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Case Law Details

Case Name : Shri Deepak Awatram Valecha Vs ITO (ITAT Mumbai)
Appeal Number : ITA No. 321/MUM/2018
Date of Judgement/Order : 11/10/2018
Related Assessment Year : 2012-13

Shri Deepak Awatram Valecha Vs ITO (ITAT Mumbai)

From the record we found that six plots of agriculture land was bought by the assessee with eight other persons. These plots of land were held for lease by owner and thereafter sold and profit accruing there on was claimed as exempt being income from sale of agricultural land. After analyzing the factual position, the lower authorities reached to the conclusion that intention of the assessee was to earn profit rather than investing in the agricultural land to be used for agricultural purposes. It was also observed that assessee was not at all interested in carrying out any agricultural activity. If it all in case that intention of assessee was to embark on a venture in the nature of trade as distinguished from a capital investment. The CIT(A) has discussed the various judicial pronouncements and also the criteria laid down by Rajasthan High Court in case of Mahaveer Enterprises to the facts of the instant case and reached to the conclusion that assessee alongwith 8 other persons entered into transaction for sale and purchase of land. Intention was not to carry out any agricultural activity as because sale was carried out barely within few months of the acquisition. The CIT (A) also observed that area of land located is being developed for the purpose of Holiday Homes, Farm houses located near to Karjat. The detailed findings so recorded by lower authorities by applying various judicial pronouncements have not been controverted by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the order of lower authorities for treating profit on sale of plot of land as business income.

FULL TEXT OF THE ITAT JUDGMENT

This is an appeal filed by the assessee against the order of CIT(A)-

2, Pune dated 14/09/2017 for A.Y.2012-13 in the matter of order passed u/s. 143(3) of the IT Act.

2. The only grievance of assessee relates to taxing the gain arising on transfer of agricultural land, which was claimed as exempt.

3. Rival contentions have been heard and record perused.

4. The only issue raised in the grounds of appeal is against the addition made of Rs.11,07,499/- being profit earned on sale of agricultural land. The Assessing Officer during the assessment proceedings noticed that an amount of
Rs. 11,07,499/- was earned by the assessee from sale of 6 plots of land during the year. However, the same was not shown In the income returned. When the assessee was confronted by the Assessing Officer, it was replied that since the land is agricultural land, therefore, the same is not taxable in view of the provision of Section 2(14) of the IT Act. However, this argument of the assessee did not find favour with the Assessing Officer and he treated the income as income earned out of adventure in the nature of trade .

5. By the impugned order CIT(A) confirmed the action of AO after observing as under:-

“I have perused the facts of the case as well as arguments taken on of the appellant. On a perusal of the facts, it is noticed that the appellant surplus of Rs. 11,07,499/- on account of following land transactions:

6.1 On a perusal of the aforesaid chart, it is seen that plots of land were sold within few months of tie acquisition which certainly shows that the intention of the appellant was not to make a capita investment but to earn profit. The appellant was also not at all interested in carrying out any agricultural activity. It is also noticed that the appellant had carried out the transaction of purchase and sale of the land alongwith eight other persons.

6.2. To determine the nature of transaction, the dominant intention of the assessee has to be seen. If the intention is to embark on a venture in the nature of trade as distinguished from a capital investment, it would make no difference even if the transaction is single or isolated one. This proposition has been laid down by Hon’ble Delhi High Court in the case of R. Dalmia vs. CIT 137 ITR 665.

6.3 The argument of the appellant that it did not have any land transaction in the past years, therefore, cannot be of any help considering the aforesaid proposition laid down by the Hon’ble Court.

6.4 Hon’ble Gujarat High Court in the case of CIT vs. Premji Gopalbhai [1978] 113 ITR 785 (Guj.) has held that “Even if land which is not a commercial commodity is purchased and it can be shown that the purchase of the land was made solely and exclusively with an intention to resell it at a profit, it would be a strong factor to indicate that the transaction would be an adventure in the nature of trade.”

6.5 Hon’ble Supreme Court in the case of G. Venkataswami Naidu & Co. vs. CIT [1959] 35 ITR 594 has held that “In cases where purchase has been made solely and exclusively with intention to resell at a profit and purchaser has no intention of holding property for himself or otherwise enjoying or using it, presence of such an intention is a relevant factor and unless it is offset by present of other factors, it would raise a strong presumption that transaction is an adventure in the nature of trade.”

6.6 In the facts of the present case also, it transpires that the appellant along with eight other persons purchased various parcels of land and subsequently sold barely after few months with the one and only motive of earning profit. The appellant was therefore clearly involved in a transaction which is an adventure in the nature of trade.

6.7 One of the argument has been taken that since the land sold is an agricultural land therefore, the same is not taxable as per the provision of Section 2(14) of the IT Act. Hon’ble Rajasthan High Court in the case of Mahaveer Enterprises v. Union of India [2000] 244 ITR 789/ (1997) 95 Taxman 220, considered the following as the relevant tests which could act as guidelines in determining the nature or the character of land as agricultural or otherwise:

(1) The proximity of the land to building and building sites.

(2) Sale of land for non-agricultural purposes.

(3) Sale of land by a measure with reference to square yards and not acres.

