TaxTMI 
TaxTMI 
2014 (7) TMI 995
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....apital gain' in the hands of the assessee despite the fact that the assessee Shri Rama Gameti was a domestic servant of Shri Manmohan Raj Singhvi and thus not at all engaged in business of purchase and sale of property and despite the fact that the said transaction of sale of land that too to one concern namely S.S. Education Trust controlled by Shri Manmohan Raj Singhvi was the only isolated and the single transaction." 2. From the above grounds, it is gathered that the grievance of the department in this appeal relates to the direction of the ld. CIT(A) to the Assessing Officer to assess the income in the hands of the assessee from sale of land on substantive basis and treat the said income under the head profit and gains from business instead of capital gain. 3. Facts of the case in brief are that the assessee filed the return of income declaring an income of Rs. 1,09,590/- on 22/10/2010. Subsequently, the Assessing Officer issued a notice u/s 148 of the I.T. Act, 1961 (hereinafter referred as the Act) by recording the reasons. In response to the said notice, the assessee stated that the return already filed on 22/10/2010, may be treated as having been filed in response to....
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....transaction of Shri Manmohan Raj Singhvi, such as page No. 101 to 121 and page No. 125 to 129 of Annexure A-49. Page No. 101 to 121 of Anx-A-46 contains the copy of three sale deeds, all of them dated 15.07.2005 executed between Sh. Rama Bhil (seller) and S.S. Education Trust (purchaser). In all these three deeds the sale consideration has been declared at Rs. 465000/- each, however the Sub Registrar has taken the value of these lands at Rs. 2320000/-, 2319840/- and Rs. 2319840/-, totaling to Rs. 6959680/-, as against declared total sale consideration of Rs. 1395000/-. So there is difference of Rs. 5564680/-, taxable under section 50C of the IT Act. 8.1 Page No. 125 to 129 is a copy of sale deed dated 13.09.07 executed between Sh. Rama Bhil (seller) and S.S. Education Trust (purchaser). The sale consideration has been declared at Rs. 992000/-, against sale of 156880.8 sq. ft. of residential land. However, this copy of sale deed does not contain the copy of backside of the page bearing the stamp of valuation adopted by the Sub Registrar. But considering the above three sale deeds it evidences that DLC rate in this area is Rs. 40 per Sq. ft. Therefore, the DLC price of this land m....
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.... the assessee. c. Shri Rama Gameti has no sufficient funds for financing the cost of land, therefore, he obtained unsecured loans from various .sources including loans from the assessee's family. d. The intention of the assessee was to help his trusted employee in his business venture because of his faithful services and enable him to earn additional income from this business venture. 8.5 The submission of the assessee was considered carefully but no merit is found. Shri Manmohan Raj Singhvi has established an Engineering College in the name of S.S.Engineering College under the aegis of S.S.Education Trust which is a registered society and also registered u/s. 12A(a) of the Income-tax Act. The registered address of the trust is 222/17, Saheli Marg, Udaipur that is the residence of Shri Mammohan Raj Singhvi. This college was at the verge of completion of constructions at the time of search. 8.6 On analysis of seized material it is found that Shri Manmohan Raj Singhvi has used the name of two of his domestic servants namely Shri Rama Gameti and Smt. Laxmi Bai Bhil to purchase the land belonging to Schedule tribes and converted the same to residential nature from agric....
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....08,47,912/- 8.10 To verify the correctness of the facts, summon to Shri Rama Gameti was issued by this office on 22.10.2010. Statement of Shri Rama Gameti was recorded on 25.10.2010. 8.11 From the above statements, it is gathered that Shri Rama Gameti was not aware about the consideration of land purchase and sale transaction except the transaction of sale and purchase made in his name by his employer Shri Manmohan Raj Singhvi, it is also gathered that Shri Rama Gameti's source of income is only salary received from assessee Shri Manmohan Raj Singhvi and besides it, he has no other income and not indulged in business of properties. Further, the assessee claimed that he has given unsecured loans to Shri Rama Gameti for these property transactions. But in his statement, Shri Rama Gameti has categorically denied to have any business transaction with the assessee, his family members and their business concerns. He also denied taking any unsecured loan from any of the persons in last 5 to 6 years. He also admitted that the bank account opened by his employer was not maintained by him and his employer only took his signature on some pages from time to time. On being a....
