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TMI Blog2014 (7) TMI 995X X X X Extracts X X X X X X X X Extracts X X X X ..... a business activity – Relying upon Sawandas Devram Vs. CIT [1983 (9) TMI 57 - MADHYA PRADESH High Court] - the real intention of the assessee in acquiring the land was not to retain it for himself but to resell it at profit and as such the transaction was an adventure in the nature of trade – thus, order passed by the CIT(A) on does not require any interference – Decided against Revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... ole intention is to earn profit by trading in land. The details of land purchased and sold during the year are as follows :- 3.1 The impugned land was purchased by the assessee in the year 2007 from various scheduled tribe persons out of borrowing through his employer. These loans were repaid immediately on sale of land. 3.2 In the assessment of the assessee's employer, Shri Manmohan Raj Singhvi, it was held that the assessee was benamidar of Shri Manmohan Raj Singhvi. Accordingly, while the capital gains of ₹ 1,08,47,912/- arising on sale of the impugned land was brought to tax in the case of Shri Manmohan Raj Singhvi as undisclosed capital gains on substantive basis, the same was brought to tax as undisclosed capital gains on protective basis in the assessee's case. REASONING GIVEN BY THE ASSESSING OFFICER (PARA NO.8.1 TO 8.17. PAGE NOs.3 TO 14 OF THE ASSESSMENT ORDER): 3.3 The reasoning given by the learned assessing officer in making the above addition of ₹ 1,08,47,912/- is as follows: 8.1 During the course of survey action at business premises at Balji Raj Ka Kund, various incriminating documents pertaining to land transaction were found. Similarly, during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15.07.07 57996 4,65,000/- 23,19,840/- 18,54,840/- 13.09.07 156880.8 9,92,000/- 62,75,232/- 52,83,232/- Total 330872.8 23,87,000/- 1,32,34,912/- 1,08,47,912/- 8.3 It deserves a mention here that the whole story is crystal clear in so far as Shri Manmohan Raj Singhvi is the actual seller and Shri Rama Gameti and Smt. Laxmi Bai Bhil who are the domestic servants of the assessee are merely name lenders for the transaction. Hence, the provisions of section 50C in respect of capital gains are to be invoked in the case of the assessee as it is more than clear that Shri Rama Gameti and Smt. Laxmi Bai are persons of petty means having no financial capacity to purchase the said land in question lest sale the same. Accordingly, in view of above, the assessee vide this office letter dated 4.10.2010 was required to give his comments/explanation on the above issue. He was also required to explain as to why difference u/s.50C at ₹ 10847912/- should not be taxed in his hands and also explain as to why he should not be treated as funds provider of above transactions? 8.4 In response, the assessee has filed written submission on 25.10.2010. Gist of which is as under :- a. Shri Rama Ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.8 From the above it is to be inferred that Shri Manmohan Raj Singhvi has used his domestic servants as a medium for purchase and conversion of land for construction of Engineering College. This was necessary to purchase/transfer lands belonging to scheduled tribes. 8.9 On perusal of seized material, it is gathered that S.S.Education Trust has purchased a total land of 3,30,872.8 sq.ft. (converted area) from Sh.Rama Gameti. This land was purchased by Sh.Rama Gameti from various scheduled tribe land holders at the instance and funds provided by Shri Manmohan Raj Singhvi, as he neither has any interest nor financial capacity to carry out such purchase. After purchase this agricultural land was converted into a residential one by Shri Rama Gameti again at the instance and control of Shri Manmohan Raj Singhvi. As placed adjective conversion this land was transferred to S.S.Education Trust by Shri Rama Gameti as below: Date of sale Deed Sq. Ft. Sale consideration as per sale deed Value adopted by Sub Registrar Difference u/s.50C 15.07.07 58000 4,65,000/- 23,20,000/- 18,55,000/- 15.07.07 57996 4,65,000/- 23,19,840/- 18,54,840/- 15.07.07 57996 4,65,000/- 23,19,840/- 18,54,840/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.Education Trust. From the above, it is crystal clear that for these transactions, Shri Manmohan Raj Singhvi is the key person who provided his funds for this transaction in the name of his employee Shri Rama Gameti. 8.12 Further, the assessee vide this office letter dated 25.11.2010 was required to furnish his explanation on the statements of Shri Rama Gameti dated 25.11.2010, in this regard, the statement of Shri Rama Gameti has also been provided to the assessee. The assessee has been also required to explain as to why it should not be treated that all the transactions pertaining to this land were made by you exclusively in the name of Shri Rama Gameti and necessary additions u/s.50C should not be made in his hands. In response, the assessee has filed submission which were considered but found not convincing at all. The assessee has not filed evidence which suggests that Shri Rama Gameti has financial capacity for such transactions. Further, he failed to rebutt the contents of statement of Shri Rama Gameti in which he admitted to have not made any expenditure for such transaction. 