lacked the characteristics of a trade adventure. The CIT(A) noted that the appellant did not engage any broker, did not advertise the sale, and the sales were made to persons close to the appellant. The CIT(A) concluded that the transaction was not genuine and was designed to evade tax.

Conclusion:
The Tribunal upheld the order of the CIT(A), confirming the taxability of the transaction under the head "capital gains." The Tribunal found that the appellant's actions did not constitute a genuine business activity or an adventure in the nature of trade. The appeal was dismissed, and the surplus on the sale of land was treated as capital gain.