TaxTMI 
TaxTMI 
2016 (3) TMI 449
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. 31.76 lacs from its profit as per the profit and loss account on account of "Provision for leave encashment"payable by the Assessee to its employees. The Assessee explained before the AO that liability of the Assessee to pay its employees amount towards leave encashment was estimated and debited in the profit and loss account under the head "Provision for leave encashment payable". In those years in which provision was created in the preceding years no deduction was claimed in the computation of total income in income tax assessment nor allowed in the regular assessments in those years. The assessee submitted that in the matter of assessment of total income under the Act, liability on account of leave encashment was allowed only on payment basis as mandated under section 43B of the Income Tax Act, 1961 (Act). 4. The Assessee pointed out that as on 1.4.2004 a sum of Rs. 398.17 lakhs stood in the Provision of Leave encashment account. A sum of Rs. 68.17 lakhs out of the sum of Rs. 398.17 lakhs was transferred to Tea Division consequent to demerger of the tea division, in accordance with the scheme of arrangement approved by the High Court and these details are set out in para 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent year and the Assessee should receive in the previous year benefit in the form of remission or cessation of the liability which was earlier claimed and allowed as deduction in an earlier Assessment year. The Assessee therefore claimed that the provision for leave encashment written back had to be allowed as a deduction in the computation of total income of the Assessee. 5. The AO however held that Section 43B of the Income Tax Act, 1961 specifically states that deduction shall be allowed in computing the total income when "such sum is actually paid'. The provisions of Section 43B of the Act, allows deduction on payment basis and the term 'actually paid' is the criteria to claim such deduction. Clause (f) of Section 438 of the Act states that sum will be allowed only on actual payment. According to the AO, the Leave Encashment was not actually paid by the Assessee but the liability was written back. Any waiver or write back or allowing benefit to the party could not be called payment. The claim of reduction from the computation of income towards write back of Provision for leave encashment of Rs. 31,76,000/- was not allowed by the AO. 6. Before CIT(A), the Assessee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ashment debited in the accounts of the earlier years, was added back so as to confirm with provisions of Sec. 43B(f) of the Act. The other facts as set out in para-3 & 4 of this order were reiterated by the Assessee. 7. The CIT(A) on a consideration of the above submissions was of the view that if it is established that the amount written back originated from the provision made earlier and for which deduction was not allowed, than the deduction claimed had to be allowed. CIT(A) found from the information and clarifications placed before him that the Assessee has consistently followed Accounting Standard 15 in terms of which the Assessee made provision in its accounts for the Employee Benefits payable on or post retirement of employees. The employee benefits inter alia included leave encashment to which employees were entitled either at the time of retirement or on termination of contract of employment. For making provision for leave encashment, Assessee regularly obtained actuarial valuation of the said liability. Copies of the actuarial valuation reports were furnished. In the financial 'accounts for the year ended 31 .03.2004 and earlier; Assessee debited its profit & loss....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the taxable income of the assessee. for A.Y. 2005-06. The CIT(A) therefore found on facts that there was merit in the submissions of the Assessee and that the inclusion of Rs. 31.76Iacs in the assessed income of the Assessee for A.Y. 2005-06 resulted in double taxation of same sum. 8. The CIT(A) also held that the AO totally misunderstood the fundamental legal and accounting principles on which Assessee claimed exclusion of Rs. 31.7 6 lacs from its total income in AY. 2005-06. The CIT(A) held that the fundamental principle on which Assessee's claim was based was that since the provision for leave encashment was disallowed in the assessments of the earlier years then in the year in which part of such provision was written back, the same could not again suffer taxation. On the question whether the sum in question could be brought to tax u/s.41(1) of the Act, the first aspect to be noticed is that it was not the case of the AO that the sum in question should be brought to tax u/s.41(1) of the Act. It was only a submission made by the Assessee that the sum in question cannot be brought to tax. The CIT(A) on this aspect held that ordinarily write back of a trading