(4) Price being such as to be non-viable, if the land is put to agricultural use by the purchaser, while it is more consistent with the price fetched for urban plots than for agricultural land.

(5) Character of the land.

(6) The purpose for which the land was held by the present owner. A firm which holds it may well be presumed to have held it as stock-in-trade and not for carrying out agricultural operations.

(7) As regards use of the land for agricultural purposes prior to sale, mere use ‘ in remote past though land revenue is paid, would not make it agricultural.

(8) Mere capability of being used as agricultural land is not enough. [Para 8.3]

6.8 Applying the above tests in the appellant’s case, it is seen that the land in question meets the criteria as laid down by the Hon’ble Rajasthan High Court. The appellant along with eight other persons entered into the transaction for sale and purchase of the land. The intention was certainly not to carry out any agricultural activity as because sale was carried out barely within few months of the acquisition. It is further where land is located is being of Holiday Homes, Farm houses and is located near to . However, in the present case, the transaction has not been considered as capital gains but as adventure in the nature of trade and therefore, the provision of Section 2(14) of the IT Act are not applicable.

6.9. To reiterate, the Assessing Officer has not treated the transaction as recital gain but the same has been taxed as adventure in the nature of trade and under the head Business Income. The fact that land is an agricultural land is not relevant if the activity is treated as adventure in the nature of trade. This proposition has been laid down by Hon’ble M.P.High Court in the case of CIT vs. Jawahar Development Association [1981] 127 ITR 431. Hon’ble Court in this judgment has held as under:

“If the activity of the assessee in purchasing the land and selling the same into plots constitutes an adventure in the nature of trade, the mere fact that the land is an agricultural land cannot make the profits arising from sales exempt from income tax.”

6.10 In the light of the aforesaid discussion on the facts of the case as well as decisions cited supra, I hold that the Assessing Officer was perfectly justified in treating the income earned from land transaction as adventure in the nature of trade. The amount of surplus of Rs. 11,07,499/- has been rightly taxed as business income. The order of the Assessing Officer is accordingly confirmed.

6. Assessee is in further appeal before us against the above order of CIT(A). It was contended by learned AR that assessee has declared agricultural income of Rs.42,870/-, out of which Rs.12,500/- was derived from six agricultural land sold during the year. Learned AR also placed on record chart indicating the amount of agricultural income disclosed by the assessee during the last two assessment years i.e. for the A.Y. 2010-11 & 2011-12 as under:-

7. As per learned AR, the assessee has shown net agricultural income of Rs.42,870/- out of which Rs.12,500/- pertains to Mamdapur agricultural lands. The A.O. has accepted the net agricultural income of Rs.42,870/- including Rs.12,500/- earned from the above six agricultural lands at Mamdapur.

8. As per learned AR, the factual user to which the land is being put would furnish prima facie evidence of the true nature or character of the land and, therefore, whenever a question arises whether a particular land is agricultural or not, primarily’ regard must be had to the purpose for which the land is being actually used at or about the relevant time which would ordinarily provide a satisfactory answer to the problem [see Rasiklal Chimanlal Nagri vs CWT (1965) 56 ITR 608 (Guj); CIT vs Manilal Somnath (1977) 106 ITR 917 (Guj]. Reliance was placed on the decision of Hon’ble Supreme Court in the case of All India Tea & Trading Co. Ltd -219 ITR 0544, wherein it was held that the compensation received on compulsory acquisition of agricultural land admittedly used for agricultural purposes clearly had the character of rent or in any case, has to be regarded as being revenue which was derived from land and thus the amount received has to be regarded as agricultural income. Reliance was also placed on the decision of Bombay High Court in case of Manu Bhai A Sheth 128 ITR 087 and Gujarat High Court in the case of Manilal Somnath 106 ITR 0917. Reliance was also placed on the decision of Hyderabad Tribunal Bench in the case of Tulla Veerender 160 TTJ 0435.

9. On the other hand learned DR relied on the order of the lower authorities.

10. We have heard rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the various judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR during the course of hearing before us in the context of factual matrix of the case. From the record we found that six plots of agriculture land was bought by the assessee with eight other persons. These plots of land were held for lease by owner and thereafter sold and profit accruing there on was claimed as exempt being income from sale of agricultural land. After analyzing the factual position, the lower authorities reached to the conclusion that intention of the assessee was to earn profit rather than investing in the agricultural land to be used for agricultural purposes. It was also observed that assessee was not at all interested in carrying out any agricultural activity. If it all in case that intention of assessee was to embark on a venture in the nature of trade as distinguished from a capital investment. The CIT(A) has discussed the various judicial pronouncements and also the criteria laid down by Rajasthan High Court in case of Mahaveer Enterprises to the facts of the instant case and reached to the conclusion that assessee alongwith 8 other persons entered into transaction for sale and purchase of land. Intention was not to carry out any agricultural activity as because sale was carried out barely within few months of the acquisition. The CIT(A) also observed that area of land located is being developed for the purpose of Holiday Homes, Farm houses located near to Karjat. The detailed findings so recorded by lower authorities by applying various judicial pronouncements have not been controverted by bringing any positive material on record. Accordingly, we do not find any reason tointerfere in the order of lower authorities for treating profit on sale of plot of land as business income.

11. In the result, appeal of the assessee is dismissed.

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