2019 (9) TMI 807 - AT - Income Tax

Profits arising on sale of land - Correct head of income - business income OR 'capital gains' - CIT(A) upholding the action of the AO for treating the profits arising on sale of land as business income instead of capital gains as claimed by the assessee - HELD THAT - In the present case, what has been done is not merely a realization or a change of investment but an act done in what is truly the carrying on of business in commercial sense. It may be pertinent to notice here the purport and intent of Section 2(13) which defines the expression business in an inclusive manner. The expression business as defined in Section 2(13) does not merely include any trade, commerce or manufacture but is elastic and wider to include the adjunct adventure in the nature of trade, commerce etc. Thus, the legislature has made a conscious inclusion to expand the scope of business to include certain actions akin to business in addition to normal business. The activity of the assessee herein has engaged the time, attention and the labour of the assessee apart from money. The profit arising on sale is nearly 30 times of investment in a period of 3-4 years owing to such concerted and planned action. Thus, when functional test is applied, the transaction of purchase and sale of land has been rightly regarded as business activity by the AO. The issue is essentially factual and is governed by the facts of each case. Judicial utterances made in the setting of the facts of a case would thus not supply unless it is shown that facts are identical. We are thus not required to delineate the nicety of law de hors the facts of such case. The reliance placed by the assessee on judicial precedents before the CIT(A) as well as before us are rendered in the fact situation which are substantially different. Thus, no abstract principle can be applied in the present facts. On the contrary, the fact situation is closure to the facts in Raja J. Rameshwar Rao 1961 (3) TMI 4 - SUPREME COURT and therefore the issue is required to determine in parity therewith. We thus find that the CIT(A) has rightly endorsed the action of the AO. We find no reason to interfere with the conclusion drawn by the CIT(A). - Decided against assessee.

Issues Involved:
1. Classification of profits from the sale of land as 'business income' versus 'capital gains'.
2. Determination of the nature of the transaction - whether it is an adventure in the nature of trade.
3. Applicability of judicial precedents to the facts of the case.

Detailed Analysis:

1. Classification of Profits from the Sale of Land as 'Business Income' versus 'Capital Gains':

The primary issue in this case is whether the profits earned on the sale of land should be classified as 'business income' or 'capital gains'. The assessee declared the income from the sale of land as 'capital gains', while the Assessing Officer (AO) reclassified it as 'business income'. The AO's rationale was based on the sequential actions taken by the assessee, such as purchasing adjoining lands, merging them, converting the land use from agricultural to non-agricultural, and obtaining multiple approvals for different types of development. These actions indicated a business venture rather than a mere investment.

2. Determination of the Nature of the Transaction - Whether it is an Adventure in the Nature of Trade:

The AO and the Commissioner of Income Tax (Appeals) [CIT(A)] both concluded that the transaction was an adventure in the nature of trade. The CIT(A) noted that the assessee's actions, including obtaining approvals for different land uses and selling the land at a significant profit within a short period, suggested a business motive. The CIT(A) applied various judicial tests to determine the nature of the transaction, including the intention at the time of acquisition, the purpose of the subsequent sale, how the asset was treated in the books of accounts, and the frequency and continuity of transactions.

The CIT(A) compared the facts of the case with judicial precedents and found that the assessee's case did not align with those where the transactions were considered investments. Instead, the facts were more similar to cases where transactions were deemed adventures in the nature of trade, such as the cases of V.A. Jose and Dilip Battu Karanjule, where the courts held that similar actions constituted business activities.

3. Applicability of Judicial Precedents to the Facts of the Case:

The assessee relied on judicial precedents to argue that the transaction should be considered an investment. However, the CIT(A) and the Tribunal found these precedents inapplicable due to distinguishable facts. The Tribunal emphasized that the determination of whether a transaction is an adventure in the nature of trade depends on the totality of facts. The Tribunal noted that the assessee's actions, such as immediate steps for land conversion and obtaining approvals for commercial use, indicated a business venture. The Tribunal also highlighted that the assessee's significant profit in a short period and the absence of any agricultural use of the land supported the conclusion that the transaction was a business activity.

The Tribunal referred to the Supreme Court's decision in Raja J. Rameshwar Rao vs. CIT, where similar actions were considered a business venture. The Tribunal concluded that the assessee's actions demonstrated a commercial motive and upheld the AO's classification of the profits as 'business income'.

Conclusion:

The Tribunal dismissed the assessee's appeal, agreeing with the AO and CIT(A) that the transaction was an adventure in the nature of trade and the profits should be taxed as 'business income'. The Tribunal emphasized that the determination depends on the totality of facts and the assessee's actions indicated a business venture rather than an investment.

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