HBC Finance &Leasing Ltd., Hyderabad V. DCIT, Hyderabad

ITA 1315/HYD/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2541 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 26-11-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 30-07-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Business income; Set aside

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL HYDERABAD BENCH 'A' BEFORE SHRI N.R.S.GANESAN AND SHRI CHANDRA POOJARI I.T.A.NOS.765/HYD/2006 AND 1315/HYD/2008 ASSESSMENT YEARS 2003-04 AND 2005-06 H.B.C. FINANCE & LEASING LTD., HYDERABAD. .. APPELLANT (PAN AAACH8797A) VERSUS DY. CIT, CIRCLE 2(2), HYDERABAD. ..RESPONDENT APPELLANT BY : SHRI V.RAGHAVENDRA RAO RESPONDENT BY : SHRI K.V.N.CHARYA O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER: THESE APPEALS OF THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS OF THE CIT (APPEALS) III, HYDERABAD, AND PERTAIN TO ASST. YEAR S 2003-04 AND 2005-06. SINCE COMMON ISSUE ARISES FOR CONSIDERATION IN ALL THESE APPEALS, WE HEARD THE APPEALS TOGETHER AND WE DISPOSE OF THE SAME BY THIS ORDER. 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THESE APPEALS IS ASSESSMENT OF PROFIT ON SALE OF LAND. SHRI V.RAGHAVENDRA RAO, LEARNED COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF FINANCE AND LEASING. ACCORDING TO THE LEARNED COUNSEL, THE ASSE SSEE ACQUIRED 1 ACRE OF LAND IN MADINAGUDA VILLAGE, SERILINGAMPALLY MANDAL, R.R. DISTRICT. SUBSEQUENTLY, THE ASSESSEE ENTERED INTO A DEVELOPMENT AGREEMENT WITH NAMAHA ESTATES FOR DEVELOPMENT. AS PER THE DEVELOPMENT AGREEMENT, THE ASSESSEE IS ENTITLED FOR 8% OF THE TOTAL AREA CONSTRUCTED BY NAMAHA ESTATES. ACCORDING TO THE LEARNED COUNSEL, FOR THE ASST. YEAR UNDER CONSIDERATION, TH E ASSESSEE RECEIVED A TOTAL 2 CONSIDERATION OF RS.33,54,310. THE ASSESSEE CLAIMED PROFIT ON SALE OF LAND AS CAPITAL GAIN. HOWEVER, THE ASSESSING OFFICER TREATE D THE SAME AS BUSINESS INCOME. REFERRING TO THE ASSESSMENT ORDER, THE LEAR NED COUNSEL SUBMITTED THAT THE AO CAME TO THE CONCLUSION THAT THE MAIN OBJECT OF THE ASSESSEE WAS DEALING IN REAL ESTATE. THE AO FURTHER OBSERVED THAT SINCE THE ASSESSEE PURCHASED THE LAND ON 8-9-1999 AND ENTERED INTO DEVELOPMENT AGREE MENT ON 29-11-1999, THERE WAS A CLEAR INTENTION NOT TO HOLD THE LAND AS INVESTMENT BUT TO MAKE PROFIT. THEREFORE, THE AO TREATED THE PROFIT AS BUS INESS INCOME. ACCORDING TO THE LEARNED COUNSEL, THE ASSESSEE WAS NOT IN THE BUSINE SS OF REAL ESTATE. REFERRING TO THE ORDER OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE ASST. YEAR 2001- 02 IN I.T.A.NO.1243/HYD/2003 DATED 30-11-2005, THE LEARNED COUNSEL SUBMITTED THAT THIS TRIBUNAL, AFTER REFERRING TO TH E FACTUAL SITUATION, FOUND THAT THE ASSESSEE HAD NOT DONE ANY BUSINESS IN REAL ESTA TE. IN VIEW OF THIS FINDING OF THE TRIBUNAL FOR ASST. YEAR 2001-02, ACCORDING TO T HE LEARNED COUNSEL, THE PROFIT ARISING ON SALE OF THE LAND HAS TO BE TREATED AS CA PITAL GAIN AND NOT AS BUSINESS INCOME. 