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TMI Blog1992 (12) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... oint involved in these appeals is whether the sale of land in Survey No. 145 in Sahebnagar Kalan village is an adventure in the nature of trade and if so whether the sale proceeds are subjected to income-tax treating it as income from business. The Assessing Officer (Income-tax Officer, Circle-IV, Hyderabad) treated the sale transactions effected in each of these accounting years in question as sale of stock-in-trade held by the assessee. He held that the assessee derived profit from business on selling the plots from out of the lay out area in S. No. 145. The Income-tax Officer held that the extents of land sold in the three relevant accounting years are as follows : Accounting year relevant to assessment year 1985-86 ... ... 3997 sq. yards. Accounting year relevant to assessment year 1986-87 ... ... 6161 sq. yards. Accounting year relevant to assessment year 1987-88 ... ... 1862.5 sq. yards. Sale price was uniformly taken at Rs. 18 per sq. yard. The opening balance at the beginning of the accounting year relevant to assessment year 1985-86 and the closing balance at the end of the accounting year relevant to assessment year 1987-88 were taken to be as follows : Op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is the case of the assessee that the order sanctioning lay out was ante dated and in fact no lay out was sanctioned in 1975. lt is further stated that 4 acres of land was divided into house sites. The vendee Shri Ramanaiah Chowdhury agreed to purchase the said land in terms of plots. In clause 1 it is stated that the agreed price was at the rate of Rs. 18 per sq. yard and advance of Rs. 10,000 was given by the vendee to the vendor. Under clause 4 the sale is to be completed within 9 months from the date of the agreement and the time can be extended by a further period of three months provided the vendor is satisfied with the difficulties confronted by the purchaser. Therefore, according to clause 4, time for completion of sale agreement is set out as 12 months. Clause 5 states that the vendor agreed to convey the plots to the nominees of the purchaser free from all encumbrances, charges and arrears of tax etc. As per clause 6 advance of Rs. 10,000 is agreed to be adjusted as last payment. According to clause 6 itself further payments of sale price would be made as and when there would be execution of sale deeds in favour of the nominee of the purchaser. The actual wordings of cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds, thereby he admitted that up to 1980-81 there was clear evidence that agricultural operations were carried on. The contention of the assessee in the beginning was that it is an agricultural land, that is situated beyond 8 kms. from the municipal limits of Hyderabad, that he was not a trader or businessman in real estate and, therefore, the sale price does not represent the turnover of a businessman and also does not give rise to capital gains inasmuch as the agricultural land situated beyond 8 kms. from the outer limits of Hyderabad Municipality cannot be considered to be a capital asset from which capital gain is to be assessed. Thus, he is not liable to pay income-tax on the ground that he earned business income or on the ground that he sold a capital asset'. However, the learned Commissioner (Appeals) in his impugned orders stated that the land in survey No. 145 is situated not very much beyond the municipal limits of Hyderabad. He held that some Government housing colonies have been developed nearby. Residential houses have come up very near to the plots and the argument that the land are beyond 8 kms from the outer limits of Hyderabad is abandoned and therefore it is admitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not purchase the land by himself. He along with his son purchased the land as joint owners. Both of them were businessmen and not agriculturists. " However, in this case, the assessee family was agriculturist family from the beginning and they were never businessmen at any time whatsoever. (iv) in that case permission was obtained from the Special Tahsildar to convert the land into non-agricultural and such permission was also obtained since the Hon'ble High Court held at page 350 as follows : " We, therefore, obtained permission from the Special Tahsildar for conversion of the land into non-agricultural purposes. After obtaining the permission he formed a lay out for house sites and sold some of the laid out sites to the workers in the nearby factories. " However, in this case, though section 62 of the A. P. (Telangana) Area Land Revenue Act 1317 Fasli ordains that unless permission is obtained from the Collector agricultural land cannot be used for non-agricultural purposes no such permission was obtained from the Collector. Permission of Gram Panchayat was merely obtained which does not amount to permission required from the Collector within the meaning of section 62 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ills is an adventure in the nature of trade or only a capital realisation. One of the arguments addressed to the Hon'ble Supreme Court was when the transactions are not multiple but constitute only one transaction can it be said to be an adventure in the nature of trade. Their Lordships of the Supreme Court kept that argument also in view and laid out the criteria as follows at page 609 of the reported decision : " It would besides be inexpedient to make any attempt to evolve such a rule or formula. Generally speaking, it would not be difficult to decide whether a given transaction is an adventure in the nature of trade or not. It is the cases on the border line that cause difficulty. if a person invests money in land intending to hold it, enjoys its income for some time and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. Cases of realisation of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventures in the nature of trade. In deciding the character of such transactions several factors are treated as relevant. Was the purchaser a trader ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adras High Court in CIT v. Kasturi