COMMISSIONER OF INCOME TAX-II, CHANDIGARH V. HARJIT SINGH SANGHA, CHANDIGARH

ITA/16/2012

AI Insights

The case revolves around the classification of income from the sale of land in Village Karoran, Nayagaon, by Shri Harjit Singh Sangha. The revenue contended that the income from the sale of this land, which was developed into residential plots, should be taxed as business income under Section 28(i) of the Income Tax Act, 1961, rather than as Long Term Capital Gain. The Income Tax Appellate Tribunal, however, classified the income as Long Term Capital Gain, viewing the land as agricultural and not used for business purposes. The High Court upheld this decision, agreeing with the Tribunal's findings and reasoning.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 737058 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 17-09-2012
• Assessment Year: misc
• Other Referred Cases: DCIT v. A.P.Paper Mills Limited, Addl.CIT v. Tarachand Jain
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: URVASHI DHUGGA
• Keywords: Adventure in the nature of trade; Agricultural Land; Business income; Capital Gain; Long Term Capital Gain
• Section: 143(3); 260A; 28(i)

Judgement Text

"ITA No.16 of 2012 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.16 of 2012 (O&M) Date of decision:17.9.2012 Commissioner of Income Tax II, Chandigarh ...Appellant Versus Shri Harjit Singh Sangha, Chandigarh ...Respondent CORAM: HON'BLE MR.JUSTICE AJAY KUMAR MITTAL HON'BLE MR. JUSTICE RAKESH KUMAR GARG Present: Mrs. Urvashi Dhugga, Senior Standing Counsel for the appellant-revenue. Ajay Kumar Mittal,J. 1. This appeal has been preferred by the revenue under Section 260A of the Income tax Act, 1961 (in short, “the Act”) against the order dated 21.6.2011, Annexure A-3 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'B', Chandigarh in ITA No.1350/Chd/2010 for the assessment year 2006-07, claiming following substantial questions of law:- “a) Whether on the facts and in law, the order of the Hon'ble ITA T is justified in holding the land situated in Village Karoran as agricultural land and the income on sale of said land consisting of carved out plots falling within the area covered by residential houses, roads, common pathways, parks, shops/booths, indicating organized land development activity, is Long Term Capital Gain and not income from business and profession? b) Whether on the facts and in law, the order of the Hon'ble ITA T is justified in holding that the land situated in Village Karoran, Nayagaon is agricultural land by ignoring the notification of the Governor to constitute a Nagar Panchayat ITA No.16 of 2012 2 Nayagaon on 12.9.2005 declaring the said land in the village as land for urban usage/non agricultural, especially when no cultivation activity has been undertaken by the assessee? 2. Briefly, the facts as narrated in the appeal may be noticed. Assessment was completed under section 143(3) of the Act on 29.12.2008, Annexure A.1 at income of ` 1,19,83,800/- against the returned income of `1,14,46,382/-. The assessee declared total income of ` 1,14,46,382/- under the head 'Long Term Capital Gain' on sale of 64 kanals 15 marlas of land in Karoran Village of Nayagaon. During the assessment proceedings, the Assessing Officer noticed that the assessee was carrying on the business of sale-purchase of land and held that profits arising to the tune of `1,19,83,800/- from the sale of 64 kanals 15 marlas of land were business profits within the ambit of Section 28(i) of the Act. Aggrieved by the order, the assessee preferred an appeal before the Commissioner of income Tax (Appeals) [CIT(A)] who vide order dated 5.8.2010, Anenxure A.2 partly allowed the appeal treating the land in Village Karoran, Nayagaon as agricultural land and income derived on sale of land as Long Term Capital gain instead of income from business or profession. The revenue went in appeal before the Tribunal. Vide order dated 21.6.2011, Annexure A.3, the Tribunal dismissed the appeal. Hence this appeal by the revenue. 3. The core issue that arises for consideration is whether the sale of 64 kanals 15 marlas of land executed by 14 different sale deeds resulted in a business activity or amounted to capital gain as claimed by the assessee. 4. There is no strait-jacket formula for concluding whether the transaction would fall within the domain of 'profits derived from an adventure in the nature of trade' or outside its ambit. The facts and circumstances of each case would be determinative of the character of the receipt. The primary consideration in such cases relates to examining the ITA No.16 of 2012 3 nature of the transaction. Where a person invests money in land with intention to hold the asset, enjoys its usufruct for some time and then sells it at enhanced price, it would be a case of capital accretion outside the scope of profits resulting from an adventure in the nature of trade. On the other hand, where income accrues on realisation of investments consisting of purchase and resale, income accruing could be treated as adventure in the nature of