3. THE LEARNED COUNSEL FURTHER SUBMITTED THAT WHAT WAS PURCHASED BY THE ASSESSEE IS 1 ACRE OF LAND. ANNAPURNA SHELTERS PURC HASED NEARLY 2 ACRES OF LAND IN THE VERY SAME SURVEY NUMBER ADJOINING THE ASSESS EE'S LAND. NAMAHA ESTATES PURCHASED 1 ACRE OF LAND ADJOINING THE ASSESSEE'S L AND. ACCORDING TO THE LEARNED COUNSEL, OUT OF 4 ACRES OF LAND, 3 ACRES BELONGED T O ANNAPURNA SHELTERS AND NAMAHA ESTATES. ACCORDING TO THE LEARNED COUNSEL, A S PER THE DEVELOPMENT AGREEMENT NAMAHA ESTATES HAS TO CONSTRUCT THE BUILD ING ON THE LAND BY INVESTING THEIR OWN FUNDS. ACCORDING TO THE LEARNED COUNSEL, THE ASSESSEE WAS 3 ENTITLED TO 7.5% OF THE SALE REVENUE. THEREFORE, TH E ASSESSEE TRANSFERRED THE LAND FOR THE PURPOSE OF DEVELOPMENT TO THE DEVELOPE R VIZ. NAMAHA ESTATES AND NAMAHA ESTATES CONSTRUCTED THE BUILDING AND THE ASS ESSEE IS ENTITLED ONLY FOR 7.5% OF THE SALE REVENUE. THE LEARNED COUNSEL PLACE D HIS RELIANCE ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF SAROJ KUMAR MAZUMDAR V. CIT (1959) 37 ITR 242, AND SUBMITTED THAT WHAT WE HAVE TO SEE IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF LAND. MEREL Y BECAUSE THE ASSESSEE SUBSEQUENTLY ENTERED INTO A JOINT VENTURE AGREEMENT FOR THE PURPOSE OF GETTING A BETTER COST FOR TRANSFER OF THE LAND, THERE CANNO T BE ANY INFERENCE THAT THE ASSESSEE PURCHASED THE LAND FOR BUSINESS PURPOSES. ACCORDING TO THE LEARNED COUNSEL, THE ASSESSEE PURCHASED ONLY 1 ACRE OF LAND AND IN CASE THE ASSESSEE DID NOT ENTER INTO ANY DEVELOPMENT AGREEMENT, THE V ALUE OF THE LAND WOULD BE REDUCED SINCE THE LAND PURCHASED BY ANNAPURNA SHELT ERS AND NAMAHA ESTATES ARE ON THE FRONT SIDE AND THE ASSESSEE MAY NOT BE A BLE TO SELL THE PROPERTY TO ANY OTHER PERSON. THEREFORE, ACCORDING TO THE LEARN ED COUNSEL, THE BEST AVAILABLE OPPORTUNITY TO THE ASSESSEE WAS TO JOIN T OGETHER WITH OTHER LAND OWNERS IN ORDER TO GET A BETTER PRICE FOR THE LAND. THE LEARNED COUNSEL FURTHER SUBMITTED THAT IN THE BOOKS OF ACCOUNT THE LAND WAS NOT SHOWN AS STOCK-IN- TRADE. THE ASSESSEE DID NOT ENGAGE ITSELF IN ANY AC TIVITY OF REAL ESTATE. THE LAND WAS PURCHASED AS AN INVESTOR. SUBSEQUENTLY, BY TAKI NG INTO CONSIDERATION THE RISKS INVOLVED IN CONTINUING TO KEEP THE LAND, THE ASSESSEE DECIDED TO DEVELOP THE LAND ALONG WITH OTHER ADJOINING OWNERS. THEREFO RE, ACCORDING TO THE LEARNED COUNSEL, MERELY BECAUSE AN INADVERTENT STATEMENT WA S MADE IN THE AGREEMENT THAT THE LAND WAS STOCK-IN-TRADE, THAT CANNOT BE TA KEN AS A BASIS FOR DISALLOWING 4 THE CLAIM OF THE ASSESSEE. ACCORDING TO THE LEARNED COUNSEL, IN THE BOOKS OF ACCOUNT THE LAND WAS NOT TREATED AS STOCK-IN-TRADE. THEREFORE, IT IS CLEAR THAT THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHA SING THE LAND WAS ONLY TO KEEP THE LAND AS AN INVESTMENT AND NOT AS A BUSINES S ADVENTURE. THEREFORE, ACCORDING TO THE LEARNED COUNSEL, THE PROFIT ARISIN G OUT OF THE TRANSFER OF THE LAND HAS TO BE TREATED AS CAPITAL GAIN AND NOT AS B USINESS INCOME. 