Qamar A.B. Mujawar, Pune V. ITO, Ward 2(2), Pune

ITA 1280/PUN/2010

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1021 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 16-10-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 05-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E , , !'!! # , $ % BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 1280/PN/2010 $& ' !(' / ASSESSMENT YEAR : 2006-07 QAMAR AHMED BASHIR MUJAWAR, R. NO. 12, KONARK ENCLAVE, BUND GARDEN ROAD, PUNE 411001 PAN : AGLPM4560G ....... / APPELLANT )& / V/S. THE INCOME TAX OFFICER, WARD 2(2), PUNE / RESPONDENT ASSESSEE BY : SHRI C.H. NANIWADEKAR REVENUE BY : SHRI RAJESH DAMOR / DATE OF HEARING : 18-08-2015 / DATE OF PRONOUNCEMENT : 14-10-2015 * / ORDER PER VIKAS AWASTHY, JM : THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE OR DER OF COMMISSIONER OF INCOME TAX (APPEALS)-II, PUNE DATED 29-07 -2010 FOR THE ASSESSMENT YEAR 2006-07. THE SOLITARY ISSUE RAISED IN THE APPEAL IS WITH RESPECT TO THE TREATMENT OF INCOME FROM SALE OF LAND . THE ASSESSEE HAS TREATED THE PROFIT FROM SALE OF LAND AS LONG TERM CAP ITAL GAIN. WHEREAS, THE DEPARTMENT IS OF THE VIEW THAT THE SAME H AS TO BE 2 ITA NO. 1280/PN/2010, A.Y. 2006-07 ASSESSED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION. 2. THE BRIEF FACTS OF THE CASE ARE : THE ASSESSEE IS A C IVIL ENGINEER. IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR 200 6-07, THE ASSESSEE DECLARED INCOME FROM HOUSE PROPERTY, BUSINESS IN COME AND CAPITAL GAINS. DURING THE PERIOD RELEVANT TO THE ASSESSME NT YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SOLD LAND COMPRISING IN S. N O. 42/2/1 AT KHARADI, PUNE FOR A CONSIDERATION OF RS.30,00,000/-. THE ASSESSEE HAD ACQUIRED THE SAID LAND VIDE AGREEMENT DATED 19-09- 1995 FROM SHRI IRSHAD NABI SAHEB MULLA FOR A CONSIDERATION OF RS.45,000/-. THE ASSESSEE PAID RS.5,000/- AS THE TIME OF EXECUTION OF AGREE MENT AND THE REMAINING AMOUNT OF RS.40,000/- WAS TO BE PAID WITHIN SIX M ONTHS FROM THE COMPLIANCE OF CERTAIN CONDITIONS BY THE OWNER. TH E BALANCE AMOUNT OF RS.40,000/- WAS PAID BY THE ASSESSEE THROUGH A SUPPLEMENTARY AGREEMENT DATED 31-05-2005. SINCE, THERE WAS SUBSTANTIAL DELAY IN THE PAYMENT OF BALANCE CONSIDERATION T HE ASSESSEE PAID AN ADDITIONAL SUM OF RS.1,00,000/- TO COMPENSATE THE D ELAY. THE ASSESSEE ALSO PAID STAMP DUTY OF RS.32,800/- AND REGISTR ATION CHARGES RS.30,000/-. THUS, THE TOTAL AMOUNT PAID BY THE ASSESSEE FOR ACQUIRING THE AFORESAID LAND WAS RS.2,07,800/-. THE ASSESSEE OFFERED RS.1,38,695/- AS LONG TERM CAPITAL GAIN FROM SALE OF LAND AFTER INVESTING RS.28,00,000/- IN ACCORDANCE WITH THE PROVISIONS OF SECTION 54EC OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). DURING THE COURSE