Khimraj Sakariya, CHENNAI V. DCIT, CHENNAI

ITA 1753/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8738 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 14-07-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 10-06-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH J
• Assessee Lawyers: MRT N SEETHARAMAN
• Keywords: Business income; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 147; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI , . !' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.1753/MDS./2016 / ASSESSMENT YEAR : 2008-09 SHRI KHIMRAJ SAKARIYA , NO.4,GENGURAMAN STREET, PARK TOWN, CHENNAI 600 003. VS. ASSISTANT COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE 5, CHENNAI-6. [PAN AAXPS 4614 D ] ( #$ / APPELLANT) ( %&#$ /RESPONDENT) / APPELLANT BY : MRT.N.SEETHARAMAN,ADVOCATE /RESPONDENT BY : MR.A.V.SREEKANTH,JCIT,DR / DATE OF HEARING : 14 - 0 7 - 201 6 !' / DATE OF PRONOUNCEMENT : 22 - 0 7 - 2016 ' / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-5, CHENNAI DAT ED 20.05.2016 PERTAINING TO ASSESSMENT YEAR 2008-09. 2. THE FIRST GROUND IN THIS APPEAL IS WITH REGARD T O RE-OPENING OF ASSESSMENT U/S.147 OF THE ACT AFTER A PERIOD OF FO UR YEARS FROM THE ITA NO1753./MDS./16 :- 2 -: END OF RELEVANT ASSESSMENT YEAR, THOUGH THE ORIGINA L ASSESSMENT WAS COMPLETED ON 13.12.2011 U/S.143(3) OF THE ACT. 3. THE MAIN GRIEVANCE OF THE ASSESSEE IS THAT THE ASSE SSING OFFICER HAD ERRED IN REOPENING THE ASSESSMENT U/S 148 OF THE IT ACT 1961 STATING THAT (I) THERE WAS NO OMISSION OR FAILURE ON THE PART OF THE APPELLANT TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSE SSMENT FOR THE YEAR AND AFTER DUE CONSIDERATION THE THEN ASSESSING OFFICER, HAD PASSED THE ORDER U/S 143(3) OF THE ACT DATED 30.12.2010. (II) THE PREDEC ESSOR ASSESSING OFFICER HAD IN THE ORIGINAL ASSESSMENT PROCEEDINGS ISSUED A LETTER DT 30.12.2010 SEEKING CLARIFICATION REGARDING SALE OF THE AGRICUL TURAL LAND AND AFTER CONSIDERING THE APPELLANTS REPLY DT 612.2010 DID N OT DEEM IT FIT TO BRING ANY CAPITAL GAINS TO CHARGE AND (III) THAT THE REOPENIN G OF THE ASSESSMENTS CLEARLY BASED ON A CHANGE OF OPINION IMPERMISSIBLE UNDER LA W AND THE REASSESSMENT ORDER PASSED IS PER SE INVALID. 3.1 IN THE ASSESSMENT ORDER AT PAGE NUMBER 1 AN D 2 THE ASSESSING OFFICER GAVE THE FOLLOWING REASONS FOR REOPENING TH E ASSESSMENT: IT WAS LEARNT THAT THE ASSESSEE HAD ALONG WITH SHR I NISHANK SAKARIA (VENDOR 4), SHRI T ANOOP BORA AND SHRI PALL AVARAJHA (JOINTLY CALLED AS THE VENDOR NO 1), SHRI V RARNA N AIDU, (VENDOR NO 2) AND SHRI RAJU,(VENDOR NO 3) HAD JOINTLY SOLD 30 ACRES AND 93 CENTS OF LAND TO V. G. PANNEERDAS & CO (P) LTD A COMPANY REGISTERED UNDER THE COMPANIES ACT 1961, WHO IS A P ROPERTY DEVELOPER, VIDE DOCUMENT NO 3136/07 HAVING 12 PAGES REGISTERED WITH SUB- REGISTRAR OF ASSURANCES, MADUR ANTHAGAM ON 14/03/2007. ITA NO1753./MDS./16 :- 3 -: ALL THE ABOVE REFERRED PERSONS PURCHASED LANDS FROM VARIOUS PARTIES EITHER IN FINANCIAL YEAR 2005-06 OR 2006-07 . MORE PARTICULARLY THE VENDOR NO4 CORNPRISED OF SHRI KHIM RAJ SAKARIYA AND SHRI NISHANK SAKARIYA PURCHASED 13 ACRES AND 20 CENTS COMPRISED IN VARIOUS SURVEY NUMBERS JOINTLY FROM SH RI PALLAVARAJHA AND SHRI T ANOOP BORA WDE REGISTERED D OCUMENT NO 2997 OF 2006 ON 21 8 2006 AND PURCHASED 6 ACRES AND 44 CENTS COMPRISED IN VARIOUS SURVEY NUMBERS FROM SHRI PALLA VARAJHA, T ANOOP BORA AND OTHERS ON 21 8 2006 VIDE REGISTERED DOCUMENT NO 2998 OF 2006. SUMMING UP FROM THE ABOVE IT IS CLEAR THAT THE VEND ORS AGGREGATED THE LAND AS THEY PURCHASED LAND FROM VAR IOUS PARTIES AND LANDS CORNPRSED IN VARIOUS SURVEY NUMBERS THE VENDOR NO 4 NOT ONLY JOINTLY SOLD THE