4. ON THE CONTRARY, SHRI K.V.N. CHARYA, LEARNED DEP ARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE MEMORANDUM OF AS SOCIATION OF THE ASSESSEE COMPANY CLEARLY SHOWS THAT THE MAIN OBJECT OF THE A SSESSEE IS TO DO BUSINESS IN REAL ESTATE. THE VERY FACT THAT THE LAND WAS PURCHA SED ON 8-9-1999 AND THE ASSESSEE ENTERED INTO A DEVELOPMENT AGREEMENT WITHI N 2 MONTHS I.E. ON 29- 11-1999 SHOWS THAT THE INTENTION OF THE ASSESSEE WA S NOT TO KEEP THE LAND AS AN INVESTMENT BUT TO MAKE PROFIT AS A BUSINESS ADVE NTURE. REFERRING TO THE DEVELOPMENT AGREEMENT, THE LEARNED DEPARTMENTAL REP RESENTATIVE SUBMITTED THAT THE ASSESSEE TREATED THE LAND AS STOCK-IN-TRAD E. THE ASSESSEE ALSO SPENT RS.10,60,096 ON DEVELOPMENT OF THE LAND. REFERRING TO THE JUDGMENT OF THE APEX COURT IN THE CASE OF G.VENKATASWAMI NAIDU & CO . V. CIT (1959) 35 ITR 594, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMIT TED THAT THE PURCHASE OF LAND AND SUBSEQUENT DEVELOPMENT BY INVESTING RS.10, 60,096 SHOWS THAT THE ASSESSEE INTENDED TO TRADE IN REAL ESTATE AND NOT T O KEEP THE LAND AS INVESTMENT. ACCORDING TO THE LEARNED DEPARTMENTAL R EPRESENTATIVE, EVEN AN ISOLATED TRANSACTION OF PURCHASE AND SALE OF PROPER TY CAN BE TREATED AS AN ADVENTURE IN THE NATURE OF TRADE. REFERRING TO THE DECISION OF THIS TRIBUNAL IN THE ASSESSEE'S CASE FOR THE EARLIER ASST. YEAR, THE LEA RNED DEPARTMENTAL 5 REPRESENTATIVE POINTED OUT THAT THE MAIN OBJECT OF THE ASSESSEE WAS DEALING IN REAL ESTATE APART FROM OTHER ACTIVITIES. THEREFORE, THE ACT OF ACQUIRING LAND AND HANDING THE SAME OVER TO THE DEVELOPER FOR DERIVING PROFIT HAS TO BE CONSIDERED AS A TRADING ACTIVITY AND NOT INVESTMENT IN REAL ES TATE. THEREFORE, ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE DECISI ON OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE EARLIER ASST. YEAR WHER EIN IT WAS HELD THAT THE ASSESSEE IS NOT IN THE BUSINESS OF REAL ESTATE IS N OT APPLICABLE AT ALL. ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, ONE OF THE MAIN OBJECTS OF THE ASSESSEE IS TO CARRY ON BUSINESS IN REAL ESTATE AND DEALING IN BUILDINGS. THEREFORE, THE LOWER AUTHORITIES HAVE RIGHTLY TREAT ED THE TRANSACTION AS A BUSINESS TRANSACTION. 