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Facts
The Revenue filed appeals against separate orders of the CIT(A) concerning assessment years 2013-14 and 2016-17. The appeals were filed with a delay, which was condoned by the Tribunal. The core issue revolved around whether the sale of land by the assessee constituted an adventure in the nature of trade (business income) or a capital gain.
Held
The Tribunal held that the sale of land by the assessee, considering the sporadic nature of transactions over a long period and the assessee's primary business of manufacturing transformers, did not constitute an adventure in the nature of trade. The surplus arising from the sale was to be treated as capital gain.
Key Issues
Whether the sale of land by the assessee, given the historical transactions and the assessee's primary business, should be treated as business income or capital gains.
Sections Cited
147, 148, 143(3)
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Before: Shri S.S. Viswanethra Ravi & Shri S.R. Raghunatha
O R D E R
PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER:
Both the appeals filed by the Revenue are directed against separate orders both dated 26.02.2025 passed by the ld. Commissioner of Income Tax (Appeals) – 20, Chennai for the assessment years 2013-14 and 2016-17.
We find that this appeal is filed with a delay of 13 days. The ACIT Central Circle 1, Coimbatore filed an affidavit for condonation of delay stating the reasons. Upon hearing both the parties and on examination of the said affidavit, we find the reasons stated by the Appellant- Revenue are bonafide, which really prevented in filing the appeal in time. Thus, the delay is condoned and admitted the appeal for adjudication.
Since issues raised in both the appeals are similar based on the same identical facts, with the consent of both the parties, we proceed to hear the appeals together and pass consolidated order for the sake of convenience.
First, we shall take appeal in AY 2013-14 for adjudication.
The Appellant-Revenue raised 2 grounds challenging the action of the ld. CIT(A) in deleting the addition by holding that the transfer of property to be viewed as a capital gain transaction in the facts and circumstances of the case.
We note that in the assessment order, the Assessing Officer observed that as per the records of the assessee for the AYs. 2006-07, 2007-08, 2009-10, 2010-11 & 2016-17, the assessee has been purchasing and selling properties frequently and most of the sales are to M/s. Hindustan Educational and Charitable Trust at an exorbitant price much higher than guideline value. We note that after considering the submissions of the assessee and by referring to the decision of the Hon’ble High Court of Bombay in the case of DCIT v. Gopal Ramnarayan Kasat 328 ITR 556, the Assessing Officer treated the sale transaction as adventure in the nature of trade and assessed the profit on sale of land to the tune of ₹.10,83,91,500/- as business income of the assessee. On appeal, the ld. CIT(A) observed that the sale transaction cannot be considered as an adventure in the nature of trade and directed the Assessing Officer to consider the surplus arising out of sale of land under the head capital gain by observing as under: 6.1.3. I have perused the submissions made by the appellant. At the outset, it is noticed that the appellant has sold the property after holding the same as investments for a period of more than 20 years. It is also crucial to note here that there is no finding in the assessment order that the land in question was developed or plotted by the appellant. It is also noticed from the details of the properties purchased and sold by the appellant that he has entered in land transactions sporadically over a long period. There are some sale and purchase transactions in some years whereas no such transactions are present in other years. Thus, it is quite evident that there is no chain or continuity in the transactions of immovable property. The AO had relied on the decision of the Hon'ble High Court of Bombay in the case of DCIT vs Gopal Ramnarayan Kasat [2011] 328 ITR 556 to wherein it was held that even an isolated transaction can satisfy the description of an adventure in the nature of trade and there is no necessity for a series of transactions. However, the said decision is distinguishable on facts. In the case of Gopal Ramnarayan Kasat (supra), the assessee had purchased certain agricultural lands during the period 1992 to 1998 which were thereafter immediately acquired by the State Government and the assessee received compensation/enhanced compensation towards the acquisition of the said lands during the assessment years 2000-01, 2001-02 and 2002-03. The assessee, apart from their regular business/professional activities, had jointly purchased agricultural lands involving 13 transactions. Out of those 13 transactions, nine lands were under consideration for acquisition at the time of purchase of land and subsequent to purchase, within a short span of time, the said lands were acquired and the assessee had received compensation, as well as, enhanced compensation under the Land Acquisition Act, 1894. However, in the case of the appellant, the facts are entirely different. There is no instance in the appellant's case when the lands were under consideration for acquisition at the time of purchase. All the properties have been sold after a considerable period of couple of years. This exact issue came up before the Hon'ble ITAT, Chennai in the appellant's own case for AY 2011-12 in dated 28.10.2016, wherein it has been held that the assessee had no intention to trade in land or do real estate business and since assessee was in the business of manufacturing transformers, surplus arising out of sale of land could have been considered only under the head 'capital gain'. For ready reference, the relevant portion of the said judgment is reproduced as under: 12. We have considered the rival contentions and perused the orders of the authorities below. The first issue that is to decided is whether the sale of land done by the assessee during the relevant previous year is to be considered as part of a business activity or not. Assessee had sold two pieces of land during the relevant previous year. First piece of land at Sowripalayam on