LAND BUT ALSO PURCHASED T HE LANDS JOINTLY. THE VENDOR 4 HELD THE LAND ONLY FOR A VERY SHORT PE RIOD OF 8 MONTHS AS ALL OF THEM JOINTLY SOLD TO SINGLE PARTY THEY HAD COMMON AGENDA! PURPOSE OF AGGREGATING SELLING THE L AND. THEIR COORDINATED ACTIVITY IS MORE VIVID AS THE VENDOR NO 4 PURCHASED LAND FROM VENDOR NO 1 MOREOVER VENDOR NO 1 ACTED AS POWER AGENT FOR VENDOR 2 AND VENDOR 3. THEY SOLD THE LAND TO A REAL ESTATE COMPANY. THEREFORE IT IS CLEAR THAT THE ABOV E VENDORS WERE ENGAGED IN REAL ESTATE ACTIVITY, THROUGH COORD INATED ACTIVITY BY AGGREGATING AND SELLING THE LANDS. SHRI KHIMRAJ SAKARIYA CLAIMED THE SALE PROCEEDS OF RS. 2,59,89,000/- OF THE ABOVE LAND AS EXEMPTED CAPITAL GAIN INCOME BY TREATING THE LAND AS AGRICULTURAL LAND. THE LAND MAY OR MAY NOT BE TERMED AS AGRICULTURAL LAND BUT AS THE ASSES SEES INTENTION & ACTIONS ARE OF REAL ESTATE SO THE SALE PROCEEDS A RE NOT EXEMPTED FROM TAX. FOR THE ABOVE THE AO HAD REASON TO BELIEVE THAT THE INCOME HAS ESCAPED ASSESSMENT ITA NO1753./MDS./16 :- 4 -: THEREFORE, NOTICE U/S 148 OF THE INCOME TAX ACT, 19 61 WAS ISSUED ON 30/01/2014 AFTER OBTAINING APPROVAL OF TH E COMMISSIONER OF INCOME TAX - IX, CHENNAI. 3.2 DURING THE COURSE OF THE ORIGINAL ASSESSMENT P ROCEEDINGS U/S 143(3) THE ASSESSING OFFICER CALLED FOR THE DETAILS REGARD ING THE LANDS SOLD TO VERIFY WHETHER THEY ARE AGRICULTURAL LANDS OR NOT PARTICUL ARLY WITH RESPECT TO THE POPULATION OF THAT AREA/MUNICIPALITY THIS IS EVIDEN T FROM THE LETTER DT 30/11/2010 ISSUED BY THE ACIT TO THE ASSESSEE THE A SSESSEE FURNISHED THE DETAILS CALLED FOR. HOWEVER THE ASSESSEE DID NOT FU RNISH THE FACT THAT HE ALONG WITH SHRI NISHANK SAKARIA SHRI T ANOOP BORA A ND SHRI PALLAVARAJHA PURCHASED LANDS FROM VARIOUS PERSONS AND AGGREGATED SUCH LANDS PURCHASED AND THEN JOINTLY SOLD THEM TO M/S V.G. PANNEERDAS & CO (P) LTD. 3.3 ON VERIFYING THE REASONS MENTIONED ABOVE, THE AO CONCLUDED THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT AND THAT REOPENING WAS DONE AS PER SECTION 147 OF THE IT ACT. AGGRIEVE D WITH THE ORDER OF AO, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A ). 3.4. ON APPEAL, THE LD.CIT(A) OBSERVED THAT THE I NCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF THE S ECTION 147 OF THE ACT AND CIT(A) CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER ON THIS ISSUE. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 4. LD.A.R REITERATED THE SUBMISSIONS WHAT HE MADE BEFORE THE LOWER AUTHORITIES. ITA NO1753./MDS./16 :- 5 -: 5. ON THE OTHER HAND, LD.D.R RELIED ON THE ORDERS OF LOWER AUTHORITIES. 6. AFTER HEARING BOTH THE PARTIES AND GOING THROUG H THE ORDER PASSED BY THE LOWER AUTHORITIES, WE DO NOT FIND ANY GROUND TO INTERFERE WITH THE FINDINGS OF THE CIT(A) ON THE FOLLOWING RE ASONS. THE RE- ASSESSMENT PROCEEDINGS HAVE RIGHTLY BEEN INITIATED AFTER FORMING OPINION THAT SOME INCOME CHARGEABLE TO TAX AS ESCAP ED ASSESSMENT U/S.147 OF THE ACT, AFTER AMENDMENT TO SEC.147 OF T HE ACT WITH EFFECT FROM 01.04.1989, WIDE POWER HAS BEEN GIVEN TO THE A O, EVEN TO REOPEN THE CASES WHERE THE ASSESSEE HAS FULLY DISCL OSED MATERIAL FACTS. THE ONLY CONDITION FOR REASSESSMENT IS THAT THE AO SHOULD HAVE REASONED TO BELIEVE THAT INCOME CHARGEABLE TO TAX H AD ESCAPEMENT. SUCH BELIEF CAN BE REACHED IN ANY MANNER AND IS NOT QUANTIFIED BY PRE- CONDITION OF FULL AND TRUE DISCLOSURE OF MATERIAL F ACTS BY THE ASSESSEE AS CONTEMPLATED IN THE PRE-AMENDED SECTION 147(A) O F THE ACT. IN THE INSTANT CASE, AO REOPENED THE ASSESSMENT, AFTER REC ORDING REASONS MENTIONED HEREINABOVE IN PARA-3.1 OF THIS ORDER. A S SUCH IN OUR OPINION, THERE IS NO INFIRMITY IN THE ORDER OF LD.C IT(A) AND THE SAME IS CONFIRMED. THIS GROUND OF ASSESSEE IS REJECTED. 