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS ON EITHER S IDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE PURCHASED 1 ACRE OF LAND ON 8-9-1999. THE ASSESSEE ENTERED INTO A DEVELOPMENT AGREEMENT WITH M/S NAMAHA ESTATES FOR THE PURPOSE OF DEVELOPI NG THE LAND AS A JOINT VENTURE. AS RIGHTLY SUBMITTED BY THE LEARNED COUNSE L FOR THE ASSESSEE, THE ASSESSEE PURCHASED 1 ACRE OF LAND, ANNAPURNA SHELTE RS PURCHASED 2 ACRES AND M/S NAMAHA ESTATES ALSO OWNED 1 ACRE OF LAND IN THA T VICINITY. IT IS NOT IN DISPUTE THAT THE ASSESSEE'S LAND WAS ON THE BACKSID E OF THE LAND OWNED BY ANNAPURNA SHELTERS AND NAMAHA ESTATES. THEREFORE, W HEN ANNAPURNA SHELTERS AND NAMAHA ESTATES DECIDED TO DEVELOP THE LAND BY P UTTING UP A MULTI-STOREYED BUILDING, THE VALUE OF THE LAND OWNED BY THE ASSESS EE ON THE BACKSIDE WOULD BE CONSIDERABLY REDUCED. THEREFORE, AS A MAN OF PRUDEN CE, THE ASSESSEE WOULD 6 NATURALLY JOIN WITH THE NEIGHBOURING LANDLORDS TO G ET THE BEST PRICE POSSIBLE IN SUCH A SITUATION. 6. THE QUESTION THAT ARISES FOR CONSIDERATION IS WH ETHER THE PROFIT ARISING OUT OF SUCH SALE OF LAND WOULD AMOUNT TO ADVENTURE IN T HE NATURE OF TRADE. NO DOUBT AN ISOLATED INCIDENT OF SALE AND PURCHASE, IF IT IS MADE WITH AN INTENTION TO DO BUSINESS, WOULD AMOUNT TO AN ADVENTURE IN THE NATUR E OF TRADE. THE INTENTION OF THE ASSESSEE HAS TO BE ASCERTAINED AT THE TIME OF I NITIAL PURCHASE OF THE PROPERTY. MERELY BECAUSE AFTER PURCHASING THE LAND THE ASSESSEE, TAKING INTO CONSIDERATION THE CIRCUMSTANCES WHICH PREVAILED SUB SEQUENT TO THE PURCHASE OF LAND, SOLD THE LAND TO THE DEVELOPER, WE CANNOT SAY THAT THE INTENTION OF THE ASSESSEE WAS TO TRADE IN REAL ESTATE. THEREFORE, IN OUR OPINION, THE INTENTION OF THE ASSESSEE HAS TO BE ASCERTAINED AT THE TIME OF P URCHASE OF LAND. THIS VIEW OF OURS IS FORTIFIED BY THE JUDGMENT OF THE APEX COURT IN THE CASE OF SAROJKUMAR MAJUMDAR (SUPRA). 7. WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGMENT OF THE APEX COURT IN THE CASE OF G.VENKATASWAMI NAIDU & CO. (SUPRA). IN THE CASE BEFORE THE APEX COURT, THE ASSESSEE PURCHASED 4 CONTIGUOUS PLOTS OF LAND MEASURING ABOUT 5 AC. 26 CENTS UNDER FOUR SALE DEEDS. AFTER ABOUT 5 YEARS , THESE PROPERTIES WERE SOLD BY THE ASSESSEE IN LOTS TO JANARDANA MILLS LTD. THE ASSESSEE WAS ACTING AS THE MANAGING AGENT OF JANARDANA MILLS LTD. THE ASSESSIN G OFFICER TREATED THE PROFIT ON SALE OF THE LAND UNDER THE HEAD 'BUSINESS'. HOWE VER, THE FIRST APPELLATE AUTHORITY FOUND THAT THE PROFIT WAS CAPITAL GAIN. O N APPEAL BY THE REVENUE, THE TRIBUNAL HELD THAT THE PROFIT WAS NOT CAPITAL ACCRE TION BUT A GAIN MADE IN AN ADVENTURE IN THE NATURE OF BUSINESS. ACCORDINGLY, T HE TRIBUNAL UPHELD THE ORDER 7 OF THE AO. ON A REFERENCE, THE MADRAS HIGH COURT HE LD THAT THE TRANSACTION IN QUESTION WAS AN ADVENTURE IN THE NATURE OF TRADE AN D ALSO THAT THE AO WAS JUSTIFIED IN TAXING THE PROFIT UNDER THE HEAD 'BUSI NESS'. ON FURTHER APPEAL BY THE ASSESSEE, THE APEX COURT FOUND THAT WHEN A PERSON I NVESTS MONEY IN LAND INTENDING TO HOLD IT, ENJOYS ITS INCOME FOR SOME TI ME, AND THEN SELLS IT AT A PROFIT, IT WOULD BE A CLEAR CASE OF CAPITAL ACCRETI ON AND NOT PROFIT