THE ITO, V. SMT. MEENA ATUL SHAH.,

ITA 3008/AHD/2003

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0238 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 21-10-2009
• Assessment Year: 1996-1997
• Appeal Filed On: 04-07-2003
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY RAI
• Assessee Lawyers: K R DIXIT
• Keywords: Cost of acquisition; Capital Gains

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD SMC BENCH (BEFORE SHRI R.V.EASWAR, VICE-PRESIDENT) ITA NO.3008/AHD/2003 [ASSTT.YEAR : 1996-1997] ITO, WARD-5(3) SURAT. VS. SMT.MEENA ATUL SHAH 2/C, SAMRAT APARTMENTS, SONIFALIA, SURAT. ITA NO. 3010/AHD/2003 [ASSTT.YEAR : 1996-1997] ITO, WARD-5(2) SURAT. VS. SMT.URMILA N. SHAH 2/C, SAMRAT APARTMENTS, SONIFALIA, SURAT. ITA NO.3011/AHD/2003 [ASSTT.YEAR : 1996-1997] ITO, WARD-5(2) SURAT. VS. SMT.KAMAL AMAR SHAH 2/C, SAMRAT APARTMENTS, SONIFALIA, SURAT. ASSESSEE BY : SHRI K.R.DIXIT REVENUE BY : SHRI SANJAY RAI O R D E R THESE ARE THREE APPEALS FILED BY THE DEPARTMENT AN D SINCE A COMMON ISSUE IS INVOLVED, THEY WERE HEARD TOGETHER AND ARE ALSO DISPOSED OF BY A SINGLE ORDER. 2. THE RESPONDENT-ASSESSEES ARE LADIES RELATED TO E ACH OTHER. THEY DO NOT HAVE ANY BUSINESS OF THEIR OWN AND ARE HOUSEWIVES. SMT. MEENA ATUL SHAH, ONE OF THE RESPONDENTS, OWNED A HOUSE FROM WHICH SO ME INCOME WAS DERIVED. SOMETIME IN JULY 1990 THE LADIES PURCHASED 2340 SQ. MTS. OF LAND IN SURAT FOR A PRICE OF RS.4,43,445 AND HELD THE SAME AS CO-OWNERS WITH EQUAL SHARES. IN DECEMBER, 1995, THEY SOLD 1760 SQ.MTS. OUT OF THE A BOVE LAND TO 5 PERSONS UNDER 5 SEPARATE SALE DEEDS FOR A TOTAL CONSIDERATI ON OF RS.14,06,559. EACH OF THE ASSESSEES DECLARED CAPITAL GAINS OF RS.2,40,630 FROM THE SALE OF HER SHARE IN PAGE - 2 ITA NO.3008, 3010 AND 3011/AHD/2003 -2- THE LAND. THE RETURNS FILED BY THEM WERE ORIGINALLY ACCEPTED BUT THE ASSESSMENTS WERE LATER REOPENED U/S.147 OF THE IT A CT ON THE GROUND THAT THE SURPLUS ON THE SALE OF THE LAND OUGHT TO HAVE BEEN BROUGHT TO TAX AS PROFITS OF AN ADVENTURE IN THE NATURE OF TRADE UNDER THE HEAD BU SINESS AND NOT AS CAPITAL GAINS. IN THE COURSE OF THE REASSESSMENT PROCEEDING S THE ASSESSEES CONTENDED THAT THE LAND WAS ACQUIRED IN 1990 WITHOUT ANY PROF IT MOTIVE, THAT NO DEVELOPMENT ON THE SAME WAS CARRIED OUT SUCH AS DIV ISION INTO PLOTS, LAYING OF ROADS, DRAINAGE, WATER LINES ETC., THAT IN THE MAPS ATTACHED TO THE SALE DOCUMENTS THE LAND WAS MERELY DEMARCATED AND IDENTI FIED SO THAT THE PURCHASERS WILL NOT HAVE ANY PROBLEM IN FUTURE, THA T THE ASSESSEES DID NOT BUY AND SELL LAND AT ANY TIME IN THE PAST AND THAT IN T HESE CIRCUMSTANCES THE SURPLUS CANNOT BE CONSIDERED AS PROFITS ARISING FROM AN ADV ENTURE IN THE NATURE OF TRADE. A PHOTOGRAPH OF THE LAND, AS IT STOOD AT THE TIME W HEN THE ASSESSMENT PROCEEDINGS WERE ON, WAS PRODUCED BEFORE THE ASSESS ING OFFICER WHO HELD THAT IT COULD NOT THROW ANY