7. THE ASSESSEE HAS RAISED ONE MORE GROUND ON MERI T WITH REGARD TO TREATMENT OF SALE OF AGRICULTURAL LAND AS INCOME FROM BUSINESS. ITA NO1753./MDS./16 :- 6 -: 8. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD ALONG WITH SHRI NISHANK SAKARIA (VENDOR 4), SHRI T.ANOOP BORA (VEND OR NO.2) AND SHRI RAJU (VENDOR NO.3) HAD JOINTLY SOLD 30 ACRES AND 93 CENTS OF LAND TO V.G.PANNEERDAS & CO. P LTD., A COMPANY REGISTERED U NDER THE COMPANIES ACT, 1961, WHO IS A PROPERTY DEVELOPER VI DE DOCUMENT NO.3136/07 HAVING 12 PAGES REGISTERED WITH SUB-REGI STRAR OF ASSURANCES, MADURANTHAGAM ON 14.03.2007. MORE PARTI CULARLY THE VENDOR NO.4 COMPRISED OF SHRI KHIMRAJ SAKARIYA AND SHRI NISHANK SAKARIYA PURCHASED 13 ACRES AND 20 CENTS AND 20 CEN TS COMPRISED IN VARIOUS SURVEY UMBERS JOINTLY FROM SHRI PALLAVARAJH A AND SHRI T.ANOOP BORA VIDE REGISTERED DOCUMENT NO.2997 OF 2006 ON 21 .08.2006 AND PURCHASED 6 ACRES AND 44 CENTS COMPRISED IN VARIOUS SURVEY NUMBERS FROM SHRI PALLAVARAJHA, T.ANOOP BORA AND OTHERS ON 21.08.2006 VIDE REGISTERED DOCUMENT NO.2998 OF 2006. IN SHORT, IT IS CLEAR THAT THE VENDORS AGGREGATED THE LAND AS THEY PURCHASED LAND FROM VARIOUS PARTIES AND HELD THE LAND ONLY FOR A VERY SHORT PER IOD OF 8 MONTHS. AS ALL OF THEM JOINTLY SOLD TO SINGLE PARTY, THEY HAD COMMON AGENDA OF AGGREGATING SELLING THE LAND AND SOLD THE LAND TO A REAL ESTATE COMPANY. IN ADDITION, THE ASSESSEE DID NOT SHOW AN Y AGRICULTURAL INCOME IN ANY ASSESSMENT YEAR BEFORE PURCHASING THE LANDS. THEY DID NOT CARRY OUT ANY AGRICULTURAL ACTIVITY IN THOSE LA NDS SINCE PURCHASING TILL SELLING. THEY AGGREGATED THE LANDS THUS PURCHA SED AND SOLD THOSE ITA NO1753./MDS./16 :- 7 -: AGGREGATED LAND TO M/S.VG PANEERDAS AND CO. P LTD. WHO IS A LAND DEVELOPER. THE LETTER OF SETTLEMENT DT.30.05.2007 C ONFIRMING THE PAYMENT OF RS.10,74,81,750/- WAS ISSUED BY M/S.VG P ANNERDAS AND CO. P LTD TOWARDS THE ARREARS PAYABLE TO THE ASSESS EE, SHRI NISHANK SAKARIA, SHRI ANOOP T.BORA AND SHRI PALAVARAJAH PRO VE THAT THE TRANSACTION IS ONLY BETWEEN THE REAL ESTATE COMPANY AND THE ABOVE MENTIONED FOUR PERSONS ONLY AND NO OTHER PERSONS WE RE PAID ANY PART OF THE SALE CONSIDERATION. ACCORDINGLY, THE LOWER AUTHORITIES TREATED THE INCOME FROM SALE OF LAND AS INCOME FROM BUSINES S. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE RECORD. IT IS WELL-KNOWN THAT THE EXPRESSION 'A DVENTURE IN THE NATURE OF TRADE' HAS NOT BEEN DEFINED IN THE ACT AN D IT IS RATHER AN IMPOSSIBLE TASK TO GIVE EXACT AND PRECISE MEANING A ND THEREFORE THE APEX COURT IN THE CASE OF G. VENKATASWAMI NAIDU & C O. (35 ITR 594(SC)) CONSIDERED THE QUESTION AS A MIXED QUESTIO N OF LAW AND FACT, AND BROADLY LAID DOWN THE PRINCIPLES WITH A CAUTION THAT IT IS NOT A MATTER OF MERELY COUNTING THE NUMBER OF FACTS AND C IRCUMSTANCES PRO AND CON AND WHAT IS IMPORTANT IS TO CONSIDER THEIR DISTINCTIVE CHARACTER. 10. BEFORE WE PROCEED TO CONSIDER THE ISSUE, IT IS RELEVANT TO NOTICE BRIEF FACTS AND OBSERVATIONS IN THE CASE OF G. VENK ATASWAMI NAIDU & CO. (SUPRA) WHILE FOLLOWING THE SET OF PRINCIPLES W HICH ARE RELEVANT/MAY ITA NO1753./MDS./16 :- 8 -: ACT AS A GUIDING FACTOR TO COME TO A CONCLUSION AS TO WHETHER A PARTICULAR TRANSACTION IS AN ADVENTURE IN THE NATUR E OF TRADE OR NOT. 11. IN THE AFORE CITED DECISION, THE ASSESSEE FIRM ACTED AS MANAGING AGENTS OF JANARDANA MILLS LTD., COIMBATORE , AND IT PURCHASED FOUR CONTINUOUS PLOTS OF LAND ADMEASURING ACS. 5.26 UNDER FOUR SALE DEEDS. AFTER ABOUT FIVE YEARS THESE PROPERTIES WERE SOLD IN TWO LOTS TO JANARDANA MILLS LTD. A QUESTION AROSE AS TO WHETHER THE AMOUNT REALIZED IN EXCESS OF THE PURCHASE PRICE