8.13 It is pertinent to mention here that a copy of valuation report dated 07.11.2007 was found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax authorities are entitled to look into the surrounding circumstances to find out the reality ? Yes, the department is entitled to do so. ………It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents…………….. …………Science has not yet invented any in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed in her sworn statement as well as other material on the record an inference could reasonably be drawn that the winning tickets were purchased by the appellant after the event. We are, therefore, unable to agree with the view of the Chairman in his dissenting opinion. In our opinion, the majority opinion after considering the surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winnings from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amounts has been rejected unreasonably and that the finding that the said amounts are income of the appellant from other sources is not based on evidence." 8.16 The circumstances of the above two are similar the instant case. In the instant case, it has been established that Shri Rama Gameti, servant of the assessee, has no financial capacity to entre in this huge transactions. While recording statement during the course of post search proceedings as well as assessment proceedings, he repeatedly told that all the money were provided by his employer i.e. assessee Shri Manmohan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riculture land admeasuring 3,30,872.80 sq.ft. at village Umarda as a business venture. For this business venture, he borrowed funds partly from the family members of Shri Manmohan Raj Singhvi and partly from other unsecured loan creditors. The said agriculture land was registered in the name of the assessee and the entire purchase consideration was paid out of his bank account. Immediately after acquiring, the impugned agriculture land was converted into non-agricultural (N.A.) land by him. All the formalities and requirements were completed by him at his own cost. Shri Manmohan Raj Singhvi merely guided him for such conversion and provided him financial help as and when required. The intention of Shri Manmohan Raj Singhvi was merely to help economic upliftment of one of his trusted employee. After conversion into non-agriculture land, the assessee sold the same to M/s. S. S. Education Trust, a public charitable organisation in which Shri Manmohan Raj Singhvi is one of the member. Shri Manmohan Raj Singhvi was not the owner of M/s. S.S. Education Trust and hence, there was no personal benefit to him on transfer of land to it. Further, out of the sale proceeds, the assessee repaid t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the residential nature from agriculture nature. On the other hand, the land in question was purchased by Shri Rama Gameti and the purchased deed was not doubted. The conversion of land for non-agriculture purpose was got done by Shri Rama Gameti who sold this land to M/s. S.S. Education Trust which is a separate entity registered with Assistant Commisioner, Devasansthan Vibhag, Udaipur. The said trust also enjoy the benefit of registration u/s 12AA and 80G of the Act and is a separate entity from the assessee. So it cannot be said that the assessee got any benefit by purchasing the land in the name of M/s. S.S. Education Trust, a public charitable organisation. In the instant case, the Assessing Officer although mentioned that Shri Rama Gameti was a benamidar of the assessee and had it been so then the transaction of the land which should have been purchased by a Schedule Tribe only, could easily be cancelled by the administrative authorities but no such action has been taken. Therefore, the Assessing Officer only presumed that Shri Rama Gameti was a benamidar of the assessee and the land purchased was actually benami property of the assessee. On the contrary, the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h taxes buy civilization or does he facilitate the wastes and ostentatiousness of the few. Unless wastes and ostentatiousness in the Government's spendings are avoided or eschewed, no amount of moral sermons would change people's attitude to tax avoidance. Moreover, the honourable Jodhpur Bench of Income-tax Appellate Tribunal categorically held that the assessee was not benamidar of Shri Man Mohan Raj Singhve (supra). Whether Profit on sale of land is profit from adventure in the nature of trade or business venture or capital gains : 3.7 The crucial issue in this case is - whether purchase of land out borrowed funds, its conversion into non-agriculture (N.A.) land and its sale immediately after conversion constituted an adventure in the nature of trade or an investment activity? 3.8 The term 'adventure in the nature of trade' has been explained in the commentary' Law on Income tax by Sampat lyenger at page 958 volume 5th, edition 2'. It reads as under : "The collocation of the words ' adventure in the nature of trade' implies that an adventure has the characteristics of trade, but not all of them, and that indeed is the distinguishing mark o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , subsequent dealings and the manner of disposal may be such that the transaction may be stamped with the character of a trading venture;………….But a transaction of purchase of land cannot be assumed without more to be a venture in the nature of trade……….a profit motive in entering into a transaction is not decisive, for, an accretion to capital does not become taxable income, merely because an asset was acquired in the expectation that it may be sold at profit." 