SHRI SURAJ MAL,ALWAR vs. INCOME TAX OFFICER, ALWAR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh Hkkxpan] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, AM vk;dj vihy la-@ITA No. 659/JP/2017 fu/kZkj.k o"kZ@Assessment Year : 2008-09 cuke Suraj Mal, Income Tax Officer, Vs. 159, Kikarwali, Ward-I, Ward 1(3), Khairthal, District- Alwar. Alwar. TAN/PAN No. CBDPM 3763 N vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (CA) jktLo dh vksj ls@ Revenue by : Smt. Seema Meena (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 26/04/2018 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 01/05/2018 vkns'k@ ORDER

PER: BHAGCHAND, A.M.

This is an appeal filed by the assessee emanates from the order of the ld. CIT(A), Alwar dated 28/07/2017 for the A.Y. 2008-09.

income chargeable to tax has escaped assessment for the year under

consideration. In response to the notice issued U/s 148 of the Act, the assessee filed his return of income on 16/3/2015 declaring total income of

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Rs. 90,770/- and agricultural income of Rs. 1,80,000/-. The Assessing

Officer finalized the assessment U/s 148/143(3) of the Act at the total

income of Rs. 30,74,520/- on account of long term capital gain and

agricultural income of Rs. 1,80,000/- declared by the assessee. The ld.

CIT(A) has confirmed the action of the Assessing Officer. Now the assessee

is in appeal before the ITAT by taking following grounds of appeal:

2.1 The Ld. CIT(A) has erred on facts and in law in adopting the sales consideration of the land u/s 50C at Rs.33,38,015/- as against actual consideration of Rs.28,24,000/- declared by the assessee while holding that income is assessable as business income.

2.2 The Ld. CIT(A) has erred on facts and in law in not directing the AO to assess the income as per the provisions of section 45(2) of the Act even when holding that assessee has converted his agricultural land into a business venture and thereby assessing the entire income as business income instead of bifurcating the same between the capital gain income and the business income and not allowing deduction u/s 54B with reference to the capital gain income.

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agricultural land sold by the assessee is covered U/s 2(14) of the Act. The

ld. CIT(A) has upheld the action of the Assessing Officer by holding as

under:

“5.2 I have gone through the submissions made by the appellant. If an agricultural land is covered under section 2(14) of the Act, then income arisen from sale of such land is exempt from capital gain as such land is not treated as capital asset. However, in order to claim the benefit of section 2(14) of the Act, the assessee is required to submit evidences with regard to clause (iii)(a) and (iii)(b) of section 2(14) of the Act. The appellant has only submitted a general state list of Urban Area for determination of agricultural land. But on other evidence or Tehsildar report was submitted during the appellate proceedings. It is also understood that the appellant himself has declared the agricultural land as capital asset in the return of income as he has claimed deduction under section 54B of the Act. Therefore, in absence of any evidences in favour of its contention, the claim of the appellant with regard to the agricultural land covered under section 2(14) of the Act is not tenable. Accordingly, appellant’s ground of appeal on this issue is dismissed.”

that the assessee owning land at village Chakna Sarahbad, Tehsil-

Khairthal, district- Alwar. The details of the land are as under:

Khasra Area Share of Share of assessee Remarks No. assessee (in biswa) 2404 6 biswa ½ share 3 biswa Sold on 20/03/2007 for Rs. 1.50 lacs (PB(22) 2406 8 biswa ½ share 4 biswa

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2418 1 bigha 3 ½ share 11 ½ biswa Khasra Girdawari at PB 22 biswa 2419 1 bigha 4 ½ share 12 biswa Khasra Girdawari at PB 22 biswa 2427 1 bigha Full 1 bigha 12 biswa Purchased on 22/06/1986 12 biswa (PB 10-17). Out of 32 biswa, 30.4 biswa sold on 20/03/2007 for Rs. 9.50 lacs. 2428 11 biswa Full 11 biswa Purchased on 22/06/1986 (PB 10-17) 2417 12 biswa ½ share 6 biswa Purchased from brother on 16/07/2003 (PB 18-21)