liability o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in nature and which has not crystalized into actual liability will not be allowed as deduction while computing Total Income. When Provision for leave encashment is created and debited in the profit and loss account it goes to reduce the profit as per the financial statement. When the Assessee files return of income for any Assessment year, he has to add back the provision for leave encashment and declare income from business for the purpose of determining total income, because it is not actual liability but contingent. If the Assessee in an Assessment year adds back provision for leave encashment of say Rs. 100 when filing return of income, his total income to that extent stands increased. When later, when actual liability is incurred by the Assessee on account of leave encashment and it is realized that the Provision that ought to have been made was only Rs. 85, than the excess provision which was made earlier and had gone to increase the profit of the Assessee, had to be neutralized and Rs. 15 should be removed from the income in the Assessment Year in which the Assessee based on actual liability discovers that excess provision made in the earlier years. The Assessee has not clai....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to allowed as a deduction. In coming to the above conclusion the CIT(A) firstly found that the loss in question arose out of foreign currency loans availed for meeting working capital requirements of the Assessee and therefore the loss or gain on exchange fluctuation was to be regarded as revenue expenditure which was to be allowed as a deduction. With regard to the question whether the loss in question can be considered as contingent in nature, the CIT(A) relied on the decision of the Hon'ble Supreme Court in the case of Woodward Governor India Pvt.Ltd. 312 ITR 254 (SC) for the proposition that loss or gain on account of foreign exchange fluctuation as on the last date of the accounting year has to be allowed as a deduction u/s.37(1) of the Act on accrual basis, if such loss in account of loans availed on revenue account. The CIT(A) also found that Assessee's own case for AY 98-99 in ITA No.455/Kol.2003 order dated 12.1.2007 & 1099/Kol/2005 for AY 2000-01 order dated 29.6.2007, the Tribunal had allowed similar deduction claimed by the Assessee. The addition made by the AO was thus deleted by the CIT(A). Aggrieved by the order of the CIT(A), the revenue has raised Gr.No.2 before t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s account nor claimed as deduction out of profit, but claimed as deduction in the revised computation of income filed with revised return as revenue expenditure written off as per provision of IT Act. In Ground No.3 to 5, we are concerned with the all the aforesaid items set out above, except deduction on account of irrecovberable and Bad Debts written off. 17. The claim for deduction was disallowed by the AO for the following reasons:- Obsolete stocks written off: 17.1. The assessee submitted before the AO a list of the items with quantity and value which were written off along with justification for write off of the said goods. The Assessee claimed that it was carrying in its books stock of raw materials and finished goods which had become obsolete and/ or damaged, having no realizable value. These stocks were lying at plants and depots situated at different factories/ depots across the country. The Assessee submitted that during the previous year particulars of such obsolete, non-serviceable & useless stocks were obtained from the factories/depots and the same were written off from Revaluation Reserve account. The same were lying in stock and had already been offered....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of business is allowable as business expenditure. Details of shifting expenses were submitted by the assessee. 17.4. The AO however held that the object of assessee to shift plant was not for reducing expenditure or increase of profit, but to develop the property at Guindy for construction of commercial complex for new business adventure. He also held that shifting plant from one place to another and cost incurred for such shifting were in the nature of Capital Expenditure. He also held that the expenditure was not claimed as revenue expenditure in profit & Loss Account, but the same was adjusted through revaluation reserve and thereby claim in computation as revenue expense is not in accordance to law. Hence this claim of Rs.l,57,42,006/- in the revised return of income was denied. Upfront fees paid to ICICI Bank: 17.5. The assessee had paid Upfront fee to ICICI Bank for conversion of Rupee Loan into Foreign Currency Loan. ICICI Bank claimed upfront fee of Rs. 25 crores vide their letter No.CE/2016 dated 29.09.2001. The same fee was negotiated and brought down to Rs. 20 crores as confirmed vide the assessee's letter dated 13.11.2001. Fee of Rs. 20 crores was amortised....
