VIJESH VITHAL TALAULICAR,PANAJI vs. ACIT, CIRCLE - 1(1), PANAJI

आदेश / ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee is directed against the order of the CIT(Appeals), Panaji-1 dated 22.06.2017, which in turn arises from the order passed by the A.O u/s.143(3) of the Income Tax Act, 1961 (for short ‘the Act’) dated 28.02.2013 for assessment year 2010-11. Before us the assessee has assailed the impugned order on the following grounds of appeal:

“1. On facts and circumstances of the case on record the impugned order of the CIT(A) is not sustainable on facts and law. 2. The learned CIT(A) erred in holding that the Assessing Officer action in subjecting to tax the sale proceeds of IRON ORE rejects of the value of Rs.70,50,208/- as business profits. 3. The learned CIT(A) erred in holding that the appellant held IRON ORE rejections of the market value of Rs.20,47,467/- as his “Dead Stock” and not as “capital Asset”.

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Act. During the course of assessment proceedings, it was observed by the Assessing Officer that the assessee had, in his return of income shown Long Term Capital Gain (LTCG) of Rs.48,51,998/- on sale of rejected iron ore dump. On being queried, it was submitted by the assessee that capital gains in question had arisen from sale of rejected iron ore dump which was generated in the course of mining. Elaborating on his aforesaid contention, it was submitted by the assessee that he along with his family members were holding shares in a company, viz. M/s. Talaulikar and Sons Pvt. Ltd. whose main activities was mining of Iron Ore. It was submitted by the assessee that the aforesaid company M/s. Talaulikar and Sons Pvt. Ltd. was having an authorised share capital of Rs.10 lacs that was divided into 10,000 equity shares and the entire share capital was held by his family members who were registered shareholders. It was further submitted that all the shareholders of the aforementioned company had vide an “Agreement” dated 22.10.1984 with Sociedade De Fomento Industries Pvt. Ltd.

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agreed to transfer the aforementioned 10,000 equity shares. It was further submitted by the assessee, that as per the terms of the aforesaid ‘agreement’ the rejection of dump lying outside the mining area would continue to belong to sellers alongwith all future rejection dump that would be generated. Backed by the aforesaid facts, it was claimed by the assessee that pursuant to a steep rise in the demand for rejection of dump of mines during financial year 2008-09 & 2009-10, the assessee a/w his family members was able to sell 130,107.06 MT of rejection of iron ore dump for a consideration of Rs.4,46,52,764/- to various parties. It was submitted by the assessee that the profit/gain that was earned on sale of his share of rejection of iron ore dump was though offered by him for tax under head “Capital Gains”, but the Assessing Officer had re-characterized the profit earned by the assessee as business income. Accordingly, the Assessing Officer backed by his aforesaid observations assessed an amount of Rs.70,50,208/- as the assessee’s share of “business income” ( net of expenses), i.e, after rejecting his claim of long

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term capital gain of Rs.48,51,998/- as shown in the return of income.

“5.4 I have considered the facts contained in the assessment order and submission of the appellant. As per the brief history of the case of the appellant was a share holder in the company M/s. Talaulikar& Sons P. Ltd. that was incorporated in 1969 and the said company was engaged in the business of mining of ore. The founder promoter being the grandfather of the appellant, late Shri M/s. Talulikar leased land from the Goa Government to dump the ore rejection that was generated from the mining business. As per the details filed the said land where the rejects were dumped is forest land coming under the Forest Conservation Act and the land was leased on rental basis from Government. There were no ownership rights on this land. In 1984 the company M/s. M. S. Talaulikar& Sons P. Ltd was sold to a third party and as per the agreement of sale it was agreed that three old rejection dumps stored in leased. Government land outside the mining lease area would be retained by the shareholders as also the future rejections as dumped by the seller on these sites. Thus the appellant along with other heirs of Shri M. S. Talaulikar came in possession of old rejection dumps located in Government land outside the mining area. 5.5 During the relevant financial year, the appellant has sold iron ore rejection dumped at these sites to 16 parties for a total consideration of Rs.4,46,52,764/-. The appellant has contended that all expenses in connection with removal of rejection were incurred by the purchasers. The appellant as seller only incurred selling expenses and created facility for excess to the dump. It is contended that the rejection dump is a capital asset acquired in.

