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TMI Blog2010 (9) TMI 1118X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of appreciation of the investment. Under the facts and the circumstances of the case, ld. CIT(A) ought to have held the surplus arising from said land transaction as short term capital gain as computed and claimed by the assessee. 2. The learned CIT(A) has erred in law and on facts in not adjudicating the ground raised by the assessee in respect of disallowance of expenses incurred claimed as cost of improvement of the asset, for converting the impugned land from agriculture to non agriculture. Ld. CIT(A) ought to have allowed such expenditure claimed by the assessee. 2. Facts in brief as emerged from the corresponding assessment order passed u/s.143(3) of the I.T. Act, 1961 dated 24/02/2010 were that the assessee in his individual capacity has filed the return of income at ₹ 5,79,46,830/-. The appellant is stated to be a Director in several Companies, therefore, as per Income Tax Return disclosed salary income, dividend income and income from other sources. The main discussion in the assessment order was in respect of a plot of land which was sold by the assessee during the year under consideration. It was noted by the Assessing Officer that a plot of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice asking that why the said transaction be not held in the nature of trade . However, on the other hand, the appellant has claimed the same as 'short-term capital gain'. The Assessing Officer was of the view that the assessee has continuously taken a risk in investing in the said land which had an unclear title. The assessee had made efforts to get the title cleared of the land in question. The assessee had taken pains for conversion of agricultural land into non-agricultural land. Further as per A.O. the assessee had also taken steps to get consolidated these two pieces of lands. The appellant has also made efforts to get the clearance from the AUDA Authorities. The AUDA Authorities have deducted 3174 sq.mtrs. from the total area of land of 9611 sq.mtrs. and allowed to transact the balance land admeasuring 6437 sq.mtrs. Prima-facie those were the reasons on the basis of which the Assessing Officer had issued a show-cause notice asking the assessee to explain as to why the land transaction in question be not held as an adventure in the nature of trade . In compliance, the assessee has furnished the following reply:- i. Your goodself has called for the reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There was neither purchase nor sale of land in the subsequent years nor I am dealing in land or doing construction business or a broker of land. Under the circumstances, this transaction cannot be considered as my business transaction. 5. Further, I have purchase the agriculture land from the Two parties only and sale the land to the one party only. This can be verified from the Sale agreement itself which were already given to your office and verified by your goodself. I have never sold the plot in pieces or make a plots and then sale it to the different persons. Hence, if I had an intention of profit then I might convert the land into the small pieces, develop it and sale it to the different persons. This is not so in my case. Hence, it could never be presumed to be an adventure in nature of trade or commerce. 6. Further, I have never spent any single Rupee on of sale of my land nor devoted any time to fetch higher prices for the said land. This can be verified from my capital gain statement that I have never claim any expenditure on brokerage Exps. Nor spent single Rupee on any advertisement. This clearly shows that I have never intention to get the better price or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the basic intention of the assessee was to earn profit on sale of plots, therefore, there was strong presumption that transaction was nothing but an adventure in the nature of trade. 2.3) Once it was held so, then out of the sale consideration, the Assessing Officer has allowed cost of purchase etc. and disallowed a payment of penalty and the balance amount was taxed as Business Income as per the following calculation : ----------- Income from Business (being profit on sale of land as discussed above) Sale consideration ₹ 34,32,34,800/- Less: Purchase cost Expenses ₹ 24,29,069/- Add: Penalty paid disallowed ₹ 2,57,800/- ---------------------------- ₹ 34,10,63,211/- -------------------------------- The total income was assessed at ₹ 35,20,56,417/-, and there was a claim of Short Terms Capital Loss in share transaction of ₹ 29,29,24,958/- which was allowed to be carried forward. 3. Being aggrieved, the matter was carried before the first appellate authority. The Learned CIT(Appeals) has accorded due opportunity of hearing to the appellant as well as the Revenue Department. After narrating the facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee has placed a reliance on the compilation filed along with the summary of the case laws annexed therein. Mr. Soparkar, representing the appellant, has also placed reliance on the decision of ITAT Pune A Bench in the case of ITO vs. Baguio Investment (P) Ltd. reported as (2010) 127 TTJ (Pune) 423. The Learned Authorised Representative of the assessee has emphasized that the intention of the assessee could be judged from the very fact that after the purchase of the land the assessee has disclosed the same as a capital asset in his books of accounts. Moreover, the assessee has filed wealth-tax return for the purpose of disclosing the asset as a capital asset and not as a business asset. Had the assessee treated the land in question as business asset, then as per the provisions of the wealth-tax Act, the same could have been claimed as an exempted asset. Instead the assessee has shown the land as a capital asset to avoid any controversy. The erudite pleading was that on one hand the asset in question was treated as a capital asset by the Rev. Deptt. hence charged Wealth Tax and on the other hand treated the same asset as a business asset for the Income tax purposes. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer and Learned CIT(Appeals), the Learned CIT-DR urged to affirm the orders of the lower authorities. 8. With this elaborate discussion on facts, we have now to proceed to decide whether the transaction in question was actually a business transaction to be held as an adventure in the nature of trade or it was simplistic a capital gain arisen on transfer of the land property. Facts of the case have revealed that the assessee has purchased two pieces of land in the year of 2005 for a total sum of ₹ 16,30,000/- admeasuring 9611 sq.mtrs. Undisputedly, the piece of land was sold on 23/08/2007 to M/s.Urbanedge Hotels Pvt.Ltd. for a consideration of ₹ 34,32,34,800/-. It is a settled legal proposition that the objective since inception of a deal is one of the major criterion to answer the dispute in hand and therefore the circumstances present at the time of purchase have to be examined to determine as to whether the intention of the assessee was to invest the money for business purpose so as the intention was to enter into a business of Land dealing or it was an investment to en-cash at an appropriate time if the circumstances so permit as it happens generally in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the purchase of land was as per the norms of that period and there was no business like manipulation, such as, in payment of stamp duty on purchase of land. The said payment of stamp duty was as per the prevailing government rates. Nevertheless the central theme is that those efforts of the assessee can not be termed as a business like steps but such steps are generally being taken even by a common investor. 