AI Drafter 
TaxTMI 
TaxTMI 
2018 (2) TMI 1643
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....opting DLT rate. The ld. CIT(A) has sustained the addition by holding that the sale of 23 plots of land during the year under consideration comes under the 'adventure in the nature of trade' and liable to be taxed under the profits and gains of business and profession. The ld. CIT(A) has allowed Dalali expenses of Rs. 76,500/- as business expenses U/s 37 of the Act and sustained addition of Rs. 23,39,100/-. 3. Now the assessee is in appeal before the ITAT by taking following grounds of appeal: "1. In the facts and circumstances of the case and in law the Id. CIT (A) has erred in confirming the action of the Id. AO in reopening the assessment u/s 147 of Income Tax Act, 1961. The action of Id. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the reassessment proceedings being illegal and without any basis. 2(a) In the facts and circumstances of the case and in law the Id. CIT(A) has erred in making an addition of Rs. 23,39,100 on the sale of land under the head "Profits & Gains of Business or Profession", treating the transaction of sale of capital asset as adventure in the nature of trade. The....
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....ion 50C to incorporate the word 'assessable' to include even assessable value of transfer within the ambit of section 50C of the Act was made effective from 01st October, 2009. In this case the sale was made during F.Y 2006-07. The appellant has also taken the plea that without referring the property valuation to DVO, section 50C cannot be invoked. 6.3.2 I have considered the above mentioned facts. It would be imperative to reproduce the provision of section 50C of the act. It says; Section 50C. (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed 57[or assessable] by any authority of a State Government (hereafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed 57a[or assessable] shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer : 'Assessable' is inserted by the Finance (No.2) Act, 2009, w.e.f. 01/10/2009. ....
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....e during F.Y 2006-07. In the event of a dispute in the valuation and before invoking the provision of section 50C, the A.O should have referred the matter to DVO for valuation, which was not done in this case. Therefore A.O is not justified in taking the value of stamp duty prevalent in that area for the purpose of calculating capital gain by invoking section 50C of the Act. 6.3.3 However, as the appellate authority is also a fact finding body, I have considered the submission made by the appellant and the evidences on record. Looking at the nature of transaction, a very pertinent question arises. Whether the true nature of transaction has been declared by the appellant or not which forms the basis of the present appeal? In the present grounds of appeal, whether the transaction involving the sale of plots comes under the purview of 'adventure in the nature of trade or not'? In this regard, I am inclined to take into account some very basic facts of the land in transaction. In the present case, the appellant had developed the inherited agricultural land into 23 plots of varying sizes ranging from 182/220/205/223/236/334/462 sq. yard. These land plots have been developed as ....
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....egal principles involved in the expression "adventure in the nature of trade" used by s. 2, sub-s. (4). It is patent that the clause " in the nature of trade" postulates the existence of certain elements in the adventure which in law would invest it with the character of a trade or business; and that would make the question and its decision one of mixed law and fact. This view has been incidentally expressed by this Court in the case of Meenakshi Mills, Madurai (I) in repelling the appellant's argument based on the decision of the (I) [1956] S. C. R. 691. This question has been the subject-matter of several judicial decisions; and in dealing with it all the judges appear to be agreed that no principle can be evolved which would govern the decision of all cases in which the character of the impugned transaction falls to be considered. When s. 2, sub-s. (4), refers to an adventure in the nature of trade, it clearly suggests that the transaction cannot properly be regarded as trade or business. It is allied to transactions that constitute trade or business but may not be trade or business itself. It is characterised by some of the essential features that make up trade or ....
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.... his conclusion in this way: "I would therefore say that the Commissioners of Inland Revenue have failed to prove and the onus is on them the case they sought to make out". According to Lord Carmont, Lord Dunedin's observations do not suggest that the initial declaration of intention per se leads to the conclusion that the transaction was in the nature of trade. He thought that much more was required to show that the assessee was engaged in an adventure in the nature of trade than was proved in the case before the court. Lord Russell, who concurred with this opinion, began with the observation that "prima facie the difference of opinion among the General Commissioners suggests that the case is a narrow one and that the onus on the appellants of showing that the transaction was an adventure in the nature of trade is not a light one". Lord Russell then mentioned the argument of the Lord Advocate that if a person buys anything with a view to sale that is a transaction in the nature of trade because the purpose of the acquisition in the mind of the purchaser is all- important and conclusive; and that the nature of the thing purchased and the other surrounding circumstances do not a....
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....vant facts in the present case? The property purchased and resold is land and it must be conceded in favour of ' the appellant that land is generally the subject-matter of investment. It is contended by Mr. Viswanatha Sastri that the four purchases made by the appellant represent nothing more than an investment and if by resale some profit was realised that cannot impress the transaction with the character of an adventure in the nature of trade. The appellant, however, is a firm and it was not a part of its ordinary business to make investment in lands. Besides, when the first purchase was made it is difficult to treat it as a matter of investment. The property was a small piece of 28-1/4 cents and it could yield no return whatever to the purchaser. It is clear that this purchase was the first step taken by the appellant in execution of a well-considered plan to acquire open plots near the mills and the whole basis for the plan was to sell the said lands to the mills at a profit. Just as the conduct of the purchaser subsequent to the purchase of a commodity in improving or converting it so as to make it more readily resaleable is a relevant factor in determining the ch....