DERIVED FROM AN ADVENTURE IN THE NATURE OF TRADE. CASES OF REALI ZATION OF INVESTMENTS CONSISTING OF PURCHASE AND RESALE, THOUGH PROFITABL E, ARE CLEARLY OUTSIDE THE DOMAIN OF ADVENTURES IN THE NATURE OF TRADE. THE SU PREME COURT FURTHER OBSERVED THAT IN DECIDING THE CHARACTERISTICS OF A TRANSACTION, SEVERAL FACTORS ARE RELEVANT TO BE CONSIDERED. IN FACT, THE SUPREME COU RT OBSERVED AS FOLLOWS AT PAGES 609 AND 610 OF THE REPORT:- 'IN DECIDING THE CHARACTER OF SUCH TRANSACTIONS SEV ERAL FACTORS ARE TREATED AS RELEVANT. WAS THE PURCHASER A TRADER AND WERE TH E PURCHASE OF THE COMMODITY AND ITS RESALE ALLIED TO HIS USUAL TRADE OR BUSINESS OR INCIDENTAL TO IT? AFFIRMATIVE ANSWERS TO THESE QUESTIONS MAY F URNISH RELEVANT DATA FOR DETERMINING THE CHARACTER OF THE TRANSACTION. WHAT IS THE NATURE OF THE COMMODITY PURCHASED AND RESOLD AND IN WHAT QUANTITY WAS IT PURCHASED AND RESOLD? IF THE COMMODITY PURCHASED IS GENERALLY THE SUBJECT-MATTER OF TRADE, AND IF IT IS PURCHASED IN VERY LARGE QUANTIT IES, IT WOULD TEND TO ELIMINATE THE POSSIBILITY OF INVESTMENT FOR PERSONA L USE, POSSESSION OR ENJOYMENT. DID THE PURCHASER BY ANY ACT SUBSEQUENT TO THE PURCHASE IMPROVE THE QUALITY OF THE COMMODITY PURCHASED AND THEREBY MADE IT MORE READILY RESALEABLE? WHAT WERE THE INCIDENTS AS SOCIATED WITH THE PURCHASE AND RESALE? WERE THEY SIMILAR TO THE OPERA TIONS USUALLY ASSOCIATED WITH TRADE OR BUSINESS? ARE THE TRANSACT IONS OF PURCHASE AND SALE REPEATED? IN REGARD TO THE PURCHASE OF THE COM MODITY AND ITS SUBSEQUENT POSSESSION BY THE PURCHASER, DOES THE EL EMENT OF PRIDE OF POSSESSION COME INTO THE PICTURE? A PERSON MAY PURC HASE A PIECE OF ART, HOLD IT FOR SOME TIME AND IF A PROFITABLE OFFER IS RECEIVED MAY SELL IT. DURING THE TIME THAT THE PURCHASER HAD ITS POSSESSI ON HE MAY BE ABLE TO CLAIM PRIDE OF POSSESSION AND AESTHETIC SATISFACTIO N; AND IF SUCH A CLAIM IS UPHELD THAT WOULD BE A FACTOR AGAINST THE CONTENTIO N THAT THE TRANSACTION IS IN THE NATURE OF TRADE. THESE AND OTHER CONSIDER ATIONS ARE SET OUT AND DISCUSSED IN JUDICIAL DECISIONS WHICH DEAL WITH THE CHARACTER OF 8 TRANSACTIONS ALLEGED TO BE IN THE NATURE OF TRADE. IN CONSIDERING THESE DECISIONS IT WOULD BE NECESSARY TO REMEMBER THAT TH EY DO NOT PURPORT TO LAY DOWN ANY GENERAL OR UNIVERSAL TEST. THE PRESENC E OF ALL THE RELEVANT CIRCUMSTANCES MENTIONED IN ANY OF THEM MAY HELP THE COURT TO DRAW A SIMILAR INFERENCE; BUT IT IS NOT A MATTER OF MERELY COUNTING THE NUMBER OF FACTS AND CIRCUMSTANCES PRO AND CON ; WHAT IS IMPORTANT TO CONSIDER IS THEIR DISTINCTIVE CHARACTER. IN EACH CASE, IT IS TH E TOTAL EFFECT OF ALL RELEVANT FACTORS AND CIRCUMSTANCES THAT DETERMINES THE CHARA CTER OF THE TRANSACTION; AND SO, THOUGH WE MAY ATTEMPT TO DERIV E SOME ASSISTANCE FROM DECISIONS BEARING ON THIS POINT, WE CANNOT SEE K TO DEDUCE ANY RULE