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TMI Blog1987 (10) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... is agricultural land into his stock-in-trade the assessee got the area intended to be used in the development of the colony valued by a valuer. For this purpose the market value as on5-7-1976 was adopted the value of the opening stock of the plots. It was out of this stock that the plots had been sold from year to year. It is not in dispute that for first two years this position had been accepted by the Department and the business profit on the sale of land was worked out. In this year also when the matter came before the Income Tax Officer he was of the view that, whereas there was a business profit on the sale of some of the plots in the opening stock, the assessee in addition earned a profit by way of capital gains which was worked out on the basis of the value of the plot without converting into stock-in-trade as reduced by the value of the land in the books. Thus, the initial proposal of the Income tax Officer was to assess Rs. 1,71,714 as capital gains in addition to an estimated amount of Rs. 13,000 as business income on the sale of the plots. However, when the matter came before the Inspecting Assistant Commissioner under section 144B he considered the whole matter and he w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the transaction was in the nature of trade. According to him, the assessee did not carry out operations which are carried on in the business of landed property to improve the sale price of the commodity being sold. In this connection, he refereed to certain case laws also. In the case of CIT v. Premji Gopalbhai [1978] 113 ITR 785 [Guj.], it was found that the assessee had converted his agricultural land into non agricultural and sold the plots as and when the purchaser was available. It was held that, the profit earned was a capital gain. He also relied on the decision of the Madras High Court in the case of CIT v. MLM. Mahalingam Chettiar [1977] 107 ITR 236. In this case it was held that, where agricultural land was plotted and sold for a fixed consideration it would result only in capital gain and not in a trading profit. 2. The Inspecting Assistant Commissioner, therefore, came to the conclusion that the assessee never carried on any trade or business on sale of land. He, therefore, was of the vies that the book value has no relevance in the matter unless the book value is the cost of acquisition for the purpose of working out the capital gains. The Inspecting Assistant Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rading in those pieces of land it could be termed as trading activity. If it is sold to a large number of persons according to the availability of the purchasers it establishes the nature as a trading activity. It was also pointed out that, this position had been accepted by the Income tax Officer but has only been changed by the Inspecting Assistant Commissioner. It was also contended that, in case the Income tax Officer was to work out the capital gains it could not be treated as capital gains as the land would continue to be agricultural. The plea of the assessee for developing into plots was rejected. For this reliance was placed on a decision of the Bombay High Court in the case of Manubhai A. Sheth v. N. D. Nirgudkar, Second ITO [1981] 128 ITR 87 and the decision of the Gujarat High Court in the case of Manibhai Motibhai Patel v. CIT [1981] 131 ITR 120. 5. The CIT (Appeals) was of the view that, in developing the piece of land in dividing it into convenient plots and developing it into a colony by the assessee, was a business activity spread over a period of five years when large number of plots were sold from time to time according to the availability of the purchaser and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was contended that the reliance of the assessee on the decision of the Supreme Court in the case of Bai Shirinbai K. Kooka will have no relevance unless it is accepted that in fact the assessee intended to trade in the plots of land. In the same way he distinguished from the decision in the case of CIT v. Groz-Beckert Saboo Ltd. [1979] 116 ITR 125 [SC]. He submitted that the intention to carry out trade was not established by merely incurring of certain expenses and as a result of the plotting of the land. He also relied on the reasons given in the assessment order which was not discussed by the CIT [Appeals] as he did not consider it to be relevant. He, therefore, supported the order of the assessment. Reliance was placed on the decision of the Allahabad High Court in 107 ITR 716 and another decision in Janki Ram Bahadur Ram v. CIT Deep Chandra & Co. v. CIT [1977] 57 ITR 21 [1965] [SC]. 7. The learned Counsel for the assessee, on the other hand, submitted that from the beginning in 1976 itself the assessee had made it clear that it was intending trade in the plots of land and for this purpose he had approached the valuer who had determined the market value at the time of inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 1967 all the assessees converted their lands for non-agricultural purposes. They simultaneously formed a lay out plan and converted their lands into a building size and sold the sites year after year realising more profit. The assessee had shown this profit as capital gains in the assessment year 1975-76. The Income-tax Officer, however, assessed it as a business income on the ground that it arose out of an adventure in the nature of trade. Though the appellate authorities agreed with the assessee, the High Court held that the assessee had made the land into convenient building size and sold them. They did not dispose of all the sites in one year. They went on selling the sites year after year realising more and more profits. The action by the assessee to convert their lands into building size simultaneously was an indication of their intention to trade in the lands was a venture. They made it commercially more attractive, by converting and dividing into plots. From this it appears that, they had no intention to hold the lands as an investment and it was their stock-in-trade. While deciding that case the Karnataka High Court relied on the decision of the Supreme Court in Raja J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closing stock. The basic challenge was to the claim of the assessee that he was carrying on a business from 1976. If it is accepted that the assessee was carrying on a trading activities in plots of lands from 1976 and continued to carry on for five years, the matter will end and there will be no conflict on the question of the valuation of the opening stock or the adoption of the market value following the decision of the Supreme Court in the case of Bai Shirinbai K. Kooka. From the assessment order itself it is apparent that the piece of land had been purchased by the assessee in 1970. Up to 1976 the assessee had carried on agricultural operations on this land. At that time, there was a possibility of commercial exploitation of that land by developing a colony. The assessee, therefore, decided to develop a colony by laying down roads and dividing it into plots for residential purposes. Such an activity was also carried on by the other members of the family who had adjoining pieces of land. The layout of plan was drawn out by an Architect and the market value was determined by a valuer on the basis of the per square yard value of the land in that area meant for the purpose of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld over a period of five years, bit by bit, it cannot be denied that such activity could be in the nature of trade. It is not necessary that there should be such transactions by the assessee in other pieces of land. We have already referred to the decision of the Karnataka High Court where the facts appear to be similar. The Karnataka High Court has relied on a decision of the Supreme Court. In our view, the ratio of that decision is applicable to the facts of this case. It is not necessary that for the sale of plots the assess should employ brokers as and should receive advances. As and when the a purchasers came forward the plots of lands were sold and such sales have continued for a period of five years. As pointed out by the assessee, where a colony is developed according to the plan staff was appointed to look after the business activity and such activity has continued for a period of five years, it has to be accepted that such activity was a trading activity. There cannot be any doubt about the intention of the assessee in trading in these plots of land and this intention was accompanied by the valuation of the stock of land according to the market value taking advantage of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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