LIGHT ON THE CONDITION OF TH E LAND AT THE TIME OF THE SALE AND WAS THEREFORE NOT RELEVANT. IN THE ALTERNATIVE, HE HELD THAT THE PHOTOGRAPH SHOWED THAT THE LAND WAS A DEVELOPED ONE, DEVELOPED BY THE ASSESSEES BEFORE THE SALE. ON THIS BASIS HE REJECTED THE SUBMISSIONS OF THE ASSESSEES AND AFTER REFERRING TO THE AUTHORITIES BEARING ON THE QUESTIO N, TREATED THE SURPLUS AS PROFITS FROM AN ADVENTURE IN THE NATURE OF TRADE AND BROUGH T THE SAME TO TAX UNDER THE HEAD BUSINESS. 3. ON APPEAL, THE CIT(A) ACCEPTED THE CLAIM OF THE ASSESSEES THAT THE SURPLUS SHOULD BE ASSESSED AS CAPITAL GAINS AND H ENCE THE PRESENT APPEALS BY THE REVENUE. 4. I HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDERE D THE FACTS. IF THE SURPLUS IS ASSESSED AS CAPITAL GAINS, THE ASSESSEES WOULD GET THE BENEFIT OF THE INDEXATION OF THE COST OF ACQUISITION WHICH WOULD B E DENIED TO THEM IF IT IS ASSESSED AS PROFITS ARISING OUT OF AN ADVENTURE IN THE NATURE OF TRADE (UNDER THE PAGE - 3 ITA NO.3008, 3010 AND 3011/AHD/2003 -3- HEAD BUSINESS). THIS SEEMS TO BE THE BONE OF CONT ENTION. NOW IT IS WELL- SETTLED THAT IT IS THE INTENTION OF THE ASSESSEE AT THE TIME OF ACQUIRING THE LAND THAT IS RELEVANT. THE ASSESSEES ARE ALL LADIES. THE Y WERE NOT CARRYING ON ANY BUSINESS. THEY WERE HOUSEWIVES. ONLY ONE OF THEM HA D A HOUSE OF HER OWN. THEY WERE RELATED TO EACH OTHER. I AM NOT ABLE SEE ANY FACT OR CIRCUMSTANCE FROM WHICH I CAN INFER THAT EVEN WHEN THEY ACQUIRED THE LAND THEY INTENDED TO MAKE A PROFIT BY RESELLING THEM. THEIR BACKGROUND D OES NOT PERMIT SUCH AN INFERENCE. LAND IS A COMMODITY WHICH IS DIFFERENT F ROM OTHER COMMERCIAL COMMODITIES COMMONLY BOUGHT AND SOLD AND IN KHAN BA HADUR AHMED ALLADIN & SONS VS CIT (1968) 68 ITR 573 IT HAS BEEN HELD BY THE SUPREME COURT THAT A TRANSACTION OF PURCHASE OF LAND CANNOT BE ASSUMED W ITHOUT MORE TO BE AN ADVENTURE IN THE NATURE OF TRADE. IT IS THEREFORE N ECESSARY TO LOOK FOR CIRCUMSTANCES OR FACTS WHICH SHOW THAT EVEN AT THE TIME OF ACQUISITION THERE WAS AN INTENTION TO RESELL. THERE IS NO SUCH FACT O R CIRCUMSTANCE; ON THE CONTRARY, THE BACKGROUND OF THE ASSESSEES IS INDICA TIVE OF THE OPPOSITE. THERE IS ALSO NO EVIDENCE TO HOLD THAT THE ASSESSEES CARRIED OUT ANY DEVELOPMENTAL ACTIVITIES ON THE LAND SO AS TO CONVERT THEM INTO P LOTS, LAY ROADS, DRAINAGE SYSTEMS ETC., ALL OF WHICH COULD BE INDICATIVE OF A COMMERCIAL MOTIVE. THE PHOTOGRAPH SHOWN TO THE ASSESSING OFFICER, WHICH WA S ALSO SHOWN TO ME DURING THE HEARING, DOES NOT SHOW THAT THE LAND WAS PHYSICALLY DIVIDED INTO PLOTS OR HAD A ROAD OR DRAINAGE SYSTEM. WHAT I FOUN D WAS THAT IT WAS SECURED BY A COMPOUND WALL. THERE WERE ALSO TREES ON THE LAND. IF AS ASSUMED BY THE ASSESSING OFFICER THE ASSESSEES HAD CARRIED OUT DEV ELOPMENTAL ACTIVITIES ON THE LAND BEFORE SALE, IT WAS NOT TO THE ADVANTAGE OF TH E PURCHASERS TO HAVE THEM REMOVED, AS RIGHTLY POINTED