FROM THEM AND MECHANICALLY APPLY IT TO THE FACTS BE FORE US.' AFTER CONSIDERING THE INCIDENT OF PURCHASE THAT THE ASSESSEE PURCHASED 28 CENTS BY THE FIRST SALE DEED AND THE SECOND SALE DE ED RELATES TO 2 AC 79 CENTS, THE THIRD AND FOURTH PURCHASES RELATE TO 28 CENTS AND 1 AC. 90 CENTS RESPECTIVELY, REFERRING TO THE FIRST PURCHASE OF 28 CENTS, THE SUPREME COURT OBSERVED THAT THE PROPERTY WAS A SMALL PIECE OF 28 CENTS AND IT COULD YIELD NO RETURN WHATEVER TO THE PURCHASER. THEREFORE, IT WAS CLEAR INTENTION OF THE ASSESSEE TO TAKE A FIRST STEP IN EXECUTION OF A WEL L-CONSIDERED PLAN TO ACQUIRE OPEN PLOT NEAR THE MILL AND THE WHOLE BASIS OF THE PLAN WAS TO SELL THE SAID LAND TO THE MILL AT A PROFIT. THE ASSESSEE PURCHASED THE LAND AS AND WHEN THE PLOTS ADJOINING THE MILL WERE AVAILABLE AND CARRIED OUT T HE PLAN OF CONSOLIDATING THE HOLDING OF THE SAID PLOTS. THE ASSESSEE, BEING THE MANAGING AGENT OF JANARDANA MILLS LTD., FIRST THOUGHT THAT PURCHASING THE PLOTS IN ITS OWN NAME AND SELLING THEM TO THE MILLS MAY INVITE CRITICISM AND SO THE F IRST PURCHASE WAS MADE BY THE ASSESSEE IN THE NAME OF ITS BENAMIDAR V.G.RAJA. SUB SEQUENTLY, THE ASSESSEE CHANGED THEIR MIND AND PURCHASED THE REMAINING LAND IN THEIR OWN NAME. THE SUPREME COURT OBSERVED THAT IT IS A SERIES OF FOUR TRANSACTIONS UNDERTAKEN BY THE ASSESSEE IN PURSUANCE OF A SCHEME AND IT WAS AF TER THE ASSESSEE HAD CONSOLIDATED ITS HOLDING THAT AT A CONVENIENT TIME IT SOLD THE LANDS TO JANARDANA 9 MILLS IN TWO LOTS. THEREFORE, THE SOLE INTENTION OF THE ASSESSEE WAS TO SELL THE LAND TO THE MILLS AT A PROFIT AND THIS INTENTION RA ISES A STRONG PRESUMPTION IN FAVOUR OF THE VIEW TAKEN BY THE TRIBUNAL THAT THE P ROFIT ARISING OUT OF THE SALE IS A BUSINESS PROFIT. 8. IN THE CASE BEFORE US, THE FACTS ARE ENTIRELY DI FFERENT. IT IS NOBODY'S CASE THAT THE ASSESSEE PURCHASED SEVERAL LANDS. THE ASSE SSEE PURCHASED ONLY 1 ACRE OF LAND AND OTHER THREE ACRES WERE PURCHASED BY OTH ER PERSONS. THEREFORE, THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASING THE PROPERTY WAS NOT TO DO ANY BUSINESS IN REAL ESTATE. AS OBSERVED BY THE APE X COURT, A SINGLE TRANSACTION MAY BE IN THE NATURE OF BUSINESS ADVENTURE. HOWEVER , IT WOULD DEPEND UPON THE INTENTION OF THE PERSON AT THE TIME OF PURCHASI NG THE PROPERTY. IN THE FACTS AND CIRCUMSTANCES OF THIS CASE, IT IS VERY CLEAR TH AT THE INTENTION OF THE ASSESSEE IS ONLY TO INVEST FUNDS IN LANDED PROPERTY AND NOT TO TRADE IN LANDED PROPERTY. 