which assessee returned long term capital gains 33,52,365/- Obviously, the land was more than three years old since its purchase. Second piece of land sold by assessee at Othakalmandapam, claimed by the assessee as agricultural in nature, measured 4.34 acres. It's location was beyond fourteen kilometers from Coimbatore Corporation limits. The said land was sold by the assessee to a Charitable Trust of which assessee was the Managing Trustee, for a price of 5,26,80,000/-. Apart from these two transactions, there were certain other land transactions entered by the assessee in previous years relevant to assessment years 2006 2007, 2007-08 and 2009-10. In the previous year relevant to assessment year 2006- 2007, there was purchase of agricultural land for 3,67,00,000/-, Though during that year assessee had attempted to make investments in land of M/s. Standard Motors Ltd it had not fructified. This position has not been disputed by the Revenue. During the very same year assessee has sold land for 74,00,000/-. The next transaction was during the previous year relevant to assessment year 2007-08. Assessee had sold land for 48.81 lakhs and also given an advance of 241.11 lakhs for purchasing another land. The assessee also appear to have sold shares of M/s. Ganesha Ginning Co. Ltd to M/s. DLF Retails during the said
year. However, this in our opinion cannot be equated to a land sale. During the previous year relevant to assessment year 2009- 2010 assessee had sold a piece of land for 10.67 crores. There obviously was no purchase or sale during the relevant previous year 2008-2009. In our opinion, above transactions which happened over a number of years were so sporadic that it could not be considered as one creating a series which could show an intention to trade in land. None of the land sold by the assessee over the period of five years was developed by the assessee or plotted by the assessee. Assessee had shown the land always as investments in its balance sheet. No doubt it was held that Bombay High Court in the case of Gopal Ramnarayan Kasat(supra) that even an isolated transaction could qualify as an adventure in the nature of trade. But their Lordship also held that a continuity was necessary for reaching a conclusion that assessee was indulging in a trade or business. In our opinion, purchase and sale done by the assessee over a period of five years was not of such frequency that could create a chain or continuity, which can persuade us to believe that assessee had an intention to do a business or trade of purchase and selling a land. Just like any other investor, assessee invested in land over a long period of time at disparate places. It effected sale of land whenever an opportunity arose. In some years, there were more than one number of such transactions. In certain other years, there were no transaction of purchase or sale of land. In our opinion, the conclusion of the lower authorities that there existed a series of transactions and assessee had an intention to trade in land or do real estate business was incorrect. Especially so, since assessee was in the business of manufacturing transformers. Thus, according to us, surplus arising out of sale of land during the relevant previous year could not have been considered under the head 'income from business' but only under the head 'capital gains'. Further, relying on its above decision, the Hon'ble ITAT, in dated 12.09.2018, allowed the appeal filed by the appellant in his own case for AY 2009-10 also. The above decision is squarely applicable for the year under consideration also. Thus, respectfully following the decision of Hon'ble ITAT in the appellant's own case for AY 2011-12 and 2009-10, I am of the opinion that the sale of land in the year under consideration cannot be considered as an adventure in the nature of trade. Therefore, the AO is directed to consider the surplus arising out of sale of this land under the head 'Capital Gain'. Accordingly, these grounds of appeal are allowed.
The ld. DR Ms. E. Pavuna Sundari, CIT submits that in the assessment order, the Assessing Officer has established that the frequency of sale and purchase transaction of the assessee over a period of time right from 2006-07 till the present AY clearly signifies that the assessee is in the business of purchasing and selling immovable properties for the purpose of earning profit thereby rendering the activity in the nature of trade. By relying upon the decision of the Hon’ble High Court of Bombay in the case of DCIT v. Gopal Ramnarayan Kasat 328 ITR 556, the ld. DR prayed to set aside the order of the ld. CIT(A) and restored that of the Assessing Officer.
The ld. AR Shri T. Banusekar, Advocate submits that the assessee made investment in land, holding the same for a period of 22 years and subsequently, sold the land and admitted the capital gains. He submits that the assessee is not buying and selling land or engaged in any real-estate business. He vehemently argued that the investment in land cannot be held as an adventure in the nature of trade. He placed reliance on the order of this Tribunal in assessee’s own case for AY 2011-12 in dated 28.10.2016 as well as AY 2007-08 & 2009-10 vide order dated 12.09.2018 and prayed that the same may be followed to sustain the impugned order.
We have heard both the parties and perused the material available on record. In this case, we note that the assessee sold the property after holding the same as investments for a period of more than 22 years, but, however, the Assessing Officer held that the said sale transaction amounts to adventure in the nature of trade and assessed the profit on sale of land as business income of the assessee. On perusal of the assessment order, we note that the Assessing Officer has not given any finding in the assessment order that the land in question was developed or plotted by the assessee or the assessee is engaged in real-estate business or it is also evident that there is no chain or continuity in the transactions of immovable property.
We note that the Assessing Officer referred to the decision of the Hon’ble High Court of Bombay in the case of DCIT vs Gopal Ramnarayan Kasat (supra) and the ld. DR also heavily relied on the above said decision. We note that in the impugned order, the ld. CIT(A) distinguished the above decision.