X X X X Extracts X X X X
X X X X Extracts X X X X
....conditions to be fulfilled by an assessee for claiming deductions, allowances or loss. Sec. 37 (1) permits deduction for any expenditure if it is incurred wholly and exclusively for the purposes of business and which is not in the nature of capital or personal expenditure. Any loss which accrues or arises in the course of carrying on business is held to be allowable u/s 37(1) of the Act. Sec 37( 1) nowhere prescribes a condition or stipulates that the expenditure or loss has to be debited to the Profit & Loss A/c of the relevant previous year. The Act allows deduction for any expenditure or loss once the conditions prescribed in Sec. 37 are fulfilled. In case of an assessee which maintains its accounts on mercantile basis; deduction is permissible once the assessee establishes that a liability or loss accrued during the relevant year. In this regard reference was made to observation of the Supreme Court in the case of, Sutlej Cotton Mills Ltd Vs CIT (116 ITR 1):- "It is now well settled that the way in which entries are made by an assessee in his books of account are not determinative of the question whether the asesseee has earned profit or suffered any loss. The assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....impugned order I find that the AO per se never disputed that during the relevant year appellant had conducted physical verification of stock of raw materials, packing materials and finished goods lying at manufacturing locations and sale depots. On physical verification obsolete, damaged and non moving items of stocks were identified which were reportedly having no realizable value. The evidence in support of physical stock taking having taken place was furnished before the AO and the AO did not dispute correctness of these reports nor the AO pointed any specific infirmities in the stock/inspection reports furnished before him. The only ground on which the AO rejected the appellant's claim was that the assessee did not write off the obsolete stock by debiting its profit and loss account but merely reduced 'the value of current assets in the Balance Sheet. 5.3. I am unable to agree with AO's reasoning for rejecting the appellant's claim. The judicial authorities have time and again held that the manner in which entries are made by an assessee in his books of accounts are not determative of the question as whether an assessee has earned profit or suffered loss. The p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the disallowance of expenditure in shifting of plant as unjustified. The Assessee in this regard pointed out that it had 2 manufacturing plants in Chennai one at Tiruvottiyur High Road, Chennai (Tirvottiyur Plant) and another at Plot No.1 Industrial Estate, Guindy, Chennai (Guindy Plant). The Assessee found that due to multi-locational manufacturing operations the Assessee was not enjoying economies of scale and there were duplication of many costs. The Assessee therefore decided to merge manufacturing operations at one place so that the management could exercise greater unified control, increase efficiency and improve productivity and profitability by avoiding duplication of cost. Hence, the manufacturing operations in Guindy Plant was shifted to Tiruvottiyur Plant. The expenditure was therefore claimed to have been incurred in the course of business and for improving the efficiency and increase profitability and was therefore revenue in nature and had to be allowed as deduction. Reliance was placed on the following decisions in this regard CIT Vs. Madura Coats Ltd. 253 ITR 62 (Mad) and Bombay dyeing and Manufacturing Co. Ltd. 219 ITR 521 (SC). The Assessee also pointed out that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d therefrom the expenditure in the form of expenses in shifting plant from one place to another instead of reducing from the profit and loss account. Such presentation in the books of accounts will not in any way affect the claim of the Assessee for deduction of legitimate revenue expenditure. 19.1. The CIT(A) agreed with the submissions of the Assessee and allowed the claim of the Assessee for deduction. The following were the conclusions of the CIT(A) on the issue: "6.2 I have carefully considered the rival submissions. It is not in dispute that in the course of assessment the appellant had furnished details of expenses incurred on shifting of Plant & Machinery from appellant's factory at Guindy to Thiruvattiyur. It appeared from the explanations which were on record that the appellant had 2 factories in Chennai; manufacturing same products i.e. Batteries and Dry Cells. The factory at Guindy was set up in 1971 whereas the factory at Thiruvattiyur was set up in 1989 within predominantly industrial area. Both the factories were manufacturing Dry Cell Batteries using same production techniques. After opening up of the Indian Economy, Chinese Dry Cell Manufacturers re....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Madras High Court in the case of CIT Vs Madura Coats Ltd (253 ITR 62) supports the appellant's contention that the expenditure on shifting of machineries was revenue in nature. In the case before the Madras High Court the assessee had incurred expenditure on shifting of its Regd. Office which was disallowed by the AO on the ground of being capital expenditure but on appeal the Tribunal and the High Court held that the expenditure was allowable as revenue expenditure. A similar view was taken by the Special Bench of the ITAT Kolkata in the case of ITC Limited (112 ITD 57) The facts of this case were pare-materia with the appellant's case. ITC Ltd had shifted Plant & Machinery from one unit to another. The purpose for shifting of machinery to another unit was efficient utilization of the plant. Tribunal found that the shifting of the plant did not result in acquisition of new assets. The AO disallowed the shifting expenditure holding it to be capital in nature. On appeal the Special Bench of the ITAT however held that the expenditure on shifting of the plant and reinstallation of the machinery was o' revenue expenditure as no new capital asset was acquired by the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... way affect the claim of the Assessee for deduction of legitimate revenue expenditure. 