9. THIS TRIBUNAL, IN THE ASSESSEE'S OWN CASE FOR TH E ASST. YEAR 2001-02, CONSIDERED THE ISSUE AND FOUND THAT THE ASSESSEE WA S ENGAGED IN THE BUSINESS OF FINANCE ONLY AND THE ASSESSEE HAD NOT DONE ANY B USINESS IN REAL ESTATE. IN FACT, THIS TRIBUNAL OBSERVED AS FOLLOWS AT PARAGRAP H 6 OF ITS ORDER:- 'THE ASSESSEE SEEKS TO DERIVE STRENGTH FROM ITS MEM ORANDUM AND ARTICLES OF ASSOCIATION, WHEREIN ACQUIRING PROPERTY IS MENTI ONED AS AN INCIDENTAL AND ANCILLARY OBJECT. THIS, TO OUR MIND, DOES NOT H ELP THE CASE OF THE ASSESSEE AS MANY OBJECTS ARE INCLUDED IN INCIDENTAL AND ANCILLARY OBJECTS CLAUSE TO ENABLE THE COMPANY TO FUNCTION. IN THE RE TURN OF INCOME FILED BY THE ASSESSEE, IN PART IV THE MAIN BUSINESS IS SHOWN AS 'FINANCE'. EVEN IN THE AUDITORS' REPORT IN FORM NO.29B, IT IS CLEARLY STATED BY THE AUDITORS THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF FIN ANCE ONLY. THE ASSESSEE HAS NOT DONE ANY BUSINESS IN REAL ESTATE. THE INCOME RECEIVED BY WAY OF LEASE RENT IS NOTHING BUT RENTAL INCOME A ND NOT EARNED FROM ANY SERVICES RENDERED OR BUSINESS DONE BY THE ASSES SEE.' 10 IN VIEW OF THE ABOVE OBSERVATION OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE, IT IS VERY CLEAR THAT EVEN THOUGH THERE WAS AN INCIDEN TAL OBJECT IN THE MEMORANDUM AND ARTICLES OF ASSOCIATION, THE ASSESSE E HAS NOT DONE ANY BUSINESS IN REAL ESTATE. AN ENABLING CLAUSE IN THE MEMORANDUM AND ARTICLES OF ASSOCIATION TO DO BUSINESS IN REAL ESTATE CANNOT BE A DETERMINATIVE FACTOR TO CONCLUDE THAT THE ASSESSEE INTENDED TO DO BUSINESS IN REAL ESTATE AT THE TIME OF PURCHASING THE PROPERTY. THE FACT THAT THE ASSESSEE HAS NOT COMMENCED ANY BUSINESS IN REAL ESTATE WAS OBVIOUS FROM THE OBSERV ATION OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE ASST. YEAR 2001-02. THE REFORE, WE CANNOT DRAW ANY PRESUMPTION THAT MERELY BECAUSE THE ASSESSEE ENTERE D INTO A DEVELOPMENT AGREEMENT WITHIN 2 MONTHS FROM THE DATE OF PURCHASE , THE ASSESSEE INTENDED TO DO BUSINESS IN REAL ESTATE. IN OUR OPINION, IN THE CIRCUMSTANCES OF THIS CASE, THE ASSESSEE ENTERED INTO AN AGREEMENT IN VIEW OF THE P ECULIAR SITUATION OF THE LANDED PROPERTY AND THE ADJOINING LANDS BELONGING T O OTHERS. THEREFORE, AS AN ORDINARY AND PRUDENT PERSON THE ASSESSEE ENTERED IN TO THE DEVELOPMENT AGREEMENT TO GET A BETTER PRICE FOR THE LANDED PROP ERTY. 10. IN VIEW OF THE ABOVE DISCUSSION, WE ARE UNABLE TO UPHOLD THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY, WE HOLD THAT THE PROF IT ARISING OUT OF THE SALE OF THE LANDED PROPERTY HAS TO BE TREATED AS CAPITAL GA IN AND NOT AS BUSINESS PROFIT. THEREFORE, WE SET ASIDE THE ORDERS OF THE LOWER AUT HORITIES AND DIRECT THE AO TO COMPUTE CAPITAL GAIN UNDER THE PROVISIONS OF LAW. 11 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAND S ALLOWED. ORDER PRONOUNCED IN THE COURT ON 18-12-09. SD SD (CHANDRA POOJARI) (N.R.S.GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, 18TH DECEMBER, 2009. RRRAO. COPY OF THE ORDER FORWARDED TO:- 1. HBC FINANCE AND LEASING LIMITED, PLOT NO.475, ROAD NO.21, JUBILEE HILLS, HYDERABAD. 2. DCIT, CIRCLE 2(2), HYDERABAD. 3. CIT II, HYDERABAD. 4. CIT (A) III, HYDERABAD. 5. DR, ITAT, HYDERABAD.