OF SCRUTINY ASSESSMENT, THE ASSESSING OFFICER HELD THAT THE INCOME FROM SALE OF LAND IS A BUSINESS INCOME . THE ASSESSING OFFICER HELD THAT THE ASSESSEE IS A DEVELOPER AND BUILDER AND IS ENGAGED IN THE ACTIVITY OF BUYING AND SELLING PLOTS/LANDS O N REGULAR BASIS. THE ASSESSING OFFICER FURTHER OBSERVED THAT A PER USAL OF THE AGREEMENT VIDE WHICH THE ASSESSEE HAD ACQUIRED LAND SHO WS, THAT THE 3 ITA NO. 1280/PN/2010, A.Y. 2006-07 LAND IN QUESTION WAS ACQUIRED BY THE ASSESSEE FOR THE PU RPOSE OF DEVELOPMENT AND NOT AS AN INVESTMENT. THE ASSESSING OFFIC ER VIDE ORDER DATED 30-12-2008 ASSESSED THE INCOME FROM SALE O F LAND AS BUSINESS INCOME OF THE ASSESSEE. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFER RED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE IMPUGNED ORDER U PHELD THE FINDINGS OF THE ASSESSING OFFICER AND DISMISSED THE APPEAL OF T HE ASSESSEE. NOW, THE ASSESSEE HAS COME IN SECOND APPEAL BEFORE THE TRIBUNAL ASSAILING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS). 3. SHRI C.H. NANIWADEKAR APPEARING ON BEHALF OF THE ASSESSE E SUBMITTED, THAT THE ASSESSEE HAD PURCHASED AGRICULTURAL LAND ADMEASURING 4,000 SQ. MTRS. AT KHARADI VIDE AGREEMENT DA TED 19-09-1995. THE LAND PURCHASED BY THE ASSESSEE HAD S ERIOUS LIMITATIONS AND CONSTRAINTS. THE LAND WAS LOCATED IN AN INHO SPITABLE TERRAIN, OUTSIDE MUNICIPAL LIMITS OF PUNE. THERE WAS RESTRICT ION ON CONSTRUCTION, AS THE LAND WAS WITHIN 900 MTRS. FROM THE DE FENCE AIR FORCE BOUNDARY. THEREFORE, NO DEVELOPMENT WORK COULD HA VE BEEN CARRIED ON THE SAID LAND EXCEPT AGRICULTURE ACTIVITY. THE ASSESSEE HAD PURCHASED LAND PURELY FOR INVESTMENT PURPOSE AND NOT FOR DEVELOPIN G OR FOR COMMERCIAL EXPLOITATION. SUBSEQUENTLY, KHARADI WAS MER GED WITHIN THE RESIDENTIAL LIMITS OF PUNE MUNICIPAL CORPORATION. THE ASSE SSEE DECIDED TO DISPOSE OF THE LAND ON AS IS WHERE IS BASIS. THE ASSESSEE SOLD THE LAND ON 11-07-2005 AND INVESTED THE AMOUNT OF CAPITAL GAINS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 54EC OF THE A CT. THE LD. AR FURTHER SUBMITTED THAT THE LAND PURCHASED BY THE AS SESSEE WAS SUBJECT TO THE PROVISIONS OF URBAN LAND CEILING ACT, 1976 AND SECTION 84C OF THE BOMBAY TENANCY AND AGRICULTURAL ACT. THEREFOR E, SALE DEED 4 ITA NO. 1280/PN/2010, A.Y. 2006-07 WAS NOT EXECUTED AT THE TIME OF PURCHASE OF LAND IN THE YEAR 1995. T HE ASSESSEE HAS NOT CARRIED OUT ANY ACTIVITY WHAT SO EVER , FOR THE DEVELOPMENT OF LAND TILL THE DATE OF ITS SALE. THE ASSESSEE HAD PURCHASED THE LAND AS AGRICULTURAL LAND AND TILL THE TIME OF SALE THE ASSESSEE HAD NOT APPLIED FOR THE CHANGE OF LAND USE IN RE SPECT OF THE SAID LAND. NO BUSINESS ACTIVITY VIZ. DIVIDING THE LAND INTO PLO TS, SANCTION OF BUILDING PLANS ECT., HAS EVER BEEN UNDERTAKEN BY THE ASSESSEE. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSE E HAD PAID THE CONSIDERATION FOR PURCHASE OF LAND FROM HIS PERSONAL BANK A CCOUNT AND HAS SHOWN THE LAND IN HIS PERSONAL BALANCE SHEET AS AN INVESTMENT. THUS, BY NO STRETCH OF IMAGINATION THE PROFIT FROM SALE OF LA ND COULD BE TREATED AS BUSINESS INCOME OF THE ASSESSEE. MERELY USE OF CERTAIN WORDS IN THE AGREEMENT VIZ. DEVELOPMENT OF LAND, SANCTION OF PLANS AUTHORIZING THE PURCHASER TO SELL THE PROPERTY AFTER LAYOUT OF PLOTS, ETC. WILL NOT CHANGE THE NATURE OF INVESTMENT MADE BY THE ASS ESSEE. IN SUPPORT OF HIS SUBMISSIONS, THE LD. AR PLACED RELIANCE ON THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ITO V S. SHRI SUBHASH B. SANAS IN ITA NO. 61/PN/2007 FOR THE ASSESSME NT YEAR 2003-04 DECIDED ON 31-12-2014. THE LD. AR PRAYED FOR S ETTING ASIDE THE IMPUGNED ORDER. 4. SHRI RAJESH DAMOR REPRESENTING THE DEPARTMENT, ON T HE OTHER HAND VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS). THE LD. DR SUBMITTED THAT THE INTENTION OF T HE ASSESSEE AT THE TIME OF PURCHASE OF LAND WOULD DETERMINE THE NATUR E OF INVESTMENT. A PERUSAL OF THE AGREEMENT VIDE WHICH THE AS SESSEE HAD ACQUIRED LAND WOULD CLEARLY SHOW THAT THE INTENTION OF THE ASSESSEE WAS TO DEVELOP THE LAND AND TO SELL THE SAME AFTER PLOTTING. T HE LD. DR FURTHER CONTENDED THAT THE COMMISSIONER OF INCOME TAX ( APPEALS) IN HIS ORDER HAS STATED THE INSTANCES WHEREIN THE ASSESSE E WAS ENGAGED IN 5 ITA NO. 1280/PN/2010, A.Y. 2006-07 BUYING AND SELLING OF PLOTS/LAND ON REGULAR BASIS. THE LD. DR POINTED OUT THAT THE LAND IN QUESTION HAS BEEN SHOWN BY THE AS SESSEE UNDER THE HEAD BUSINESS ASSET. THE LD. DR FURTHER CONTENDE D THAT EVEN IF IT IS PRESUMED THAT THE PRESENT SALE OF LAND IS A SINGLE INSTA NCE OF SALE BY THE ASSESSEE, STILL PROFIT GENERATED FROM SALE OF THE SAID LA ND WOULD AMOUNT TO INCOME UNDER THE HEAD BUSINESS AND PROFESSION . THE LD. DR SUBMITTED THAT THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF RAJA J. RAMESHWAR RAO VS. CIT REPORTED AS 42 ITR 179 (SC) H AS HELD THAT EVEN A SINGLE INSTANCE OF SALE CAN BE REGARDED AS IN THE NATURE OF TRADE OR BUSINESS. THE LD. DR PRAYED FOR SUSTAINING THE IMPUGN ED ORDER AND DISMISSING THE APPEAL OF THE ASSESSEE. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH THE RIVAL SIDES HAVE PLACED RELIANCE. THE ISSUE BEFORE US IS; WHETHER THE INCOME FROM SALE OF LAND IS TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS OR UND ER THE HEAD INCOME OF BUSINESS AND PROFESSION? THE INCOME FROM SALE OF LAND WHETHER TO BE ASSESSED AS CAPITAL GAINS OR AS BUSINESS INCOME, HAS TO BE DECIDED IN THE FACTS AND CIRCUMSTANCES OF EACH CASE. IT IS A MIXED QUESTION OF LAW AND FACTS. THERE IS NO STRAIGHT JACKET FOR MULA THAT