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2015 (4) TMI 365 - AT - Income TaxGain arising on sale of plots - treatment as adventure in the nature of trade - Held that - It is the case of the assessee that there was later realization about scarcity of water and labour, but it is the case of Assessing Officer and CIT(A) that the assessee had not furnished any evidence in support of its claim of scarcity of water and labour. Further, it is undisputed that Kolhapur district is fertile and irrigated land and sugar cane is one of the highest yielding cash crops grown in abundance in this area. The CIT(A) has given a finding in this regard which has not been rebutted by the assessee. The assessee has failed to furnish any evidence of any agricultural activity being undertaken before the land was put to development and plotting. Both before the Assessing Officer or the CIT(A) and even before us, the assessee has not furnished any evidence in this regard. Further, the assessee has not even disclosed the location of land. Though the claim of the assessee was that it was not receiving a good price for the agricultural land, but the assessee has failed to bring on record any evidence to suggest that there was ever any intention to sell the said agricultural land as such. On the contrary, the assessee obtained the permission from the Collector, Kolhapur for the conversion of landholding from agricultural to nonagricultural and also plotting and development activities were carried out over the years which establish the intention of the assessee to enter into trading activities. In the absence of the assessee having failed to substantiate its intention to carry out the agricultural activities on the said land and / or the circumstances which prevented him from carrying on the said activity and / or the claim of scarcity of water and labour having been established by the assessee, we are in agreement with the inference drawn by the Revenue authorities. The continued organized efforts of the assessee and the value addition to the agricultural land is sufficient proof of the intention of the assessee to venture into trading activity in land. - Decided against assessee.
Issues Involved:
1. Treatment of gain arising on sale of plots: Whether it should be assessed under 'income from capital gains' or as an adventure in the nature of trade. Detailed Analysis: 1. Treatment of Gain Arising on Sale of Plots: The core issue in this appeal is the classification of income from the sale of plots. The assessee contends that the income should be treated as capital gains, while the Revenue argues it should be considered as business income. Facts of the Case: The assessee, engaged in the business of trading in gold ornaments, declared income from long-term capital gains and other sources for the assessment year 2009-10. The assessee sold 13,550 sq. ft. of land for Rs. 23,80,000, claiming a long-term capital gain of Rs. 17,06,841 and a deduction under section 54 for purchasing a flat. The original agricultural land was purchased on 26.08.1997 and later converted into non-agricultural land with the Collector's permission on 31.12.2002. The assessee developed the land into plots and sold them. Revenue's Argument: The Assessing Officer (AO) observed that the assessee's actions-converting agricultural land to non-agricultural, developing it, and selling it in plots-constituted an adventure in the nature of trade. The AO noted that the assessee incurred development expenses over several years, indicating a systematic approach to enhancing the land's value for profit. Consequently, the AO assessed the income as business income, allowing proportionate cost of acquisition against the total sale consideration, resulting in an income from trading activities of Rs. 19,37,186. CIT(A)'s Findings: The CIT(A) upheld the AO's decision, noting the significant increase in land value due to the assessee's development efforts. The CIT(A) emphasized that the transformation of agricultural land into a marketable commodity through organized development activities indicated a trading venture. The CIT(A) referenced the Supreme Court's judgment in Janki Ram Bahadur Ram Vs. CIT, which inferred an adventure in the nature of trade from such activities. Assessee's Argument: The assessee argued that the initial intention was to invest in agricultural land, but due to scarcity of water and labor, the land was developed and sold. The assessee maintained that the transaction was an investment, not a business activity. Reliance was placed on several judicial rulings to support the claim that the absence of initial trading intention should classify the income as capital gains. Tribunal's Analysis: The Tribunal examined the facts, noting that the assessee failed to provide evidence of agricultural activities or scarcity of water and labor. The Tribunal agreed with the Revenue that the systematic development and sale of plots indicated a trading activity. The Tribunal referenced the Supreme Court's observations in Khan Bahadur Ahmed Alladin & Sons v. CIT and Janki Ram Bahadur Ram v. CIT, which highlighted that the nature of a transaction must be determined by the total impression of all relevant factors. Conclusion: The Tribunal upheld the lower authorities' decisions, concluding that the assessee's activities constituted an adventure in the nature of trade. The appeal was dismissed, affirming the classification of income from the sale of plots as business income. Result: The appeal of the assessee was dismissed. Order pronounced on February 13, 2015.
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