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.... able to sell the lands to the mills whenever it thought it profitable so to do. Thus the appellant purchased the four plots during two years with the sole intention to sell them to the mills at a profit and this intention raises a strong presumption in favour of the view taken by the tribunal. In regard to the other relevant facts and circumstances in the case, none of them offsets or rebuts the presumption arising from the initial intention; on the other hand, most of them corroborate the said presumption. We must, therefore, hold that the High Court was right in taking the view that, on the facts and circumstances proved in this case, the transaction in question is an adventure in the nature of trade. The result is the appeal fails and must be dismissed with costs. Therefore, the above mentioned judgment has laid down certain tests to find out whether a particular transaction of purchase and sale would amount to an adventure in the nature of trade or not, and at the same time cautioned that in each case, it is the total effect of all relevant factors and circumstances that determine the character of the transaction. The Supreme Court in that case observed that the follo....
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....ajasthan high Court judgment in the case of Sohan Khan and Mohan Khan as reported in 304 ITR 194(Raj.), observed in the concluding Para of the judgment as under; " it is the different story that the question, as to whether a particular transaction falls within the category of "adventure in the nature of trade" or is merely a transaction of transfer of capital asset, since depends on appreciation of facts.... " Therefore, on the factual matrix of the case, it is my considered view that the sale of 23 plots of land during the year under consideration comes under 'adventure in the nature of trade' and is liable to be taxed under business head. Accordingly, the dalali expenditure of Rs. 76,500/- is allowable as business expenses under section 37 of the Act. Accordingly, an addition of Rs. 23,39,100/- under the head business is sustained. Appellant's ground of appeal on the issue is partly allowed. 6. While pleading on behalf of the assessee, the ld AR has submitted as under: 2.1 Submission made before CIT(A) with regard to the transaction being one of capital gain, also reproduced by him in his order from page 9-11, may please be considered in correct perspective. ....
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.... 2.6 It is submitted that in determining whether a particular transaction is an adventure in the nature of trade, the Courts have emphasized that all the circumstances of the transaction must be considered and that no single criterion can be formulated. 2.7 The distinct facts of the instant case are as follows: 2.7.i Agricultural land which was sold was inherited and not purchased. 2.7.ii Land converted into non-agricultural land. 2.7.iii Land was sold in small plots to realize optimum value of its capital asset. 2.7.iv No such kind of further transaction has been done by assessee till date 2.7.v No efforts like an entrepreneur has been made by assessee. 2.8 It is evident that no two ingredients of trade i.e. purchase & sale was involved in the transaction. In the transaction, purchase was missing and only sale was there. There was no uncertainty as to the earning of profit and incurring the loss. Assessee was certain of earning the profits, but he maximizes the same by selling the land in small plots. Therefore, the isolated transaction of sale of inherited agricultural land in small plots cannot be termed as adve....
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....ost of acquisition. Not satisfied with the order of the Commissioner (Appeals) the Department filed an appeal before the Tribunal. It was reiterated before the Tribunal that the assessee had a profit motive in selling the land in different parcels and, therefore, the income derived therefrom was from an adventure in the nature of trade. This argument was rejected. The Tribunal referred to the definition of "business" in section 2(13) of the Income-tax Act, 1961 (for short "the Act"), and observed that a particular activity can constitute business only if it is continuous. Since there was no continuous activity in regard to the sale the Tribunal held that it was not business income and that the income derived from the sale of land could be taxed only under the head "Capital gains". Hence, the present appeal. We have heard the learned senior counsel for the department and find no ground to entertain the appeal. The Tribunal and the Commissioner (Appeals) have both rightly held that the sale of land by the assessee was not in the nature of business because there is no continuous activity. It is true that even a single venture could be regarded as a trade or business but there....
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....intention of the party, one has to look into the facts and the surrounding circumstances. If on the consideration of all the facts, it appears that the sole intention of the party in purchasing the particular land and selling thereof, was to make profit, it may be termed as adventure in the nature of trade. However, in this case, we find that the assessee had not purchased the land, but it was received by her as per the will of her late mother. Moreover, she did not sell this land, but it was compulsorily acquired by the Jabalpur Development Authority by way of Notification dated 29-4-1983. Thus, the assessee had neither purchased the land under consideration nor sold the same on her own violation. However, when her land was compulsorily acquired by the Government, she did try to maximise the compensation by way of opting to accept the developed plots as against cash compensation. It is only the realization of the value of the land and it cannot be said to be an activity carried on for profit, so as to term it as adventure in the nature of trade. For any adventure or the trade, purchase and sale are two necessary ingredients. Since in the case under consideration before us the firs....
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....better price, therefore, the isolated activity cannot come within the purview of adventure in the nature of trade and business. The main earning on the sale of the land was in the nature of capital gain and, therefore, not assessable his income from business and this question is essentially a question of fact. " 2.10. Ld. CIT(A) misplaced his reliance on judgment of Hon'ble Rajasthan High Court in the case of Sohan Khan & Mohan Khan [2008] 304 ITR 194 [Case Law Page 41). Facts: In this case the assessee had purchased a chunk of land measuring few lakh square feet in 1970. The land was under cloud of ceiling laws and after it got cleared therefrom, assessee picked up idea of disposing it by making best profit and according the site plan was prepared showing the land to be divided into different plots and the plots were according sold. The Id. AO in case found the sale to be not taxed as capital gains but it was treated as business income. Held : Hon'ble Rajasthan High Court on these set of facts held that, there was nothing to show that the land was purchased with the intention to sell at a profit, or with requisite intention, to bring it within the parame....