TaxTMI 
TaxTMI 
2018 (11) TMI 1000
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....dventure in the nature of the business for an amount of Rs. 11, 65, 15, 888/-. 2. The ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 1, 28, 69, 619/- u/s 54F of the Act." 4. Briefly stated, the assessee, an individual, filed its return of income for the AY 2010-11 declaring total income at Rs. 14, 93, 79, 950/-. The return of income inter alia included long term capital gain of Rs. 14, 80, 64, 055/- from land sale transactions which in turn included Rs. 32, 25, 091/- from sale of Kalhar land and Rs. 11, 32, 90, 797/- from sale of Sola land. The assessee had also inter alia claimed deduction of Rs. 1, 28, 69, 619/- under s.54F of the Act against the long term capital gain so generated. The return was subjected to scrutiny assessment. In the course of assessment proceedings, the AO observed that long term capital gains claimed on account of sale of Kalhar land and Sola land is in the nature of 'business income'. The gains from other four land transactions were however accepted as capital gains so declared by assessee. 5. As regards sale of Kalhar land, the AO observed that three different entities including the assessee have come together for devel....
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....deduction of Rs. 1, 28, 69, 619/- under s.54F of the Act. The AO denied the eligibility towards deduction on the ground that the cost of construction of residential house is Rs. 20 Lakhs only which is very low in proportion to the cost of land. The AO thus disallowed the deduction claimed under s.54F of the Act. 8. Aggrieved, the assessee preferred the appeal before the CIT(A). It was reiterated before the CIT(A) that land in question (Kalhar land & Sola land) before its sale was declared as capital asset in the balance sheet inception. Thus, the intention of the assessee to hold the assets as capital assets was evident from the treatment given in the books of accounts. The assessee made para-wise rebuttal of the observations of the AO to plead that the land held by the assessee for a very long period of time before its sale could not be regarded as trading asset for its taxability under the head 'business income'. It was contended that the land was kept idle for long period without doing any activity or value addition to the said land. Thus, the assessee has not done any development work on the said land and the same was sold as capital asset simplicitor. It was also pointed out ....
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....-1 but after considering the facts & ratio of various case laws, dropped such proceedings. As submitted by appellant, it is important to look into the order of Ld. CIT (A) VIII, Ahmedabad in respect of M/s Ashwamegh co op. Housing society ltd. vibhag-1 (Appeal No. CIT(A) VIII/DCIT Cir.9/272/2013-14 dt. 27.02.14) for A.Y. 10-11 and vibhag-2 (Appeal No. CIT(A) VIII/DCIT Cir.9/273/2013-14 dt. 27/02/2014) as follows: "I have carefully considered the assessment order and the submission made by the appellant during the course of appellate proceedings, it is noted that the facts of the present case are identical to the case of Ashwamegh CO. Op Housing Society Limited Vibhag - 2, the appeal for which has been decided by me vide order number CIT(A)VIII/DCIT, Cir. 9/273/2013-14 of even date for the same assessment year. The facts of the present case are identical, the submission of the appellant and the findings given by the AO are also similar. The decision given by me for that case will therefore be applicable to present case also. For the sake of convenience the findings given by me in that case are reproduced here under: - "I have carefully considered the assessment order and the s....
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....d off. It has submitted that the books of accounts are subject to government audit by the auditor appointed by the registrar of co-operative society and balance sheet and profit and loss account certified by the government audit. If can be seen from those accounts that .there were no development expenses incurred by the appellant society in its books of account. The appellant has further placed reliance on certain judgements of various high courts and tribunals in support of its claim that conversion of land info plots and sale thereafter would not tantamount to business activity. After considering the details it is noted that though the land was acquired by the appellant society long back it did not undertook any development activity on its own. Firstly the development work was given by it to Agrawal Estate Organisers. Since the contract was called off it entered into a sale agreement with some other party which was also ultimately called off and thereafter the land of the appellant society was developed by NODL and during the period, the lane was under the development agreement, certain plots were sold. Thereafter and NODL also withdrew from the developmental activity and cert....