On perusal of the said decision, in that case, the assessee had purchased certain agricultural lands during the period 1992 to 1998 which were thereafter immediately acquired by the State Government and the assessee thereon received compensation/enhanced compensation towards the acquisition of the said lands during the assessment years 2000-01, 2001-02 and 2002-03, apart from their regular business/ professional activities, jointly purchased agricultural lands involving 13 transactions. Out of those 13 transactions, nine lands were under consideration for acquisition at the time of purchase of land and subsequent to purchase, within a short span of time, the said lands were acquired and the assessee had received compensation, as well as, enhanced compensation under the Land Acquisition Act, 1894.
However, in the present case, we note that the facts are entirely different and there is no instance in the assessee’s case when the lands were under consideration for acquisition at the time of purchase. All the properties have been sold after a considerable period. This exact issue came up before the Hon'ble ITAT, Chennai in the assessee’s own case for AY 2011-12 in dated 28.10.2016, wherein it has been held that the assessee had no intention to trade in land or do real estate business and since assessee was in the business of manufacturing transformers, surplus arising out of sale of land could have been considered only under the head 'capital gain'. The relevant portion of the said order is reproduced as under for ready reference: 12. We have considered the rival contentions and perused the orders of the authorities below. The first issue that is to decided is whether the sale of land done by the assessee during the relevant previous year is to be considered as part of a business activity or not. Assessee had sold two pieces of land during the relevant previous year. First piece of land at Sowripalayam on which assessee returned long term capital gains 33,52,365/- Obviously, the land was more than three years old since its purchase. Second piece of land sold by assessee at Othakalmandapam, claimed by the assessee as agricultural in nature, measured 4.34 acres. It's location was beyond fourteen kilometers from Coimbatore Corporation limits. The said land was sold by the assessee to a Charitable Trust of which assessee was the Managing Trustee, for a price of 5,26,80,000/-. Apart from these two transactions, there were certain other land transactions entered by the assessee in previous years relevant to assessment years 2006 2007, 2007-08 and 2009-10. In the previous year relevant to assessment year 2006- 2007, there was purchase of agricultural land for 3,67,00,000/-, Though during that year assessee had attempted to make investments in land of M/s. Standard Motors Ltd it had not fructified. This position has not been disputed by the Revenue. During the very same year assessee has sold land for 74,00,000/-. The next transaction was during the previous year relevant to assessment year 2007-08. Assessee had sold land for 48.81 lakhs and also given an advance of 241.11 lakhs for purchasing another land. The assessee also appear to have sold shares of M/s. Ganesha Ginning Co. Ltd to M/s. DLF Retails during the said year. However, this in our opinion cannot be equated to a land sale. During the previous year relevant to assessment year 2009-2010 assessee had sold a piece of land for 10.67 crores. There obviously was no purchase or sale during the relevant previous year 2008-2009. In our opinion, above transactions which happened over a number of years were so sporadic that it could not be considered as one creating a series which could show an intention to trade in land. None of the land sold by the assessee over the period of five years was developed by the assessee or plotted by the assessee. Assessee had shown the land always as investments in its balance sheet. No doubt it was held that Bombay High Court in the case of Gopal Ramnarayan Kasat(supra) that even an isolated transaction could qualify as an adventure in the nature of trade. But their Lordship also held that a continuity was necessary for reaching a conclusion that assessee was indulging in a trade or business. In our opinion, purchase and sale done by the assessee over a period of five years was not of such frequency that could create a chain or continuity, which can persuade us to believe that assessee had an intention to do a business or trade of purchase and selling a land. Just like any other investor, assessee invested in land over a long period of time at disparate places. It effected sale of land whenever an opportunity arose. In some years, there were more than one number of such transactions. In certain other years, there were no transaction of purchase or sale of land. In our opinion, the conclusion of the lower authorities that there existed a series of transactions and assessee had an intention to trade in land or do real estate business was incorrect. Especially so, since assessee was in the business of manufacturing transformers. Thus, according to us, surplus arising out of sale of land during the relevant previous year could not have been considered under the head 'income from business' but only under the head 'capital gains'.
Further, we note that by relying on its above order, the ITAT allowed the appeal in assessee’s own case for AY 2009-10 in dated 12.09.2018 also. We find that the above orders are squarely applicable for the year under consideration also. The ld. DR could not controvert the above orders of the ITAT by filing any higher Courts decision having modified or reverted. By rightly following the above orders of the Tribunal, the ld. CIT(A) held that the sale of land in the year under consideration cannot be considered as an adventure in the nature of trade and directed the Assessing Officer to consider the surplus arising out of sale of this land under the head “capital gain” and the same is justified. Thus, the ground raised by the Appellant-Revenue is dismissed.
We find the issue involved in AY 2016-17 is similar to the facts and circumstances relevant to AY 2013-14 in wherein, we have sustained the order of the ld. CIT(A) and dismissed the grounds raised by the Appellant Revenue, therefore, we hold our findings would be equally applicable to the assessment year under consideration. Thus, the grounds raised by the Appellant-Revenue for AY 2016-17 are dismissed.
In the result, the appeal filed by the Revenue is dismissed. Order pronounced on 26th September, 2025 at Chennai.