The assessee has claimed that this land was not a capital asset in terms of

Section 2(14) of the Income Tax Act, 1961 (in short the Act), hence not

liable to be capital gain tax. The ld. CIT(A) has taxed the sale of plots as

income from profit and gain in business and profession not as a long term

capital gain as assessed by the Assessing Officer. The assessee has also

objected taking the sale consideration at Rs. 33,38,015/- as against the

sale consideration declared at Rs. 28,24,000/-. The assessee has also

contended that the ld. CIT(A) has not directed the Assessing Officer to

apply provisions of Section 45(2) of the Act and the assessee has also

contested that the contention U/s 54B of the Act should have been allowed.

authorities below.

the assessee was having agricultural land. Two pieces of the agricultural

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land situated at village Chakna Sarahbad were sold in the immediate

preceding year. The assessee himself has considered this sale of the

agricultural land as a sale of capital asset as per Income Tax Act and

claimed deduction U/s 54B of the Act for investing in agricultural land. The

assessee had also offered the sale of land in this year as sale of capital

asset and claimed deduction U/s 54B of the Act. Thus, the issue of the

agricultural land held by the assessee at village Chakna Sarahbad, Tehsil-

Khairthal, district- Alwra is settled being the ‘capital asset’. Therefore, the

issue raised in the ground No.1 of the assessee’s appeal has no merit and

the same stands dismissed.

against exploitation of agricultural land by converting it into residential plot

before selling them is an adventure in the nature of trade and the income

arising therefrom is liable to be taxed in the hands of assessee as business

income as against income from long term capital gain on sale of ‘capital

asset’ adopting the sale consideration of the land U/s 50C of the Act at Rs.

33,38,015 as against actual consideration of Rs. 28,24,000/- declared by

the assessee and not directing the Assessing Officer to assess the income

as per the provisions of Section 45(2) of the Act and not allowing deduction

U/s 54B of the Act. The ld. CIT(A) has dealt the issue by holding as under:

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6.3 I have gone through the assessment order as well as submissions made by the appellant. Following facts have emerged; 1. That the appellant is the owner of agricultural land at Khairtal, which is his ancestral land. 2. That during the year under consideration, the appellant has divided his land into small plots and sold to individuals who have purchased it for residential purposes. 3. That during the year under consideration, 17 such plots have been sold to 17 different persons as per details below; Sr. Name of the Purchaser Date Sale price Value adopted No. by sub-registrar 1. Umesh Kumar Gupta 30/05/2007 150000/- 172084/- 2. Kanhaiya Lal Gupta 30/05/2007 150000/- 156440/-- 3. Yogesh Chand 30/05/2007 100000/- 176000/- 4. Surekeha Yadav 06/06/2007 150000/- 176000/- 5. Pawan Kumar 06/06/2007 150000/- 172084/- 6. Vipin Arora 06/06/2007 170000/- 242000/- 7. Seema Devix 06/06/2007 170000/- 242664/- 8. Krishan Kumar 07/06/2007 150000/- 231104/- 9. Krishan Kumar 07/06/2007 150000/- 215107/- 10 Balbeer Singh 16/06/2007 100000/- 136884/- 11. Jaswant Singh 22/06/2007 160000/- 180000/- 12. Subhash Chand 11/07/2007 100000/- 154880/- 13. Savitri Devi 16/07/2007 150000/- 193000/- 14. Usha Tatwani 08/08/2007 230000/- 254214/- 15. Roshni Devi 06/09/2007 500000/- 554400/- 16. Smt. Santosh Devi 26/09/2007 124000/- 125154/- 17. Smt. Pinki Devi 26/09/2007 120000/- 132000/- Total 2824000/- 3338015/-

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6.3.2 I have considered the above mentioned submission. The moot question involved in this case is whether the land parcel divided by the appellant into small plot of lands and sold to different persons as residential units and even the registering authority has considered the land sold as residential units, and then can the assessee claim deductions under the Act reserved for agricultural land? I have also considered the fact that the appellant is selling the agricultural land after dividing into smaller plots for residential purposes for quite some time. In this background it is worthwhile to look into the actual nature of transaction. Whether it is one- off sale purchase of agricultural land or some design to exploit the asset as business venture?

