TaxTMI 
TaxTMI 
2005 (5) TMI 23
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....referred to as "the assessee") is a registered firm and was carrying on the business of cold storage and for the accounting period ending December, 1985 filed a return on July 31, 1987 declaring a net loss of Rs. 85,380. The assessee opted the mercantile method of accounting. The assessment was completed under section 143(3) of the Act computing the total income at Rs. 19,65,860 and during the relevant previous year, the assessee sold some land for a total consideration of Rs. 21,30,173. The sale consideration was shown under the head "Capital gains" and according to it in all the capital gains tax was attracted as the assessee purchased the capital gains units from the UTI and all conditions of the provisions of section 54E of the Act were fulfilled. Thus the entire sale proceeds from the sale of land declared under the head "Capital gains" were claimed as exempt under the aforesaid section on account of investment in the capital units of the UTI. It may be mentioned here that the land which was sold by the assessee earlier belonged to Shri Vishwanath and Brij Mohan who were partners in the capacities of kartas of the Hindu undivided families in the assessee-firm which was tran....
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....e Act to the effect that the entire sale proceeds has been invested in the capital units within a period of six months thereby there is no taxable amount of the capital gains. Aggrieved by the order of the Commissioner of Income-tax (Appeals), the Revenue filed an appeal before the Tribunal which was dismissed. The Tribunal confirmed the view of the Commissioner of Income-tax (Appeals). We have heard Sri R.K. Upadhyaya, learned standing counsel for the Revenue and Sri Rakesh Ranjan Agarwal, assisted by Sri Amitabh Agarwal, learned counsel for the assessee. Learned standing counsel submitted that the land was sold with the intent to earn profit in plots, therefore, the profit earned out of the sale of the land would amount to profit arising from the adventure in the nature of trade. In support of his contention he relied upon the decision of this court in the case of Baijnath Hari Shanker v. CIT reported in [1973] 91 ITR 208. Learned counsel for the assessee submitted that on the facts found by the Commissioner of Income-tax (Appeals) which have been confirmed by the Tribunal the sale was for the realisation of the investment and cannot be termed as adventure in the nature of ....
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.... plots to the buyers of the plots as nominee of M/s. Agarwal Enterprises. The Commissioner of Income-tax (Appeals) has considered the agreement dated June 1, 1975 between the partners of the assessee and Dr. Laxmi Narain and others and held that from the perusal of the above agreement, it is clear that the partners of the appellant-firm agreed to sell the land as a whole to Dr. Laxmi Narain or their nominee subject to the execution of the sale deed within a period of nine years and as such another agreement was executed on March 11, 1985, viz., the assessee as first party, Dr. Laxmi Narain as second party and M/s. Agarwal Enterprises as third party. On a consideration of the said agreement, the Commissioner of Income-tax (Appeals) concluded that from the perusal of the above agreement, it is clear that the appellant-firm sold the land in question as a whole for a fixed consideration of Rs. 33,000. The sale deed with the ultimate buyers of the plots were entered into as a nominee of the third party, i.e., M/s. Agarwal Enterprises. In the sale deeds the appellant-firm Dr. Laxmi Narain and others and M/s. Agarwal Enterprises all have been made party. Earlier agreements dated June 1, 1....
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....s on the aforesaid facts whether in law the view taken by the Commissioner of Income-tax (Appeals) and the Tribunal is correct. In the case of CIT v. Kasturi Estates (P.) Ltd. reported in [1966] 62 ITR 578 the Madras High Court held as follows: "If a land-owner developed his land, expended money on it, laid roads, converted the land into house sites and with a view to get a better price for the land, eventually sold the plots for a consideration yielding a surplus, it could hardly be said that the transaction is anything more than a realisation of a capital investment or conversion of one form of assets into another. Obviously, the surplus in such a case will not be trading or business profit because the transaction is one of realisation of asset in investment rather than one in the course of trade carried on by the assessee or an adventure in the nature of trade .... The transaction involved no risk or speculation; nor can it be truly said that it is a 'plunge in the waters of trade'. It is a transaction which any prudent owner of land will engage in and which is, therefore, no more than realization of capital investment, conversion of land into money, not a venture in the natu....
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....nt: Martin v. Lowry [1926] 11 Tax Cas. 297 (HL): a person who carries on a money-lending business purchases very cheaply a vast quantity of toilet paper and within a short time thereafter sells the whole consignment at a considerable profit: Rutledge v. Commissioners of Inland Revenue [1929] 14 Tax Cas. 490 (C. sess): and a person, even though he has no special knowledge of the trade in wines and spirits, purchases a large quantity of whiskey and sells it without taking delivery of it at a considerable profit : Commissioners of Inland Revenue v. Fraser [1942] 24 Tax Cas. 498 (C. sess) may be presumed, having regard to the nature of the commodity and extent of the transaction coupled with the other circumstances, to be carrying on an adventure in the nature of trade. These are cases of commercial commodities. But a transaction of purchase of land cannot be assumed without more to be a venture in the nature of trade. A director of a company carrying on the business of warehouseman purchasing a number of houses with a view to resale, and selling them at a profit some years after the purchase: Commissioners of Inland Revenue v. Reinhold [1953] 34 TC 389 (C Sess): a person carrying o....
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.... the nature of trade. Our attention was pointedly drawn by learned counsel for the Revenue to a Division Bench judgment of this court in Harbans Singh v. CIT [1981] 132 ITR 77. But that decision is of no assistance to the Revenue as the facts of that case are entirely different and on the facts found in that case, the view was rightly taken that it was an adventure in the nature of trade. There can be no gainsaying that even a single venture may be regarded as a trade or business, but there have to be circumstances which may give rise to such a conclusion. As earlier observed, in this case the Tribunal has fallen in error in holding the venture as a trade or business merely on the ground that 42 plots were carved out, out of which 7 were disposed of in the year in question. In this view of the matter, in the circumstances of the case and on the facts found, the Tribunal was not right in law in holding that the income derived by the assessee from the sale of plots was from an adventure in the nature of trade. Consequently, the answer to this question is returned in favour of the assessee and against the Revenue." In the case of CIT v. Principal Officer, Laxmi Surgical P. Ltd. rep....
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....s is essentially a finding of fact. It is true that finding of this nature is held to be a mixed question of fact and law. But, in this case, it appears to be essentially a question of fact. We have seen the order of the Income-tax Officer as well. Though he says that the assessee developed the land, he has not specified what precise development was undertaken by the assessee except preparing the lay out plan. It has not shown that the assessee had laid roads or provided any other amenities before selling the plots. In the circumstances, we are of the opinion that the finding of the Tribunal is a correct one and there are no grounds to interfere with the said findings." In the case of Raja Bahadur Kamakhya Narain Singh v. CIT reported in [1970] 77 ITR 253, the apex court has considered the expression "adventure in the nature of trade" and held as follows: "Since the expression 'adventure in the nature of trade' implies the existence of certain elements in the transactions which in law would invest them with the character of trade or business and the question on that account becomes a mixed question of law and fact, the court can review the Tribunal's finding if it has misdire....