ON THE SAL E OF THE LAND IS ASSESSABLE UNDER THE HEAD 'BUSINESS'? THE CASE OF T HE AO WAS THAT THE ASSESSEE HAS NOT PLACED ANY EVIDENCE TO SHOW THAT I T PURCHASED THE LANDS FOR AGRICULTURAL PURPOSES. THERE WAS ALSO NO EVIDENCE TO SHOW THAT IT HAD ACQUIRED THEM AS AN INVESTMENT. SINCE T HE LANDS WERE ADJACENT TO JANARDANA MILLS, HE DREW AN INFERENCE T HAT THE ASSESSEE MUST HAVE PURCHASED THEM SOLELY WITH A VIEW TO SELL THEM TO THE SAID MILLS WITH A PROFIT. UNDER THE CIRCUMSTANCES, THOUG H THE TRANSACTION WAS IN THE NATURE OF SOLITARY TRANSACTION, IT WAS H ELD THAT IT HAD ALL THE ELEMENTS OF A BUSINESS TRANSACTION AND THUS IT WAS AN ADVENTURE IN THE NATURE OF TRADE. WHILE DEALING WITH THE ISSUE, THE APEX COURT OBSERVED AT PARAS 12 AND 13 AS UNDER :- 'THIS QUESTION HAS BEEN THE SUBJECT-MATTER OF SEVER AL JUDICIAL DECISIONS AND IN DEALING WITH IT ALL THE JUDGES APP EAR TO BE AGREED THAT NO PRINCIPLE CAN BE EVOLVED WHICH WOULD GOVERN THE DECISION OF ALL CASES IN WHICH THE CHARACTER OF THE IMPUGNED ITA NO1753./MDS./16 :- 9 -: TRANSACTION FALLS TO BE CONSIDERED. WHEN S. 2(4) RE FERS TO AN ADVENTURE IN THE NATURE OF TRADE IT CLEARLY SUGGEST S THAT THE TRANSACTION CANNOT PROPERLY BE REGARDED AS TRADE OR BUSINESS. IT IS ALLIED TO TRANSACTIONS THAT CONSTITUTE TRADE OR BUSINESS BUT MAY NOT BE TRADE OR BUSINESS ITSELF. IT IS CHARACTERIZE D BY SOME OF THE ESSENTIAL FEATURES THAT MAKE UP TRADE OR BUSINESS B UT NOT BY ALL OF THEM; AND SO, EVEN AN ISOLATED TRANSACTION CAN SATI SFY THE DESCRIPTION OF AN ADVENTURE IN THE NATURE OF TRADE. SOMETIMES, IT IS SAID THAT A SINGLE PLUNGE IN THE WATERS OF TRADE MAY PARTAKE OF THE CHARACTER OF AN ADVENTURE IN THE NATURE OF TRAD E. THIS STATEMENT MAY BE TRUE; BUT IN ITS APPLICATION DUE R EGARD MUST BE SHOWN TO THE REQUIREMENT THAT THE SINGLE PLUNGE MUS T BE IN THE WATERS OF TRADE. IN OTHER WORDS, AT LEAST SOME OF T HE ESSENTIAL FEATURES OF TRADE MUST BE PRESENT IN THE ISOLATED O R SINGLE TRANSACTION. ON THE OTHER HAND, IT IS SOMETIMES SAI D THAT THE APPEARANCE OF ONE SWALLOW DOES NOT MAKE A SUMMER. T HIS MAY BE TRUE IF, IN THE METAPHOR, SUMMER REPRESENTS TRAD E; BUT IT MAY NOT BE TRUE IF SUMMER REPRESENTS AN ADVENTURE IN TH E NATURE OF TRADE BECAUSE, WHEN THE SECTION REFERS TO AN ADVENT URE IN THE NATURE OF TRADE IT IS OBVIOUSLY REFERRING TO TRANSA CTIONS WHICH INDIVIDUALLY CANNOT THEMSELVES BE DESCRIBED AS TRAD E OR BUSINESS BUT ARE ESSENTIALLY OF SUCH A SIMILAR CHARACTER THA T THEY ARE TREATED AS IN THE NATURE OF TRADE. IT WAS FAINTLY A RGUED FOR THE APPELLANT THAT IT WOULD BE DIFFICULT TO REGARD A SI NGLE OR AN ISOLATED TRANSACTION AS ONE IN THE NATURE OF TRADE BECAUSE I NCOME RESULTING FROM IT WOULD INEVITABLY LACK THE CHARACT ERISTICS ATTRIBUTED TO IT BY SIR GEORGE LOWNDES IN CIT VS. S HAW WALLACE & COMPANY (1932) 59 IA 206 : 'INCOME, THEIR LORDSHIPS THINK', OBSERVED SIR GEORGE LOWNDES, 'IN THIS ACT CONNATES A PERIODICAL MONETARY RETURN 'COMING IN', WITH SOME SORT OF REGU LARITY, OR EXPECTED REGULARITY, FROM DEFINITE SOURCES'. THEN T HE LEARNED JUDGE PROCEEDED TO OBSERVE THAT 'INCOME HAS BEEN LI KENED ITA NO1753./MDS./16 :- 10 - : PICTORIALLY TO THE FRUIT OF A TREE, OR THE CROP OF A FIELD'. IT IS ESSENTIALLY THE PRODUCE OF SOMETHING, WHICH IS OFTE N LOOSELY SPOKEN OF AS 'CAPITAL'. IN OUR OPINION, IT WOULD BE UNREASONABLE TO APPLY THE TEST INVOLVED IN THE USE OF THIS PICTORIA L LANGUAGE TO THE DECISION OF THE QUESTION AS TO WHETHER A SINGLE OR AN ISOLATED TRANSACTION CAN BE REGARDED AS AN ADVENTURE IN THE NATURE OF TRADE. IN THIS CONNECTION, WE MAY, WITH RESPECT, RE FER TO THE COMMENT MADE BY LORD WRIGHT IN RAJA BAHADUR KAMAKSH YA NARAIN SINGH OF RAMGARH VS. CIT (1943) 11 ITR 513(P C), THAT 'IT IS CLEAR THAT SUCH PICTURESQUE SMILES CANNOT BE USE D TO LIMIT THE TRUE CHARACTER OF INCOME IN GENERAL'. WE ARE INCLIN ED TO THINK THAT, IN DEALING WITH THE VERY PROSAIC AND SOMETIMES COMP LEX QUESTIONS ARISING UNDER THE IT ACT, USE OF METAPHOR S, HOWEVER POETIC AND PICTURESQUE, MAY NOT HELP TO CLARIFY THE POSITION BUT MAY INSTEAD INTRODUCE AN UNNECESSARY ELEMENT OF CON FUSION OR DOUBT. AS WE HAVE ALREADY OBSERVED IT IS IMPOSSIBL E TO EVOLVE ANY FORMULA WHICH CAN BE APPLIED IN DETERMINING THE CHARACTER OF ISOLATED TRANSACTIONS WHICH COME BEFORE THE COURTS IN TAX PROCEEDINGS. IT WOULD BESIDES BE INEXPEDIENT TO MAK E ANY ATTEMPT TO EVOLVE SUCH A RULE OR FORMULA. GENERALLY SPEAKING, IT WOULD NOT BE DIFFICULT TO DECIDE WHETHER A GIVEN TR ANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE OR NOT. IT IS THE CASES ON THE BORDER LINE THAT CAUSE DIFFICULTY. IF A PERSON INVE STS MONEY IN LAND INTENDING TO HOLD IT, ENJOYS ITS INCOME FOR SOMETIM E, AND THEN SELLS IT AT A PROFIT, IT WOULD BE A CLEAR CASE OF C APITAL ACCRETION AND NOT PROFIT DERIVED FROM AN ADVENTURE IN THE NATURE OF TRADE. CASES OF REALIZATION OF INVESTMENTS CONSISTING OF PURCHAS E AND RESALE, THOUGH PROFITABLE, ARE CLEARLY OUTSIDE THE DOMAIN O F ADVENTURES IN THE NATURE OF TRADE. IN DECIDING THE CHARACTER OF S UCH TRANSACTIONS SEVERAL FACTORS ARE TREATED AS RELEVANT. WAS THE PU RCHASER, A TRADER AND WERE THE PURCHASE OF THE COMMODITY AND I TS RESALE ALLIED TO HIS USUAL TRADE OR BUSINESS OR INCIDENTAL TO IT ? AFFIRMATIVE ITA NO1753./MDS./16 :- 11 - : ANSWERS TO THESE QUESTIONS MAY FURNISH RELEVANT DAT E FOR DETERMINING THE CHARACTER OF THE TRANSACTION. WHAT IS THE NATURE OF THE COMMODITY PURCHASED AND RESOLD AND IN WHAT Q UANTITY WAS IT PURCHASED AND RESOLD ? IF THE COMMODITY PURCHASE D IS GENERALLY THE SUBJECT-MATTER OF TRADE, AND IF IT IS PURCHASED IN VERY LARGE QUANTITIES, IT WOULD TEND TO ELIMINATE THE POSSIBIL ITY OF INVESTMENT FOR PERSONAL USE, POSSESSION OR ENJOYMENT. DID THE PURCHASER BY ANY ACT SUBSEQUENT TO THE PURCHASE IMPROVE THE QUAL ITY OF THE COMMODITY PURCHASED AND THEREBY MADE IT MORE READIL Y RESALEABLE ? WHAT WERE THE INCIDENTS ASSOCIATED WIT H THE PURCHASE AND RESALE ? WERE THEY SIMILAR TO THE OPER ATIONS USUALLY ASSOCIATED WITH TRADE OR BUSINESS? ARE THE TRANSACT IONS OF PURCHASE AND SALE REPEATED? IN REGARD TO THE PURCHA SE OF THE COMMODITY AND ITS SUBSEQUENT POSSESSION BY THE PURC HASER, DOES THE ELEMENT OF PRIDE OF POSSESSION COME INTO THE PI CTURE ? A PERSON MAY PURCHASE A PIECE OF ART, HOLD IT FOR SOM E TIME AND IF A PROFITABLE OFFER IS RECEIVED MAY SELL IT. DURING TH E TIME THAT THE PURCHASER HAD ITS POSSESSION HE MAY BE ABLE TO CLAI M PRIDE OF POSSESSION AND AESTHETIC SATISFACTION; 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 OT HER CONSIDERATIONS ARE SET OUT AND DISCUSSED IN JUDICIA L DECISIONS WHICH DEAL WITH THE CHARACTER OF TRANSACTIONS ALLEG ED TO BE IN THE NATURE OF TRADE. IN CONSIDERING THESE DECISIONS, IT WOULD BE NECESSARY TO REMEMBER THAT THEY DO NOT PURPORT TO L AY DOWN ANY GENERAL OR UNIVERSAL TEST. THE PRESENCE 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 CHARACTE R. IN EACH CASE, IT IS THE TOTAL EFFECT OF ALL RELEVANT FACTORS AND CIRCUMSTANCES THAT DETERMINES THE CHARACTER OF THE TRANSACTION; AND SO , THOUGH WE ITA NO1753./MDS./16 :- 12 - : MAY ATTEMPT TO DERIVE SOME ASSISTANCE FROM DECISION S BEARING ON THIS POINT, WE CANNOT SEEK TO DEDUCE ANY RULE FROM THEM AND MECHANICALLY APPLY IT TO THE FACTS BEFORE US.' 10.2 IN THE CASE OF SMT. INDRAMANI BAI VS. ADDL. C IT (1993) 112 CTR (SC) 241: (1993) 200 ITR 594(SC), THE APEX COURT HA D