6.3.3 I have considered the above mentioned facts. As per the khasra the appellant has inherited the land as agricultural land. However, the appellant had developed part of inherited land into residential plots. Out of the above plots the appellant had sold 17 plots during the period 30/05/2007 to 26/09/2007. During the year under consideration the appellant had sold 17 plots and received a total amount of Rs. 28,24,000/-. I have gone into the fact of the case to find an answer whether the sale of plots comes under the purview of ‘adventure in the nature of trade or not’. In this regard, the appellant had cited a large number of judicial pronouncements in favour of its claim. I have gone into the plethora of judgments cited by the appellant. However the gist of most of the cited judgments hinge broadly on the parameters set by the Hon’ble Supreme Court in the case of G. Venkataswamy Naidu vs. CIT (1959) 35 ITR 594 (SC). Therefore it is pertinent to go into the rationale and the parameters set by the Apex Court in the said judgment. The relevant part of the judgment is reproduced as under;

The tribunal and the High Court have found that the transaction in question is an adventure in the nature of trade; and it is the correctness of this view

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that is challenged in the present appeal. The expression " adventure in the nature of trade" is used by the Act in s. 2. sub-s. (4) which defines business as including any trade, commerce or manufacture, or any adventure or concern in the nature of trade, commerce or manufacture. Under s. 10, tax shall be payable by an assessee under the head profits and gains of business, profession or vocation in respect of the profit or gains of any business, profession or vocation carried on by him. Thus the appellant would be liable to pay the tax on the relevant amount if it is held that the transaction which brought him this amount was business within the meaning of a, 2, sub-s. (4) and it can be said to be business of the appellant if it is held that it is an adventure in the nature of trade. In other words, in reaching the conclusion that the transaction is an adventure in the nature of trade, the tribunal has to find primary evidentiary facts and then apply the legal principles involved in the expression " adventure in the nature of trade " used by s. 2. sub-s (4). It is patent that the clause " in the nature of trade " postulates the existence of certain elements in the adventure which in law would invest it with the character of a trade or business; and that would make the question and its decision one of mixed law and fact. This view has been incidentally expressed by this Court in the case of Meenakshi Mills, Madurai (1) in repelling the appellant's argument based on the decision of the (1) [1956] S. C. R. 691.

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 s. 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 satisfy the description of an adventure in the nature of trade. Sometimes it is said that a single plunge in the waters of trade may partake of the character of an adventure in the nature of trade. This statement may be true; but in its application due regard must be shown to the requirement that the single plunge must be in the waters of trade. In other words, at least some of the essential features of trade must be present in the isolated or single transaction. On the other hand, it is sometimes said that the appearance of one swallow does not make a summer. This may be true if, in the metaphor, summer represents trade; but it may not be true if summer represents an adventure in the nature of trade because, when the section refers to an adventure in the nature of

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trade, it is obviously referring to transactions which individually cannot themselves be described as trade or business but are essentially of such a similar character that they are treated as in the nature of trade. It was faintly argued for the appellant that it would be difficult to regard a single or an isolated transaction as one in the nature of trade because income resulting from it would inevitably lack the characteristics attributed to it by Sir George Loundes in Commissioner of I. T. v. Shaw Wallace and Company (1) 'Income their Lordships (1) (1932) L. R. 59 I.A. 206.

Lord Carmont observed that he did not wish to read the said passage out of its context and without regard to the facts of the case then under consideration. Then Lord Carmont added that though the language used by Lord Dunedin " may cover the purchase of houses" it " would not cover a situation in which a purchaser bought a commodity which from G its nature can give no annual return "This comment of mine ", said Lord Carmont," is just another way of saying that certain transactions show inherently that they are not investments but incursions into the realm of trade or adventures of that nature Then reference was made to the fact that the assessee was a warehouse company director and not a property agent or speculator and that the only purchases of property with which he was concerned were two separated by ten years and that the first heritage was acquired without the intention to sell, which only arose fortuitously. His Lordship then put his conclusion in this way: "I would therefore say that the Commissioners of Inland Revenue have failed to prove and the onus is on them the case they sought to make out". According to Lord Carmont, Lord Dunedin's observations do not suggest that the initial declaration of intention per se leads to the conclusion that the transaction was in the nature of trade. He thought that much more was required to show that the assessee was engaged in an adventure in the nature of trade than was proved in the case before the court. Lord Russell, who concurred with this opinion, began with the observation that" prima facie the difference of opinion among the General Commissioners suggests that the case is a narrow one and that the onus on the appellants of showing that the transaction was an adventure in the nature of trade is not a light one". Lord Russell then mentioned the argument of the Lord Advocate that if a person buys anything with a view to sale that is a transaction in the nature of trade because the purpose of the acquisition in the mind of the purchaser is all- important and conclusive; and that the nature of the thing purchased and the other surrounding circumstances do not and cannot operate so as to render the transaction other than an adventure in the nature of trade, and observed that in his opinion the argument so formulated" is too absolute and is not supported by the judicial pronouncements on which it was sought