CAN BE APPLIED TO DETERMINE THE NATURE OF INCOME IN SUCH LIKE TRANSACTIO NS. 6. IN THE PRESENT CASE, THE ASSESSEE HAS ACQUIRED LAND MEASURING 4,000 SQ. MTRS. COMPRISING IN S. NO. 42 AT KHARADI, PUNE VID E AGREEMENT DATED 19-09-1995. A PERUSAL OF THE AGREEME NT SHOWS THAT AT SOME PLACES IT HAS BEEN MENTIONED THAT THE PROPERTY HAS BEEN GIVEN FOR SALE/DEVELOPMENT. IT HAS BEEN FURTHER MENTIONED IN TH E AGREEMENT THAT THE OWNER HAS GIVEN THE LAND TO THE PURCHASER TO CONSTRUCT THE BUILDING AS PER THE SANCTIONED PLAN, THE OWNER HAS AUTHOR IZED THE 6 ITA NO. 1280/PN/2010, A.Y. 2006-07 PURCHASER TO SALE THE SAID PROPERTY OR TO PREPARE THE LAYOUT AND SALE THE PLOTS AFTER DEVELOPMENT. IN THE AGREEMENT IT HAS A LSO BEEN CATEGORICALLY STATED THAT THE ASSESSEE IS A PURCHASER. IN SOME OF THE CLAUSES ALTHOUGH IT HAS BEEN STATED THAT, THE PURCHASER HAS A RIGHT TO CONSTRUCT BUILDING AS PER SANCTION PLAN OR SALE THE P ROPERTY AFTER LAYOUT OF PLOTS BUT THAT WOULD NOT CHANGE THE NATURE OF TRANSACTION. ONCE THE LAND HAS BEEN SOLD, IT IS THE PREROGATIVE OF PURCHASER TO USE THE LAND IN WHATSOEVER MANNER HE WISHES. A PERUSAL OF THE AGREEMEN T SHOWS THAT TIME AND AGAIN THE ASSESSEE HAS BEEN REFERRED TO AS THE PURCHASER AND NOT DEVELOPER IN THE AGREEMENT. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. SHRI SUBHASH B. SANAS (SUPRA) HAS HELD : THE MERE NOMENCLATURE OF THE AGREEMENT FOR ACQUISIT ION AS A DEVELOPMENT AGREEMENT BY ITSELF IS NOT CONCLUSIVE TO SAY THAT THE INTENTION OF THE ASSESSEE WAS TO TREAT THE SAID PUR CHASE AS A PURCHASE OF STOCK-IN-TRADE. THE FACTUAL MATRIX WHICH HAS PREVAILED DURING THE PERIOD OF HOLDING OF LAND BY THE ASSESSEE FOR 7 YEARS DOES N OT SUGGEST THAT ANY DEVELOPMENT ACTIVITY WAS CARRIED OUT ON THIS LAND. IN THE PRESENT CASE, IT IS AN UNDISPUTED FACT THAT THE A SSESSEE HAD ACQUIRED THE LAND IN THE YEAR 1995 AND SOLD THE SAM E IN THE YEAR 2005. DURING THIS PERIOD OF 10 YEARS, THE ASSESSEE HAS N OT CARRIED OUT ANY DEVELOPMENT ACTIVITY. SO MUCH SO, THE ASSESSEE HAS NOT EVEN APPLIED FOR CHANGE OF LAND USE FROM AGRICULTURAL TO NON-AGR ICULTURAL. IT HAS NOT BEEN REBUTTED BY THE DEPARTMENT THAT THE LAN D WAS PURCHASED BY THE ASSESSEE FROM HIS PERSONAL BANK ACCOUNT AND HAS BEEN SHOWN IN THE PERSONAL BALANCE SHEET AS AN INVESTMENT. A CLOSE S CRUTINY OF THE AGREEMENT SHOWS THAT IT IS A CASE OF OUTRIGHT SALE OF LAN D AND NOT TRANSFER OF DEVELOPMENT RIGHTS IN THE LAND. 7. THE ASSESSEE HAS EXPLAINED THE REASON FOR EXECUTING AGREEMENT INSTEAD OF THE SALE DEED AND FOR USING THE WORD DEVELOPM ENT IN THE 7 ITA NO. 1280/PN/2010, A.Y. 2006-07 AGREEMENT. THE LAND WAS SUBJECT TO URBAN LAND CEILING A CT, 1976 AND WAS ALSO UNDER EMBARGO OF SECTION 84C OF THE BOMBAY TEN ANCY AND AGRICULTURAL ACT THAT PREVENTED THE ASSESSEE FOR EXECUT ION OF THE SALE DEED. FURTHER, IT HAS BEEN CONTENDED BY THE ASSESSEE THAT THE LA ND WAS SITUATED WITHIN 900 MTRS. FROM THE DEFENCE AIR FORCE BOUND ARY. THERE WAS RESTRICTION ON CONSTRUCTION ON THE SAID LAND. THERE FORE, NO DEVELOPMENT OR CONSTRUCTION ACTIVITY COULD HAVE BEEN CAR RIED OUT ON THE LAND IN QUESTION. THESE FACTS HAVE NOT BEEN CONTROVERTE D BY THE DEPARTMENT. 