TaxTMI 
TaxTMI 
2009 (8) TMI 758
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....n nature to be dealt with in this judgment hereinbelow. 3. Facts in brief as emerged from the corresponding assessment order passed under s. 143(3), dt. 28th Nov., 2003 were that the assessee was stated to be an investment company. For the assessment year under consideration the respondent assessee had shown the long-term capital gain of Rs. 3,87,92,970 arrived on sale of land. The brief background was that there was a land belonging to Damley family measuring 1,365.94 sq. mts. situated at plot No. 20/B TP Scheme No. 1 Erandwane, Pune. Members of the family were co-owners. In the year 1987 an agreement was made with M/s Suma Engineering (P) Ltd. dt. 24th March, 1987. Later on, another agreement was made dt. 12th March, 1988. However thereafter, on 4th April, 1989 the earlier agreement got cancelled by mutual consent of the parties. It was decided that each member of Damley family shall transfer his respective shares in land to Suma Engineering (P) Ltd. directly. Consideration for each share of 20 per cent was agreed upon at Rs. 5,23,400. Facts of the case have revealed that 60 per cent of the shares of the family were transferred to M/s Suma Engineering (P) Ltd. The AO has also me....
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....losed the capital gain. The assessee has incurred certain expenses which were added in the cost of the land and the cost so arrived was capitalised by applying the indexation cost and thereupon the capital gain was disclosed at Rs. 3,87,92,970. 3.4 The AO was not in agreement with the contention of the assessee that the amount received on sale of land was a capital gain in nature and against that he had proceeded to assess the same as business income. He has framed a question that in the background of the several agreements the issue to be decided was whether income earned on sale of land was to be computed under the head capital gain or under the head business income being an adventure in the nature of trade. To hold the transaction in question as an adventure in the nature of trade the AO has listed nine reasons and for the sake of completeness briefly reproduced below: (1) The land was first agreed upon to be sold to M/s Suma Engineering (P) Ltd. which was engaged in the business of developers and promoters. The three companies namely M/s Suma Engineering (P) Ltd., M/s Vastushilp Investment (P) Ltd. and the assessee company are controlled by one director Shri P.A. Naralkar, he....
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....pose of construction of commercial premises. 4. After arriving at those reasons the AO has discussed few case law which shall be dealt with in the following paras, and held that the profit earned on the sale of land was adventure in the nature of trade therefore profit arrived therefrom was taxed as business profit. The entire assessee's share of Rs. 4,67,40,000 was taken as sale amount and after giving the rebate of cost of land, other expenses and interest totalling to Rs. 51,23,652 the profit was taxed as business income. Being aggrieved assessee preferred an appeal. 5. Before learned CIT(A) detailed submissions have been made through which it was reiterated that the assessee had shown long-term capital gain of Rs. 3,87,92,970 stated to be earned on sale of land. It was explained that in the year 1990 the Damley family has transacted the land in question and the appellant has purchased 60 per cent share for Rs. 15,70,200 through a tripartite agreement which was earlier in favour of M/s Suma Engineering (P) Ltd. Learned CIT(A) has discussed the nine reasons, as already reproduced above, assigned by AO and treated the transaction as business adventure (sic). The observation of l....
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....iples evolved in this regard over the years in different Court decisions would tilt the balance in favour of the appellants stand. As has been pointed out by the appellant and perused by me, most of the case laws relied upon by the AO are for the period when capital gains was not a separate head of income under the IT Act (capital gains were not chargeable before 1946. They were also not chargeable between 1948 and 1956). 4.5 Thus, after going through the facts of the case and after careful examination of the law in this regard. I have to hold that the impugned transaction involving sale of the property in the case of the appellant results in income from capital gains and not profits and gains from business. The ground No. 1 is accordingly decided in favour of the appellant. There is no need to give a detailed decision on the other grounds of appeal." Since the first appellate authority has granted relief therefore the Revenue Department is aggrieved and in appeal before us. 7. Heard both the sides at length and also carefully perused the orders of the authorities below in the light of compilation filed and case laws cited. Basic facts of this case are not in dispute that the as....
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....om the year 1991 onwards as a capital asset and not as a stock-in-trade. (4) That the impugned land was never treated as a business asset for the purpose of day-to-day business of the assessee but throughout held as a capital asset. (5) That WT returns were filed and the investment therein was disclosed as a capital asset and not as a business asset. (6) That the submission of the building plans was not the act of the assessee but a sister concern that too with the purpose to protect the investment which was not binding on the assessee and altogether an independent action. (7) That as far as the act of the assessee was concerned, the land was sold to one single buyer exactly in the same state in which it was purchased. (8) That, there was no regular and continuous purchase and sale of land in past ten years, rather it was a solitary transaction therefore not a continuous business activity. (9) That the assessee was not dealing in sale and purchase of land and real estate was not assessee's regular business venture. 8. In the light of the above factual background the legal submissions as appreciated by us are as follows: (1) That the facts of the case have indicated that the....
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.... investment but the important aspect is that even after getting the plans sanctioned nothing was executed upon by the assessee. (7) That it was an argument that the arrangement of borrowing was an internal arrangement and primarily in the nature of quasi equity held by one of the directors of the company. Such borrowings should not per se be equated with external borrowings on commercial terms. Rather it was the funds of the owners which were invested in land. This argument has legal sanction due to the reason that arrangement of funds from near ones is a general practice while making investment in immovable property. (8) That even the transaction of TDR was not on profit basis and as per one of the terms of the agreement the TDR was transferred at the cost to TACO. (9) That the entries in the books of accounts could be decisive for ascertaining the nature of transaction. The context under which Courts have held otherwise was in respect of accounting of income or incurring of expenditure accounted for in the books of accounts. The argument was that the context in this case was altogether different so there was no parallel similarity as mistakenly suggested by the AO. (10) That ....
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....ave also come across another important decision of Hon'ble Supreme Court viz. Dalhousie Investment Trust Co. Ltd. vs. CIT (1967) 66 ITR 473 (SC), wherein the verdict was like this. The mere fact that an investment company periodically varies its investment does not necessarily mean that the profit resulting from such variation is taxable under the IT Act. The observation of the Hon'ble Court was that the variation of its investment must amount to dealing in investments before such profits can be taxed as income under the IT Act. In the present appeal, this reference is pertinent on account of the reason that firstly, there was no periodical variation in the investment; and secondly, the investment was made once for all, which remained with the assessee for almost a decade. An allegation was that the impugned investment changed hands from one sister company to another sister company but that allegation also does not survive in the light of this precedent because of the basic reason that in assessee's case neither it was periodical nor it was frequent variation in the investment as such therefore did not fall in the category as dealt with in this precedent. 9(b). It is now almost se....
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....ances that determines the character of the transaction. 10. We have applied these factors on the present case and thereupon arrived at a conclusion that neither there was a frequency of transaction nor the purchase appeared to be intended to trade in the land but it was retained for a considerable period i.e., about 10 years and if a gain was achieved on sale, the same can be said to be clearly outside the domain of business activity. 11. The first appellate authority has also cited few decisions and one of them is Dr. Indu Bala Chhabra. A question was whether the prudent person would wait for 10 or 20 years to dispose of the property and surplus resulting from sale would be held as profit arising from an adventure or to be held as a capital gain. The answer to the said question by the Hon'ble Court was that such a transaction was nothing but capital receipt. There was another decision cited of Hon'ble jurisdictional High Court on the issue of solitary transaction of purchase and sale as decided in the case of Nathuram Ramnarayan (P) Ltd. and on the basis of the findings that the transaction in question was a solitary purchase and sale, thus did not amount to adventure in the nat....