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to be raised ". He then referred to the variety of circumstances which are or may be relevant to the determination of such a question; and he concluded with the observation that the appellants had not discharged the burden of showing that the transaction was an adventure in the nature of trade. Lord Keith also took the same view and stated that " the facts were, in his opinion, insufficient to establish that this was an adventure in the nature of trade This case was no doubt a case on the border line; and if we may say so with respect it was perhaps nearer an adventure in the nature of trade than otherwise. It would not be unreasonable to suggest that, in this case, if the Commissioners had found that the transaction was an adventure in the nature of trade, the court would probably not have interfered with the said conclusion; but the Commissioners were equally divided and so the assessment had been discharged by them. It was under these circumstances that the point about the onus of proof became a matter of substance; and, as we have already pointed out, all tile learned judges have emphasized that the onus had not been discharged and that no case had been made out for reversing the order of discharge -passed by the Commissioners. However that may be, it would, we think, be unsafe to treat this case as laying down any general proposition the application of which would assist the appellant before us. We would also like to add that there can be no doubt that Lord Russell's criticism against the contention raised by the Lord Advocate was fully justified because the contention as raised clearly overstated the significance and effect of the initial intention. As we have already pointed out, if it is shown that, in purchasing the commodity in question, the assessee was actuated by the sole intention to sell it at a profit, that no doubt is a relevant circumstance which would raise a strong presumption that the purchase and subsequent sale are an adventure in the nature of trade; but the said presumption is not conclusive and it may be rebutted or offset by other relevant circumstances. What then are the relevant facts in the present case? The property purchased and resold is land and it must be conceded in favour of the appellant that land is generally the subject- matter of investment. It is contended by Mr. Viswanatha Sastri that the four purchases made by the appellant represent nothing more than an investment and if by resale some profit was realised that cannot impress the transaction with the character of an adventure in the nature of trade. The appellant, however, is a firm and it was not a part of its ordinary business to make investment in lands. Besides, when the first purchase was made it is difficult to treat it as a matter of investment. The property was a small piece of 28-1/4 cents and it could yield no return whatever to the purchaser. It is clear that this purchase was the first step taken by the appellant in execution of a well-considered plan to acquire open plots near the mills and the whole basis for the plan was to sell the said lands to the mills at a

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profit., Just as the conduct of the purchaser subsequent to the purchase of a commodity in 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. As and when plots adjoining the mills were available for sale, the appellant carried out his plan and consolidated his holding of the said plots. The appellant is the managing agent of the Janardana Mills and probably it was first thought that purchasing the plots in its own name and selling them to the mills may invite criticism and so the first purchase was made by the appellant in the name of its benamidar V. G. Raja. Apparently the appellant changed its mind and took the subsequent sale deeds in its own name. The conduct of the appellant in regard to these plots subsequent to their purchase clearly shows that it was not interested in obtaining any return from them. No doubt the appellant sought to explain-its purpose on the ground that it wanted to build tenements for the employees of the mills; but it had taken no steps in that behalf for the whole of the period during which the plots remained in its possession. Besides, it would not be easy to assume in the case of a firm like v e appellant that the acquisition of the open plots could involve any pride possession to the purchaser. It is really not one transaction of purchase and resale It is a series of four transactions undertaken by the appellant in pursuance of a scheme and it was after the appellant had consolidated its holdings that at a convenient time it sold the lands to the Janardana Mills in two lots. When the tribunal found that, as the managing agent of the mills, the appellant was in a position to influence the mills to purchase its properties its view cannot be challenged as unreasonable. If the property had been purchased by the appellant as a matter of investment it would have tried either to cultivate the land, or to build on it; but the appellant did neither and just allowed the property to remain unutilised except for the net rent of Rs. 80 per annum which it received from the house on one of the plots. The reason given by the appellant for the purchase of the properties by the mills has been rejected by the tribunal; and so when the mills purchased the properties it is not shown that the sale was occasioned by any special necessity at the time. In the circumstances of the case the tribunal was obviously right in inferring that the appellant knew that it would be able to sell the lands to the mills whenever it thought it profitable so to do. Thus the appellant purchased the four plots during two years with the sole intention to sell them to the mills at a profit and this intention raises a strong presumption in favour of the view taken by the tribunal. In regard to the other relevant facts and circumstances in the case, none of them offsets or rebuts the presumption arising from the initial intention; on the other hand, most of them corroborate the said presumption. We must,

