Vildirect: IncomeTax-caselaws-1998-VIL-118-ITAT-DEL

1998-VIL-118-ITAT-DEL

Equivalent Citation: ITD 069, 248, TTJ 065, 294,

Income Tax Appellate Tribunal DELHI

Date: 13.08.1998

INCOME-TAX OFFICER

SMT. PREMLATA MANOHAR.

BENCH

Member(s) : V. DONGZATHANG., I. S. VERMA.

JUDGMENT

Per I.S. Verma, Judicial Member---In both the appeals filed by the revenue against the same assessee's order of the CIT(Appeals), Meerut dated 17-1-1992 has been agitated on the basis of following two grounds :---

"(i) That the ld. CIT(A) has erred in law on facts in directing the Assessing Officer to assess the surplus as long term capital gain as against assessed as adventure in nature of trade.

(ii) That the ld. CIT(A) erred in law and on facts in allowing interest of Rs. 28,920 which has a mere provision and nothing was brought on record that interest had been demanded".

2. The assessee in the cross-objections has supported the order of the CIT(Appeals).

3. Since the issues involved in both the appeals as well as the cross-objections are common, so we proceed to dispose of all these appeals as well as the cross-objections by this consolidated order.

4. We have heard the learned Departmental Representative as wen as the assessee's counsel but before considering the submissions advanced by the parties, we would like to extra brief facts as emerge from the order of the CIT(Appeals) and are relevant for the decision of the issue involved as under.

5. The assessee was a lady and she was the widow of late Sh. Prem Manohar, who expired on15-5-1978. The family was purely agriculturist and they do not have any other business. They were holding agricultural lands in village Aurangshahpur Diggi inMeerut. On this land the appellant was carrying on agricultural operation until June, 1982. After the death of her husband the assessee was though carrying on agricultural operation but was not happy with the labour etc. and therefore, ultimately in 1982 she decided to sell her entire agricultural land measuring 10 Bigha 18 Biswas and 4 Biswansi to M/s. Rama Properties, Meerut for a sum of Rs. 15,00,000 and for this purpose she entered into an Agreement with the said M/s. Rama Properties (hereinafter referred to as an Agent). A copy of the agreement dated19-4-1982is filed at page 48 of the Paper Book. The agent paid an advance of Rs. 80,000 and rest of the money, i.e., Rs. 14,20,000 (Rs. 15,00,000 - Rs. 80,000) was to be received after the execution of the sale deeds either in favour of the agent or in favour of the nominees of the Agent. Other terms and conditions with regard to these transactions are mentioned in the aforesaid agreement. The agent cut out these lands into pieces which were sold in different periods right from the assessment years 1983-84 to 1988-89. The income arising out of such transaction has been assessed in the hands of the assessee upto the assessment year 1986-87 as capital gains, but w.e.f. 1987-88 onward the department changed its stand and held that the transaction was in the nature of adventure in the nature of trade vide relevant discussion in the assessment order for the assessment year 1987-88. The Assessing Officer, therefore, assessed a sum of Rs. 1,86,594 in the assessment year 1987-88 and Rs. 9,62,400 in the assessment year 1988-89 as business income in the nature of adventure of trade.

6. On appeal by the assessee, the CIT(Appeals) after relying on a decision of the Madras High Court in the case of CIT v. MLM. Mahalingam Chettiar [1977] 107 ITR 236 as well as in the case of CIT v. Kasturi Estates (P.) Ltd. [1966] 62 ITR 578 (Mad.), decided the issue in assessee's favour.

7. The learned Departmental Representative has supported the order of the Assessing Officer on the plea that the land was sold in small plots and Shri Madan Sharma, who was claimed by the assessee as her agent and with whom she had entered into an agreement for sale of the total land for Rs. 15 lakhs, had stated in his statement recorded by the Assessing Officer that he had received 5% commission on sale of the plots and, therefore, all the transactions having been carried on by the assessee, the activities, i.e., the transactions were in the nature of adventure in the nature of trade and the CIT(Appeals) was not justified in holding the same as sale of agricultural land. In support of this the learned Departmental Representative relied on the order of the Hon'ble Bombay High Court in the case of Estate Investment Co. Ltd. v. CIT [1980] 121 ITR 580.

8. The assessee's counsel, on the other hand, reiterated the submissions as well as the reliance on case laws advanced before the CIT(Appeals) and further submitted that the assessee had only sold ancestral agricultural land by way of a scheme to fetch the best price and such an activity cannot be termed as adventure in the nature of trade. To support his plea he placed reliance on the following decisions :---

(a) Deep Chandra & Co. v. CIT [1977] 107 ITR 716 (All.).

(b) CIT v. Premji Gopalbhai [1978] 113 ITR 785 (Guj.).