OUT BY MR. DIXIT, LEARN ED COUNSEL FOR THE ASSESSEES. THE MAPS ATTACHED TO THE SALE DOCUMENTS ONLY SHOW T HE DIFFERENT PLOTS SOLD TO THE 5 PURCHASERS BY MEASUREMENTS, AND THE AREA BETW EEN THE PLOTS AS A ROAD. BUT IT HAS NOT BEEN FOUND AS A FACT THAT THERE WAS ACTUALLY ANY ROAD LAID ON THE LAND; AT ANY RATE THE PHOTOGRAPH DID NOT SHOW THE S AME. I AM INCLINED TO HOLD THAT THE MAPS HAVE BEEN DRAWN UP ONLY TO FACILITATE THE IDENTIFICATION OF THE PAGE - 4 ITA NO.3008, 3010 AND 3011/AHD/2003 -4- PLOTS BOUGHT BY EACH OF THE 5 PURCHASERS. THUS, NO PHYSICAL OR ACTUAL DEVELOPMENTAL ACTIVITIES WOULD APPEAR TO HAVE BEEN CARRIED OUT BY THE ASSESSEES BEFORE SALE. 5. THE LEARNED SENIOR DR REFERRED TO THE FACT THAT THERE WERE FIVE SALES AND NOT AN ISOLATED INSTANCE. BUT THE FIVE PURCHASERS W ERE ALL KATHIWALAS OF SURAT AND ALL THE SALES WERE ON THE SAME DAY. IN SUBSTANC E AND EFFECT, THERE WAS ONLY A SINGLE TRANSACTION. HE THEN CONTENDED THAT THE LA ND WAS COVERED BY A COMPOUND WALL, BUT I FAIL TO SEE HOW THAT CAN SHOW ANY COMMERCIAL MOTIVE BECAUSE A COMPOUND WALL IS NORMALLY BUILT TO SECURE THE PROPERTY FROM ENCROACHMENTS, WHETHER IT IS OWNED BY A LAND DEALER OR A MERE LAND OWNER. NOTHING TURNS ON IT. IT WAS THEN CONTENDED BY THE L EARNED SR.DR THAT THE ASSESSEES RETAINED 580 SQ.MTS. OF LAND FOR THEMSELV ES AND THAT SHOWS THAT THEIR MOTIVE WAS TO TURN IT INTO PROFIT AT A FUTURE DATE. THIS IS ONLY A SURMISE. THE RETENTION OF A PART OF THE LAND MAY EQUALLY BE CONS ISTENT WITH THE THEORY THAT THEY REQUIRED THE LAND FOR THEIR OWN FUTURE USE. RE FERENCE WAS THEN MADE TO THE FACT THAT THERE WAS AN AGREEMENT TO SELL EXECUTED O N 3-8-1995 BEFORE THE EXECUTION OF THE SALE DEED WHICH IS NORMALLY DONE O NLY IN COMMERCIAL DEALINGS AND NOT WHEN AN INVESTMENT IS REALISED. THIS ARGUME NT, WITH RESPECT, IS ALSO WITHOUT ANY BASIS. 6. MY ATTENTION WAS DRAWN BY THE LEARNED SR.DR TO T HE JUDGMENT OF THE SUPREME COURT IN P.M. MOHAMED MEERAKHAN V CIT (1969 ) 73 ITR 735. IN THAT CASE THERE WAS EVIDENCE TO SHOW THAT A LARGE PLOT O F LAND WAS PURCHASED BY THE ASSESSEE AND DIVIDED INTO PLOTS. THE ASSESSEE WAS F OUND NOT TO HAVE THE RESOURCES TO PAY FOR THE LAND AND HE THEREFORE DIVI DED THE LAND INTO 23 PLOTS AND ARRANGED FOR THE SALE OF 22 PLOTS TO DIFFERENT PURC HASERS. FURTHER, THE ARRANGEMENT UNDER THE AGREEMENT TO SELL WAS THAT TH E LAND WOULD BE TRANSFERRED IN THE NAME OF THE ASSESSEE OR HIS NOMINEES. THERE WAS THUS SURROUNDING CIRCUMSTANCES TO INDICATE THAT THE MOTIVE IN ACQUIR ING THE LAND WAS TO TURN IT PAGE - 5 ITA NO.3008, 3010 AND 3011/AHD/2003 -5- INTO PROFIT. IN THE CASES BEFORE ME, THERE IS NO EV IDENCE OR SURROUNDING CIRCUMSTANCES INDICATIVE OF ANY PROFIT MOTIVE WHEN THE LAND WAS ACQUIRED BY THE ASSESSEES IN JULY 1990. AS I HAVE ALREADY SAID, THE BACKGROUND OF THE ASSESSEES IS A POINTER TO THE CONTRARY. 