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.... related to purchase and sale of shares and other matters and no dealing related to land was Involved.The judgement which is of some relevance to the present context is that of honourable Supreme Court in the case of G Venkata Swami Naidu, 35 ITR 594. In that judgment the issue involved was that the assessee was acting as a managing agent of some mill and he purchased plots of land of different sizes. The assessee was in a position to influence the mill to purchase the land which was purchased by him. Thereafter the mill purchased the said property. It was held by the honourable Supreme Court that since the assessee was involved in the decisionmaking process of purchasing the land it had prior knowledge and intention of selling the land to the mill. In the present case there is no such situation. There is no fact indicating that the land has been purchased with the intention of getting it developed and selling it thereafter. The judgement is therefore, respectfully distinguished. The another case which is that of honourable Gujarat High Court in the case of Premji Gopalbhai 113 IJR 785. In that case the profit earned on purchase and sale after plotting was treated as capital gain. ....
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....instant case, no such strong factor emerges from the facts of the case. It is not possible to hold that the assessee was a dealer in land or was treating land as his stock-in-trade. It may be pointed out that when the assessee sold different plots out of Survey No. 335 in the past, that is, prior to 1968-69, the profit realised by the assessee from those sales were treated as capital gains. The very fact that he repurchased plots out of original Survey No. 335 is a factor which goes in his favour. There seems to be a considerable substance in that factor, that the assessee was not dearer in the past and was only disposing of his capital asset in the land and apart from this solitary instance of purchase and sale no other repurchase had been made by the assessee. The Revenue has not discharged the burden of establishing that the repurchase and sale of these two plots was an adventure in the nature of trade; it cannot be said in view of the totality of the circumstances of the case that this was the sole intention of the assessee at the time when he repurchased the land in 1964 to sell the two plots at a profit. Under these circumstances, the conclusion reached by the Tribunal that t....
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....d 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 realization of a capital investment or conversion of one form of asset .into another. The surplus in such a case will not be trading or business profit because the transaction is one of realization of assets in investment rather than one In the course of trade carried on by the assessee or an adventure in the nature of trade." The appellant during appeal submitted that agricultural land of these survey was used by its original owner Shri Ambalal Prajapti and his family members for manufacturing of Bricks. To substantiate this fact, the appellant submitted copy of "Village Form No. 7 and 12". This land was originally purchased from Shri Ambalal Prajapati & family members by M/s Ashwamegh coop. Housing Society vibhag-1 in 1995 and held as such up to 2005. The uneven land with 5 to 7 ft. deep excavation of land were remained as such since member of society were not having sufficient funds. The appellant purchased this land in 2006 from M/s Ashwamegh coo....
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....und is treated as allowed." The CIT(A) in conclusion set aside the action of the AO and restored the claim of the assessee towards long term capital gain. 9. As regards the deduction claim under s.54F of the Act, the CIT(A) found merit in the claim of the assessee that construction of the residential house on the land was complete and is supported by electricity bills, property tax etc. The relevant operative para of the order of the CIT(A) is reproduced hereunder: "5(B).1 Ground no. II with sub ground 1 to 5 are against the disallowance of claim of deduction of Rs. 12869619/- u/s. 54F of the Act. As discussed in earlier para 5(A) that appellant in return of income claimed deduction u/s. 54F of the Act for Rs. 12869619/-. The appellant submitted explanation with details in response to show cause issued by A.O. which was rejected by A.O. on the ground that appellant failed to submit completion of construction certificate, any electricity bills etc. to evidence and substantiate claim. The A.O. in view of huge cost of land at Rs. 14405000/- with cost of constriction of only Rs. 20 lac raised doubts as discussed in impugned order. The A.O. examined the bills for construction which....
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.... purchase of land / construction of house & investment in capital gain deposit scheme. This is to substantiate that Shri Kunal Nandlal though owned ½ of the Sarkhej land investment (Balance ½ is by the appellant) but constructed a house separately i.e. the construction on survey no. 386/1 & 2 at Sarkhej are two different residential house, one by appellant and one by his son. (d) The appellant further contended that as far as location of land is concerned, its price are very high but cost of construction is as per requirement of residence. The appellant further submitted copies of House tax, cess, water charges paid by appellant as well as by his son to Amdavad Municipal Corporation (AMC) for F.Y. 11-12 onwards to substantiate that construction was complete and AMC charged such tax. In these receipts, the different residential house of appellant as well as of his son are clearly mentioned for the same address. The details in respect of appellant from the copies of computerized print out taken from website of AMC are as follows: Tenement No.: 06384530010002R Occupier name : Nandlal J. Agarwal Address: S urvey No. 386/1, Opp. Apple wood town ship, S.P. Rin....