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therefore, hold that the High Court was right in taking the view that, on the facts and circumstances proved in this case, the transaction in question is an adventure in the nature of trade. The result is the appeal fails and must be dismissed with costs.

Therefore, the above mentioned judgment has laid down certain tests to find out whether a particular transaction of purchase and sale would amount to an adventure in the nature of trade or not, and at the same time cautioned that in each case, it is the total effect of all relevant factors and circumstances that determine the character of the transaction. The Supreme Court in that case observed that the following factors are relevant for deciding the character of a transaction:

(1) Was the purchaser, a trader and whether the purchase of the commodity and its resale allied to his usual trade or business or incidental to it?

(2) What is the nature of commodity purchased and sold and in what quantity was it purchased or resold?

(3) Did the purchaser by any Act subsequent to the purchase improve the quality of commodity purchased and thereby made it more readily re- saleable?

(4) What were the incidences associated with the purchase and sale and whether they are akin to the operations usually associated with trade or business?

(5) Are the transactions of the purchase and sale repeated?

(6) In regard to the purchase of the commodity and its subsequent possession by the purchaser, does the element of pride of possession come into picture?

8.3.4 Now, applying the parameters set by the Hon’ble Supreme Court in the present case, the sequence of events leading to the eventual sale of the land plots do not seem to help the cause of the appellant. The appellant had inherited the land which was an agricultural land at the time of inheritance. Then the appellant had developed part of the agricultural

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land into smaller plots, developed access road within the plotted land and sold to individual purchasers as residential plots over a period. Thus, the nature of the land had undergone irreversible change. The development of land was done with the undisputed intention of exploiting the land assets to maximize the gain. The exploitation of the land assets was done over a period of time and the entire area has been developed as a residential colony.

If we look at the sequence of events as mentioned above, I have no doubt whatsoever, that the motive, intention and realization of the entire scheme of thing adopted by the appellant was to maximize the value of the asset and using it for business purposes. In that pursuit the appellant had constantly tried and execute different methods at different time exploiting the resources and maximize the profit out of it. The registering and stamp duty authorities have also recognized the plotting as residential plots.

In this regard, I have also noted the above mentioned Apex Court Judgment where it has said that 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 resalable is a relevant factor in determining the character of the transaction, so would is conduct prior to purchase be relevant if it shows a design and purpose.

I have clearly noted a purpose and design in the utilization of the land and it all pointed towards a business sense and eventually a business transaction.

The appellant has cited Hon’ble Rajasthan High Court judgment in the case of Sohan Khan and Mohan Khan as reported in 304 ITR 194(Raj.), in favour

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of his claim. I have perused the judgment. However, the concluding para of the judgment has itself said that

“……….it is the different story that the question, as to whether a particular transaction falls within the category of “adventure in the nature of trade” or is merely a transaction of transfer of capital asset, since depends on appreciation of facts……”

I have found that the present case is distinguished from facts of the case decided by the Hon’ble Rajasthan High Court Judgment. In the present case it is not only the mere sale and purchase of lands. It is a sequence of events showing exploitation of the land over a period of time that shows the intent and motive of the appellant in the present case as is discussed in details above.

Therefore, it is my considered view that the exploitation of agricultural land by converting it into residential plots before selling them to the purchasers is indeed a business venture. As per the Apex Court parameters also the facts of the case suggest that the exploitation of land assets by the assessee comes under the purview of ‘adventure in the nature of trade’ and the income arisen is liable to be taxed in the hand of the appellant as ‘business income. Accordingly, the income arisen from sale of such plots of land cannot claim deduction under section 54B of the Act Accordingly, the appellant’s grounds of appeal on the issue are dismissed.”

under:

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assessee never intended to enter into any real estate business/adventure. In the AY 2007-08, assessee has sold certain agricultural land on which no tax was levied. During the year to have a better realisation of the capital asset, the same is sold after plotting. Selling of an agricultural land after plotting in order to secure better price is not an adventure in the nature of trade or business. The word "business" has been defined u/s 2(13) of the IT Act, 1961 which includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. To consider the question of business, there must be regular activity of purchasing and selling. In the present case, there is nothing on record to show that the land when acquired was with an intention to sell it by plotting.