Estates (P.) Ltd. [1966] 62 ITR 578. In that decision it is stated as follows : " The decision of the question whether profits made by selling land by an assessee carrying on business is profits from business or merely capital gains will depend on the cumulative effect of all the facts and circumstances found by the Tribunal ............. . Developing land into building sites with a view to realise the best price, without anything more, is consistent with realisation of a capital investment. If a land owner developed his land, expended money on it, laid roads, converted the land into house sites and, with a view to get a better price for the land eventually sold the plots for a consideration yielding a surplus, it could hardly be said that the transaction is anything more than a realisation of a capital investment or conversion of one form of asset into another. The surplus in such a case will not be trading or business profit because the transaction is one of realisation of assets in investment rather than one in the course of trade carried on by the assessee or an adventure in the nature of trade. The case of an assessee can stand on no diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, expended money on it, laid roads, converted the land into house sites and with a view to get a better price for the land, eventually sold the plots for a consideration yielding a surplus, it could hardly be said that the transaction is anything more than a realisation of a capital investment or conversion of one form or asset into another. Obviously, the surplus In such a case will not be trading or business profit because the transaction is one of realisation of assets in investment rather than one in the course of trade carried on by the assessee or an adventure in the nature of trade. " Here in the case before us, there is no material, let alone positive material, produced by the Revenue to show that the assessee intended to carry on trade in real estate. Therefore, the ordinary presumption that sale of immovable property would give rise only to capital accretion would be applied to the case of the assessee. 20. At the time of hearing the arguments in these appeals, we were eager to know as to what exactly is the amount spent for getting the lay out of the land sanctioned and put a specific question in this regard to the learned Departmental Representative on 18-11-1991 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is entitled to offer the remaining unsold plots in Survey No. 145 to the prospective purchasers, settle the sale price with them and also entitled to execute the sale deeds for and on behalf of the assessee, Shri B. Narasimha Reddy, in favour of those purchasers and got them registered at the instance of the purchasers. There is also clear evidence on record that in the beginning, Shri Ramanaiah Chowdhury wanted to show that the purchase of land in Sahebnagar Kalan Village was taken up by a firm comprising of himself, his wife and son etc. as partners named as Bhagyasri Housing Corporation. However, at the assessment stage, the Assessing Officer held that the firm was only a benami and the real transactions were all done by Shri Ramanaiah Chowdhury and, therefore, the Income-tax Officer had computed the business income arising out of the sale of plots in Survey No. 145 of Sahebnagar Kalan Village in the hands of Shri Ramanaiah Chowdhury only. The Assessing Officer completed only protective assessments against M/s. Bhagyasri Housing Corporation whereas regular assessment is completed against Shri Ramanaiah Chowdhury. Before completing the assessment against Shri Ramanaiah Choudhur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receivable from the said person, and the name of the agent. The fact is that the Bhagyasri Housing Corporation purchased these plots at the rate of Rs. 18 per sq. yd. (as seen from the agreement available in the seized material from Sri B. Narasimha Reddy) and sold the lands for a consideration of about Rs. 25 to 35. Therefore per sq. yd. the Bhagyasri Housing Corporation obtained a benefit of an average of Rs. 10. " Ultimately. the Income-tax Officer adopted 12 1/2% as estimated business income over the total receipts obtained on the sale of plots. 22. It may here itself be mentioned that the copies of pages 70 to 82 of PR No. 138 seized from the premises of Bhagyasri Housing Corporation were given by the learned Departmental Representative and they are duly kept on record. Therefore, it is very clear that though the assessee agreed to realise only Rs. 18 per sq. yd. towards sale price of the carved out plots in the lay out of survey No. 145, the real person who carried on the adventure in the nature of trade was Shri P. Ramanaiah Chowdhury who secured purchasers for amounts between Rs. 25 to Rs. 35 per sq. yd. He got the sale deeds executed in favour of those purchasers who w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the whole of the transactions would only amount to his endeavour to realise the maximum from out of the capital asset held by him which would give rise only to capital gains tax. We reject the argument that was given up belatedly that the lands are situated beyond 8 KMs from the Hyderabad Municipal limits. We hold that the material on record would justify the finding that the land sold were situated within 8 KMs from the Hyderabad Municipal limits. Therefore, according to the Hon'ble Supreme Court's decision in G.M. Omer Khan's case they are to be held as capital asset. The A.P. High Court in its latest decision in CIT v. Smt. Kaziamunnisa Begum [1992] 65 Taxman 390 found that section 2(1A) of the Income-tax Act was amended by Finance Act 1989 with retrospective effect from 1-4-1970. Under the definition of section 2(14), land which is situated within 8 KMs from the local limits of the municipality should be considered as capital asset. This definition of section 2(14) has got retrospective operation from 1-4-1970. The A.P. High Court held that even while deciding the reference under section 256(1) or 256(2), the provision and retrospective operation should be applied to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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