20.1. The CIT(A) agreed with the submission of the Assessee and held that the deduction claimed had to be allowed. The following were the relevant observations of the CIT(A): "8.2 I have carefully considered rival submissions and perused the details of the amount written off. From the facts on record I find that the assessee had originally taken Rupee Term Loan from IClCI Bank. In 2001 said Rupee Term Loan was converted to Foreign Currency Loan on payment of upfront fees of Rs. 20 Crs. The original loan was repayable in October 2006. In its books of account the appellant chose to write off upfront fees paid to IClCI Bank; over the unexpired loan period which at the time of conversion was 59 months i.e. from December 2001 to October 2006. In the financial accounts of the F.Ys. 2001-02, 2002-03 & 2003-04 the assessee wrote off pro-rata upfront fees of Rs. 135.59 Lacs, Rs. 406.78 Lees & Rs. 406.78 Lacs respectively and the deductions therefore were claimed in AYs. 2002-03, 2003-04 & 2004-05 respectively. In the assessments u/s 143{3) of these 3 years, deduction for upfront fees paid to I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....upfront fees paid to IClCI Bank. Ground Nos. 12 & 13 are accordingly allowed." 20.2. Aggrieved by the order of the CIT(A) the Revenue has raised Gr.No.4 before the Tribunal. 21. We have heard the learned DR on Ground No.3 to 5 and the learned counsel for the Assessee. The learned DR relied on the order of the AO. The learned counsel for the Assessee relied on the order of the CIT(A). 22. We have given a very careful consideration to the rival submissions. As far as Ground No.3 is concerned, the AO has not disputed the fact that the Assessee conducted physical inspection of its stock upon which obsolete, non-moving and damaged stocks were identified having no realizable value. The fact that the expenditure in question was written off against revaluation reserve and not charged to profit and loss account cannot be the basis to disallow a legitimate revenue expenditure and that entries in the books of accounts are not always conclusive in the matter of deciding whether a claim for deduction has to be allowed or not. The created a value for its brand "Eveready" and disclosed in the Asset side of the Balance Sheet and reduced therefrom the value of obsolete stock instead of red....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ll apply to this ground also. Besides the above, similar expenditure had been allowed in the past and there can be no other reason not to allow the expenditure in question as deduction while computing income from business. We therefore do not find any grounds to interfere with the order of the CIT(A). Hence, Gr. No.5 is also dismissed. 25. Ground No.6 raised by the Revenue reads as follows: "6. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in holding that sale of factory land at Guindy, Chennai gave rise to Capital Gain and not to business profit in spite of the fact that the transaction entered into by the assessee an adventure in the nature of trade." 26. We have already seen while deciding Gr.No.4 that the Assessee had two plants in the city of Chennai one at Guindy and the other at Thiruvottiyur. The Plant at guindy was closed and shifted to Tiruvottiyur. In respect of the land over which the Guindy plant was located, the Assessee had entered into a Joint Development Agreement with a builder. In the Return of income filed for the A.Y.2005-06 the assessee claimed that income from transfer of the land at Guindy, Chennai gave r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cres with Messrs Khivraj Motor Limited. The physical possession of the said 1.10 acres was transferred in F.Y.2003-04 and the gain arising there from was reported in the return for A.Y.2004-05 under the head "Capital Gains"in terms of Section 53A of the Transfer of Property Act, 1882 read with Section 2(47)(iv) of the Income-tax Act, 1961. In respect of the remaining area of 7.29 acres the Assessee entered into an Agreement on 07.12.2004 with Messrs. Khivraj Tech Park Pvt. Ltd., granting it rights of development and construction of new buildings at a consideration and on the terms and conditions specified therein. As per Article III of the said Agreement dated 07.12.2004, the obligation to develop the said land by constructing buildings thereon was solely on the Developer. As per Para 3.0 the developer was liable to construct the building at its own cost and expenses; in accordance with sanctioned building plan. The Assessee was not obliged to incur any cost of construction nor was the Assessee obliged to perform any work in relation to development and construction. The constructed area allotted to the Assessee, as part of owner's allocation in the new building, was to be const....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on 01.04.1981 was taken as cost of acquisition u/s 55 of the Act. The same had been valued by a registered valuer vide his report dated 16.10.2004. 