The assessee's counsel put forward another alternate argument in the terms that presuming but not admitting that had the assessee, if at all transferred her capital asset into trading one, it would have been done either before 19th April, 1982 the date of agreement with the agent and if not at that time, then as on 1st April, 1986, i.e., the first day of the previous year relevant to assessment year 1987-88, because if it is not so, then there is no question of considering the transaction as an adventure in the nature of trade and if it is so, then, according to the assessee's counsel, since the sale of plots have been effected during the period 19th April, 1982 to 31st March, 1986, i.e., the period relevant to assessment years 1983-84 to 1986-87, have been accepted by the revenue as sale of capital asset and profit taxed as capital gain, it is accepted fact that the revenue was not considering the transfer of capital asset to a trading one as on 19th April, 1982 or prior to that and, therefore, the only time, when it could be transferred by the assessee, is the date of 1st April, 1986 and if it is so, then there is no profit at all because, since the assessee had sold the plots prior to 1st April, 1986 at the rate of Rs. 60 per sq. yd., an admitted fact on record, the transfer could only be at the rate of Rs. 60 per sq. yd. and consequently the cost of acquisition as on 1st April, 1986 should have been at Rs. 60 per sq. yd., meaning thereby that the cost of acquisition of the trading asset on 1st April, 1986, shall be at the rate of Rs. 60 per sq. yd. only, there is no profit at all. In view of this submission the assessee's counsel submitted that if the transaction is considered as an adventure in the nature of trade, then, the assessee's income will be nil. He, therefore, pleaded for confirmation of the order of the CIT(Appeals).

9. After considering the rival submissions, facts and circumstances of the case and the case law relied upon by the parties, we are of the opinion that besides the issue as to whether a transaction, which, in the strict sense of the terms, cannot fall within the definition of "business" or "trade", is an adventure in the nature of trade, one has to investigate legal character of the trade or business, dominant intention of the assessee and all relevant and brief facts and circumstances of each case independently and on making such an exercise, if it is found that the dominant intention was to carry on the trade and some, but not all, characteristics of trade or business exist, then and only then it may be possible to arrive at a finding that the transaction is an adventure in the nature of trade. The expression "in the nature of trade" appearing in the definition of "business" stipulated in the provisions of sub-section (13) of section 2 of the IT Act, 1961 postulates the existence of certain elements in the adventure, which will now invest in the character of trade or business. This proposition of law finds support from the decision of the Hon'ble Supreme Court in the case of G. Venkataswami Naidu & Co. v. CIT [1959] 35 ITR 594, decision of the Allahabad High Court in the case of Kali Nath v. CIT [1973] 88 ITR 347 and of Andhra Pradesh High Court in the case of Ch. Atchaiah v. CIT [1985] 156 ITR 78.

10. At the same time it is also true that reference to "an adventure in the nature of trade" suggests that the transaction in question cannot be properly be regarded as a trade or business, it is allied to transaction that by itself or constitutes trade or business but may not be trade or business itself. It may be possible to characterise it by some, if not all, to the essential features that make a trade or business Bhagirath Prasad Bilgaiya v. CIT [1983] 139 ITR 916 (MP). Further to determine the nature of such a transaction, i.e., the transaction which in the strict sense of the terms, is not a trade or business, the dominant intention of the assessee has also to be seen, i.e., if the intention is to embark upon an adventure in the nature of trade is distinguished from the capital investment, it would make no difference even if the transaction is a single or multiple or isolated. The next question which crops up is as to whether it is revenue's onus to prove that a transaction was within the ambit of an adventure in the nature of trade or it is assessee's onus to prove that it does not fall within such ambit and the answer to this question is found in the decision of the Hon'ble Apex Court in the case of Saroj Kumar Mazumdar v. CIT [1959] 37 ITR 242, where the Hon'ble Apex Court has held that "In a case where a transaction under examination is not in the line of the business of the assessee and it is isolated or a single instance of transaction the burden lies on the revenue to bring the case within the words of the statute enabling that it was an adventure in the nature of trade".

11. Applying the aforesaid settled principles of law to the facts and circumstances of the case before us, we are of the opinion that neither there was dominant nor otherwise any intention of the assessee to carry on an adventure which may be termed as adventure in the nature of trade or the revenue has discharged its onus so that the transaction was not only an adventure but amounted to trade, and this conclusion is based on the consideration of the facts that asset in question was an ancestral agricultural land, agricultural activities had been carried on it since June 1982 and the assessee had agreed to sell the total land for a sum of Rs. 15 lakhs. The fact that land was sold in plots to an agent and throughout the period of four years at the constant rate of Rs. 60 per sq. yd. would also not alter the character of transaction, because, it is very common practice prevailing in such type of business that the agents purchase the whole land for a fixed price by way of agreement and sell the same by way of plots after getting the sale-deeds executed directly by the owner. This modus operandi is adopted by the agents to circumvent the provisions of stamp duty, which they would have to pay if transfer is registered by sale deed in their names. By this modus operandi the sale price agreed to be paid to the owner is then adjusted as and when the plots are sold. The revenue has also not brought any evidence to show that the lady had carried on any other such activity or had purchased any other land for selling the same by way of plots or otherwise. All the facts and circumstances lead to only one conclusion that the lady had sold her agricultural land, though by way of small plots, but has no intention to carry on an adventure which may be termed as in the nature of trade. On the contrary, the revenue itself has assessed the receipts from sale of plots effected during the period relevant to the assessment years 1983-84 to 1986-87 as capital gain and had not disputed the assessee's claim.

