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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: SH. SANJAY ARORA & SH. N.K.CHOUDHRY
IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N.K.CHOUDHRY, JUDICIAL MEMBER ITA No.329(Asr)/2017 Assessment Year:2009-10
Sh. Parminder Singh Vs. Asst. CIT, Gopal Park, Kapurthala Central Circle-I, Jalandhar [PAN:ACMPS 6748R]
(Appellant) (Respondent) Appellant by: Sh. Surinder Mahajan (Ld. CA) Respondent by: Sh. Charan Dass (Ld. DR) Date of hearing: 28.11.2018 Date of pronouncement: 19.12.2018 ORDER PER N.K.CHOUDHRY, JM: The instant appeal has been preferred by the Assessee/Appellant against the order dated 03.02.2017, passed by the Ld. CIT(A), Bathinda, u/s. 250(6) of the I.T. Act, 1961 (hereinafter called as ‘the Act’), for Asst. Year:2009-10.
The assessee has raised the following grounds of appeal. “1. a) That on the facts & circumstances of the case, Learned Commissioner of Income Tax (Appeals) [‘CIT(A)’] has grossly erred in law in concluding that transaction of sale of purchase of property by the assesee is in the nature of trade, profits of which are to be considered as business income. Conclusion drawn is bad in law. b) That on the facts & circumstances of the case, conclusion drawn by Learned CIT(A) is without any material on records. 2. a) That on the facts and circumstances of the case, Ld. Assessing Officer has grossly erred in making addition of Rs.74,701/- by holding that assessee is not entitled to indexation since as alleged by Ld.
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Assessing Officer, main source of income of assessee was sale and purchased of properties. Conclusion drawn by the Ld. Assessing Officer is illegal and bad in law. b) That while making addition of Rs.74,701/-, Ld. Assessing Officer has made his own calculations which have never been confronted to the assessee. This makes the addition made illegal and bad in law.”
As per assessment order, the brief facts of the case are that in the instant case, during the year under consideration, the assessee was working as Director of various companies and engaged in the business of property dealings and had shown income of Rs.55,000/- from short term capital gain and Rs.2,34,701/- from long term capital gain from the sale of property and plot. The main source of income of the assessee was from sale and purchase of properties and that of commissions. During the course of assessment proceedings, the assessee was asked to produce balance sheet, Profit & Loss Account, details of properties held as closing stock and relevant books of account. However, no such record was made available by the assessee. As the main source of income of assessee was from the sale and purchase of properties, therefore, it was held by Assessing Officer that the assessee is not entitled for indexation benefit in respect of business properties. Accordingly, income claimed to be taxable under the long term capital gain is taxable under the head” Business Income” as follows: Sale Consideration of Plot Rs.5,00,000/- Less: Cost of Acquisition Rs.1,60,000/- Business Income Rs.3,40,000/-
Accordingly, a sum of Rs.74,701/- [2,34,701/--1,60,000] was added to the returned income of the assessee and income of Rs.3,40,000/- taxable at normal rates. In crux the addition of Rs.74,701/- was added in the return of income of Rs.10,27,210/- as declared by the assessee which lead to tax and interest demand of Rs.32,663/-.
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The said addition was challenged by the assessee before the ld. CIT(A) who uphold the addition on the similar reasoning given by the Assessing Officer.
Feeling aggrieved against the confirmation of action of the Assessing Officer by the CIT(A), the assessee has preferred the instant appeal. The assessee had shown the computation of income where the amount of Rs.2,28,000/- has been shown as income from salary and amount of Rs.467,579/- as income from Capital Gains and Rs.331,626/- as income from other sources, thus, total comes to Rs.10,27,205/-, on which the tax of Rs.1,71,905/- has been paid. The assessee has submitted that the assessee is not in the business of properties as assumed by the authorities below, neither made any transactions as business in nature, the transaction of plot which was sold at Rs.5 Lac was purchased by the assessee in his individual name and that was a personal investment and during the year under consideration, the assessee has sold two properties for Rs.5 lacs and Rs.2,25,000/- as the same were purchased in F.Y.1998-99 and 1997-98 respectively and there is no material that the assesse is involved in regular sale and/or purchase of property. The assessee has already demonstrated that the appellant is working as a Director in M/s. Kapurthala Estates (P) Ltd. and M/s Kapurthala Promoters & Developers (P) Ltd. and deriving income from salary and during the year under consideration caused capital gains. The assesee has also relied upon the following decisions of the Hon’ble Supreme Court of India which for the clarity and completeness, we would like to quote here.
