TaxTMI 
TaxTMI 
2017 (12) TMI 525
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....ces u/s. 143(2) and 142(1) were issued and served upon the assessee. On scrutiny of accounts it revealed to the Assessing Officer that land at Survey No.101/1 admeasuring 3.38 hector was purchased on 25.5.2005 for Rs. 54,500/-. Similarly land at survey 108 admeasuring 1.58 hector and land at survey no.110 admeasuring 1.77 hector were purchased by the assessee on 13.5.2007. These land were sold by the assessee on 13.5.2007 to Coastal Gujarat Power Ltd. ("CGPL" for short) for Rs. 1,21,72,438/-. The assessee had earned a profit of Rs. 1,20,21,138/-. The land were mentioned as agriculture land and situated at village Sukhpur, Tal. Mundra-Kutch. Assessee has claimed the gain as exempt on the ground that said land was not a capital asset within the meaning of section 2(14) of the Income Tax Act, and therefor, gain was not liable to tax under section 45 of the Act. The ld.AO did not accept contentions of the assessee and treated him as a trader in the land. He assessed the alleged profit and sale of land as business income. On appeal, the ld.CIT(A) has observed that gain arisen to the assessee on transfer of land at Survey No.107/1 purchased on 25.5.2005 will be treated as capital gain, a....
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....f trade' and the profits thus required to be taxed as business income ? iii. Is the transaction a sham transaction and can it be labeled as a colourable device ? 6. Ld. first appellate authority has made a lucid enunciation of law and facts under each question. She accepted that the land sold by the assessee was agricultural land. She also accepted that the transaction was not sham or colourable transaction. 7. The parties are not disputing on these conclusions. Thus, the controversy between assessee and revenue boils down to question 2 formulated by the ld.CIT(A). The Ld. first appellate authority has partly treated the assessee as indulged in adventure in the nature of trade and thus the profit resulted to him has been assessed as a business income. Ld. first appellate authority accepted the assessee as an investor in agriculture land, same would not result any capital gain, because the asset possessed by the assessee was not a capital asset within the meaning of section 2(14)(iii) of the Act. 8. While appreciating the controversy, ld. First appellate authority took into consideration. The broad principles laid down by the Hon'ble Jurisdictional High Court i....
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....the material date; In the appellant's case, this is not applicable as the land was not converted into NA and was sold as agricultural land only. It is converted into NA by the purchaser after a period of three years from the date of purchase. f. whether the land, on the relevant date, had ceased to be put to the agricultural use', if so, whether, it was put to an alternative use; whether, such a alternative user was of a permanent or temporary nature; In the appellant's case, this is not applicable as the land was not converted into NA and was sold as agricultural land only. g. whether the land, though entered in revenue record, had never been actually used for agriculture; whether the owner meant or intended to use it for agricultural purposes; In the appellant's case, the land has been used as agricultural land till the date of sale. h. whether the land was situate in a developed area; whether its physical characteristics, surrounding situation and use of the lands in the adjoining area were such as would indicate that the land was agricultural; In the appellant's case, the adjoining lands were als....
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....d paid interest thereon? Normally, money is borrowed to purchase goods for the purpose of trade and not for investing in an asset for retaining. (3) What is the frequency of such purchase and disposal in that particular item? If purchase and sale are frequent, or there are substantial transaction in that item, if would indicate trade. Habitual dealing in that particular item is indicative of intention of trade. Similarly, ratio between the purchases and sales and the holdings may show whether the assessee is trading or investing (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment). (4) Whether purchase and sale is for realizing profit or purchases are made for retention and appreciation its value? Former will indicate intention of trades and latter, an investment. In the case of shares whether intention was to enjoy dividend and not merely earn profit on sale and purchase of shares. A commercial motive is an essential ingredient of trade. (5) How the value of the items has been taken in the balance sheet? If the items in question are valued at cost, it would indicate that they are investments o....
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.... the case of Pari Mangaldas Girdhardas vs. CIT reported in 1977 CTR 647. These tests read as under: "After analyzing various decisions of the apex court, this court has formulated certain tests to determine as to whether an assessee can be said to be carrying on business. (a) The first test is whether the initial acquisition of the subject-matter of transaction was with the intention of dealing in the item, or with a view to finding an investment. If the transaction, since the inception, appears to be impressed with the character of a commercial transaction entered into with a view to earn profit, it would furnish a valuable guideline. (b) The second test that is often applied is as to why and how and for what purpose the sale was effected subsequently. (c) The third test, which is frequently applied, is as to how the assessee dealt with the subject-matter of transaction during the time the asset was the assessee. Has it been treated as stock-in-trade, or has it been shown in the books of account and balance sheet as an investment. This inquiry, though relevant, is not conclusive. (d) The fourth test is as to how the assessee himself has....
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....MPP of Tata Power was being established. Mundra Ultra Mega Power Project (Mundra UMPP) is a subbituminous coal-fired power plant in Tunda village at Mundra, Kutch district, in Gujarat, India. The coal for the power plant is imported primarily from Indonesia. The source of water for the power plant is sea water from Gulf of Kutch. The power plant is owned by Tata Power. The special purpose vehicle Coastal Gujarat Power Ltd (CGPL) was incorporated on 10 February 2006. The distance between the appellant's land and the Tata Power plant is about 10 Kms. 4. There has been a massive increase in the price of the land. The appellant purchased it for a dirt-cheap price. Within a span of fourteen months, the price shot up to Rs. 1,21,00,000/-. There was no change in the productivity of the land, irrigation facilities and the crop patterns. The agricultural income has also been very marginal. The only reason for this abnormal increase in rate is the setting up of UMPP by Tatas in this region. However, as discussed earlier, this cannot be an instantaneous decision and must have been brewing for a long time. It is quite obvious that the Tata officials must have carried out proper su....
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....vities of similar nature; his educational background etc. Even the entire transaction is being looked into with that angle, then it would reveal that he has not been trading in the land, rather it was a simplicitor investment for agriculture operation, but on account of getting good price land has been sold. The ld.CIT(A) has expressed a probability that CGPL might have carried out a recce of the area and during that it could interact with the assessee. Once assessee came to know about proposed requirement of land he could have anticipated huge profit and might have purchased land. To our mind, it is a just probability expressed by the ld.CIT(A) after deal was finalized. The AO has neither recorded statement of any person from CGPL nor recorded when CGPL has started its power plant; how it has expressed its desire to acquire further land for its residential colony. Whether a person of having background like the assessee could have chance to inter-act with CGPL officials and only thereafter purchase land. All these factors are totally missing on record. Department has started inquiry only when huge claim was made by local persons of the area for exemption of capital gain. We have co....