9. On account of the facts as marshaled hereinabove , it is noteworthy that the assessee as an individual is a Director in few companies. The assessee has never entered into any trade or business of Real Estate. It has been categorically stated before us that even those sister-concerns were never in Real Estate business. In the light of the factual analysis of all those facts of the case , following salient features have been noticed :- (i) The appellant as an individual has never entered into any sale and purchase of land in the past, hence, this assessee cannot be treated as a business man dealing in Real Estate. (ii) The land transaction in question was a single land transaction and sold to one party, which means no plotting has been done by the assessee as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in question was acquired by assessee s own funds and no borrowings have been made. It was demonstrated through bank statement and the personal accounts in the companies viz. M/s Road Tech Eng.(P) Ltd., that the source of the investment was out of his personal resources. (xi) The land in question being an Agriculture land at the time of purchase therefore under the restriction of purchase sale , which also thus demonstrate that being not a saleable asset hence meant for permanent holding. (xii) That the group concerns in which the asessee is a Director have also not done business of real-estate or purchase sale of land , rather they are in the business of Road construction. (xiii) The transaction in question was a solitary transaction and not the series of transaction as it happens in the normal business activity where the money is rotated by continuous cycle of trading. 9.1. In the context of the above observations, we have examined few case laws as cited from the side of the appellant. (A) Deep Chandra Co. vs. CIT (107 ITR 716)[Allahabad] The Hon'ble Court has opined that the question whether profit earned in any transaction had arisen out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant factors and circumstances that determine the character of the transaction. Each case has to be determined on the total impression created on the mind of the Court by all the facts and circumstances disclosed in a particular case. One of the principal tests is whether the transaction is related to the business normally carried on by an assessee. It is equally well-settled that, merely because the original purchase was made with the intention to re-sell, if an enhanced price could be obtained, that by itself is not enough to infer that an assessee is carrying on business. Certain tests laid down by the Court are worth reproduction:- (a) The first test is whether the initial acquisition of the subjectmatter of transaction was with the intention of dealing in the item, or with a view to finding an investment. If the transaction, since the inception, appears to be impressed with the character of a commercial transaction entered into with a view to earn profit, it would furnish a valuable guideline. (b) The second test that is often applied is as to why and how and for what purpose the sale was effected subsequently. (c) The third test, which is frequently applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 255 (Guj.) Though the case was distinguished by the Learned Authorised Representative of the assessee but this case was cited for the purpose that the Hon'ble Court has expressed at one place that there should a clear and positive evidence of facts and circumstances to show that the transaction was a venture in the nature of Trade. (F) ITO vs. Baguio Investment (P) Ltd. (2010) 127 TTJ (Pune) 423 In this case, the Respected Co-ordinate Bench has expressed that it is now almost settled and become a trait law that the dominant intention of the assessee at the time of purchase is of prime importance. If the dominant intention is to carry on an adventure of trade, then the profit can be taxed as business otherwise not. If the transaction is frequent with a commercial spirit to make profit by trading then the settled principle is that the same is in the nature of trade but on the same breath, it is also admirable that whether the profit from such transaction is Revenue or a capital receipt and this question is always a mixed question of law and fact. 10. From the side of the Revenue, case laws relied upon has also to be discussed and if distinguishable on facts, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. Rather the circumstantial evidences indicated that the gain was a wind fall . D) CIT vs. PremJi Gopalbhai 113 ITR 785 ( Guj ) Remarkably this decision though went in favour of the assessee but still it was referred by the A.O. It is also astonishing that the facts of the cited decision were on the bad footing, comparing the facts of the appeal in hand. It was found by the jurisdictional High Court that an ancestral land was converted into non-agricultural land, divided into several plots and sold as and when purchaser was available. It was held as a capital gain . Thereafter repurchased two plots and resold some years later resulting into profit. It was held that the assessee was not a dealer in land nor treating land as stock-in-trade, therefore held not an adventure in the nature of trade. We can make a remark that this judgment rather supports the legal proposition as laid down by us hereinabove. E) JANKI RAM BAHADUE RAM vs. CIT 57 ITR 21 ( SC) ------ Assessee was a dealer in iron scrap. Assessee sold one factory. A.O. taxed the profit . It was an isolated transaction. The Honble court has held that the appellant had no intention to start a venture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital asset. It was found that when the assessee purchased the land jointly with rest of the two family members, the title was in dispute. The land was not yielding regular income. The Commissioner was of the view that profit has accrued to the assessee. When the matter had reached before the Tribunal, it was observed that there was no organized activity which resulted in the dealing that has the attributes of a business transaction. The Tribunal was of the view that the amount in question could not be taxed as a capital gain. When the said order was contested before the Hon'ble High Court, it was held that where the agricultural land was purchased, it was converted into non-agricultural land and sold thereafter through the medium of the bogus firm, then the whole transaction was adventure in nature of trade. We have carefully perused this precedent as well and have noticed that the intention from the beginning has to enter into a venture in the land purchase. Due to this reason, the land was converted into an asset of the firm. This step of converting a personal asset into a business asset of a firm itself demarked a significant difference. Primarily due to this reason, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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