AN OCCASION TO CONSIDER AN IDENTICAL ISSUE, WHEREIN THE ASSESSEES WERE WIVES OF TWO BROTHERS, WHO WERE PARTNERS IN A FIRM. THE TWO LADI ES PURCHASED A PIECE OF LAND ADMEASURING 8,479 SQ. YDS. (APPROX. A CS. 2) IN BANJARA HILLS, HYDERABAD, AND SHORTLY AFTER PURCHASING THE LAND, THEY CARVED IT INTO FOUR PLOTS AND SOLD THEM INDIVIDUALLY. AS AGAI NST THE CONCLUSION OF THE AO THAT IT WAS AN ADVENTURE IN THE NATURE OF TR ADE, THE TRIBUNAL HELD THAT THE INTENTION OF THE ASSESSEES WHILE PURC HASING THE LAND WAS TO MAKE AN INVESTMENT AND THAT THEY HAD NO INTENTIO N OF RESELLING THE SAME. THE TRIBUNAL HAD ALSO OBSERVED THAT HAVING RE GARD TO THE BACKGROUND OF THE ASSESSEES, THE TRANSACTION CANNOT BE HELD TO BE AN ADVENTURE IN THE NATURE OF TRADE. ON A REFERENCE, T HE HIGH COURT CAME TO A CONTRARY CONCLUSION AND THUS THE ASSESSEES CAR RIED THE MATTER TO THE APEX COURT, WHEREIN THE COURT OBSERVED AS UNDER :- 'ON THE FACTS FOUND, WE CANNOT SAY THAT THE HIGH CO URT WAS IN ERROR IN COMING TO THE CONCLUSION IT DID. ON THE OT HER HAND, THE TRIBUNAL SEEMS TO HAVE MADE CERTAIN ASSUMPTIONS WHI LE COMING TO THE CONCLUSION IN FAVOUR OF THE ASSESSEES, WHICH WERE NOT REALLY WARRANTED. THE TRIBUNAL REFERS TO THE 'BACKG ROUND OF THE LADIES' AS ONE OF THE CIRCUMSTANCES INDUCING IT TO COME TO THE ITA NO1753./MDS./16 :- 13 - : CONCLUSION IN FAVOUR OF THE ASSESSEES BUT IT HAS NO T TAKEN CARE TO ELUCIDATE WHAT THAT BACKGROUND WAS. THE FACT THAT S OON AFTER THE PURCHASE, THE ASSESSEES CARVED OUT THE LAND INTO PL OTS AND SOLD THEM WITHIN A FEW MONTHS, COUPLED WITH THE OTHER CI RCUMSTANCES OF THE CASE, IS CONSISTENT MORE WITH THE THEORY OF ADVENTURE IN THE NATURE OF TRADE THAN WITH THE OTHER THEORY ACCE PTED BY THE TRIBUNAL.' 10.3 IN THE CASE OF M. KRISHNA RAO (120 ITR101 (A.P.) ), THE ASSESSEE PURCHASED ACS. 16 AND 14 GUNTAS OF LAND ALONG WITH ANOTHER PERSON AND THREE YEARS LATER HE PURCHASED THE SHARE OF OTH ER OWNER AND THEREAFTER OBTAINED PERMISSION TO CONVERT THE LAND INTO BUILDING SITES AND SOLD THE SAME. THE JURISDICTIONAL HIGH COURT WH ILE COMING TO THE CONCLUSION THAT IT WAS AN ADVENTURE IN THE NATURE O F TRADE, TOOK NOTE OF THE DECISION OF THE APEX COURT IN THE CASE OF RAJA J. RAMESHWAR RAO VS. CIT (1961) 42 ITR 179(SC), WHEREIN IT WAS HELD THAT WHETHER THE ASSESSEE INTENDED TO DEAL IN REAL PROPERTY OR NOT H AS TO BE JUDGED NOT FROM THE FACT THAT THERE WAS A TIME LAG BETWEEN THE FIRST TRANSACTION AND SECOND TRANSACTION, BUT FROM THE FACT WHETHER H E SOUGHT TO CONVERT THE LAND WHICH WAS ORIGINALLY AGRICULTURAL LAND INTO BUILDING SITES. SINCE THE ASSESSEE HAD NOT SOLD THE PROPERTY AS IT IS, BUT PLOTTED IT, IT WAS CONCLUDED THAT IT BRINGS OUT THE INTENTI ON OF THE ASSESSEE, NAMELY, TO CARRY ON BUSINESS IN REAL PROPERTY AND T HEREFORE THE PROFIT DERIVED THERE-FROM IS ASSESSABLE TO TAX AS AN ADVEN TURE IN THE NATURE OF TRADE. ITA NO1753./MDS./16 :- 14 - : 10.4 TRIBUNAL, HYDERABAD BENCH, HAD AN OCCASION TO CONSIDER AN IDENTICAL ISSUE IN THE CASE OF VITTA KRISTAPPA VS. ITO (2005) 92 TTJ (HYD)(TM) 38: (2005) 92 ITD 1(HYD)(TM), WHEREIN BY MAJORITY VIEW THE BENCH OBSERVED THAT, IN THE ABSENCE OF ANY MATE RIAL TO SHOW THAT THE PURCHASE WAS WITH AN INTENTION TO TREAT IT AS A N INVESTMENT, THE CHRONOLOGY OF THE EVENTS OF THE PURCHASE OF THE LAN D, CONVERSION OF THE LAND INTO HOUSE SITES OF SMALLER SIZES, CARRYING ON IMPROVEMENT TO THE LAND, LIKE MAKING PROVISION FOR ROADS ETC., WOULD C LEARLY SHOW THAT THE INTENTION WAS NOT TO SET UP OIL MILL AND IT WAS ONL Y TO MAKE PROFIT IN THE FORM OF AN ADVENTURE IN THE NATURE OF TRADE. THE IN CIDENTS AFTER PURCHASE OF THE LAND CLEARLY DEPICT THAT THE PURCHA SE WAS 'NOT WITH AN INTENTION TO HOLD IT AS PRIDE OF POSSESSION OF THE LAND' AND THUS EVEN SINGLE TRANSACTION OF PURCHASE AND SALE OUTSIDE THE ASSESSEE'S LINE OF BUSINESS MAY CONSTITUTE AN ADVENTURE IN THE NATURE OF TRADE. 