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TMI Blog2024 (7) TMI 1496X X X X Extracts X X X X X X X X Extracts X X X X ..... ilise it for a different purpose. Having understood the term adventure in the nature of trade used in Section 2 (13) of the Income Tax Act as above and that the burden of proving it is on the Revenue, we now proceed to consider whether the the assessee s investments in real estate, factual details of which were unearthed during the search would justify terming his involvements in real estate transactions as one on capital account or whether the Revenue has sufficient evidence to prove that the activities of the assessee constituted an adventure in the nature of trade. As noted by the ITAT that the assessee had never treated the properties as stock in trade and the search in the residential and business premises of the assessee had not revealed any material to suggest that the assessee had advertised the sale of properties or that he had made any efforts towards creating or submitting a development plan before any authorities with the objective of developing the property and thus augmenting its value in real estate market. ITAT has noted that no evidence has been procured to reveal that the assessee had done activities such as plotting, consolidation, laying of roads, preparation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of capital gains . Brief facts : 3. The assessee, who is the respondent in these appeals, runs a medical shop and is also a partner in certain other medical shops under the trade name SEVANA . There was a search under Section 132 of the Act in the residential and business premises of the assessee on 18.12.2013. In response to the notice u/s.153A of the Act, the assessee filed the returns of the income for the assessment year 2011-12 to 2014-15. The Assessing Officer completed the assessment u/s. 143 (3) r.w.s Section 153A of the Act on 31.03.2016 [Annexure A] by making various additions. While thus completing the assessment, the AO had treated the income from sale of landed property as income under the head business as against the claim of the assessee that it was income from capital gain . According to the AO, there has been systematic purchase and sale of large extent of land in various locations on a continuous basis over many years either in individual capacity or in collaboration with other individuals. The assessee had filed appeals against the Annexure A Order of the AO before the Commissioner of Income Tax (Appeals). The CIT(A) vide Order dated 10.07.2018 [Annexure B] part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ? (3) Whether on the facts and in the circumstances of the case are not the transactions and dealings in land, adventures in the nature of trade and hence assessable as business? 5. We have heard Smt. Susie B. Varghese, learned Standing Counsel for the appellant and Mr. Anil D. Nair, learned Senior Advocate appearing for the respondent. Appellant's contentions: 6. The learned Standing Counsel submits that ITAT erred in properly appreciating the scope and ambit of the term business as defined in Section 2 (13) of the Income Tax Act, 1961. According to the learned Counsel, business as defined in the said Section includes any adventure or concern in the nature of trade, commerce or manufacture and when the assessee had been found to be engaging in transactions with a motive for profit, the same can only be treated as an adventure in the nature of trade. The learned counsel relying on precedents submits that even a single transaction of purchase and sale, albeit outside the assessee's line of business, could constitute an adventure in the nature of trade. Thus understanding the term adventure as a pecuniary risk, or as a venture with a commercial purpose, and co-relating it wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, it assumes relevance to understand the meaning, scope and ambit of the term adventure in the nature of trade as used in Section 2 (13) of the Income Tax Act, 1961 while defining the term business . Section 2 (13) reads as follows: business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade , commerce or manufacture; It can be seen from the above definition that it is not only a trade, commerce or manufacture that would constitute a business under the Act. Any adventure or concern in the nature of a trade, commerce or manufacture will also constitute a business. The term adventure used in the definition though in the semantic sense presupposes the existence of an element of risk and or uncertainty either with respect to the manner in which the trade, commerce or manufacture is carried out or regarding its final outcome, the term concern that follows it qualifies its meaning as an activity or enterprise which has the nature of a trade, commerce or manufacture. Understood thus, semantically, the words adventure in the nature of trade etc. used in Section 2 (13) of the Act refers to a purposive venture or activity that had been carried ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of a trade or business; and that would make the question and its decision one of mixed law and fact. 10. Having answered the nature of the question, the Supreme Court in G.Venkataswami Naidu Co. (supra) proceeded to do a detailed survey in the English and Indian precedents on the point and delineated the nature of the question and the important considerations which are to be borne in mind in determining the character of the transaction, even if it be an isolated one, as follows: 15. This question has been the subject-matter of several judicial decisions; and in dealing with it all the judges appear to be agreed that no principle can be evolved which would govern the decision of all cases in which the character of the impugned transaction falls to be considered. When Section 2, sub-s. (4), refers to an adventure in the nature of trade; it clearly suggests that the transaction cannot properly be regarded as trade or business. It is allied to transactions that constitute trade or business but may not be trade or business itself. It is characterised by some of the essential features that make up trade or business but not by all of them; and so, even an isolated transaction can satisf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... picturesque, may not help to clarify the position but may instead introduce an unnecessary element of confusion or doubt. 