2025 (1) TMI 647 - AT - Income Tax

Short Term Capital Gain - real owner of capital asset - As argued additional documents are not entertained - as per DR assessee has not produced any materials in support of the expenses claimed towards conversion into non-agricultural purpose and payments made to farmers - CIT(A) held no iota of evidence in the form of documents placed before the Authorities that the assessee is a name lender not real owner and real owner is Shri Mansukhbhai Dobariya. HELD THAT - As per the statement of Shri Mansukbhai Dobariya, he was operating as a Real Estate Agent for the company CLPL in procuring lands and purchased the properties in the name of his son Shri Piyush M Dobariya and Shri Ajay Reghubhai Bharwad are not within the provisions of law. As per the Indian Registration Act, if Shri Mansukbhai Dobariya purchases the land he could have engaged his son Shri Piyush M Dobariya and Shri Ajay Reghubhai Bharwad as his Power of Attorney Agent and registered the immovable properties then the contention of the assessee may hold it good but that legal proceeding has not been done in this case. The Conveyance Deeds makes it clear that the properties were purchased by Shri Piyush M Dobariya and Shri Ajay Reghubhai Bharwad in their individual capacities and sale of the same will certainly attract Capital Gains. There were no evidences placed by the assessee before any of the Lower Authorities regarding the expenses incurred by the assessee in converting the agricultural lands into Non-Agricultural lands. Thus the additional documents are without necessary evidences and invalid in the eyes of law. Thus the registered Sale Deeds makes it abundantly clear that the properties belongs to the two assessees here in. The assessees failed to produce expenses relating to the land as well as non-agricultural conversion expense and payments made to the farmers. In the absence of the same, we do not find any infirmity in the orders passed by the Lower Authorities in treating the sale as Short Term Capital Gain. Thus we do not find any merits in the submissions of the assessee. We are also in concurrence in the findings of the Ld. CIT(A) namely the alternative view of treating the transactions in the nature of adventure in trade. Therefore the Grounds raised by the assessee are devoid of merits.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

• Whether the income from the sale of immovable properties should be taxed as short-term capital gains in the hands of the appellants or attributed to Shri Mansukhbhai Dobariya, who allegedly acted as the real owner.
• Whether the lands in question qualify as capital assets under the Income Tax Act, thus attracting capital gains tax.
• Whether the additional evidence submitted by the appellants should be admitted under Rule 46A of the Income Tax Rules.
• Whether the transactions could alternatively be treated as an adventure in the nature of trade.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Taxation of Income from Sale of Properties

• Legal Framework and Precedents: The Income Tax Act, 1961, particularly sections pertaining to capital gains, and the definitions of 'capital asset' and 'transfer' under the Act.
• Court's Interpretation and Reasoning: The court analyzed the ownership and transaction details, emphasizing the registered sale deeds and the lack of documentary evidence to support the claim that the transactions were on behalf of Shri Mansukhbhai Dobariya.
• Key Evidence and Findings: The court noted the absence of power of attorney or any legal documentation indicating that the properties were held in trust for Shri Mansukhbhai Dobariya.
• Application of Law to Facts: The court applied the provisions of the Income Tax Act to determine that the appellants were the legal owners and thus liable for capital gains tax.
• Treatment of Competing Arguments: The court dismissed the appellants' argument that they were merely name lenders, citing the lack of corroborative evidence.
• Conclusions: The court concluded that the appellants were the rightful owners and liable for the short-term capital gains tax.

Issue 2: Classification of Land as Capital Asset

• Legal Framework and Precedents: Definition of 'capital asset' under the Income Tax Act and relevant case law.
• Court's Interpretation and Reasoning: The court considered the conversion of agricultural land to non-agricultural land, which qualifies it as a capital asset.
• Key Evidence and Findings: Evidence of land conversion and the nature of transactions were crucial in determining the classification.
• Application of Law to Facts: The court determined that the conversion of land altered its status to a capital asset, making it subject to capital gains tax.
• Treatment of Competing Arguments: The court rejected the argument that the land was not a capital asset, citing the conversion as a significant factor.
• Conclusions: The land was classified as a capital asset, and the gains from its sale were taxable.

Issue 3: Admission of Additional Evidence

• Legal Framework and Precedents: Rule 46A of the Income Tax Rules regarding the admission of additional evidence.
• Court's Interpretation and Reasoning: The court found that the additional evidence did not meet the criteria for admission under Rule 46A.
• Key Evidence and Findings: The court noted the lack of corroborative evidence to support the additional documents submitted.
• Application of Law to Facts: The court applied Rule 46A, determining the inadmissibility of the additional evidence.
• Treatment of Competing Arguments: The appellants' arguments for admitting additional evidence were dismissed due to procedural shortcomings.
• Conclusions: The additional evidence was not admitted, and the case was decided on the existing record.

Issue 4: Adventure in the Nature of Trade

• Legal Framework and Precedents: Principles distinguishing capital gains from business income.
• Court's Interpretation and Reasoning: The court alternatively considered whether the transactions could be viewed as a business activity.
• Key Evidence and Findings: The court examined the intent and manner of transactions.
• Application of Law to Facts: The court found that even if considered as a business activity, the transactions would still result in taxable income.
• Treatment of Competing Arguments: The court addressed the appellants' claims by considering the nature and frequency of transactions.
• Conclusions: The transactions could be alternatively treated as business income, but the primary conclusion was upheld.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: "The documentary evidence will have credibility or prominence over observation, opinion as claimed by the appellant."
• Core Principles Established: Legal ownership and the nature of the asset are paramount in determining tax liability; procedural compliance is necessary for admitting additional evidence.
• Final Determinations on Each Issue:
  • The appellants are liable for short-term capital gains tax as the legal owners of the properties.
  • The lands are classified as capital assets due to their conversion to non-agricultural use.
  • The additional evidence submitted was inadmissible under Rule 46A.
  • Even if considered an adventure in the nature of trade, the transactions would result in taxable income.

The appeals filed by the assessees were dismissed, affirming the lower authorities' decisions to tax the income as short-term capital gains.