10.5 IN G. VENKATASWAMI NAIDU & CO. (SUPRA), THE APEX COURT, AT PARA 26 OBSERVED AS UNDER : 'WHAT THEN ARE THE RELEVANT FACTS IN THE PRESENT CA SE ? THE PROPERTY PURCHASED AND RESOLD IS LAND AND IT MUST B E CONCEDED IN FAVOUR OF THE APPELLANT THAT LAND IS GE NERALLY THE SUBJECT-MATTER OF INVESTMENT. IT IS CONTENDED BY MR . VISWANATHA SASTRI THAT THE FOUR PURCHASES MADE BY T HE APPELLANT REPRESENT NOTHING MORE THAN AN INVESTMENT AND IF BY RESALE SOME PROFIT WAS REALIZED THAT CANNOT IMPR ESS THE TRANSACTION WITH THE CHARACTER OF AN ADVENTURE IN T HE NATURE ITA NO1753./MDS./16 :- 15 - : OF TRADE. THE APPELLANT, HOWEVER, IS A FIRM AND IT WAS NOT A PART OF ITS ORDINARY BUSINESS TO MAKE INVESTMENT IN LANDS. BESIDES, WHEN THE FIRST PURCHASE WAS MADE IT IS DIF FICULT TO TREAT IT AS A MATTER OF INVESTMENT. THE PROPERTY WA S A SMALL PIECE OF 280-1/4 CENTS AND IT COULD YIELD NO RETURN WHATEVER TO THE PURCHASER. IT IS CLEAR THAT THIS PURCHASE WA S THE FIRST STEP TAKEN BY THE APPELLANT IN EXECUTION OF A WELL CONSIDERED PLAN TO ACQUIRE OPEN PLOTS NEAR THE MILLS AND THE W HOLE BASIS FOR THE PLAN WAS TO SELL THE SAID LANDS TO THE MILL S AT A PROFIT. JUST AS THE CONDUCT OF THE PURCHASER SUBSEQUENT TO THE PURCHASE OF A COMMODITY IN IMPROVING OR CONVERTING IT SO AS TO MAKE IT MORE READILY RESALABLE IS A RELEVANT FAC TOR IN DETERMINING THE CHARACTER OF THE TRANSACTION, SO WO ULD HIS CONDUCT PRIOR TO THE PURCHASE BE RELEVANT IF IT SHO WS A DESIGN AND A PURPOSE. AS AND WHEN PLOTS ADJOINING THE MILL S WERE AVAILABLE FOR SALE, THE APPELLANT CARRIED OUT HIS P LAN AND CONSOLIDATED HIS HOLDING OF THE SAID PLOTS. THE APP ELLANT IS THE MANAGING AGENT OF THE JANARDANA MILLS AND PROBABLY IT WAS FIRST THOUGHT THAT PURCHASING THE PLOTS IN ITS OWN NAME AND SELLING THEM TO THE MILLS MAY INVITE CRITICISM AND SO THE FIRST PURCHASE WAS MADE BY THE APPELLANT IN THE NAME OF I TS BENAMIDAR, V.G. RAJA. APPARENTLY, THE APPELLANT CHA NGED ITS MIND AND TOOK THE SUBSEQUENT SALE DEEDS IN ITS OWN NAME. THE CONDUCT OF THE APPELLANT IN REGARD TO THESE PLO TS SUBSEQUENT TO THEIR PURCHASE CLEARLY SHOWS THAT IT WAS NOT INTERESTED IN OBTAINING ANY RETURN FROM THEM. NO DO UBT, THE APPELLANT SOUGHT TO EXPLAIN ITS PURPOSE ON THE GROU ND THAT IT WANTED TO BUILD TENEMENTS FOR THE EMPLOYEES OF THE MILLS; BUT IT HAD TAKEN NO STEPS IN THAT BEHALF FOR THE WH OLE OF THE PERIOD DURING WHICH THE PLOTS REMAINED IN ITS POSSE SSION. BESIDES, IT WOULD NOT BE EASY TO ASSUME IN THE CASE OF A FIRM LIKE THE APPELLANT THAT THE ACQUISITION OF THE OPEN PLOTS COULD ITA NO1753./MDS./16 :- 16 - : INVOLVE ANY PRIDE OF POSSESSION TO THE PURCHASER. I T IS REALLY NOT ONE TRANSACTION OF PURCHASE AND RESALE. IT IS A SERIES OF FOUR TRANSACTIONS UNDERTAKEN BY THE APPELLANT IN PU RSUANCE OF A SCHEME AND IT WAS AFTER THE APPELLANT HAD CONSOLI DATED ITS HOLDING THAT AT A CONVENIENT TIME IT SOLD THE LANDS TO THE JANARDANA MILLS IN TWO LOTS. WHEN THE TRIBUNAL FOUN D THAT, AS THE MANAGING AGENT OF THE MILLS THE APPELLANT WAS I N A POSITION TO INFLUENCE THE MILLS TO PURCHASE ITS PRO PERTIES ITS VIEW CANNOT BE CHALLENGED AS UNREASONABLE. IF THE P ROPERTY HAD BEEN PURCHASED BY THE APPELLANT AS A MATTER OF INVESTMENT IT WOULD HAVE TRIED EITHER TO CULTIVATE THE LAND, OR TO BUILD ON IT; BUT THE APPELLANT DID NEITHER AND J UST ALLOWED THE PROPERTY TO REMAIN UNUTILIZED EXCEPT FOR THE NE T RENT OF RS. 80 PER ANNUM WHICH IT RECEIVED FROM THE HOUSE O N ONE OF THE PLOTS. THE REASON GIVEN BY THE