3.10 The Hon'ble Supreme Court held in the case of G. Venkataswami Naidu & Co. vs C.I.T. (35 ITR 594 ) that the dominant or even sole intention to resell is a relevant factor and raises a strong presumption, but by itself is not conclusive proof, of an adventure in the nature of trade. Justice Gajendragadkar speaking for the Hon'ble Supreme Court further observed : "……….. a matter of merely counting the number of facts and circumstances pro and con; what is important to consider is their distinctive character. In each case it is the total effect of all relevant factors and circumstances that determines the character of the transaction t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29; he sold that in August, 1942. That estate was managed by the agents all through. Though the assessee was originally a planter himself, for a period of about 12 years, i.e., between 1930, and January, 1942, he was employed in a company. When the assessee sold the S estate in August 1942, he realised a sum of ₹ 4,46,000. Thereafter, in September, 1942, the assessee started negotiations for the purchase of four estates. The assessee paid the purchase price of ₹ 2,50,000 for all the four estates and took possession of them on 11-11-1942. Within about three months after his purchase of the C group of estates forRs. 2,50,000, the assessee entered into an agreement to sell the estates for ₹ 5,50,000, and within a month thereafter, he received in full that ₹ 5,50,000. The ITO treated the difference between the purchase price and the sale price in the hands of the assessee as income that accrued to the assessee during the year of account. The assessee contended that he intended to keep the property as a source of income, that it was an investment and that the excess of ₹ 3,00,000 of the sale price over the purchase price was a capital accretion. That conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... la High Court held in the case of Mohd. Meerakhan Vs. C.I.T. (63 ITR 729) (affirmed By S.C. in 73 ITR 735). Facts : There was an agreement dated the 18th May, 1956, by which the Mundakayam Valley Rubber Company Ltd. agreed to sell to one A. V. George a rubber estate called the Kuttikal Estate measuring 477.71 acres. A. V. George entered into that agreement on behalf of the Kailas Rubber Company Ltd. On the 15th August, 1955, the assessee entered into an agreement with A. V. George to purchase the Kuttikal Estate for ₹ 6 lakhs and paid an advance of ₹ 11,000. The agreement provided that on payment of the balance of ₹ 5,89,000, A. V. George will execute the sale deed himself or cause it to be executed by the Mundakayam Valley Rubber Company Ltd. in favour of the assessee or his nominees and that the stamp duty and registration charges will be borne by the assessee. The assessee divided the 477.71 acres into 23 plots and found purchasers for 22 of those plots. The total extent of the 22 plots for which he found purchasers was 373.59 acres and the total price paid by the 22 purchasers was ₹ 5,18,500. The sale deed was executed by the Mundakayam Valley Rubbe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of trade and the profit obtained by the assessee of ₹ 1,25,000 by securing 104.12 acres worth ₹ 2,08,000 for ₹ 81,500 as the profit of that adventure. The assessee apparently realised the difficulty of avoiding income-tax in respect of the profit that he had obtained. He was examined by the Income-tax Officer. His deposition was nothing less than an adventure in the nature of perjury. His statement was that there was an agreement between himself and A. V. George, that he did not pay any advance to him, and that he had nothing to do with the finding of purchasers for the 22 plots. A reading of the sale deed--quite apart from the other evidence available--is sufficient to demonstrate the falsity of the assessee's statement. The fact that the assessee did not have the resources to buy even an estate worth a lakh of rupees when he entered into the agreement for the purchase of the Kuttikal Estate for ₹ 6 lakhs is of equal importance. In the light of what is stated above, we must answer the question referred in the affirmative, that is, against the assessee and in favour of the department. 3.13 The honourable Madhya Pradesh High Court held in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion made by the assessee in any proceedings could be properly explained, the assessee could not get away with the clear cut admission made by him by merely stating that those admissions were made only to get rid of the property tax. It was not his case that he was misled or forced to make such statements by the circumstances then prevailing. He was challenging the validity of the levy of property tax imposed by the corporation and he wanted to avoid that tax by stating that he acquired the leasehold rights for the purpose of converting the land into plots with the specific object and purpose of selling them as building sites. These admissions could not be brushed aside lightly. Moreover, though it was true that the assessee was an agriculturist, he did not use the said land for