Commissioner of Income-tax Vs. Sohan Khan & Mohan Khan [2008] 304 ITR 194 (Raj.)

In order to arrive at a conclusion, as to whether sale consideration is to be taxed as capital gain or the sale transaction is to be treated to be an “adventure in the nature of trade”, things cannot be put in any strait jacket formula, and it is dependent upon the facts and circumstances of each case to be decided on the basis of relevant considerations. One of most significant considerations would be the regularity of transaction of purchase and sale. Mere fact that there was a series of transactions of sale only, by selling the part of the whole land, purchased in one go, or purchased once upon a time, in piecemeal, would not render the activity of sale to be an ‘adventure in the nature of trade’.

The assessee’s purchased a chunk of land measuring few lakhs square feets, somewhere in 1970 under a valid document and the land was lying fallow, during all this time. The land was under the cloud of ceiling laws and after it got cleared therefrom, the assessee picked up the idea of disposing it of by making the best profit, i.e., by ensuring that it fetched the best price, and accordingly, the site plan was prepared, showing the land to be divided into different plots, and the plots were,

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accordingly, sold. The Assessing Officer found the sale to be not taxable as capital gain, but it was treated as a business income.

Held that there was nothing to show that the land was purchased with the intention to sell at a profit, or with requisite intention, to bring it within the parameters of ‘stock-in- trade’. The assessee was not a regular dealer in real estate. It appeared that the land was purchased in 1970, which was under cloud of land ceiling laws, and after that cloud was cleared, and other adjoining lands had been developed, and since the land was not yielding any return, it was decided to be sold in piecemeal, by earmarking plots but then nonetheless it would remain a disposal of the capital asset only and not a transaction of any ‘stock-in-trade’ so as to be described as ‘adventure in the nature of trade’. Obviously therefore, it was liable to be taxed only as capital gain.'

CIT Vs. Harjit Singh Sangha (2013) 217 Taxman 201 (P&H) (HC) (Mag.)

Land purchased by assessee was registered in land revenue records as agricultural land and it was being used by assessee as such. Later on it was sold in small plots to different purchaser. No development of land was made by assessee prior to its sale. It was held that assessee’s activity could not be termed as an adventure in the nature of trade and gain/profit arising from sale could not be taxed as business income.

Smt. M. Vijaya & Ors. Vs DCIT (2015) 116 DTR 393 (Hyd.) (Trib.)

Land in question is shown as agricultural in revenue records, not under conversion proceedings, not put to non-agricultural use, not situated in developed area and not falling in any municipality but falling in a village was agricultural land not liable to capital gain tax on sale, the fact that the land was purchased by a developer cannot be a determining factor by itself to say that the land was converted into use for non- agricultural purposes.

Saroj Kumar Mazumdar Vs. Commissioner of Income Tax 37 ITR 242 (SC)

Section 2(13) of the Income-tax Act, 1961 - Adventure in nature of trade - Whether where transaction under examination is not in line of business of assessee and is an isolated or a single instance of a transaction like that, burden lies on revenue to bring case within words of statute, namely, that it was an adventure in nature of trade - Held, yes - Assessee entered into agreement with a society to purchase plot of land under development scheme offered by society and paid 25 per cent of estimated price - Assessee finding no immediate prospect of land in question being derequisitioned by Government, negotiated for assignment of his rights under agreement with society to a third party and received a sum in excess of amount paid by him to society - Whether since dealing in landed estate was not in line of assessee's business and sale

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transaction in question was only one of its kind and department failed to make out that dominant intention of assessee was to embark on a venture in nature of trade when he entered into said transaction which resulted in profits, such profits could not be taxed in hands of assessee as profit from adventure in nature of trade.