27.3. The AO called upon the Assessee to explain on 27.11.2007 as to why this should not be treated as business transaction instead of investment. The assessee submitted on 05.12.2007 & 12.12.2007 that the expression "business", though wider in it's connotation; requires an assessee's active participation in any organised and systematic activity. The expression business or adventure in the nature of trade, presupposes that the assessee has undertaken a venture whose outcome is not known and involves taking of risk. The expression "venture' connotates chance plus risk. Uncertainty about the return to be received from the investment made and facing many imponderables and even the risk of losing capital are inherent in the activity called as "business". On the contrary safety of the principal and regularity of the return are the principal attributes of Investment. The Assessee pointed out that since 1971-72, the factory land at' Guindy appeared in the Assessee's Balance Sheet as its "Fixed 'Asset"and not as "Cur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reement dated 07.12.2004 which was to be performed substantially by the developer in future. Accordingly no business income can be assessed till the agreement was performed. The definition of the word "transfer"in Sec 2(47) is wider in its connation. The definition of "transfer"U/S 2(47) includes in its ambit even the transactions which under general law do not amount to "transfer"or "sale". In computing income under the head "Profit & Gains from business or profession"the "sale"has to be understood in the context of general law. In assessing business income definition of "transfer"as used in Sec. 2(47) cannot be invoked. On reference to Sec.2( 47) of the Act, the said definition is applicable only in relation to a "Capital Asset"and therefore can be invoked only when income is assessed under the head "Capital Gains". The Assessee pointed that in case of Development Agreement arising due to transfer of capital asset, the same would be covered under the provisions of sub clauses (v) & (vi) of section 2(47) of the I.T.Act, 1961. 27.4. The AO on a consideration of the above submissions, however referred to Clause 4.5 of the Agreement which provides as follows: "The owner a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the ambit of adventure in the nature of trade. Smt. Indramani Bai & Anr. vs. Addl. CIT 200 ITR 594 (SC) (ii) "the question whether the transaction is an adventure in the nature of trade must be decided on a consideration of all the relevant facts and circumstances which are proved in the particular case. The answer to the question does not depend upon the application of any abstract rule, principle or formula but must depend upon the total impression and effect of all the relevant facts and circumstances established in the particular case."Therefore, facts which are not established cannot be taken as the basis nor can one ignore the facts actually found to decide the issue based on the principles laid down in other cases. P.M. Mohammed Meerakhan vs. CIT 73 ITR 735 (SC) According to the AO, the Assessee entered into a solitary or isolated transaction and converted land into constructed commercial unit and then sold it to outside parties and therefore indulged in an adventure in the nature of trade. (iii) CIT Vs. G. Venkataswami Naidu 35 ITR 594 (SC) wherein it was observed that: "it is impossible to evolve any formula which can be applied in determining t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... alleged to be in the nature of trade. In considering these decisions it would be necessary to remember that they do not purport to lay down any general or universal test. The presence of all the relevant circumstances mentioned in any of them may help the Court to draw a similar inference ; but it is not a matter of merely counting the number of facts and circumstances pro and con ; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction; and so, though we may attempt 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. 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 halfway house. This statement may be broadly true ; and so....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee by handing over possession to a developer was to get constructed area instead of open land. The Assessee wanted to make gain on sale of land and therefore had indulged in an adventure in the nature of trade. (vi) CIT Vs. S.P.Balasubramaniam 250 ITR 127 (Mad.) wherein it was held that even a single adventure in the nature of trade was sufficient to constitute trade or business and it was not necessary that there should be a series of transactions before the activities are characterized as a trade or business. The AO finally concluded that in view of the aforesaid discussion, it is held that the income from sale of land and development right of the Assessee is nothing but an adventure in the nature of trade and the income from which is to be assessed as income from business. 28. On appeal by the Assessee, the CIT(A) deleted the addition made by the AO and held that the income in question had to be assessed under the head "Capital Gain". The following were the relevant observations of the CIT(A): "9.4 After due consideration of terms of development agreement; conduct of the assessee before and after the agreement; applicable legal provisions and case laws....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... purpose of carrying on manufacturing business. The conduct of the assessee over long period exceeding 30 years therefore established that appellant had never had any intention to deal with the said land treating it to be stock in trade of its real estate business. From the assessment order also it appeared that no finding was recorded by the AO to the effect that the appellant was in the business of real estate development. Neither in the past assessments nor in the subsequent assessments any income under the head profits & gains of business was assessed in respect of assessee's business of real estate development. These facts therefore established that the object and intent of the assessee at the time of purchase of the land in 1971 was to utilize the same in the course and for the purpose of its manufacturing business. Save and except conducting manufacturing business on the said land for more than 30 years the assessee did not utilize the land for any other purpose. There was no evidence on record which in any manner established that the assessee had intention or object to deal with the said land treating it to be stock in trade of its business of real estate development. I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ould accrue to the Developer from development of the factory land was to be shared by him with