(a) In the case of G. Venkataswami Naidu & Co. vs. Commissioner of Income Tax [1959] 35 ITR 0594(SC). “13. 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
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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 incidental to it ? Affirmative answers to these questions may furnish relevant date for determining the character of the transaction. What is the nature of the commodity purchased and resold and in what quantity was it purchased and resold ? If the commodity purchased is generally the subject-matter of trade, and if it is purchased in very large quantities, it would tend to eliminate the possibility of investment for personal use, possession or enjoyment. Did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby made it more readily resaleable ? What were the incidents associated with the purchase and resale ? Were they similar to the operations usually associated with trade or business ? Are the transactions of purchase and sale repeated ? In regard to the purchase of the commodity and its subsequent possession by the purchaser, does the element of pride of possession come into the picture ? A person may purchase a piece of art, hold it for some time and if a profitable offer is received may sell it. During the time that the purchaser had its possession he may be able to claim pride of possession and aesthetic satisfaction; and if such a claim is upheld that would be a factor against the contention that the transaction is in the nature of trade. These and other considerations are set out and discussed in judicial decisions which deal with the character of transactions alleged to be in the nature of trade. In considering these decisions, it would be necessary to remember that they do not
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purport to lay down any general or universal test. The presence of all the relevant circumstances mentioned in any of them may help the Court to draw a similar inference; but it is not a matter of merely counting the number of facts and circumstances pro and con; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction; and so, though we may attempt to derive some assistance from decisions bearing on this point, we cannot seek to deduce any rule from them and mechanically apply it to the facts before us. 14. In this connection, it would be relevant to refer to another test which is sometimes applied in determining the character of the transaction. Was the purchase made with the intention to resell it at 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 is offset by the presence of other factors it would raise a strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive; and it is conceivable that, on considering all the facts and circumstances in the case, the Court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. We thus come back to the same position and that is that the decision about the character of a transaction in the
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context cannot be based solely on the application of any abstract rule, principle or test and must in every case depend upon all the relevant facts and circumstances.
(b) In the case of Janki Ram Bahadur Ram vs. Commissioner of Income Tax [1965] 57 ITR 0021(SC). “Held: It is for the Revenue to establish that the profit earned in a transaction is within the taxing provision and is on that account liable to be taxed as income. The nature of the transaction must be determined on a consideration of all the facts and circumstances which are brought on the record of the IT authorities. The question whether profit in a transaction has arisen out of an adventure in the nature of trade is a mixed question of law and fact. Purchase of the property by the appellant was an isolated transaction not related to the business of the appellant. Granting that the appellant made a profitable bargain when he purchased the property, and granting further that the appellant had when he purchased it a desire to sell the property, if a favourable offer was forthcoming, these could not without other circumstances justify an inference that the appellant intended by purchasing the property to start a venture in the nature of trade. Absence of advertisement inviting offers for purchasing the property, and absence of brokers in the negotiations for sale between the appellant and R are circumstances which lead to no positive inference. There is nothing to show that the appellant desired to convert the property to some other use. No workers re employed for entering into a transaction of sale. It appears that R on coming to learn that the factory was for sale approached the company after the sale deed was executed in favour of the appellant and he was informed that it had already been sold to the appellant. Thereafter R contacted the appellant and agreed to purchase the property. The property purchased was not such that an inference that a venture in the nature of trade must have been intended by the appellant in respect thereof may be raised. A person purchasing a jute press may intend to start his own business even if he is not already in that business, or he may let it out on favourable terms. The property purchased by the appellant was capable of being let out and it had in fact been let out by the company before the date of sale in favour of the appellant. It was capable of fetching annual income, and there is no evidence that at the material time it could not be reasonably let out.—
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Janki Ram Bahadur Ram vs. C1T (1963) 50 ITR 350 (Cal) : TC12R.362 reversed.