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....S-10. Another copy of valuation report dated 07.11.2007 was found and seized from the business premises of the assessee as per page No. 46 to 49 of Anx-As-10. Copy of Valuation report dated 7.11.2007 given by Sh.B.LMantri, Registered Valuer of the property owned by S.S.Education Trust at Village Umarda, stating the total value of land at Rs. 293.40 lacs (24.45 Bigha @ Rs. 12 lacs per Bigha). Another copy of valuation report dated 7.11.2007 given by Sh.B.LMantri, Registered Valuer of the property own by S.S.Education Trust at village Umarda, stating the total value of land at Rs. 296.25 lacs (23.7 Bigha @ Rs. 12.50 lacs per Bigha). The valuation report of the land purchased by S.S.Education Trust from Sh.Rama Bhil vide three sale deeds discussed in page No. 101 to 121 ofAnnexure AS-46 found and seized at the office of Sh.Babu Lai Motawat at 1, Town Hall Link Road, Udaipur. As per this report the valuation of the land purchased by the S.S.Education Trust for a consideration of Rs. 13,95,000/- has been done at 293.40 Lacs. This fact further strengthens the issue for taxing the above transaction u/s 50C. 8.14 Similarly, a reference for valuation of property was made by this office t....
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....applying the test of human probabilities. Human minds may differ as to the reliability of a piece of evidence. But in that sphere the decision of the final fact finding authority is made conclusive by law.......... It is held by the Hon'ble Supreme Court in the case of Sumati Dayal vs. C.I. T. in 214 ITR 801 that In such a case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut it the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably. .........This, in our opinion, is a superficial approach to the problem. The matter has to be considered in the light of human probabilities. The Chairman of the Settlement Commission has emphasized that the appellant did possess the winning ticket which was surrendered to the Race Club and in return a crossed cheque was obtained. It is, in our view, a neutral circumstance; because if the appellant had purchased the winning ticket after the event she would be having the winning ticket with her which she could surrender to the R....
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....hat to complete the project of SS Education Trust, the assesses Shri Manmohan Raj Singhvi has purchased land in the name of his employee Shri Rama Gameti (who has no financial capacity to purchase this land as he was getting only salary of Rs. 600/- p.m. at the time of transactions). Therefore, from the circumstances, it is apparent that all the transactions allegedly made in the name of Shri Rama Gameti were executed by Shri Man Mohan Singhvi i.e. the actual money holder. Hence the provisions of section 50C in respect of capital gain are liable to invoke in the case of the assessee as it is more than clear that Shri Rama Gameti and Smt. Laxmi Bai are persons of petty means having no financial capacity to purchase the said land in question lest sale the same. 8.17 From the above, it is established fact that there is a capital gains of Rs. 1,08,47,912/-accruing to Shri Rama Gameti (Bhil) on the said transfer of Residential land to S.S.Education Trust which is taxable u/s.50C of the I.T.Act. It is worthwhile to mention here that the aforesaid land was got valued by the S.S.Education Trust by a Registered Valuer, who valued it at Rs. 296.25 lacs (Page No.46 to 49 of Annexure AS-10 ....
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....tatement of the assessee recorded during search as well as assessment proceedings, clearly established that the entire transaction of purchase and sale of land was of the assessee and not of Shri Manmohan Raj Singhvi. On the basis of documentary evidence placed on record, it is quite manifest that the assessee could not be called as benamidar of Shri Manmohan Raj Singhvi. 3.5 It is submitted that the honourable Jodhpur Bench of Income-tax Appellate Tribunal held in the case of Shri Manmohan Raj Singhvi [I.T.A.No. 236/Jodh/2013 dt.07.06.2013] that Shri Rama Gameti was not a benamidar of Shri Manmohan Raj Singhvi and it deleted the entire addition on account of capital gains made on substantive basis in his case. The copy of the order is enclosed herewith for your kind perusal. Annexure ". The relevant para of the judgement is reproduced as under: 3.15 We have considered the submissions of both the parties and gone through the materials available on record. In the present case, it is noticed that that Shri Rama Gameti, an employee of the assessee raised the loans amounting to Rs. 22.85 lacs from the following persons. S.N. Name of the party Amount (Rs.) Remark 1. ....
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.... withdrawing the amounts from the bank account, he purchased the land which was sold on profit to M/s. S.S. Education Trust after converting it into non-agriculture land and the assessee did not get any benefit from the land sold to M/s. S.S. Education Trust, a public charitable organisation. We therefore, are of the view that the Assessing Officer was not justified in holding that the land in question was a benami asset of the assessee and capital gain., if any, was to be assessed in the hands of the assessee. In the present case, when it has been held that the land in question was not related to the assessee at all, we do not consider it necessary to discuss as to whether the profit on sale of land should be treated as business profit in the hands of the assessee or provisions of Section 50C were applicable because the said facts are to be considered in the hands of the original owner of the land i.e. Shri Rama Gameti who purchased the land by raising the loans and sold the land to M/s. S.S. Education Trust and earned profit. We therefore, by considering the totality of the facts of the case as discussed hereinabove delete the impugned addition made in the hands of the assessee b....