Janki Ram Bahadur Ram Vs. Commissioner of Income Tax 57 ITR 21 (SC)

Section 2(13), read with section 28(i) of the Income-tax Act, 1961 - Adventure in nature of trade - Assessee agreed to purchase a jute press from company subject to litigation pending in High Court - Possession of property except premises in occupation of tenant was obtained and sale deed was executed - Assessee agreed to sell that press to one ‘P’ - Later, assessee was substituted as plaintiff in suit filed by company against tenant - After obtaining possession of demised premises, assessee executed a sale deed conveying property and delivered possession to ‘P’ - Whether purchase of property by assessee was an isolated transaction not related to its business - Held, yes - Whether Admitting that assessee made a profitable bargain when he purchased property, and further that assessee had when he purchased it a desire to sell property, if a favourable offer was forthcoming, could not without other circumstances justify an inference that assessee intended by purchasing property to start a venture in nature of trade - Held, yes - Whether surplus received by assessee as a result of sale of jute press did not arise out of an adventure in nature of trade and was therefore not rightly assessed to tax - Held, yes

CIT Vs. Sureshchand Goyal 298 ITR 277 (MP)

Para 15 of this order is reproduced as under:

“Considering the aforesaid facts and circumstances of the case, we are also of the view that the selling of own land after plotting it out in order to secure better price, is not an adventure in the nature of trade or business. The word "business" has been defined under Section 2(13) of the Income Tax Act, 1961, which includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. An isolated transaction or activity can also be part of business, but to consider the question of business, there must be regular activity of purchasing and selling. In this case, there is nothing on record to show that the land was purchased for the purpose of selling into plots. Basically, it is a gifted land and the land was developed and was sold after converting into the plots with a view to secure the better price, therefore, the isolated activity cannot come within the purview of adventure in the nature of trade and business. The main earning on the sale of the land was in the nature of capital gain and, therefore, not assessable as income from business and this question is essentially a question of fact”.

CIT Vs. A Mohammed Mohideen 176 ITR 393 (Madras)

ITA 659/JP/2017_ 18 Suraj Mal Vs ITO

Para 14 of this order is reproduced as under:

“Bearing in mind the principles laid down by the Supreme Court, it is necessary to examine the facts of the present case. Already we have noticed the contentions urged for the Revenue. The first contention is that the Tribunal is in error in holding that the Department has not established by evidence that the intention of the assessee in purchasing the property was not by way of investment but to trade in house sites. It is pointed out by learned counsel for the Revenue that the Tribunal has not considered all the aspects before holding that it was not established that the assessee intended to trade in house sites. We are of the view that this does not vitiate the conclusion reached by the Tribunal. In this content. It is worthwhile to notice the principle laid down by the Supreme Court that the Revenue should establish by positive evidence that the purchase and sale of the property by the assessee was with the view to earn profits through trading transaction. The circumstances relied on by learned counsel for the Revenue only throw suspicion on the assessee's act of purchasing a property which did not immediately yield any income. But there are no materials to further prove that the assessee intended to indulge in a trading activity. Similarly, from the fact that the assessee converted the property into small house sites and after leaving space for roads sold the rest of the plots, the Revenue wanted to draw an inference that the assessee, even at the time of purchase of the property, had this idea of indulging in an adventure in the nature of trade to make maximum profits. Suppose an owner of a property finds that the sale of the entire property in one lot is not beneficial and instead enters into an agreement with a civil engineer and plans to put up flats and after retaining a portion for his own requirement, sells the excess floors to third parties, can it be said that he has plunged into the waters of trade to make huge profits? It may be that for realising the maximum price, he undertakes certain acts which any other owner would undertake; but that by itself would not establish that in such cases, the person concerned would be indulging in a trading activity. In the above illustration, if the person, instead of putting up the multi-storeyed building in his own plot, purchases a plot and with borrowed funds puts up the flats and sells them, then it can be said that he is indulging in a trading activity. As pointed out by the Supreme Court in Saroj Kumar Mazumdar v. CIT [1959] 37 ITR 242, the dividing line between the two types of cases is very thin. The decision of this court in CIT v. Kasturi Estates (P.) Ltd. [1966] 62 ITR 578, has only reiterated the position 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”.

Plotting and developing of land before sale by itself would not establish that the person concerned was indulging in a trading activity. It may be that for realizing the maximum price, he undertakes certain acts which any other owner would undertake.