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1984 and hence the cost of acquisition of is adopted at Rs. 15 per ton of ore rejects as per advice of Mining Engineer and the total cost of acquisition is worked out at Rs. 1,23,34,144/-. It is contended by appellant that sale of mud/soil from agricultural land amounts to sale of agricultural land itself hence long term capital gain is claimed on the transaction. 5.6 The Assessing Officer has held the sale of iron ore waste is derived from mining activity and is therefore a business asset. He has pointed out that ore rejects is iron ore with low iron or few content and during the relevant year the ore rejects had demand in foreign markets hence the' assessee could sell them. Further the various expenses claimed by the assessee are in the nature of business expenditure such as rent,. rate and taxes, food refreshment & convenience, postage, telephone, mobile etc., electricity charges, bank charges, salary, and wages, fuel and lubricants, repair and .maintenance, printing and stationary, office expenses, brokerage, depreciation on car etc. Further the appellant had to take permission from Forest Department to sell these dumps and in the invoices and correspondence submitted by the assessee clearly shows sale of iron ore/waste. 5.7 I have considered the argument of the appellant that these iron ore rejects are a capital asset, as sale of ore rejects. amounts to sale of land. However the said argument is not acceptable : • As per the facts narrated it is crystal clear that appellant along with other family members was a shareholder in a mining company and the iron ore rejects were generated as part of the mining business. These rejects were not marketable as they had low iron content hence they were dumped on land taken on lease from government. While the iron ore rejects dumped belong to the appellant, he and other heirs/ shareholders do not have a right of ownership over the forest land. The land is being held on payment of rental to the government. Thus the ore rejects constituted a dead or non-moving stock-in-trade, obtained by the appellant as shareholder in a company engaged in mining. Years later this dump became saleable or marketable as a result of technological advances in the international market. All sales invoices are worded as "sale/supply of iron ore rejection from Dharbandora plot". As per section 2(14) of the Income Tax Act; 1961, capital asset does not include any stock in trade. This; would cover the dead or non- moving stock in trade including scrap. Thus what is sold by appellant is non-moving stock or scrap of erstwhile business and the transactions are business transactions or adventure in the nature of trade.

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Appellant has quoted the Supreme Court decision in the case of Bombay Burmah Trading Corporation (1986). 161 ITR 386 which states that "compensation received for immobilization, sterilization, destruction or / loss, total or partial of a capital asset would be a capital receipt." However , the said decision is not applicable to the facts of the case. The sale price received by the appellant is for sale of ore rejects dumped on the Dharnbandora plot, it does not pertain to sale of any part of or rights in the Dharnbandora plot, as while the, iron ore dumped belongs to the appellant, he and other heirs/ shareholders do not have a right of ownership over the forest land. The land is being held on payment of rental to the government with no ownership rights. In fact the ore dumped thereon also could be removed only after permission from government authorities. The appellant merely has permissions to dump iron ore rejects on these plots and subsequently what has been removed from these plots by the appellant is merely these iron ore rejects. This is akin to a warehouse taken on rent being used by a business person for storing his material and stores, and when he finds a good price the material and stores are sold, but the warehouse or rights therein cannot be sold by him as he has no ownership rights over it. Similarly in the given case there is no sale of Dharnbandora land or extinguishment of rights therein. The appellant has. merely sold his own goods namely the, iron ore dumped on this land to a buyer when he got a good price. The said transaction does not character of a capital transaction as claimed by the appellant as no rights pertaining to the land have been sold nor has .there been any destruction, immobilization of any capital asset. The plot can continue to be used for dumping the iron ore rejects. • ITAT Cochin in the case of Sri E.M. Johnyvs Dy. Commissioner Of Income-Tax (2005) 279 ITR 34 has held that sale of top soil does not constitute capital receipt as the land is neither consumed nor exhausted in digging and removing the top soil. It may be pointed out that in this case the appellant was the owner of land, even in these facts the sale proceeds from removal of earth were held to be revenue receipts. In case of current appellant what has been removed in iron ore dumped thereon and hence relying on above case law it cannot be stated that land is exhausted or destroyed. Thus the appellant's contention that transaction involves transfer of capital asset is rejected. Dead Or non-moving stock forms part of stock in trade that was not transferred by the appellant and other shareholders at the time of sale of company. Hence the sale of this stock is held to be a business transaction and the buyers have bought the rejects in normal course of business of; trading in ore. As the appellant is not into active mining the transaction has parlance

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of adventure in nature of trade and is liable, to be assessed as such. Accordingly I uphold the AO's action of assessing the income from sale of iron ore rejection as business income and grounds of appeal no. 1 and 3 are dismissed. 5;7.2 Appellant has taken alternate plea that the Supreme Court in the case of CIT v. B. C. Srinivasa Setty, 128 ITR 294, held that no capital gains tax is payable by an assessee where it was not possible to compute the capital gains u/s 48 of the Act.. It is held that capital gains could not be computed in cases where the cost of acquisition could not be conceived at all. The said ground is not maintainable as iron' ore rejects are found to be dead stock held by appellant. and excluded from the definition of capital asset, hence the ground of appeal no. 4 is dismissed.”

