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TMI Blog1981 (6) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... as capital gains or as business profits. By a resolution dated 14-3-1960, the assessee purchased a plot of land at Borivali, admeasuring 45,533 sq. yards, for a sum of Rs. 1,21,009. The case of the assessee was that the land was purchased for constructing residential quarters for its staff. The purpose for which the land was purchased was not mentioned in the resolution dated 14-3-1960. But the assessee applied to the Municipal Corporation, Bombay, for permission to construct residential quarters on the aforesaid land in accordance with the plans made out by it. This correspondence for permission to construct quarters with the Municipal Corporation began on 13-6-1962. In its letter dated 22-3-1965 addressed to the Municipal Corporation, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the business of the assessee was to act as selling agents for the group of mills right from its inception on 18-9-1946. It was stated in that letter that the assessee did not deal in land in the past and so it was not correct to hold that the assessee was a dealer in land. In this letter, it is further stated that the assessee acquired the plot of land for constructing residential quarters for some of its own staff members and also for some of the staff members of the group of mills. The assessee's application for permission to construct the quarters was not granted by the Municipal Corporation because of the Development Plan Rules which were brought into force in 1964-65 and it took a long time to comply with the said rules and obtain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not agree with the assessee's contention that the surplus arose on capital account and also the contention that no profit or loss arises until the entire plot was sold. In this view of the matter, he taxed the sum of Rs. 3,82,964 as the assessee's income from business in purchase and sale of land. 6. The assessee appealed to the Commissioner (Appeals) and contested the action of the ITO on both the counts. The Commissioner (Appeals) found that though the Memorandum of Association of the assessee-company authorised dealings in land, yet that fact alone was not conclusive to show that the land under consideration was held as stock-in-trade. He relied on the decision in the case of Ukhara Estate Zamindaries (P.) Ltd. v. CIT [1979] 120 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er (Appeals) erred in holding that the land under consideration was held as investment giving rise to capital gains on its sale. 8. Shri Ajay Thakkar, the learned representative for the assessee, on the other hand, supported the order of the Commissioner (Appeals). He emphasised the fact that the intention of the assessee in acquiring the plot of land in 1960 was to construct staff quarters thereon and not to treat as stock-in-trade. Activities towards construction of the quarters, like preparing the plans by architects began soon after the purchase of the land and the application to the Municipal Corporation was made as early as in 1962. The matter was delayed because of the new rules and regulations enforced by the Municipal Corporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances from 1960 to 1972, as narrated above, into consideration, we are left with the impression that the land under consideration was acquired not as stock-in-trade of a business but as an investment for building staff quarters thereon. It is true that the resolution dated 14-3-1960 does not state the purpose for which the land was purchased. But the conduct of the assessee in applying to the Municipal Corporation in 1962 for permission to build staff quarters and the express declaration to that effect in its letter dated 22-3-1965 leave no doubt that the assessees intended to build quarters for the staff. This is also corroborated by the entries in the books of accounts as reflected in the balance sheet in which the land has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Commissioner (Appeals) has rightly relied on the decision in the case of Kasturi Estates (P.) Ltd. It has been held in that case that developing land into building sites with a view to realise the best price, without anything more, is consistent with the realisation of a capital investment. In that case, the assessee developed the land, laid roads, converted the land into house sites and eventually sold the plots one by one. The Court held that the aforesaid facts by themselves do not show that the surplus was a trading profit. It has been held in the case of Ukhara Estate Zamindaries Ltd. that neither the existence of the power in the Memorandum to trade in land nor the declaration of dividend is decisive of the question whether the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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