APPELLANT FOR TH E PURCHASE OF THE PROPERTIES BY THE MILLS HAS BEEN REJECTED BY THE TRIBUNAL; AND SO WHEN THE MILLS PURCHASED THE PROPE RTIES IT IS NOT SHOWN THAT THE SALE WAS OCCASIONED BY ANY SPECI AL NECESSITY AT THE TIME. IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS OBVIOUSLY RIGHT IN INFERRING THAT THE APPELLANT KNEW THAT IT WOULD BE ABLE TO SELL THE LANDS TO THE MILLS WHENEVER IT THOUGHT IT PROFITABLE SO TO DO. THUS, T HE APPELLANT PURCHASED THE FOUR PLOTS DURING TWO YEARS WITH THE SOLE INTENTION TO SELL THEM TO THE MILLS AT A PROFIT AND THIS INTENTION RAISES A STRONG PRESUMPTION IN FAVOUR OF THE VIEW T AKEN BY THE TRIBUNAL. IN REGARD TO THE OTHER RELEVANT FACTS AND CIRCUMSTANCES IN THE CASE, NONE OF THEM OFFSETS OR REBUTS THE PRESUMPTION ARISING FROM THE INITIAL INTENTION; ON THE OTHER HAND, MOST OF THEM CORROBORATE THE SAID PRESUMPTION . WE MUST, THEREFORE, HOLD THAT THE HIGH COURT WAS RIGHT IN TAKING THE VIEW THAT, ON THE FACTS AND CIRCUMSTANCES PROVE D IN THIS ITA NO1753./MDS./16 :- 17 - : CASE, THE TRANSACTION IN QUESTION IS AN ADVENTURE I N THE NATURE OF TRADE.' 10.5 A CAREFUL PERUSAL OF THE OBSERVATIONS OF THE A PEX COURT WOULD SHOW THAT IT WOULD BE IMPOSSIBLE TO FORMULATE A SIN GLE CRITERION TO ARRIVE AT A CONCLUSION AS TO WHETHER THE PROFIT ON SALE OF LAND GIVES RAISE TO 'CAPITAL GAINS' OR 'ADVENTURE IN THE NATUR E OF TRADE'. WHETHER THE INTENTION AT THE TIME OF PURCHASE OF LAND WAS T O HOLD IT AS AN INVESTMENT OR STOCK-IN-TRADE IS ONLY ONE TEST, OUT OF A NUMBER OF CIRCUMSTANCES PRESCRIBED BY THE COURT, TO DRAW A PR ESUMPTION AND AS POINTED OUT BY THEIR LORDSHIPS, THE CUMULATIVE EFFE CT OF ALL THE CIRCUMSTANCES HAS TO BE TAKEN INTO ACCOUNT TO DRAW A PROPER INFERENCE AS TO WHETHER IT FALLS IN THE CATEGORY OF AN ADVENT URE IN THE NATURE OF TRADE OR NOT. 10.6 IN THIS CASE, THE ASSESSEE HAD NO RECORD OF CA RRYING ON AGRICULTURAL OPERATIONS. THE SIZE OF THE LAND ALSO SUGGESTS THAT IT WAS NOT INTENDED TO CARRY ON AGRICULTURAL OPERATIONS. T HE ASSESSEE IS ENGAGED IN TRADING PVC FLEX SHEETS, SS COILS & OTHE R TRADING, FINANCE, DERIVATIVES WHICH THROWS LIGHT ON THE INTE NTION OF THE PARTIES FOR THE PURPOSE OF TRADING OR INVESTMENT. THERE IS NO EVIDENCE ON RECORD TO SUGGEST THAT THE SAID PURCHASE OF LAND WA S TO ENJOY THE 'PRIDE OF POSSESSION' OF AGRICULTURE, WHICH ARE SOM E OF THE FACTORS ENUMERATED BY THE APEX COURT TO FACILITATE A JUDICI AL BODY TO ANALYSE ITA NO1753./MDS./16 :- 18 - : THE NATURE OF TRANSACTION OF SALE. AT ANY RATE, AS AGAINST THE CONTENTION OF THE ASSESSEE THAT THE PROPERTY WAS RETAINED FOR INVESTMENT, THE FACT REMAINS THAT IT WAS SOLD WITHIN SHORT TIME. 10.7 THUS, THE ATTENDANT CIRCUMSTANCES OF THE CAS E, THE PROCESS OF PURCHASE OF LAND JOINTLY, AND ALSO SALE OF PURCHASE D LAND JOINTLY, COMPEL US TO COME TO THE CONCLUSION THAT THE PURCHA SE OF LAND, IN ITSELF, WAS WITH AN INTENTION TO SELL AT A PROFIT I N THE FORM OF AN 'ADVENTURE IN THE NATURE OF TRADE' AND HENCE THOUGH IT IS AN ISOLATED TRANSACTION THE INCOME THEREON CAN STILL BE CONSIDE RED AS BUSINESS INCOME. IN OUR VIEW, THE FACTS ARE AKIN TO THE FACT S AND CIRCUMSTANCES CONSIDERED BY THE APEX COURT IN THE CASE OF SMT. IN DRAMANI BAI (SUPRA), AND BY THE ANDHRA PRADESH HIGH COURT IN TH E CASE OF M. KRISHNA RAO (SUPRA). 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS D ISMISSED. ORDER PRONOUNCED ON 22 ND JULY, 2016, AT CHENNAI. SD/ - SD/ - ( . ) ( G.PAVAN KUMAR ) / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 22 ND JULY, 2016 K S SUNDARAM ITA NO1753./MDS./16 :- 19 - : &'(()*( +* / COPY TO: ( 1 . / APPELLANT 3. ( ,(- . / CIT(A) 5. */0 (1 / DR 2. / RESPONDENT 4. ( , / CIT 6. 02(3 / GF