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.... the definition of trade is to rope in receipts from adventure to tax, even as receipts from trade proper. To define 'adventure' is a difficult task. The business characteristics appertaining to trade are diverse. The content of these in an adventure may vary both in quality and quantity. The business characteristics or the business elements which exist in one adventure may not exist in another, and the characteristics which are in fact present might vary from one adventure to another. So, courts have observed that it is difficult to frame a formula which would be applicable to whatever state of facts, so as to determine whether a given activity is or is not an 'adventure in the nature of trade'. Each case would have to be examined on its own facts". 3.9 The honourable Supreme Court held in the case of Janki Ram Bahadur Ram vs. C.I.T. (57 ITR 21) "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. It h....
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....s 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 profits 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 relevant, such as, e.g. whether the purchaser was a trader and the purchase of the commodity and its resale were allied to his usual trade or business or incidental to it; the nature and quantity of the commodity purchased and resold; any act subsequent to the purchase to improve the quality of the commodity purchased and thereby make it more readily resalable, any act prior to the purchase showing a design or purpose, the incidents associated with the purchase and resale; the similarity of the transaction to operations usually associated with trade or business; the repetition of the transaction; the element of pride possession. A person may purchase a piece of art, hold it for some time and if a profitable offer is received sell it. During the time ....
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.... tax upon any surplus only if he is shown to have carried on a business of buying and selling lands. Business has been defined by section 2(4). "Business" includes any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture". Even a single venture may amount to business, and the profits of such a single venture may be taxable as income arising from business. An isolated transaction of purchase and sale of land, even if it is not business as it is normally understood, may be business within the scope of the definition, an adventure in the nature of trade. An isolated transaction of purchase and sale of land may be a speculation. Every speculation is an adventure; but unless it is an adventure in the nature of trade, the profits therefrom will not be income assessable to tax. Where, the purchase and resale of landed property constituted an isolated transaction, it is a matter of extreme difficulty to determine whether this was an adventure in the nature of trade. Though a dominant or even a sole intention to resell is not by itself conclusive proof, it is certainly a relevant factor in deciding whether the transaction of purch....
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.... the document. The plot that the assessee obtained for himself was 104.12 acres in extent. Its value as estimated by the department-the estimate is not disputed by the assessee-was Rs. 2,08,000/-. The amount spent by the assessee for obtaining the 104.12 acres worth Rs. 2,08,000/- was Rs. 81,500/- inclusive of the advance of Rs. 11,000/- paid by him. In other words, the assessee had a financial benefit to the extent of Rs, 1,26,500/-. The department and the Tribunal have taken the view that the amount of Rs. 1,26,500 mentioned above-rounded off to Rs. 1,25,000-represents the profit of the assessee from an adventure in the nature of trade and is hence assessable to income-tax under the Indian Income-tax Act, 1922. The sole question for determination is whether that view is justified on the facts and circumstances of the case. Question referred: "Whether, on the facts and in the circumstances of the case, the transactions constituted a venture in the nature of trade and the surplus of Rs. 1,25,000 was assessable to tax"? Judgement Section 6 of the Indian Income-tax Act, 1922, specifies the heads of income chargeable to income-tax. Profits and gains of business co....
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.... In the preceding two years, the assessee carried on purchase and sale of properties. The Tribunal held that the sale of land was an adventure in the nature of trade liable to tax and not merely sale of agricultural lands. It further upheld the computation of the profit on the sale of land by deducting the actual cost from the sale proceeds. Held Normally when a purchaser purchases land, the purchase represents investment of money in land, and the subsequent sale thereof with profit cannot be assumed to be an adventure in the nature of trade, But when the purchase is made solely and exclusively with the intention to resell at a profit and the purchaser had no intention of holding the property for himself or otherwise enjoying or using it. there is a strong presumption that the transaction is an adventure in the nature of trade. Having regard to the facts and the circumstances of the case, it was apparent that the real intention of the assessee in acquiring the land was not to retain it for himself but to resell it at profit and as such the transaction was an adventure in the nature of trade. The conclusion of the Tribunal was, therefore, correct. 3.14 The honorable Karn....
