1984 (7) TMI 158 - AT - Income Tax

Summary

Issues Involved:
1. Nature of the sale transaction - whether it is an adventure in the nature of trade.
2. Taxability of the surplus from the sale of agricultural lands.
3. Treatment of the lands as agricultural or non-agricultural for tax purposes.
4. Consideration of alternative argument regarding the income being taxed as business income.

Issue-wise Detailed Analysis:

1. Nature of the Sale Transaction - Whether it is an Adventure in the Nature of Trade:
The Income Tax Officer (ITO) concluded that the plotting out of the lands by the assessees constituted an adventure in the nature of trade. The ITO worked out the profit based on the difference between the sale value and the cost, including the proportionate cost of laying out plots. The first appellate authority, however, found that these were agricultural lands used for agricultural purposes, and mere plotting out did not render them non-agricultural. The appellate authority referenced the Supreme Court decision in Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21, concluding that there was no adventure in the nature of trade since the lands were not acquired with a view to resell them.

2. Taxability of the Surplus from the Sale of Agricultural Lands:
The assessees argued that the lands were agricultural and thus exempt from capital gains tax. The ITO initially did not tax the amount from the sale of these lands, considering them agricultural. The appellate authority upheld this view, noting that the surplus from the sale of plots was related to agricultural assets and thus exempt from tax. The department's appeal sought to restore the ITO's orders, arguing that the transaction was an adventure in the nature of trade, which would make the surplus taxable.

3. Treatment of the Lands as Agricultural or Non-Agricultural for Tax Purposes:
The lands were consistently treated as agricultural in past income-tax and wealth-tax assessments. The ITO initially accepted the assessees' explanation that the lands were agricultural and did not attempt to tax the sale proceeds. The appellate authority found that the lands continued to be agricultural even after purchase and that the plotting out did not change their nature. The department's representative argued that the lands were not agricultural at the time of sale, referencing the Gujarat High Court's decision in CIT v. Manilal Somnath [1977] 106 ITR 917 and the Bombay High Court's decision in Smt. Bhanumati A. Sanghavi v. CIT [1979] 119 ITR 69.

4. Consideration of Alternative Argument Regarding the Income Being Taxed as Business Income:
The department's representative alternatively argued that the income should be taxed as business income. However, the appellate authority found no material to support this argument. The lands were held under lease for several years and were under cultivation even after purchase. The assessees consistently claimed the lands as investment, not stock-in-trade. The appellate authority noted that for an adventure in the nature of trade, the profit has to be ascertained on the completion of the venture, which was not the case here. The department's request to send the matter back to the ITO for further investigation was denied as the new ground could only be entertained with materials already on record.

Conclusion:
The appellate authority upheld the first appellate authority's order, dismissing the departmental appeals. The surplus from the sale of the plots was not considered an adventure in the nature of trade, and the lands were treated as agricultural for tax purposes. The alternative argument to tax the income as business income was not entertained due to lack of supporting material on record.