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Admittedly, as is discernible from the records, the assessee a/w the other ex-shareholders of aforementioned company, viz. M/s. Talaulikar and Sons Pvt. Ltd. had pursuant to the “agreement” dated 22.10.1984 that was executed with Sociedade De Fomento Industries Pvt. Ltd., were therein vested with the right to hold the rejection of iron ore dump as their property. As in the financial year 2008-09 and 2009-10 there was lot of demand for rejection of dump of mines, i.e, both in the national as well as in the international market, therefore, the assessee a/w his family members had sold 130,107.06 MT of rejection of iron ore dump to various parties for a consideration of Rs.4,46,52,764/-. As observed by us hereinabove, the income from the sale of aforesaid rejection of iron ore dump was though offered for tax by the assessee as well as the other family members under the head LTCG, but the same was re- characterized by the A.O as the assessee’s business income. Our indulgence in the present appeal has been sought by the assessee for adjudicating the sustainability of the re-

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characterization of the income from sale of rejection of iron ore, i.e, as to whether or not the income from sale of rejection of iron ore was to be brought to tax as LTCG, as claimed by the assessee, or, as his business income as so held by the A.O?

“(14) [“Capital asset” means- (a) Property of any kind held by an assessee, whether or not connected with his business or profession; (b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) (c) any unit linked insurance policy to which exemption under clause (10D) of Section 10 does not apply on account of the applicability of the fourth and fifth provisions thereof but does not include-

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(i) any stock-in-trade [other than the securities referred to in sub-clause (b)] consumable stores or raw materials held for the purposes of his business or professions. (ii) XXXXXX (iii) XXXXXX (iv) XXXXX (iv) XXXXX (v) XXXXX” (emphasis supplied by us) On a perusal of the aforesaid, we find that any stock-in-trade, consumable stores or raw materials held by an assessee for the purpose of business or profession are therein carved out as an exclusion from the definition of “capital asset” as contemplated in sub-section (14) of Sec. 2 of the Act. In sum and substance, stock-in-trade which is held by an assessee not for the purpose of his business or profession, would fall within the realm of the aforesaid definition of “Capital Asset” as envisaged in sub- section (14) of Sec. 2 of the Act. Now, in the case before us, it is neither the case of the revenue nor a fact discernible from the record that the rejection of iron ore dump was held by the assessee as stock-in-trade for the purpose of his business. As a

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matter of fact, the assessee only in his dual capacity, i.e, as that of an ex-shareholder of the aforesaid company, viz. M/s. Talaulikar and Sons Pvt. Ltd. as well as that of a legal heir of his parents who too were the ex-shareholders, had pursuant to the “agreement” for transfer of 10,000 equity shares to the aforementioned company, viz. Sociedade De Fomento Industries Pvt. Ltd. had vide an “agreement” dated 22.10.1984, vested with the right to hold the rejection of iron ore dump as his property a/w the other sellers.

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the definition of “Capital Asset” as contemplated in sub-section (14) of Section 2 of the Act. At this stage, we may also observe, that income from sale of rejection of iron ore dump by the remaining sellers, i.e, the other ex-shareholders, as offered for tax by them under the head LTCG in their respective cases had not been dislodged by the department and, thus, stands impliedly approved and accepted. Be that as it may, finding no infirmity in the aforesaid claim of the assessee who had rightly shown the income arising from sale of the rejection of iron ore dump as LTCG in his return of income, we, set-aside the order of the CIT(Appeals) who had concurred with the view taken by the Assessing Officer that the income in question was liable to be brought to tax as the “business income” of the assessee for the year under consideration.

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i.e, as a sale of a capital asset. The Grounds of appeal No.(s) 1 to 3 are allowed in terms of our aforesaid observations.

Order pronounced in Open Court on 31st day of March, 2022.

Sd/- Sd/- JAMLAPPA D BATTULL RAVISH SOOD ACCOUNTANT MEMBER JUDICIAL MEMBER रायपुर/ RAIPUR ; �दनांक / Dated : 31st March, 2022 *SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeals), Panaji-1 4. The Pr. CIT, Panaji 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, पणजी / DR, ITAT, Panaji. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER // True Copy // �नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.

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Date 1 Draft dictated on 21.02.2022 Sr.PS/PS 2 Draft placed before author 21.03.2022 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order