TaxTMI 
TaxTMI 
2016 (11) TMI 1500
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.... director from Royal Plot India Pvt. Ltd, as partner in M/s. Bhavya Trading and M/s. Monarch and other from sources. During the course of assessment proceedings, the assessing officer noticed that assessee has shown profit of Rs. 40,60,707/- claiming to be from sale of agricultural land situated in village Rethal, Taluka Sanand. The said land was jointly purchased by the assessee and Shri Ramesh Arjanbhai Mayatra (director, Royal Infrasprojects Pvt. Ltd.) and proceed of the sale were are equally shared. The assessing officer asked the assessee why the profit from the sale of aforesaid land should not be taxed as adventure in the nature of trade. The assessee claimed it as exempt on the ground that the said land was not a capital asset within the meaning of section 2(14) of the act, therefore, the gain is not liable to tax u/s. 45 of the act and he further stated that capital gain tax on transfer of agricultural land is exempt from tax. The assessing officer stated that the genuineness of this transaction which has generated huge profit in short period is doubtful and it cannot be said that what was transferred was agricultural land within the meaning of section 2(14) of the act. Th....
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....uch 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 thai 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 advanture in the nature of trade. Cases of realisation 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 treated as relevant. Was the purchaser a trader and were the purchase of the commodity and its resale allied to his usual trade or business or incidental to it? Affirmative answers to these questions may furnish relevant data for determining the character of the transaction. What is the nature of the commodity purchased and resold and in what quantity was it purchased and resold? If the commodity purchased is generally the subject-matter of trade, and if it is purchased in very large quantities, it would tend to eliminate the....
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....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 coupled with the intention to hold the property. Cases may, however, arise where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the properly for himself or otherwise enjoying or using it. The presence of such an intention is no doubt a relevant factor and unless it is offset by the presence of other factors it would raise a strong presumption that the transaction is an adventure in the nature of trade. " It is very clearly laid down in this decision that the initial intention at the time of purchase would be a crucial factor to distinguish adventure in the nature of trade from investment. How to identify the initial intention of the appellant ....
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....se in price. The first possibility cannot be commented upon as no efforts have been done by the A.O. in this regard. However, there has been a substantial change about the surrounding location of the land. This is the land where TATAs shifted the Nano Plant from Singur. It is true that the declaration to shift from Singur was officially made by the TATAs on 3/10/2008 and the announcement of moving to Sanand was made on 7/10/2008. The land has been sold by the appellant on 16/6/2008. Hence, it can be argued that the appellant was not aware of this development and he sold the land because he was in need of money. (This is the exact argument taken by the appellant during assessment and appellate proceedings.) What needs to be appreciated is that major decisions like shifting of a big factory like the Nano from place A to place B is not a decision that can be taken impulsively and on the spur of the moment. There are various factors which are required to be connsidered for such a massive dislocation. Out of various locations, the TATAs must have shortlisted one or two locations and then finally the decision must have been taken. For this purpose, the State Government must have....
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....by GIDC for this purpose. It is true that the appellant has sold this land before the announcement by TATAs of shifting to Sanand. However, as discussed earlier, this cannot be an instantaneous decision and must have been brewing for a long time. What the appellant has done is utilise his knowledge of the market conditions and scenario to decide the correct time for entry and exit so as to earn maximum profit from the transaction. This can definitely be held to be the only intention of the appellant for entering into this transaction. In light of the above discussion, it is held that the appellant's case is squarely covered by the decision of the Hon'ble Supreme Court in case of G. Venkatswamy Naidu (supra). This transaction of the appellant is held to be an adventure in the nature of trade. The A.O's action is therefore upheld. 6.13 The third point required to be considered is whether this is a sham transaction or not. The A.O. has taken recourse to famous McDowell decision (154 ITR 148). The applicability of McDowell decision is brought about by the Hon'ble Supreme Court in the recent decision of Vodafone vs. Union of India (2012) 341 ITR 1 (SC) ....
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....dy, J. makes a number of observations regarding the need to depart from the "Westminster" and tax avoidance - these are clearly only in the context of artificial and colourable devices. Reading McDowell, in the manner indicated hereinabove, in cases of treaty shopping and/or tax avoidance, there is no conflict between McDowell and Azadi Bachao or between McDowell and Mathuram Agrawal. 6.14 This issue has also been dealt with by the Hon'ble Gujarat High Court in the case of Banyan & Berry (222 ITR 831) has held as "Every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may be subjected in future, can no be viewed with suspicion and be treated as a device for avoidance of tax irrespective of legitimacy or genuineness of the act. The principle enunciated in Dowell's case has not affected the freedom of citizen to act in a manner Wording to his requirements, his wishes in the manner of doing any trade, activity or planning his affairs with circumspection, within the frame work of law, unless the same fall in the category of colourable device which may properly be called a device or a dubious method or a subterfuge c....
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....er book containing written submission, submission made before the Ld. Commissioner of Income Tax(A), copy of purchase deed of agricultural land, copy of sale deed of agricultural land, form 7/12 and 8A of agricultural land and copy of judicial pronouncement relied by the learned counsel. The learning Counsel also stated that the said agricultural land was being used for agricultural operations. He also referred to the copy of form 7/12 and 8A of agricultural land which reflects that the crops were taken on the said and agricultural land. He also stated that the part of such crops were used for home consumption and remaining part were given to the local authority as voluntary contribution. He also referred to the certificate of the local authority in this regard. He again submitted that the said agricultural land was a yielding fixed asset and not a trading asset or stock in trade. He again contended that under the settled principles of income tax act, gain on disposal of such asset does not fall under the head business income. He again submitted that trade or business is not permissible in agricultural lands in Gujarat. He purchased the land as an asset and carried all agricultural....