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TMI Blog2012 (5) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... MENT Per: D Y Chandrachud, J: By this Reference, under Section 256(1) of the Income Tax Act, 1961, the Tribunal has at the behest of the Revenue, referred the following question: Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that surplus realised on sale of land was in the nature of capital gain and that the assessee was not a trader in land. 2. The Reference arises from an order of the Income Tax Appellate Tribunal for Assessment Years 1987-88, 1988-89 and 1989-90. The facts, as set out in the statement of case, are that late F.E.Dinshaw, who was a partner in a firm of Solicitors and a financial adviser to the Princely State of Gwalior, purchased large tracts of land admeasuring about 2500 acres at Malad and Borivali in or about 1923. He died in 1936 and was survived by a son, E.F. Dinshaw, and a daughter, Bachoobai Woronzow, both of whom were nonresidents and were citizens of a foreign country. Upon the death of F.E.Dinshaw, his son and daughter became joint owners of the lands. No physical division was carried out. Under the last will and testament of F.E. Dinshaw, a life interest was created in half h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, was suggestive of the fact that the lands were purchased only for the purposes of earning profit. The profit arising from the sale of the land was treated as business income. In appeal, the CIT (A) held that the mere ownership of the land does not constitute trade. The CIT(A) held in favour of the assessee on the basis of the following findings : (i) Neither of the assessees had purchased the land themselves. The land had been purchased by the late F.E. Dinshaw nearly seventy years earlier when the growth of Mumbai to its present state could not have been foreseen; (ii) The land was purchased as a source of earning income from ground rent; (iii) Encroachments took place after 1947 whereupon it became difficult to protect open land. In selling the land, the assessees had been motivated more by the desire of protecting their corpus than of earning profits; (iv) The assessees were Trusts or the administrator of the estate and could not enter into the business of selling land. 5. In appeal, the Tribunal has affirmed the decision of the CIT(A). The Tribunal has relied upon the following circumstances in support of its conclusion that the income that was realised upon the sale of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r which the trustees were given the power to purchase, sale, lease or exchange; Secondly, as the Tribunal has noted, there was an acquisition of the land in the form of repurchase under the Urban Land Ceiling Act; Thirdly, on 27 December 1973, Bachoobai had given the land on lease to a developer for ninety nine years; and fourthly, the record indicates that there was a division of the property for the purpose of sale. 7. On the other hand, Counsel appearing on behalf of the Assessee submits that (i) In the present case, fifty per cent of the interest belongs to the estate of late E.F.Dinshaw, while the balance vested in one of the charitable trusts created by Bachoobai. To accept the submission of the Revenue, would essentially imply that the Administrator of the Estate of E.F.Dinshaw, or as the case may be, the charitable trusts were engaged in business; (ii) There is a finding of fact concurrently both by the CIT(A) and by the Tribunal of the reasons why the land was required to be sold. The land involved extended over a large tract of 2500 acres which had been partly encroached upon and partly occupied by tenants and third parties. Though several sales had taken place that by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se where mixed questions of law and facts were to be involved. A succinct statement of this principle is summarised in Kanga and Palkhiwala's The Law and Practice of Income Tax Eighth Edition 1990 page 1547. 10. The issue as to whether income that is realised from the sale of land is chargeable to income tax as capital gains or, contrariwise, as income from business, has been the subject matter of a considerable amount of judicial precedent. In Janki Ram Bahadur vs. Commissioner of Income Tax, 57 ITR 21 (SC) the Supreme Court laid down the following guidelines: If a transaction is related to the business which is normally carried on by the assessee, though not directly part of it, an intention to launch upon an adventure in the nature of trade may readily be inferred. A similar inference would arise where a commodity is purchased and subdivided, altered, treated, or repaired and sold, or is converted into a different commodity and sold. Magnitude of the transaction of purchase, the nature of the commodity, subsequent dealings and the manner of disposal may be such that the transaction may be stamped with a character of a trading venture. But a transaction of purchase of lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not as income arising out of an adventure in the nature of trade. The Division Bench of the Delhi High Court, relying inter alia upon the judgment of the Supreme Court in G.Venkataswami Naidu (supra), affirmed the view of the Tribunal. Similarly, in a decision of the Punjab and Haryana High Court in Commissioner of Income Tax vs. Sushila Devi Jain, (2003) 259 ITR 671 the assessee had acquired certain property under the will of her husband. The property consisted of a large tract of land which was sold out in part. The High Court held that the relevant test was to find out the intention of the assessee at the time of the purchase of the land. The assessee had never purchased her land since it had devolved on her through testamentary succession. The land was sold in parts because the huge area could not be sold in one transaction and such an activity was held not to amount to trade or business within the meaning of the Act. 12. These principles have again been succinctly summarised in the statement of law in Kanga and Palkhivala (supra) as follows: Land and buildings.Where an individual inherits or otherwise acquires land and deals with it as an owner, he may be regarded as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f trade . In that case the purchase and sale of a jute press along with the land on which it stood was held to be on capital account. In Venkataswami Naidu v. CIT(35 ITR 594, 60910), purchase of lands by managing agents with the sole object of reselling them to the managed company at a profit was held by the Supreme Court, on the facts of the case, to constitute an adventure in the nature of trade. . The onus of proving that the land formed part of the business assets is on the Department, and in the absence of any evidence or finding to the contrary the Court would conclude that the land was treated and held as a capital investment (Wadia v CIT 17 ITR 63, 767, 1058 (FC); Alapati v CIT 35 ITR 73; Vadlamani v CIT 51 ITR 304; CIT v Nathalal 126 ITR 555). 13. In assessing the facts of the present case, certain important considerations would have to be borne in mind. Firstly, a large tract of land of nearly 2500 acres was acquired in or about the year 1923 by late F.E.Dinshaw. F.E. Dinshaw was a Solicitor. The acquisition of the land was evidently not motivated by an adventure in the nature of trade. The statement of case makes it clear that there was no transaction involving ..... X X X X Extracts X X X X X X X X Extracts X X X X
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