ITA 659/JP/2017_ 19 Suraj Mal Vs ITO

Revenue has to establish by positive evidence that the purchase and sale of property was with the view to earn profits through trading transaction. In the present case, circumstances relied on by Revenue only throw suspicion on the assessee’s act of purchasing a property which did not immediately yield income, but there are no materials to further prove that assessee intended to indulge in a trading activity. Transaction of assessee in purchasing and selling the property did not, therefore, amount to an adventure in the nature of trade.

B. Narasimha Reddy Vs. ITO (1994) 48 TTJ 329/47 ITD 398 (Hyd) (Trib.)

The assessee was never a trader or businessman. Previously he did not carry on any business much less business in real estate. He did not purchase any land or did not sell any land. He was purely an agriculturist. The land in question represents his ancestral property. He thought that he would profit very much or would get maximum by plotting out the land and getting a lay out approved by the Gram Panchayat and, therefore, he got sanctioned the lay out from the Gram Panchayat. He converted the land into plots and sold them as house sites. He wanted to take all advantages due to fast urbanization of the area. Can it be said under those circumstances that the assessee is carrying on an adventure in the nature of trade, simply because he wanted to realize the maximum out of the sale of his ancestral land? Without any reservation, one could come to the conclusion that the assessee never intended to do any business in the real estate and that the sale of plots of land held by him does not amount to an adventure in the nature of trade. There is no material, let alone positive material, produced by the Revenue to show that the assessee intended to carry on trade in real estate. Therefore, the ordinary presumption that sale of immovable property would give rise only to capital accretion would be applied to the case of the assessee. This is a clear case where the assessee tried to obtain maximum price for his land. Intendments to plot out and get the lay out approved by the Gram Panchayat are only in that direction. There is, therefore, no hesitation to come to the conclusion that the whole of the transactions would only amount to endeavor to realize the maximum from out of the capital asset which would give rise only to capital gains tax.

In view of above, even if it is held that income from sale of the agricultural plots is liable for tax, it can be taxed only as a capital gain and not as a business income.

ITA 659/JP/2017_ 20 Suraj Mal Vs ITO

21.08.2007 (PB 24-26). Thus, when the investment is made in the name of minor sons and in own name from the sale proceeds of the agricultural plots, the assessee is entitled for deduction u/s 54B. Further, the observation of AO that the land sold was not used for agricultural purpose in the preceding 2 years from the date of transfer is incorrect in as much as from the Khasra Girdawari it is evident that the land was used for agricultural purpose in the preceding two years.

In view of above, the income assessed by Ld. CIT(A) as business income be directed to be deleted or alternatively, be modified as explained in Para No.4 above.”

ITA 659/JP/2017_ 21 Suraj Mal Vs ITO

authorities below.

material available on the record and also considered the case laws relied

upon. The assessee has sold ‘residential plot’ on his agricultural land. The

same has been treated by the ld. CIT(A) as ‘adventure in nature of trade’

and taxed the receipt in the hands of the assessee under the head ‘profit

and gain’ in business and profession. We hold that the assessee has sold

small residential plots to various persons. The sale of these residential plots

at his agricultural land was definitely an act of business and an adventure

in the nature of trade. The ‘annexure’ to the sale deed placed in the paper

book clearly establishes that the assessee has sold the residential plots of

land after developing roads etc. thus, this establishes sale of the plots on

this land and it was an act of adventure in nature of trade. However, we

agree with the pleadings of the ld. AR that once this was an adventure in

nature of trade and income is to be taxed as per the provisions of Section

45(2) of the Act. The capital gain shall be worked out on the date of

conversion of agricultural land to the ‘stock in trade’ and then only work out

the profit and gain of business. Therefore, considering the totality of the

facts and circumstances, the issue is restored back to the file of the

ITA 659/JP/2017_ 22 Suraj Mal Vs ITO Assessing Officer. The Assessing Officer will invoke the provisions of

Section 45(2) of the Act and decide as per law.

statistical purposes.

Order pronounced in the open court on 01/05/2018.

Sd/- Sd/- ¼fot; iky jko½ ¼Hkkxpan½ (VIJAY PAL RAO) (BHAGCHAND) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 01st May, 2018

*Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Shri Suraj Mal, Alwar. 1. izR;FkhZ@ The Respondent- The ITO, Ward 1(3), Alwar. 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 659/JP/2017) 6.

vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत