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TMI Blog2018 (2) TMI 1630X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee instead of business income. 2. The Ld. CIT(A)-III, Rajkot has erred in law and on facts in directing the AO to calculate the long term capital gain from the sale of "Woodland Park" plots as returned by the assessee instead of business income." 3. Briefly stated, the relevant material facts are as follows. The assessee before us is an individual. During the course of scrutiny assessment proceedings, the Assessing Officer noted that the assessee has sold certain plots of land, and offered to tax capital gains on such sale of plots. It was explained by the assessee that there were two pieces of land - one of which (in Race Course area) was purchased by R A Jassani & Co, in which assessee was 12.5% partner, way back on 30th April 1964; and- the other piece of land (in Haripar Pad) was purchased by the assessee on 6.4.1989. These pieces of land were all along held as capital asset and the gains of sale of part of the land even in earlier years were assessed as capital gains. The assessee submitted that since the assessee was finding it difficult to sell entire land to one single buyer at a reasonable price, he had to divide the land in small sellable pieces, by w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y assessee and whether the same were accepted by tax authorities as such or not. It is a well established principle that concept of res judicata is not applicable in Income tax proceedings. The facts in the current previous year as discussed above clearly point out that the conduct and intention of assessee was to indulge in trade of plotted lands. vi. Further, it is an established law that mere accounting treatment cannot be conclusive to determine the true nature of any transaction. As the Courts of the land have observed that the mention of the assessee behind such transactions are more important. The Bombay ITAT Bench in the case of Janak Rangwalla vs. ACIT (2007), has observed that the intention of the assessee behind such transactions are more important. However, there cannot be any objective methodology to find out 'intention' of a human being. Only safe approach would be the examination of quality or such transactions. In the given case the conduct of the assessee prior to sale and the scale of transactions convey that intention of assessee was to trade in land. 6. The sale of above land was an adventure in the nature of trade and hence the proceeds of same ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is taken on estimate basis to be at Rs. 16,000/- as some of the land has already been sold. Therefore total cost of the land sold is Rs. 4,92,679 (woodland haripar park land) + Rs. 16,000(Race course land)=Rs.5,08,679/-. Thus business income of the assessee is being computed as under: Business income as per return................................Rs. 46,958/- Add:- Income from sale of plots of land............Rs. 72,89,400/- Less:- cost of purchase of plots....................... ..Rs.5,08,679/- Total business income... .....................................Rs.68.27,679/- Thus, as sale proceeds of plotted land is being treated as business income in the hands of assessee, hence, exemption u/s 54EC of Rs. 18,00,000/- cannot be availed. The same is also being taxed under the head business income as computed above." 4. Aggrieved by the stand of the Assessing Officer, assessee carried the matter in appeal before the CIT(A). Learned CIT(A) reversed the stand of the Assessing Officer and held that the gains on sale of plots are required to be treated as capital gains. While holding so, learned CIT(A) observed as follows: "7.1 I have gone through the assessment order, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant in this partnership firm. The land was undisputedly agricultural land prior to its allocation to appellant as erstwhile partner of the firm R.AJasani & Co. It is not possible to carry out any business activity in an agricultural land. Therefore land of "Race Course" could not be a business trading asset in the hands of the firm R.A.Jasani & Co when it was in existence. The sale proceed of such land cannot therefore be taxed as business income in the hands of the appellant u/s 176(3A) of the I.T .Act after the discontinuance of the business of the firm because it could not have been included as trading asset in the total income of the firm if it had continued. The "Race Course" land was a capital asset of the firm and after dissolution of firm vides order dated 07- 03-2001 of the civil court, the share of such land was allotted to appellant on 19-02- 2004. The conversion of this land to non agricultural land was a necessity for distribution amongst the partners. It was not any business consideration of appellant. Civil court had ordered such conversion so that the land could be distributed amongst the partners because the distribution was not possible if the land had remained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter price cannot be taxed as profit from an adventure in the nature of trade. I therefore hold that Assessing Officer has incorrectly held the "Race Course" land of appellant and as stock in trade. I direct the Assessing Officer to treat the "Race Course" land as capital asset of appellant acquired by appellant on 19-02-2004. 