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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 ..... 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. 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, beyond any dispute or controversy, these lands were held as capital gains. CIT-A directing the Assessing Officer to reduce the income under the head “income from other sources” - Held that:- The relief granted by the CIT(A) is on account of duality of disallowance in the sense the disallowance deleted was unwarranted as the same was already accounted for the in the figure of income from other sources, which was taken by the Assessing Officer at ₹ 2,42,073 as against the actual figure of ₹ 2,26,583. The impugned disallowance was thus clearly a double disallowance. Learned D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to one single buyer at a reasonable price, he had to divide the land in small sellable pieces, by way of bifurcation and plotting activity, so as to sell the land. This was not a commercial activity or an adventure in the nature of trade. The assessee was not engaged at any point of time, prior to or after this division of large pieces of land into sellable unit size, in any business activity of dealing in land or colonization. The sale proceeds of plots were also not ploughed back into land or similar activity. Whatever was done, by way of activity of dividing the lands into small unit sizes, was a one off activity to facilitate sale of land. It was, inter alia, on the strength of these submissions and facts of the case that the assessee urged the Assessing Officer to treat the gains on sale of plot as capital gains. The Assessing Officer, however, rejected the submissions of the assessee on the basis of following reasoning: 5. The above listed contentions of the assessee are not acceptable for the reasons below: i. The assessee has himself converted the said land into non agricultural land and subsequent plotting with due permission of authorities. Hence, seeking r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trade in land. 6. The sale of above land was an adventure in the nature of trade and hence the proceeds of same are liable to be taxed as Profits from business because of following reasons:- 1] Sale of land has been made after proper plotting (in more than 30 parts) to different parties. Proper sale deeds have been entered into in respect of the same. This act itself shows that it was a business venture. Thus, magnitude of transaction tends to eliminate the possibility of investment for personal use, possession or enjoyment. Sale of land after plotting has been held as a business venture in following cases by various courts: G. Venkataswamy Naidu co. vs CIT (SC) (1959) (35 ITR 594) Indrarnani Bai others vs Addl. CIT (SC) 200 ITR 594 2] Just as the conduct of the purchaser subsequent to the purchase of a commodity improving or converting it so as to make it more readily resaleable is a relevant factor in determining the character of the transaction, so would his conduct prior to the purchase be relevant if it shows a design and a purpose. In the present case before sale of land the assessee converted it into non agricultural land and thereafter i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, submissions of appellant and Assessing Officer. The appellant sold plot of lands at two different locations in the Financial Year relevant to Assessment Year under appeal. The first sale was of the land situated at Race Course in Rajkot and the second sale was of the land at Haripar village in Lodhika Talluka of Rajkot district. 7.2 The Race course Land was purchased by a firm R.A.Jasani Co as agricultural land measuring 3 acres 25 gunthas of survey no 476 on 30.04.1964. Appellant was 12.5% partner in this firm. This partnership was dissolved by the order of civil court dated 07-03-2001 in Misc application no 317 of 1991 with effect from 21.11.87 u/s 42-C of the Indian Partnership Act when one of the partner Shri R A Jasani expired, as mentioned in para 10 of this order. In the same order of civil court, the sole asset of this dissolved firm, ie the Race course Land survey no 476 was agreed to be divided between the erstwhile partners subject to final approval from the Rajkot M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 the status of agricultural land. Therefore, appellant has received the part of Race course land as its share from the capital asset of the firm R.A. Jasani Co as capital asset and not as business asset. It is pertinent to mention that the intention of investment or trading in any asset is not decided at the time of sale, it is decided at the time of its acquisition. Appellant received the share of capital asset of the firm R.A. Jasani Co on distribution after dissolution of the firm R.A. Jasani Co. Therefore, such share has to be a capital asset in the hands of the appellant. It is not a case that appellant had purchased this land recently solely with an intention to sell. If the conversion of land into nonagricultural land is with an intention to earn profit, the intention is adventure in nature of trade. If the conversion of land into nonagricultural land is only to facilitate the distribution of land amongst the partners or to facilitate disposal of a longstanding capital ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 to be levied under section 45 is the year in which the transfer takes place. That year may or may not be the year in which the dissolution of the firm takes; place. The year in which the capital gain is to be brought to tax is the previous year in which the said transfer takes place . It is for this reason that the capital gain in the hands of entity R A Jasani Co will arise in Assessment Year 2004-05.1 find that in such cases the provisions of section 189(1) of LT.Act become applicable even after dissolution of firm and discontinuance of its business. The fair market value of plots was determined at ₹ 5600/- per Sq. Mtr. for Financial Year 2003-04 and Assessing Officer has considered the same as reasonable in her report. Therefore, the capital gain may be calculated on the Race course land of R. A. Jasani Co. deeming the value of consideration at a rate of ₹ 5600/- per sq. Mtr. for Assessment Year 2004-05 u/s 45(4) of the I.T. Act. After allowing deduction for i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 463=724150 1177500 453350 3/part6 108.66 ₹ 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 ₹ 18,06,160/- by the appellant in the return of income which is quite similar to ₹ 17,98,400/-. Considering the fact that the fair market at ₹ 5600/- per sq mtr considered during the appellate proceeding is only an estimation, I direct the Assessing Officer to calculate the long term capital gain from sale of Race Course plots as returned by appellant in the return of income at ₹ 18,06,160/- . 7.5 The other land which was sold by appellant was; the land at Haripar pad, Survey No 56/1/10 and known as Woodland Park . This land was purchased by appellant on 06.04.1989 as Agricultural land. Appellant got this land converted into non agricultural land and sub plotted the land after t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 so that it could be easily sold in parts and its market value is not sacrificed, cannot be said to be an act of adventure in the nature of trade. There is a solitary instance of purchase and subsequent few and far spaced sales and no other repurchases which generally happens with investment and is not likely to happen in trading. An isolated activity cannot come within the purview of adventure in the nature of trade and bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, beyond any dispute or controversy, these lands were held as capital gains. For all these reasons, and for the detailed reasoning adopted by the CIT(A) reproduced earlier in this order- with which we are in considered agreement, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. 8. Ground nos. 1 and 2 are thus dismissed. 9. So far as ground no. 3 is concerned, gri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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