1996-VIL-11--DT
HIGH COURT OF MADHYA PRADESH
MISC. CIVIL CASE NO. 341 OF 1989
Date: 24.02.1996
COMMISSIONER OF INCOME-TAX
Vs
. DHANANJAY RAO JADHAV
S.K. Jain for the Applicant.
R.D. Jain for the Respondent.
BENCH
D.M. DHARMADHIKARI AND FAKHRUDDIN, JJ.
JUDGMENT
Dharmadhikari, J.
A question of law has been referred for answer by this Court under section 256(1) of the Income-tax Act, 1961 ('the Act') at the instance of the Income-tax Department.
2. Before quoting the question and dealing with the same, the factual backgrounds be given as under :
In a family partition, the assessee was allotted amongst others 6 bighas of agricultural land, situate at Bahaodapur, district Gwalior. The land is within the municipal limits. By various sale deeds, executed in favour of 44 persons between April 1980 to December 1980, different parcels of lands were sold through two commission agents.
3. On these facts, for the assessment year 1981-82, the ITO came to a finding that the sales in question constitute an adventure in the nature of trade and treated the income earned as business income for the purpose of tax.
4. In appeal by the assessee, the AAC after examining the fact came to the conclusion that merely because the sales were through a broker with a view to get best possible price of the property, the transaction of sale cannot be held to be an adventure of the assessee in the nature of trade. The Appellate Commissioner referred to the assessment case of another co-parcener of the same family to hold that the profit earned can only be taxed as the capital gains and not as profit from any adventure or business.
5. The learned Members of the Tribunal upheld the decision of the AAC. It was observed by the Tribunal that the land was sold by the assessee as agricultural land, although in parcels and without developing them for non-agricultural purposes. Merely because help of property broker was taken to sell the land, no inference can be drawn that the assessee had engaged himself in any business adventure and had, thus, converted his capital asset into stock-in-trade. According to the Tribunal, every one is entitled to convert capital asset in a manner as will yield profit to him. Merely because the profit enures in a transaction, it cannot be said that the transaction is one of business. It can well be one of converting one's capital asset and, if thereby any income is derived, that can only be taxed under the head 'Capital gains'. On the above facts, the following question of law has been referred to this Court:
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in holding that the excess profit accruing on the sale of 44 plots constituted assessed income assessable under the head 'Capital gains' and not as income arising out of an adventure in the nature of trade for assessment year 1981-82 ?"
6. Shri R.D. Jain, the learned counsel appearing for the Department, placed reliance on Sarifabibi Mohmed Ibrahim v. CIT [1993] 204 ITR 631 (SC)1 and CWT v. Officer-in-charge ( Court of Wards) [1976] 105 ITR 133 (SC). On behalf of the Department, much emphasis has been laid on the facts and circumstances that long after partition, the land was divided into several plots and sold to 44 persons through brokers indicating that a sort of business adventure was undertaken by the assessee to earn profit. It is not a case of isolated transaction to hold that it was only conversion of capital asset into any other asset. The learned counsel referred to the definition of 'Capital asset' and provisions contained in sections 28, 45 and 47 of the Act to elucidate his argument.
7. Shri K.K. Lahoti, the counsel appearing for the assessee, in reply contended that the AAC and the Tribunal took all relevant facts into consideration for holding that merely because agricultural lands in different parcels were sold to 44 persons through broker for earning best available market price, is no ground to hold that the assessee had gained any profit in any adventure or business. It is submitted that the assessee was not engaged in any property dealing business. The property came to him as his share in partition of the ancestral property. He was entitled to wait and to sell them without its development or conversion to non- agricultural use and take the help of broker for getting best price. Strong reliance has been placed on CIT v. Kasturi Estates (P.) Ltd. [1966] 62 ITR 578 (Mad.), CIT v. Jalannagar Tea Estates (P.) Ltd. [1962] 45 ITR 626 (Assam), CIT v. Jolly Bros. (P.) Ltd. [1987] 169 ITR 72 (Bom.)2 and Saroj Kumar Mazumdar v. CIT AIR 1959 SC 1252.
8. Having considered the submissions made by the counsel for the parties in the light of the facts and circumstances and the opinion expressed by the Taxing Authorities, we have formed an opinion that the question referred deserves to be answered in favour of the assessee. In our considered opinion, the Madras and Assam views (supra) , on which reliance has been placed on behalf of the assessee, are cases on facts nearer to the facts of the present case and are decisions, which to a long extent support the case of the assessee. In the case of Kasturi Estates (P.) Ltd. (supra) , on similar facts, it is held as under :
". . . That the transaction of sale in plots was one which any prudent owner of land would enlarge in and which was, therefore, no more than realisation of a capital investment or conversion of land into money, and not a venture in the nature of trade. Having regard to the nature of the property, length of its ownership and holding, actual conduct of the assessee in respect of it all along and all other facts including absence of evidence of any trading activity or speculative venture, the Tribunal was right in its conclusion that the surplus from sale of the land did not result from any trade or business in land carried on by the assessee or from any transaction which may properly be described as an adventure in the nature of trade and the profit of Rs. 27,568 was not assessable as 'profits and gains of business'." (p. 579)
9. The view of Assam High Court in case of Jalannagar Tea Estate (P.) Ltd. (supra) , is also on the similar line, wherein it has been held as under :
"If a person buys land with no intention of selling it and after a long interval finds it convenient to sell the land by parcelling it out into different plots and also by laying out roads and providing other amenities with a view to get more price, it cannot be said that the activity which he carried on has any element of trade, commerce or business and it cannot be said, therefore, that it is an activity in the nature of trade." (p. 626)
10. The view of the Bombay High Court in the case of Jolly Bros. (P.) Ltd. (supra) also to some extent helps the contention advanced on behalf of the assessee, wherein it has been held as under :
"... that though the assessee incurred considerable expenditure in laying adjoining roads and in filling and levelling land, keeping in view the facts such as that the assessee was not a dealer in lands and the nature of the rights it acquired and also the fact that only portions of the land were given on sub-lease to its sister concerns, the transaction did not amount to an adventure in the nature of trade. Therefore, the excess amounts realised by the assessee from the transaction were not assessable as business income."
11. The decision of the Supreme Court in the case of Sarifabibi Mohamed Ibrahim (supra) relied on behalf of the Department, is not on the point in issue. There the question was whether the sale in question was of non- agricultural or agricultural land within the meaning of section 2(14) of the Act. In answering that question also, the Supreme Court affirmed the view of the High Court that the land in question at the time of sale was non- agricultural and the income derived from it was held to be not exempt from tax as capital gains. The case of the Supreme Court in Sarifabibi Mohamed Ibrahim's case (supra) , therefore, in a way goes contrary to the contention advanced on behalf of the Department.
12. Respectfully, therefore, agreeing with the views expressed by Madras, Assam and Bombay High Courts in Jolly Bros. (P.) Ltd. ( supra), we are of the view that merely because the agricultural lands received by the assessee as his share in a past family partition were sold by him in small parcels to a large number of persons through the brokers in order to obtain best available market price the transactions cannot be held to be any adventure in trade so as to treat the income derived as taxable under any other head than 'Capital gains'.
13. For the reasons aforesaid, we uphold the view taken by the Tribunal and answer the reference in affirmative in favour of the assessee. There shall be no order as to costs.
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