16. As we have already observed it is impossible to evolve any formula which can be applied in determining the character of isolated transactions which come before the courts in tax proceedings. It would besides be inexpedient to make any attempt to evolve such a rule or formula. Generally speaking, it would not be difficult to decide whether a given transaction is an adventure in the nature of trade or not. It is the cases on the border line that cause difficulty. If a person invests money in land intending to hold it, enjoys its income for some time, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. Cases of realisation of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventures in the nature of trade. In deciding the character of such transactions several factors are treated as relevant. Was the purchaser a trader and were the purchase of the commodity and its resale allied to his usual trade or business or incident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a profit ? It is often said that a transaction of purchase followed by resale can either be an investment or an adventure in the nature of trade. There is no middle course and no half-way house. This statement may be broadly true; and so some judicial decisions apply the test of the initial intention to resell in distinguishing adventures in the nature of trade from transactions of investment. Even in the application of this test distinction will have to be made between initial intention to resell at a profit which is present but not dominant or sole; in other words, cases do often arise 'Where the purchaser may be willing and may intend to sell the property purchased at profit, but he would also intend and be willing to hold and enjoy it if a really high price is not offered. The intention to resell may in such cases be coupled with the intention to hold the property. Cases may, however, arise where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself 'or otherwise enjoying or using it. The presence of such an intention is no doubt a relevant factor and unless it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... months, coupled with the other facts of the case, establishes that the intention of the assessees even when they purchased the land, was to resell the same and not to make an investment. The Hon'ble Supreme Court affirmed the view taken by the High Court and further held as under : The fact that soon after the purchase, the assessees carved out the land into plots and sold them within a few months, coupled with other circumstances of the case, is consistent more with the theory of adventure in the nature of trade than with the other theory of making an investment. 14. In Bhogilal H. Patel v. Commissioner Of Income-Tax (Central), Bombay [1969 SCC OnLine Bom. 110], Bombay High Court following the observations of the High Court of Madras in Janab Abubucker Sait v. Commissioner of Income-Tax, Madras [1961 SCC OnLine Mad. 307] held as follows: One of the essential elements in an adventure in the nature of trade is the intention to trade; that intention must be present at the time of the purchase. The mere circumstance that a property is purchased in the hope that when sold later on it would leave a margin of profit, would not be sufficient to show an intention to trade at the incep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, as the capital gain. 17. In Commissioner of Income Tax v. A. Mohammed Mohideen [(1988) SCC OnLine Mad. 404], it was observed that : in order to hold that an activity is in the nature of an adventure, there must be positive materials to prove that the assessee intended to trade in such an activity and, in the absence of evidence, the sale of immovable property consisting of land could give rise only to capital accretions. 18. The precedents discussed above show that the intention of the assessee gauged from his conduct both prior and subsequent to the transaction assumes relevance while proving that the transaction effected is an adventure in nature of trade. As regards the burden of proving it in Uttam S. Arora v. Deputy Commissioner of Income Tax [(1999) 102 Taxman 150 (Delhi)] the High Court of Delhi following the dictum laid down in Commissioner of Income-Tax v. Raunaq Singh Swaran Singh [1971 SCC OnLine Del. 366] it was held that: The burden is upon the Department to show that a transaction effected by the assessee is an adventure in the nature of trade. 19. The precedents discussed above leads us to conclude that when a property kept not for trade, but for an investment pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had been devoting very less time and effort in property transactions which were isolated and once-in-a-while activities when compared to the substantial effort and time spent in focusing on the building and propagation of the medical business under the trade name 'SEVANA'. Finally and more importantly, it had been noted by the ITAT that the assessee had never treated the properties as stock in trade and the search in the residential and business premises of the assessee had not revealed any material to suggest that the assessee had advertised the sale of properties or that he had made any efforts towards creating or submitting a development plan before any authorities with the objective of developing the property and thus augmenting its value in real estate market. The ITAT has noted that no evidence has been procured to reveal that the assessee had done activities such as plotting, consolidation, laying of roads, preparation of development plans, obtaining permits for piling, excavation etc, or preparation of reports for external financing which are typical activities indulged in by real estate traders. 22. In the light of the above facts as revealed through evide ..... X X X X Extracts X X X X X X X X Extracts X X X X
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