agricultural operations. He obtained the leasehold rights in the year 1947 and kept the land vacant and uncultivated for over a decade. He was trying to get permission for conversion of the land into non-agricultural purposes within a couple of years of acquiring the leasehold rights. The fact, therefore, that the assessee did not cultivate the land for a decade clearly indicated that he wanted to preserv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this case, the assessee was engaged in the business of property development and investment in shares. Its activities were held to be business activities. In its Return of Income, the assessee claimed capital loss on sale of property. While the consideration as per sale deed was ₹ 5 crores, the value as per subregistrar was ₹ 6.94 crores, on which stamp duty and registration charges were levied. While completing the assessment, the Assessing Officer ignored the consideration of ₹ 5 crores as per agreement, applied market value of ₹ 6.94 crores as per Sec.SOC and computed the profit on sale of property accordingly. The Tribunal held that invocation of section 50C was not warranted as the property was never held by the assessee as capital asset and as per the accounts also, the amount given to the owner of the property had been shown as loans and advances thereby the property had been treated as business asset and not as capital asset. Judgement: On the aforesaid facts, the honourable Madras High Court held that, invocation of section 50C can be made in order to find out the true value of the capital asset. Since in the instant case, the property in the ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, 2002 with effect from 1-4-2003 and it is in the nature of special provision which is introduced in determining the full value of the consideration in case of transfer of land or building or both. The value determined or assessed by any authority of the State Government for purpose of payment of stamp duty in respect of such registration of conveyance deed would be deemed to be full value of the consideration received or accruing as a result of such transfer. On analysing the language used by the Legislature in section 50C, it becomes apparent that the said section specifically deals with the transfer of the 'capital asset', being land or building or both and it provides for replacing the value adopted or assessed for the purpose of stamp duty, more particularly under section 48 in place of value or sale consideration shown by the assessee. It is to take note that the expression 'capital asset' has specific relevance with section 45 which provides for bringing to tax gain on transfer of 'capital asset' as capital gain. [Para 8] It is well-settled principle of interpretation that the function of the Court is only to explain and not to legislate any pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer was to be deleted. [Para 12]. 3.18 It is submitted that in the assessee's case, the purchase of agriculture land, its conversion into non-agriculture land and its sale immediately thereafter, constituted a business venture or an adventure in the nature of trade. It was purchase and sale of stock-in-trade and therefore, Sec.SOC of the Income-tax Act, 1961 is not applicable for computing profit from transfer of land. 3.19 In view of the above facts and legal position, we humbly request your honour to kindly assess the profit and gains from sale of land (a) under the head 'Profit and Gains from business' in the assessee's case on substantive basis and not under the head 'Capital Gains' and (b) not to apply the provisions of Sec.50C of the Income-tax Act, 1961." 5. The Ld. CIT(A) after considering the submissions of the assessee observed that the ITAT Jodhpur Bench, Jodhpur has held in the case of Shri Manmohan Raj Singhvi in I.T.A. No. 236/Jodh/2013 order dated 07/6/2013 that the assessee was not a benamidar of Shri Manmohan Raj Singhvi and deleted the entire addition on account of capital gains made on substantive basis in his case. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om capital gain. It was further stated that this Bench of the ITAT while deciding the appeal of Shri Manmohan Raj Singhvi Vs. DCIT in I.T.A No. 236/Jodh/2013 vide order dated 07/6/2013 held that the original owner of the land was Shri Rama Gameti i.e. the assessee, who purchased the land by raising the loans and sold the land to M/s S.S. Education trust and earned the profit, therefore, the Ld. CIT(A) was fully justified in directing the Assessing Officer to assess the income as income from business & profession in the hands of the assessee on substantive basis. The learned counsel for the assessee placed the reliance on the judgments of various courts mentioned in the submissions before the Ld. CIT(A) and also on the following case laws:- 1. Deep Chand Kothari Vs. CIT, 171 ITR 381 (Raj). 2. Income Tax Officer Vs. Bloosom Floriculture, 134 TTJ 51 (Luck). 3. ACIT Vs. Balbir Chand Maini, 111 TTJ 160 (Chd). 4. DCIT Vs. Bulion Investment & Financial Services Pvt. Ltd., 123 ITD 568 (Bang). 5. DCIT Vs. Shri Bhupendra Shrimali in I.T.A. No. 271/JU/2010. Order dated 06/06/2013 of I.T.A.T., Jodhpur. 6. Shri Man Mohan Lal Singhvi Vs. DCIT, Central Circle-1, Udaipur in I.T.A. No. 236/JU ..... X X X X Extracts X X X X X X X X Extracts X X X X
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