2020 (2) TMI 1275 - AT - Income Tax

Land sale profit classified as business income, not capital gains. Intent key in 'adventure in the nature of trade.'

The Tribunal determined that the profit from the sale of land should be classified as business income rather than capital gains. The assessee's actions ... Characterization of income - profit from sale of land - conversion of agricultural land into non-agricultural land - same land was plotted and entered into agreement with REHWS on 13/08/2012 and sold the same - HELD THAT:- Intention of the assessee is to make profit out of the transaction, therefore entire activity carried by the assessee i.e. purchasing the agricultural land converting into non-agriculture and plotted the same and sold the plots to the REHWS is the activity ‘adventure in the nature of trade’, therefore it has to be treated as business income and not capital gains. The ld. CIT(A) by following the judgment of the Hon'ble Supreme Court in the case of G.Venkataswamy Naidu & Co. Vs. CIT [1958 (11) TMI 5 - SUPREME COURT] came to a conclusion that what is the intention of the assessee has to be seen to decide whether transaction is ‘adventure in the nature of trade or not. The ld. CIT(A) by considering the principles laid down by the Hon'ble Supreme Court in the above referred to judgment, in my opinion, he came to a correct conclusion that the activity carried by the assessee in the present case is ‘adventure in the nature of trade’ for the reason that from the beginning assessee’s intention is to make profit out of the sale transaction and not to hold it. Assessee’s intention is only to make profit out of the transaction, therefore in my opinion, ld. CIT(A) correctly decided that the activity carried by the assessee is ‘adventure in the nature of trade’, therefore find no reason to interfere with the order passed by the ld. CIT(A). So far as the development undertaken by the REHWS is concerned, it is not a material fact. The material fact in this case is only intention of the assessee, therefore, find no force in the argument of the ld.AR, therefore same is rejected. Thus, this appeal filed by the assessee is dismissed. Issues Involved:1. Classification of income from the sale of land as either capital gains or business income.2. Determination of the nature of the transaction as an 'adventure in the nature of trade.'Issue-wise Detailed Analysis:1. Classification of Income:The primary issue in this case is whether the profit arising from the sale of plots should be treated as 'income from capital gains' or 'business income.' The assessee argued that the profit should be considered as capital gains because the land was initially purchased as agricultural land and later converted to non-agricultural land due to legal constraints. The assessee contended that the land was developed by the Reserve Bank Employees' Housing Welfare Society (REHWS), and thus, the profit should be classified as capital gains.2. Determination of the Nature of the Transaction:The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] disagreed with the assessee's classification. They argued that the assessee's actions of purchasing agricultural land, converting it to non-agricultural land, and then selling it in plots indicated a clear intention to make a profit, which is characteristic of a business activity. The CIT(A) relied on the judgment of the Hon'ble Supreme Court in the case of G. Venkataswamy Naidu & Co. Vs. CIT [(1959) 35 ITR 594], which emphasizes the importance of the intention behind the transaction to determine its nature as an 'adventure in the nature of trade.'Judgment Analysis:- The Tribunal examined the sequence of events, noting that the assessee purchased agricultural land and converted it to non-agricultural land without conducting any agricultural operations. This sequence of actions demonstrated the assessee's intention to profit from the transaction.- The Tribunal found that the assessee's purchase of agricultural land, immediate conversion to non-agricultural land, and subsequent plotting and sale to REHWS were consistent with the characteristics of a business activity. The intention to resell at a profit was evident from the beginning, indicating that the transaction was an 'adventure in the nature of trade.'- The Tribunal dismissed the assessee's argument that the development work by REHWS should affect the classification of income. The Tribunal emphasized that the crucial factor was the assessee's intention to profit from the transaction, not who undertook the development work.- The Tribunal upheld the CIT(A)'s decision, affirming that the income derived from the sale of plots should be classified as 'profits and gains of business' rather than 'capital gains.'Conclusion:The Tribunal concluded that the activities carried out by the assessee, including the purchase of agricultural land, conversion to non-agricultural land, plotting, and sale, constituted an 'adventure in the nature of trade.' Therefore, the income from these transactions should be treated as business income. The appeal filed by the assessee was dismissed, and the order of the CIT(A) was upheld.Order Pronounced:The appeal filed by the assessee was dismissed, and the judgment was pronounced in open court on February 26, 2020.