1997 (11) TMI 132 - AT - Income Tax

Tax Treatment of Inherited Land Sale: Capital Gains vs. Trade Profit

Income-Tax Officer. Versus Smt. Saraswati Bai Jaiswal.

Income-Tax Officer. Versus Smt. Saraswati Bai Jaiswal. - ITD 066, 243, TTJ 060, 189, Issues:1. Determination of income under the head 'Capital Gains' or 'Income from adventure in the nature of trade and business'.2. Dispute over the sale proceeds of specific plots.Analysis:1. The appeal involved a dispute regarding the characterization of income from the sale of developed plots received by the assessee as either 'Capital Gains' or 'Income from adventure in the nature of trade and business'. The Revenue contended that the activity of the assessee constituted an adventure in the nature of trade due to the intention to earn a profit, supported by the fact that all 58 plots received were sold, and the plots were directly registered in the name of nominees for profit. The Revenue relied on various legal precedents to support their argument.2. The assessee, on the other hand, argued that the transaction did not qualify as an adventure in the nature of trade as the land was received through inheritance and later compulsorily acquired by the government. The assessee opted for developed plots in lieu of cash compensation to maximize the value of the land, which was not indicative of a profit-seeking motive. The assessee cited legal precedents to support their stance, emphasizing that the transaction was not carried out for profit but for compensation realization.3. The Tribunal analyzed the facts and circumstances of the case and concluded that since the land was inherited and later compulsorily acquired, and the assessee did not purchase or sell the land voluntarily, the transaction did not meet the criteria for an adventure in the nature of trade. The Tribunal highlighted the absence of the purchase element, a crucial factor in determining trade activities. Relying on a specific legal decision, the Tribunal held that the profit from the sale of plots should be taxed as capital gains, not as profit from trade.4. Regarding the dispute over the sale proceeds of specific plots, the Assessing Officer had enhanced the sale consideration of certain plots based on their identical size and situation compared to another plot. The Tribunal found that the assessee failed to provide a reasonable explanation for the lower sale consideration of these plots. Considering the Assessing Officer's rationale and the similarity in size and situation of the plots, the Tribunal directed the Assessing Officer to estimate the sale price of the plots uniformly.5. Consequently, the Revenue's appeal was dismissed, affirming the capital gains treatment of the income, while the assessee's cross objection was partly allowed to adjust the sale price of specific plots uniformly.