(c) In the case of Khan Bahadur Ahmed Alladin & Sons vs. Commissioner of Income Tax [1968] 68 ITR 0573 (SC). “Held: The question whether the transaction is an adventure in the nature of trade must be decided on a consideration of all the relevant facts and circumstances which are proved in the particular case. The answer to the question does not depend upon the application of any abstract true, principle or formula but must depend upon the total impression and effect of all the relevant facts and circumstances established in the particular case. But in judging the character of such transactions several factors have been treated as significant in decided cases. For instance, if a transaction is related to the business which is normally carried on by the assessee, through not directly part of it, an intention to launch upon an adventure in the nature of trade may readily be inferred. A similar inference would arise where a commodity is purchased and sub-divided, altered, treated or repaired and sold or is converted into a different commodity and then sold. The magnitude of the transaction of purchase, the nature of the commodity, the subsequent dealings of the assessee, the nature of the organization employed by the assessee and the manner of disposal may be such that the transaction may be stampted with the character of a trading venture. A transaction of purchase of land cannot be assumed without more to be an adventure in the nature of trade. 6. On the contrary, the Ld. DR relied upon the order of authorities below. 7. We have given our thoughtful consideration to the facts and circumstances of the case and realized that the Revenue Department failed to bring any material by which it can be established that the assessee during the assessment year under consideration was engaged in the sale and/or purchase of the property and the properties which have been sold during the year under consideration, were actual in stock in trade and/or related to the business of the assessee. Whereas, the submissions of the assessee found
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seems to be quite logical that the investment in the said properties was personal in nature. The Apex Court in the aforesaid judgments clearly hold that the Expression “in the nature of trade” postulates existence of certain elements in the adventure which in law would invest it with the character of the trade or business. Further, observed that if a personal investment of money in land intending to hold it, enjoys its income for some time, and then sell 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 realization 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 of business or incidental to it and if the commodity purchased is very large in quantities then it would tend to eliminate the possibility of investment for personal use, possession or enjoyment. Further from the judgment, it emerges that the nature of transactions must be determined on a consideration of all the facts and circumstances which are brought on record of the I.T. Authorities and the question whether profit in a transaction as arising out of adventure in the nature of trade is mixed question of law and facts. The Apex Court also emphasized that there must be desired to convert the property to some other use and some workers were employed for entering into a transactions of sale. Further, the question whether the transaction is an adventure in the nature of trade, must be decide on consideration of all the relevant facts and circumstances which are proved in the particular case. The answer to the question does not depend upon the application of any abstract rule, principle and formula but must depend upon the total impression and effect of all the relevant facts and circumstances established in the particular case. But in judging the
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character of such transactions several factors are required to be treated as significant, so while respectfully following the dictum of the Apex Court and while applying to the instant case, we do not find any material by which it can be established by the Department that the assessee had utilized the said properties for sale and purchase. As the assessee had purchased the property in question in the Financial Year: 1997-98 and 1998-99 respectively and having sold the same after 9-10 years and there is nothing on record to suggest that the assessee has made any improvement in the said properties for making the same as more lucrative to sell in open market for business purposes and further there is also no material that the assessee is involved in regular sale and/or purchase of property, hence we are inclined to set aside the addition made by the Assessing Officer and affirmed by the Ld. CIT(A).
In the result, the appeal filed by the assessee stands allowed. Order pronounced in the open Court on 19.12.2018.
Sd/- Sd/- (SANJAY ARORA) (N.K.CHOUDHRY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated:19.12.2018 /PK/ Ps. Copy of the order forwarded to: (1) Sh. Parminder Singh Gopal Park, Kapurthala (2) The Asst. CIT, Central Circle-I, Jalandhar (3) The CIT(A), Bathinda (4) The CIT concerned (5) The SR DR, I.T.A.T., Amritsar True copy By order
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