the appellant. I therefore find full force in the submissions of the AIR that the appellant being owner of land was entitled to receive only defined and definite consideration for transfer of development rights. The assessee per se did not participate in the business venture of developing the Guindy land because the agreement between the parties did not envisage any active role for the land owner in the matter of carrying out development, and construction on the said land. 9.8. The Reliance placed by 'the AIR on the decision of Gujarat High Court in the case of CIT Vs. Smt. Minal Ramchandra (167 ITR 507) appeared to be relevant in this regard. In this judgment the Gujarat High Court had considered the judgment of Apex Court in the case of G.Venkataswami Naidu & Co. V CIT (35 ITR 594) wherein the apex court had held that normally purchase of land represents Investments of money and not as a business venture. The Gujarat High Court held that! if there is no safety of capital invested and no certainty of regular return then it would be difficult to say that such transaction is a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d duplicity. The ratio laid down in 35 ITR 594 if applied to the appellant's case shows that the intent and object of the assessee at the time of purchase of land in 1971 was to use If tor its individual benefit by setting up an industrial undertaking. Pursuant to 'the said object the appellant did set up its manufacturing business and carried on the manufacturing operation on the land for more than 30 years. ,During this long period of holding the appellant was not engaged in the business of dealing in land or development of real estate. Even in the subsequent year the appellant was not found by the AO to be dealer in land or engaged in development of real estate. On these facts therefore I find full force in the submissions of the A/R that the appellant did not acquire land at Guindy .for the purposes of' business of real estate development and therefore the profit realized on its transfer was not chargeable under the head profits & gains of business. 9.10 The decision of the Supreme Court in the case of Janaki Ram Bahadur Ram Vs. CIT (57 ITR 21) also supports the appellant's claim because the appellant was never engaged in business of dealing in land nor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee subsequently offering to tax income from sale of the area which it received as its share from the developer in AY 2006-07 as indicative of his intention to treat the gain from sale of land as "Capital Gain". The CIT(A) also took note of the fact that in the subsequent year the revenue has accepted the gain in question as giving raise to "Capital gain". 30. For the reasons given above, the CIT(A) directed the AO to treat the gain in question as giving raise to "Capital Gain" and not "Income from Business". 31. Aggrieved by the order of the CIT(A), the revenue has raised Gr.No.6 before the Tribunal. We have heard the submissions of the learned DR who relied on the order of the AO. The learned counsel for the Assessee reiterated submissions made before the CIT(A) and relied on the order of the CIT(A). 32. We have given a very careful consideration to the rival submissions. In this regard the requirement of law for regarding a person having ventured into trade as laid down in judicial pronouncements have to be seen. The learned counsel for the Assessee has relied on several decisions of Hon'ble High Courts and Hon'ble Supreme Court. In the case of G. Venkataswami N....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts components till F.Y.2004-05. (iii) The Assessee had another factory at 1075, Thiruvottiyur High Road, Chennai which is also engaged in manufacture of Dry Cell Batteries. Since both the factories were engaged in manufacture of Dry Cell Batteries, these factories performed more or less similar functions and therefore to achieve economies of scale and to have better unified control over the manufacturing operations the Assessee decided to concentrate manufacturing operation at one location in Chennai at 1075, Thiruvottiyur High Road. Pursuant to this decision, the Assessee found the factory land at Guindy as surplus asset and therefore decided to utilise the surplus asset on the most economically advantageous terms. (iv) Out of the total land area of 8.39 acres; the Assessee entered into an agreement for sale of land admeasuring 1.10 acres with Messrs Khivraj Motor Limited. The physical possession of the said 1.10 acres was transferred in F.Y.2003-04 and the gain arising there from was reported in the return for A.Y.2004-05 under the head "Capital Gains"in terms of Section 53A of the Transfer of Property Act, 1882 read with Section 2(47)(iv) of the Income-tax Act, 1961. (v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....crores and further provide 20% of the constructed area in the proposed new building to the Assessee. In consideration of undertaking and performing these obligations, the Developer was entitled to 80% of the constructed area in the proposed new buildings to be constructed by the Developer. 35. The intention at the time of acquisition was to hold the property as capital asset. In this regard one cannot lose sight of the fact that a factory building was put up over the property and manufacturing activities were carried on for over 33 years before entering into the development agreement. The intention at the time of entering into agreement for development of the property was also to hold 20% of built up area and undivided share of land. Construction over the property took place in the year 2004- 05 and 2005-06. The sale by the Assessees of their share of 20% of built-up area, undivided share of land, open terrace, car park etc., took place only in the previous year relevant to AY 2006-07. In the sale deed, the reason for the sale has been mentioned as betterment and other reasons. By entering into the Agreement with the builder it cannot be said that the Assessees took a plunge int....