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....and his dealings with the said land must have, therefore, been construed as carrying on business and making profit. Accordingly, the Tribunal was in error in holding to the contrary. 3.15 In the case of Smt. Neerja Birla Vs. A.C.I.T. [66 ITD 148], the honourable tribunal followed the judgement in the case of C.I.T. Vs. Sutlej Cotton Mills Supply Agency Ltd. [100 ITR 706(SC)] and held on the facts that the assessee carried an adventure in the nature of trade and profit arising from sale of shares was assessable as business income and not capital gains. In this case, the shares were purchased with borrowed funds. The tribunal also referred to the judgement of Ashok Kumar Jalan Vs. C.I.T. [187 ITR 316 (Bom)] wherein it was held that acquisition of large block of shares when the assessee had no ostensible means to pay for it constituted trading transaction. 3.16 To decide the controversy of business income vs. capital gains in the case of the assessee, the following factors are relevant: (a) He purchased agriculture land out of borrowed funds, (b) He got the agriculture land converted into non-agriculture land and (c) He sold the impugned non-agriculture land immediately....
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....has sold number of buildings referred to above with regard to which there is no dispute. The dispute is with regard to the sale of plots. Investment in purchase and sale of plots by a builder who is indulged in selling buildings is ancillary and incidental to his business activity. It is a matter of record that the assessee has treated the land as stock-in-trade which finds corroboration from its balance sheet. Stock-in-trade has been excluded from the definition of 'capital asset.' According to the Webster's New International Dictionary, the 'stock-in-trade' is the 'goods kept for sale by a shopkeeper'; the fittings and appliances of a workman'. In other words, the stock-in-trade includes all such chattels as are required for the purposes of being sold or let to hire on a person's trade. According to Stroud's judicial dictionary, stock-in-trade comprises of all such chattels as are required for the purposes of being sold, or let to hire on a person's trade. [Para 13]. The Commissioner (Appeals) and the Tribunal on analysis of the facts of the case have reached to the conclusion that section 50C has no application as it was a case of t....
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....cess of interpretation; then the words used by the Legislature should be the base to interpret a particular provision. On many occasions the provisions are drafted in such a way that they may create confusion when the same are being tried to apply and in such a situation there is no option but to go with process of interpretation. What is the correct meaning of those words when the law or particular provision was enacted ? Normal rule of interpretation is that, if the language is very clear, then the provision is to be interpreted in its ordinary, popular and natural meaning. It is also well-settled principle that, when the language of the statute is plain and explicit and does not admit of any doubtful interpretation, the Court cannot expand the meaning of the words used by the Legislature. So far as section 50C is concerned the language of the said section is so clear in respect of its intention that it is brought on the statute book by way of deeming provision in the nature of the Explanation to section 48. [Para 9.2] Moreover, it is abundantly clear from the explanation given in the CBDT Circular No. 8 of 2002, dated 27-8-2002 that the basic intention to insert section 50C w....
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....see, on substantive basis. 6. As regards to the nature of profit from the sale of land, the Ld. CIT(A) observed that the assessee had borrowed the funds for the purchase of the property and no funds from any other savings had been deployed for purchases of such property. He further observed that the motive of purchase was profit earning and there was nothing on record to suggest that the property was purchased for a longer period. The Ld. CIT(A) accordingly held that the activities as carried out by the assessee were business activities and the assessee purchased the land out of borrowed funds, got it converted into non-agricultural, sold it immediately after non-agricultural conversion, realised the sale proceeds and repaid the loans which showed that he had no intention to hold the land as investment. Therefore, the provisions of capital gain could not apply. The Ld. CIT(A), accordingly, directed the Assessing Officer to assess the profit and gains from sale of land under the head profit from business on substantive basis. Now the department is in appeal. 7. The learned D.R. strongly supported the order of the Assessing Officer and further submitted that the assessee entere....
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....the Ld. CIT(A) directed the Assessing Officer to treat it in the hands of the assessee on substantive basis on the basis of the decision dated 17/6/2013 of this Bench of the Tribunal in I.T.A. No. 236/JU/2013, therefore, we are of the view that the Ld. CIT(A) rightly directed the Assessing Officer to treat the income in the hands of the assessee from the sale of land on substantive basis. Now he question remains as to whether the income earned by the assessee was a business income or capital gain. In the present case, the assessee was not having any funds and raised the loans for purchasing the land. The motive of purchase was to earn the profit. The property was also not purchased for a longer period. The assessee got the land converted into non-agricultural land and sold it immediately after conversion, therefore, the activity carried by the assessee was a business activity. On a similar issue, the Hon'ble M.P. High Court in the case of Sawandas Devram Vs. CIT, 150 ITR 576 (supra) has held as under:- "Normally when a purchaser purchases land, the purchase represents investment of money in land, and the subsequent sale thereof with profit cannot be assumed to be an adventur....