TaxTMI 
TaxTMI 
2015 (4) TMI 634
X X X X Extracts X X X X
X X X X Extracts X X X X
....y buyers for her property. In terms of the MOU, a sum of Rs. 5,50,00,000 was paid by the assessee to the owner of the property. The said MOU is dated June 8, 1995. Contemporaneously with the MOU, the owner executed a letter dated June 8, 1995, confirming that she has handed over a vacant possession of the said property to the assessee in terms of the MOU. One more letter to that effect was executed on the very same day. Thereafter, the assessee entered into a MOU with the Indian Society of the Church of Jesus Christ of Latterday Saints and received a sum of Rs. 3,73,35,320 as advance, the total sale consideration being Rs. 12,47,84,400. In other words, though he paid Rs. 5,50,00,000 to the owner, he earned a sum of Rs. 6,97,84,400 as income from the said property. Subsequently, the owner and the assessee executed a registered sale deed dated May 10, 1999, conveying the aforesaid property in favour of the said purchaser. Thereafter, the assessee declared the income under the head "Capital gains" as Rs. 3,19,60,831. The said return was accepted under section 143(1) of the Income-tax Act, 1961 (for short hereinafter referred to as "the Act"). Thereafter, the proceedings were initiated....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lso be considered to be resulting in a business transaction, consideration has to be given to similar operations carried out by the assessee in the past or subsequent. The transaction in question appears to be an isolated transaction with no history and no subsequent instances also. The length of holding of the property by the assessee from June 8, 1995, till July 1, 1998, i.e., more than three years, is an indication which supports the claim of the assessee that the intention of the assessee was not to carry on the business as an estate developer or a builder in property. Therefore, the Tribunal held that the assessee must succeed and, therefore, the appeal came to be dismissed. Aggrieved by the said order, the Revenue is in the present appeal. 5. The substantial question of law framed at the time of admitting the appeal on December 2, 2010, reads as under : "Whether the appellate authorities were correct in holding that a sum of Rs. 6,37,00,726 received by the assessee for the purpose of finding a purchaser of the property of Mrs. Rubab Mohamed Ali Kazerani, at No. 1, Cubbon Road, Bangalore-01, which was sold for Rs. 11.87 crores and the owner paid Rs. 5.5 crores cannot be brou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ax as such and both the appellate authorities were justified in holding it as a capital gain and not as business income. Therefore, he submits that no case for interference is made out. 8. The Apex Court in the case of G.Venkataswami Naidu & Co. -vs- Commissioner of Income Tax reported in 35 ITR 594 (SC) while dealing with the question whether an income derived from a transaction falls within the heading of "business income" or "capital gains", has held as under : "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 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 inv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t 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 co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 4 of the preamble states that the assessee being a builder, having suitable office as well as man power has the necessary infrastructure for the purpose of identifying buyers at Bangalore. Therefore, these clauses make it clear that the owner wanted a person to identify a purchaser and the assessee offered to give that assistance. Thus, it is clear that the assessee was neither interested in the property belonging to the owner nor was he interested in purchasing the property. His role was to identify the purchaser for the owner. In this back ground, we have to look into the terms of the MOU. Clause (1) categorically states that the owner agrees and appoints the assessee to be the sole and exclusive person to identify buyers for the schedule property or portion thereof. However, the assessee paid a sum of Rs. 5.5 crores to the owner. The assessee was expecting more than Rs. 5.5 crores from sale of the said property. As at that point of time the Urban Land (Ceiling and Regulation) Act, 1976, was in force and the property was more than Rs. 5.5 crores, the assessee agreed to obtain necessary clearance for the said Act and it was his sole responsibility. At that point of time, for com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee handing over the property is to accomplish the task of completing the sale transaction if the assessee is able to identify a buyer so that he could also deliver possession to them. 11. After obtaining the aforesaid document, the assessee identified a buyer, namely, the Indian Society of the Church of Jesus Christ of Latter-Day-saints. The assessee has entered into a memorandum of understanding dated February 19, 1998, with the said buyer. The total consideration upon the sale of the property is Rs. 12,47,84,400. Out of the same, the assessee received a sum of Rs. 5.5 crores which he had paid to the owner and Rs. 6,97,84,400 which is described as nomination/assignment fee. On executing the memorandum of understanding a sum of Rs. 3,73,35,320 was paid and 45 days was the period prescribed for completing the sale transaction. After entering into such agreement, a registered sale deed came to be executed on May 10, 1999, both by the owner as well as the assessee in favour of said buyer. In the sale deed, it is recited that in the memorandum of understanding dated June 8, 1995, the owner appointed the assessee who was a confirming party to be the sole and exclusive person to ident....
X X X X Extracts X X X X
X X X X Extracts X X X X
....shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property." 15. A careful reading of the aforesaid provision makes it clear that though the memorandum of understanding entered into between the owner and the assessee is not an agreement of sale for transfer of a capital asset and it is not stamped or registered, any transaction which has the effect of transferring or enabling the enjoyment of any immovable property in the nature of a capital asset would fall within the definition of transfer and, therefore, the consideration they seek for such transfer constitutes capital gains. In the hands of the owner, the property, it is a capital asset. Then the amount of Rs. 5.5 crores received under the document by the owner would be liable to tax as capital gains. Now, the question before the court is not whether the Rs. 5.5 crores constitutes capital gains or not. The question is whether over and above Rs. 5.5 crores paid by the purchaser to the assessee would constitute capital gains. In that context, i....