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....la land are to be treated as sale of capital assets hence such deduction is available to appellant. I am also inclined with appellant that such deduction is available from the LTGC of sale of Makarba land and Satellite bungalow. Now the only contention remained is related to completion, of. such construction. As discussed above, the appellant through receipt of AMC for property tax demonstrated and substantiated that house construction was complete in F.Y. 11-12 for which AMC charged such taxes thereafter. The discrepancy of huge land cost compare to construction cost is duly explained by appellant with the fact that his son got constructed a separate house on his half share of land at Sarkhej. The cost of construction is met out from the capital gain deposit scheme where appellant deposited Rs. 20 lac and evidences were submitted establishing direct link between withdrawal for such account and payment made for (construction as evidenced from bills. I am inclined with appellant that bills for electricity or electric connection does not have any direct link with completion of construction. It is therefore, the appellant fulfills all the eligible conditions for claim of deduction u/s....
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....eafter submitted that in AY 2010-11, out of said land at Sola, the assessee executed the sale deed in favour of the buyer as a land owner and offered the long term capital gains in the return of income as a sale of capital asset. The learned AR also observed that out of the total area of the land, the balance area of land approximately 1282 sq.mtrs. which remained unsold in FY 2009-10 relevant to AY 2010-11 was continued to be shown as capital asset in the balance sheet and included the same for the purposes of computation of wealth tax. The learned AR thereafter submitted that land at Sola could not be sold as one piece of land and accordingly the same was divided in small pieces after doing leveling of the plot of the land so that it becomes feasible for sale. The assessee could not find any single buyer for sale of entire piece of land. The assessee essentially has not carried out any development work as alleged except necessary basic requirements like leveling, approach road from pucca roads and other statutory requirements necessary for plotting of said land as per directions of the authority for sale of individual plots. The assessee, in essence, has sold the land by dividing....
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....n, the assessee is stated to have sold the Kalhar plot as well as part of Sola land which yielded gains of Rs. 11, 65, 15, 888/- in aggregate from sale of such land. This apart, the assessee also sold certain other plots as detailed in the computation of income sheet. The aggregate capital gain from sale of all these plots was declared at Rs. 14, 80, 64, 055/-. The AO has disputed the transactions of impugned purchase and sale of Kalhar plot and Sola land which has given rise to the aggregate profit of Rs. 11.65 Crore and stamped the same with the character of 'business income' under s.28 of the Act and thereby concessional tax treatment available on long term capital gain was sought to be denied to the assessee. The AO discredited the claim of the assessee that the land in question were held as 'capital asset' under s.2(14) of the Act and consequently, disputed the capital gains arising therefrom declared to be chargeable under the head 'capital gains'. The action of the AO was reversed in first appeal before CIT(A) who accepted the taxability of gains under the head 'capital gains' instead of business income. The Revenue is thus aggrieved by the action of the CIT(A). The assessee....
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.... the time of purchase is relevant factor. The AO has attributed commercial motives in such transactions without any significant basis. Not only the gains arising on sale of other land in the year under question has been admitted to be capital in nature by the AO, the Revenue in the earlier assessment years have also accepted the gains arising on sale of land as capital gains in the earlier assessment years. Noticeably, the assessee has derived income from salary and house property as well as agriculture income. There is nothing to show from records that the assessee was engaged in any kind of systematic or organized business activity of land sale with degree of regularity. 18. On a cumulative reading of such glaring facts, we fail to comprehend the action of the AO in holding capital gains earned on sale to be a business venture. It is manifest that the AO had mis directed himself in law and on facts in holding the land/properties to be in the nature of trading asset merely on the ground that some expenses have been incurred for development of the land and land was sub-divided before sale. It is the case of the assessee that some agreements were entered for development of the land....