12. Here we would like to state that though res judicata does not apply to the income-tax proceedings since every assessment is an independent year, but in the present case, since the transactions effected during the period relevant to assessment years 1983-84 to 1986-87 were a part and parcel of the scheme as a whole, i.e., the left-over transactions were also for the same part of the asset, so, in case the revenue wanted to change the stand, it was incumbent upon it to prove change in the circumstances of the case, which, in our opinion, would have been either pointing to any change in the provisions of law or the facts and circumstances of the case, the revenue has not established or pleaded any one of such changes. Consequently we see no reason to interfere with the finding of the CIT(Appeals).

13. Coming to the assessee's alternate contention, we are of the opinion that since the revenue has assessed the sale price of plots (out of total agricultural land) during the assessment years 1983-84 to 1986-87 as capital gain, the conversion of capital asset into a trading asset, cannot be presumed to be till the end of previous year relevant to the assessment year i.e., till 31st March, 1986. If it is so, then, conversion could only on 1st April, 1986 and since at that time the assessee had sold plots at the rate of Rs. 60 per sq. yd., the conversion of capital asset to trading asset would be only at the rate of Rs. 60 per sq. yd. meaning thereby that cost of acquisition as on 1st April, 1986 would have been at the rate of Rs. 60 per sq. yd. As the subsequent sales were at the rate of Rs. 60 per sq. yd. only, so there was no possibility of assessee earning any profit on transactions carried on after conversion. We are, therefore, of the opinion that if the revenue's stand on conversion is accepted, then, the assessee gets absolved from any tax on transactions, which are considered as adventure in the nature of trade. But, since the assessee herself has accepted the transaction to be that of sale of capital asset and the surplus liable to be taxed as capital gain, our observations on this point are only of academic nature and have no impact on outcome of this appeal. The subsequent sale of the plots is at the rate of Rs. 60 per sq. yd. In view of this ground, the assessee is saved from the payment of capital gains tax.

14. As far as case law relied upon by the learned Departmental Representative is concerned, we are of the opinion that in case the intention of the assessee from the very beginning was found to be as dealing in sale-purchase of land, as is evident from the finding of the Hon'ble Bombay High Court in Estate Investment Co. Ltd.'s case contained in 4th paragraph of head-notes at page 581, which runs as under :

". . . that the objects clause of the company was wide and empowered it to purchase and sell land. It was not as if small and tiny pieces of lands were the subject-matter of sale but fairly large areas admeasuring several acres were the subject-matter of the transactions. No evidence was produced to show that any tangible or effective steps were taken or were intended to be taken to start work on its other objects like industrial school, etc. The principal activity of the assessee during the relevant years were dealings in land. The taking authorities and the Tribunal were, therefore, right in taking the view that the profits made from the sale of lands during the relevant years were revenue receipts liable to be taxed."

15. On the contrary the case law relied upon by the assessee are directly on the point involved in these appeals and fully supports the assessee's case.

16. In view of above discussion, we hold that the assessee's activity of sale of her ancestral agricultural land by way of small pieces was not an adventure which may amount to adventure in the nature of trade and, therefore, do not find any reason to interfere with the findings of the CIT(Appeals), which are confirmed.

17. Ground No. 2 reads as under :

"(ii) That the ld. CIT(A) erred in law and on facts in allowing interest of Rs. 28,920 which has a mere provisions and nothing was brought on record that interest had been demanded."

18. The issue involved in this ground has been decide by the CIT(Appeals) as per paragraph 3.1 of his order, which is reproduced as under :---

"3.1 In this connection, I have heard the learned counsel and gone through the facts of the case. The appellant's claim is that out of Rs. 2,41,000 i.e., payable to Sh. Chater Sen Gupta, the appellant had invested Rs. 2,40,000 by way of FDR (Rs. 1,40,000) and N.S.Cs. (Rs. 1,00,000) and she is being assessee to income-tax on the interest income. The case being so, the appellant was entitled to claim the deduction of intt. i.e., to be payable to Sh. Chater Sen Gupta. I would direct the Assessing Officer to verify the facts from the records and if the facts as narrated above are found correct then he should allow deduction of intt. @ 12% P.A. on the amount of Rs. 2,40,000 invested in FDRs and NSCs. I would like to make it clear that if subsequently by Court Decree or by any other chance the appellant is not liable to pay such interest to Sh. Chater Sen Gupta then the Department can assess the amount in question as income of the appellant under section 41(1) in the year of cessation of liability."

19. After hearing the rival parties and considering the facts and circumstances of the case, we are of the opinion that since the amount of Rs. 2,40,000 had been set apart by the assessee, as payable to Shri Chater Sen Gupta, so the same has to be considered as the assessee's liability and interest payable on such a liability should be allowed at least against the income earned on this amount. In our opinion, the CIT(Appeals) was justified in allowing the assessee's claim.

20. In the result, we confirm the order of the CIT(Appeals) on both the issues and the revenue's appeals are dismissed.

CROSS-OBJECTIONS

21. In view of our decisions dismissing the revenue's appeals, the assessee's cross-objection no more survive. Hence the same are dismissed, as such.

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