trade. The cardinal question which would require to be answered would be whether purchaser was a trader and had purchased the commodity with the clear understanding that it was his usual trade or business or incidental to it. 5. It was noticed by the CIT(A) that the stand of the assessee was that the land purchased was meant for agricultural purpose and apart from this, it was being used as such. However, at no point, any site plan or provision for development or sale of plots was undertaken as the land was part of forest land and only agricultural activities were permissible even after deforestation. Further notice was taken of the fact that in the case of one of the co-owners Ms. Leena Sandhu, the Assessing officer, Ward 4(3) vide order dated 5.9.2008 passed under Section 143(3) of the Act treated the land as liable to capital gain relating to the year 2006-07. CIT(A) concluded that the income from sale of land was not assessable as business income but at the same time, the assessee's plea that the land was agricultural land not liable to capital gain was not accepted. 6. The Tribunal also on appreciation of material on record came to the conclusion that it was not business income but it resulted in Long Term Capital gains. The relevant findings noticed read thus:- “21. In the totality of the above said facts and circumstances and the evidence perused by us, the nature of land being agricultural land stands established ; a) as the said land was part of notified forest area where admittedly no other activities ITA No.16 of 2012 4 except agricultural, if allowed, could be carried out; b) Girdawari of the landholdings of the assessee proves the stand of the assessee that it was agricultural land and also the notification issued for the urban usage/non-agricultural activities certifies that prior to its notification the said land was used for agricultural purposes. The land being registered in Land Revenue Records as Agricultural land, then there is no basis for holding the said land and as not agricultural land. We find support from the ratio laid down by the Chandigarh Bench of the Tribunal in DCIT v. A.P.Paper Mills Limited (supra). Accordingly, we hold that the nature of the land sold by the assessee as on the date of its sale was agricultural land, which was acquired by the assessee in the year 1995 and was sold during the year under consideration. 22. The said asset being held by the assessee cannot be said to be a business asset and its sale in small plots of land to different purchasers is not adventure in the nature of trade, in the absence of the assessee having floated the same or having developed its land for the purposes other than agricultural land. Further for converting the usage, prior permission is required from the authorities and in the absence of any permission being obtained by the assessee from PUDA authorities in respect of the land sold, merely because the land is sold in small plots to persons who intended its residential use, does not change the nature of land sold in the hands of the assessee and its taxability. We find support from the ratio laid down by the Hon'ble Patna High Court in the case of Addl.CIT v. Tarachand Jain, 123 ITR 567 (Pat), which has been referred to by the Chandigarh Bench of the Tribunal in DCIT v. M/s A.P.Paper Mills Limited (supra). The relevant extract of the said judgment is as under:- '.....the land may lie near an urban area and the land may have fetched a good price, may hold good in cases of agricultural land also. Since the land has been recorded in the official records as agricultural land, if the department wanted to show that the entry was wrong, it should have given ITA No.16 of 2012 5 concrete facts in that direction. For example, it could have shown that the land lay within the municipal limits of the town of Ranchi or that the assessee had made his entire plot of land into parcels and was selling each one of them for the purpose of constructing a house thereof. The fact that the purchaser has purchased it for the purpose of constructing his house has no relevance because so far as the seller is concerned, he will be deemed to have parted with the agricultural land in the form of agricultural land, unless it is proved otherwise. The department has not brought up any such material on the record by which it could be said that the criteria adopted by the Tribunal for determining the character of the agricultural land was wrong.' [Emphasis supplied] 23. In view thereof we hold that the gain arising on the sale of the aforesaid agricultural land cannot be taxed as income from business.” 7. Learned counsel for the revenue was unable to show that the activity undertaken by the assessee was an adventure in the nature of trade. No error could be pointed out in the findings recorded by the CIT(A) and upheld by the Tribunal warranting interference by this Court. 8. No question of law much less substantial question of law arises in the appeal and the same is, consequently, dismissed. (Ajay Kumar Mittal) Judge September 17, 2012 ( Rakesh Kumar Garg) 'gs' Judge "