Shailesh Gangaram Ramani Vs. ITO (ITAT Rajkot)
Basic point which weigh with the ld.CIT(A) for treating the assessee partly as trader is the fact that the increase in sale price is 800%. In other words, volume of profit resulted to the assessee persuaded the ld.CIT(A) to habour a belief that the land purchased in the year of 2007 and sold after 15-16 months is to be treated as a trade asset. No doubt the profit on transfer of alleged agriculture land was quite high. But this is one of the corroborative evidences, amongst other, propounded in various case laws noticed by us. Merely if an assessee is getting a higher volume of sale consideration, then it could not be construed that transaction would take colour of a business transaction. The assessee is basically an agriculturist; purchases land at a distance of more than 20 kms. away from municipality and close to his native village. After sale of this land, he has again purchases agriculture land. He has not entered into any sale/ purchase of land in earlier period of time or in subsequent period of time. He has not borrowed money for purchase of land and incurred interest expenditure. There might be reasons for all of a sudden spurt in the price of land in the area. There could be change of policy of Government level; introduction of some project, but that type of change in the policy, whether, was in the notice of the assessee. No such factors have been brought on record by the AO. It is also pertinent to observe that whether the assessee could anticipate such substantial increase in the sale price of the land because of any policy introduced by the Government, no such factors have been brought on record. Facts are to be view keeping in view perspective the assessee, i.e. from where he belongs; whether he has ventured in any trading activities of similar nature; his educational background etc. Even the entire transaction is being looked into with that angle, then it would reveal that he has not traded in the land, rather it was a simplicitor investment for agriculture operation, but on account of getting good price land has been sold, and higher volume of land purchased at different places. Every agriculturist would like to enhance his land holding, if similar type of sale of land can result into a price, which can enable him to buy higher volume of other agriculture land. In view of the above discussion, we allow appeal of the assessee and direct the AO to treat the assessee as an investor in the agriculture land. Entire land sold to be treated as agriculture land and gain on sale of this land is beyond the purview of the capital gain under section 2(14) of the Income tax Act, 1961. The exemption claimed by the assessee be granted.
Full Text of the ITAT Order is as follows:-
The assessee and Revenue are in Cross Appeal against order of ld. Commissioner of Income Tax (Appeals)-II, Rajkot dated 21 .02.2014 passed for Assessment Year 2009-10.
2. The Grounds taken by both the appellants are not in consonance with Rule 8 of ITAT Rules, they are descriptive and argumentative in nature. In brief short common question involved in both the appeals relates to determination of nature of income derived by the assessee on sale of land, i.e. whether the profit on sale of land is to be assessed as business income or under the head capital gain.
3. The brief facts of the case are that assessee has filed his return of income on 21.01.2010 declaring total income at Rs. 9,48,823/-. His case was selected for scrutiny assessment and notices u/s. 143(2) and 142(1) were issued and served upon the assessee. On scrutiny of accounts it revealed to the Assessing Officer that assessee has derived income from trading in plastic, cotton and steel, also shown profit of Rs.3,52,19,658/- from sale of agricultural land situated at village : Paddhar, Tal: Bhuj-Kutch. This profit has been claimed as exempt on the ground of that the said land is not a capital asset within the meaning of Section 2(14) of the IT Act, 1961.
4. Ld. Assessing Officer did not accept the contentions of the assessee and treated him as a trader in the land. He assessed the alleged amount as business income.
5. On appeal ld. CIT(A) has partly accepted the contention of the He confirmed the assessment of Rs. 2,60,55,922/- under the head “business income” and accepted the contention of the assessee qua the balance amount. The revenue is challenging the order of ld.CIT(A) qua the amount, which has been accepted as asses sable under the head “capital gain” and exempt from tax being arisen on sale of agriculture land. On the other hand, assessee is impugning the order of the ld.CIT(A) for assessing the balance amount of Rs. 2,60,55,922/- under the head business income. We will be reverting to the facts in details.
6. With the assistance of ld. Representative, we have gone through the record. The issue, whether gain from sale of agricultural land is to be assessed as a business income or short term capital gain/ long term capital gain, is a highly debatable issue. It always puzzled the adjudicator even after availability of large numbers of authoritative pronouncements by the Hon’ble Supreme Court/Hon’ble High Court. The reason for the puzzle is, one has to gather the intention of an assessee while he entered into the transaction. The expression “intention” as defined in Meriam Webster Dictionary means, what one intends to accomplish or attain, it implies little more than what one has in mind to do or bring out. It suggests clear formulation or deliberation. Thus, it is always difficult to enter into the recess of the mind of an assessee to find out the operative forces exhibiting the intention for entering into the transaction. This would give rise a debate. Nevertheless, we have to look into the curious features of this case which will goad us on just conclusion.
7. Before we embark upon an inquiry on the facts of present case so as to find out, whether assessee is to be termed as involving in the trading of land or to be treated as a simplicitor agriculturist. We would like to refer the three basic questions formulated by ld. first appellate authority for adjudicating the controversy. These questions are as under:-
i. Is the sold land ‘agricultural land’?
ii. Whether the transaction carried out by the appellant was ‘adventure in the nature of trade’ and the profits thus required to be taxed as business income?
iii. Is the transaction a sham transaction and can it be labeled as a colourable device?
8. Ld. first appellate authority has made a lucid enunciation of law and facts under each question. She accepted that the land sold by the assessee was agricultural land. She also accepted that the transaction was not sham or colourable transaction.
9. The parties are not disputing on these conclusions. Thus, the controversy between assessee and revenue boils down to question 2 formulated by the ld.CIT(A). The Ld. first appellate authority has partly treated the assessee as indulged in adventure in the nature of trade and thus the profit resulted to him has been assessed as a business income. first appellate authority accepted the assessee as an investor in agriculture land, same would not result any capital gain, because the asset possessed by the assessee was not a capital asset within the meaning of section 2(14) (iii) of the Act.
10. Thus, at this stage, let us first note the facts in a little more detail. It is pertinent to observe that assessee is an agriculturalist by inheritance. He purchased agricultural land comprised in Survey No. 563/2 and 564 ad measuring 10.18 Acre at village Paddhar Tal. Bhuj in Kutch District in the month of April 2005 for consideration of Rs. 84,600/-. Brother of the assessee has also purchased the adjoining agricultural land comprised at Survey No. 559/1, 562/1 and 563/1, subsequently, in the month of Feb-March 2007. They have purchased further land in Survey No. 567/1, 567/2 ad measuring 4.33 and 9.23 Acre. This land was purchased for a consideration of Rs. 22,000/- and Rs. 43,600/-. The assessee has sold the land in July-August 2008. The details have been noticed by the ld. first appellate authority, while taking cognizance of the submissions made by the assessee. Such details read as under:-
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