7.3 I find that the firm was effectively dissolved from 21.11.87 u/s 42-C of the Indian Partnership Act when one of the partner Shri R A Jasani expired but the distribution of the sole asset in the form of land amongst the earlier partners or the legal heirs of such partners took place on 19.02.2004 vide the order of civil court. There was admittedly no business activity of the entity "R.A Jasani & Co" after 21.11.1987. The distribution of land standing in the name of "R.A.Jasani & Co" amongst the partners on 19.02.2004 may therefore be considered as distribution of land by "R.AJasani & Co" and capital gain u/s 45(4) may be attracted in case of "R.A.Jasani & Co" in Assessment Year 2004-05. The Madras High Court in case of CIT v Vijayalakshmi Metal Industries (2002) 256 ITR 540 (Mad) held that the relevant date for ascertaining the year in which the tax is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in hands of members including the appellant. The period of holding of land received on distribution in the hands of appellant will be from the date of distribution of asset, ie 19-02-2004 as per the decision in case of P. P. Menon v. CIT (2010) 325 ITR 122 (Ker). The capital gain in the hands of appellant may be calculated as under: Plot No. Sq. mt FMV on 19/2/04 Indexed value Sale Value LTCG 3/part3 108.66Rs. 5600 per sq. mt 108.66*5600*551/463=724150 1170000 445850 3/part4 108.66 Rs. 5600 per sq. mt 108.66*5600*551/463=724150 1170000 445850 3/part5 108.66 Rs. 5600 per sq. mt 108.66*5600*551/463=724150 1177500 453350 3/part6 108.66 Rs. 5600 per sq. mt 108.66*5600*551/463=724150 1177500 453350 TOTAL LTCG BEFORE EXEMPTION U 'S 54EC 1798400 The net long term capital gain from sale of Plot No 3 (part 3,4,5,6) of "Race Course" Sand was returned at Rs. 18,06,160/- by the appellant in the return of income which is quite similar to Rs. 17,98,400/-. Considering the fact that the fair market at Rs. 5600/- per sq mtr considered during the appellate proceeding is only an estimation, I direct the Assessing Officer to calculat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g any activity related to trade. There are no frequent sales and further purchases. The act of sub-plotting was done with a view to make disinvestment easy and quicker at any time in future. The land has been shown under head assets in the, Balance sheet filed from year to year and the purchase of land had never been considered as trading purchase. The appellant had otherwise also not indulged in the activity of trading in land. The act of development of land to make is suitable for any construction activity is part of organized business activity. In present case, I do not find any organized business activity carried out by appellant after converting the land into non-agricultural land except that he could easily sell the smaller plots of land. The sale of one piece of land may not have suitable buyer or it may be sold only on discount resulting in depreciation of its actual market value. Therefore, appellant converted it into non-agricultural land so that it could be divided into smaller pieces because there are more buyers for smaller pieces of land. The capital asset was there with appellant for last 18 years and the act of appellant to facilitate the sale of its capital asset s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erably come down, and, in order to get the market price for land, he had to essentially divide the land holding into plot size for which there is end user market While it may have been common to buy the land in the size that the assessee did in 60s as the use of land was agricultural at that point of time, with the passage of time, rapid urbanization and this land now being in the residential area, where smaller sized plots were required by the end users, the assessee had no choice but to sell the land plots in smaller size to get the market price. No other approach would not have enabled the assessee to get the right price in the end user market, and anything other than end user market would have reduced the selling price to factor for profit by the business which would have bought entire land just to buy it, divide it into smaller plots and sell to the end users. It was clearly a one off activity for the assessee as the assessee did not go beyond selling what he already held for the long years, and even the sale consideration was not ploughed back in land investments. We have also noticed that all along the gains on the sale of these plots was treated as capital gains, and, beyon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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