8. ONE OF THE CONTENTIONS OF THE LD. DR IS, THAT THERE ARE INSTANCES WHERE THE ASSESSEE IS ENGAGED IN THE SALE AND PURCHASE OF LAND. EVE N IF THE CONTENTIONS OF THE LD. DR ARE ACCEPTED, THERE IS NO B AR ON THE ASSESSEE TO PURCHASE PROPERTY FOR INVESTMENT PURPOSE APART FROM BUYING PROPERTY FOR BUSINESS PURPOSE AND HOLD IT AS STOC K-IN-TRADE. HOWEVER, IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT C ASE, WE FIND THAT NO DEVELOPMENT ACTIVITY OF WHATSOEVER NATURE WAS CARRIED OUT BY THE ASSESSEE ON THE PROPERTY IN QUESTION, SO AS TO GIVE IT COLOUR OF BUSINESS ASSET. THUS, THIS CONTENTION OF THE LD. DR IS REJECTED. 9. THE LD. DR HAS PLACED RELIANCE ON THE DECISION OF HON'B LE SUPREME COURT OF INDIA IN THE CASE OF RAJA J. RAMESHWAR RAO VS. CIT (SUPRA) TO SAY THAT EVEN A SINGLE INSTANCE MAY BE REGARD ED AS TRADE OR BUSINESS. IN THE SAID CASE, THE ASSESSEE HAD ACQUIRED LAND WITH A VIEW TO SELL LAND AFTER DEVELOPING. THE ASSESSEE DIVIDED THE LAND INTO PLOTS, DEVELOPED THE AREA TO MAKE IT MORE ATTRACTIVE AND SELL T HE LAND AFTER CREATING MORE FACILITIES. THE ASSESSEE WAS HOLDING THE LAND AS STOCK-IN- TRADE. IN THE BACKDROP OF THIS FACT, THE HON'BLE APEX CO URT HELD THAT ALTHOUGH IT WAS A SINGLE VENTURE; BUT EVEN A SINGLE VENTUR E MAY BE REGARDED AS TRADE OR BUSINESS. WE FIND THAT THE FACTS IN THE PRESENT 8 ITA NO. 1280/PN/2010, A.Y. 2006-07 CASE ARE AT VARIANCE. THUS, THE RATIO LAID DOWN IN THE CA SE OF RAJA J. RAMESHWAR RAO VS. CIT (SUPRA) WILL NOT BE APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN HAND. 10. AS A COROLLARY TO OUR DETAILED FINDINGS, WE ARE OF THE C ONSIDERED OPINION THAT THE INCOME ARISING FROM SALE OF LAND IN THE PRES ENT CASE HAS TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS. THE A UTHORITIES BELOW HAVE ERRED IN HOLDING THE INCOME/PROFITS FROM SALE OF LAND IN QUESTION AS INCOME FROM BUSINESS. 11. IN THE RESULT, THE IMPUGNED ORDER IS SET ASIDE AND THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 14 TH DAY OF OCTOBER, 2015. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 14 TH OCTOBER, 2015 RK *+,$-.'/'(- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-II, PUNE 4. ' / THE CIT-II, PUNE 5. !*+ %%,- , ,- , . /01 , / DR, ITAT, A BENCH, PUNE. 6. + 2 34 / GUARD FILE. // ! % // TRUE COPY// #5 / BY ORDER, %6 ,1 / PRIVATE SECRETARY, ,- , / ITAT, PUNE