7. I MAY REFER TO TWO JUDGMENTS OF THE HONBLE GUJA RAT HIGH COURT THOUGH THEY WERE NOT CITED BEFORE ME, SINCE THEY AR E JUDGMENTS OF THE JURISDICTIONAL HIGH COURT IT IS MY RESPECTFUL DUTY, CONSISTENT WITH JUDICIAL DISCIPLINE, TO REFER TO THEM AS THEY HAVE A DIRECT BEARING ON THE ISSUE BEFORE ME. IN CIT V PREMJI GOPALBHAI (1978) 113 ITR 785, IT WA S HELD BY THE HONBLE HIGH COURT THAT THE BURDEN OF PROVING THAT A PARTIC ULAR TRANSACTION WAS AN ADVENTURE IN THE NATURE OF TRADE IS ON THE REVENUE AND IT CAN BE DISCHARGED BY POINTING TO CIRCUMSTANCES WHICH LEAD TO THE CONCLUS ION THAT THE TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE. IT WAS FURTHER HE LD THAT IN THE CASE OF LAND, WHICH IS NOT A COMMERCIAL COMMODITY, IT MUST BE SHO WN THAT THE PURCHASE WAS MADE SOLELY AND EXCLUSIVELY WITH AN INTENTION TO RE SELL IT AT A PROFIT. IN CIT V GORDHANDAS TRIKAMBHAI PATEL (1979) 118 ITR 81) IT W AS REITERATED BY THE HONBLE HIGH COURT THAT THE BURDEN WAS ON THE REVEN UE. IN THIS CASE REFERENCE WAS MADE TO THE JUDGMENT OF THE SUPREME COURT IN JA NKI RAM BAHADUR RAM V CIT (1965) 57 ITR 21 WHERE IT WAS HELD THAT A TRA NSACTION OF PURCHASE OF LAND CANNOT BE ASSUMED WITHOUT MORE TO BE A VENTURE IN THE NATURE OF TRADE. IT WAS HELD THAT THE PROPER TEST TO BE APPLIED IN LAND CASES WAS TO FIND OUT IF THE ASSESSEE HAD CONVERTED THE LAND IN QUESTION INTO IT S STOCK-IN-TRADE AND TREATED IT AS A COMMODITY FOR THE PURPOSE OF DEALING WITH IT. IN THE CASES BEFORE ME, I AM UNABLE TO SAY THAT EITHER THE BURDEN HAS BEEN DISCH ARGED BY THE REVENUE OR THAT THERE ARE CIRCUMSTANCES POINTING TO THE CONVERSION OF THE LAND IN QUESTION AS THE STOCK-IN-TRADE OF THE ASSESSEES AND THE TREATMENT O F THE SAME AS A COMMODITY FOR THE PURPOSE OF DEALING WITH IT. 8. THE ONLY OTHER CASE WHICH I MAY REFER TO IS THAT OF THE MADRAS HIGH COURT IN CIT V KASTURI ESTATES (P) LTD. (1966) 62 I TR 578, CITED BEFORE ME BY PAGE - 6 ITA NO.3008, 3010 AND 3011/AHD/2003 -6- MR. DIXIT, LEARNED COUNSEL APPEARING FOR THE ASSESS EES. HONBLE JUSTICE VEERASWAMI (AS HIS LORDSHIP THEN WAS) OBSERVED AT P AGE 599 OF THE REPORT THAT LAND, ON THE OTHER HAND, IS OFTEN THE SUBJECT-MATT ER OF INVESTMENT. ON THE FACTS OF THAT CASE, HIS LORDSHIP NOTED THAT THERE W AS NO EVIDENCE OF FREQUENT SALES OF LAND BY THE COMPANY AND PROCEEDED TO HOLD THAT DEVELOPING THE LAND INTO BUILDING SITES WITH A VIEW TO REALISING THE BE ST PRICE, WITHOUT ANYTHING MORE, IS CONSISTENT WITH REALISATION OF A CAPITAL I NVESTMENT (PAGE 600). OBSERVING THAT IF A LAND-OWNER DEVELOPED HIS LAND, EXPENDED MONEY ON IT, LAID ROADS, CONVERTED THE LAND INTO HOUSE SITES AND WIT H A VIEW TO GET A BETTER PRICE FOR THE LAND, EVENTUALLY SOLD THE PLOTS FOR A CONSI DERATION YIELDING A SURPLUS, IT COULD HARDLY BE SAID THAT THE TRANSACTION IS ANYTHI NG MORE THAN A REALISATION OF A CAPITAL INVESTMENT OR CONVERSION OF ONE FORM OF ASS ET INTO ANOTHER, HIS LORDSHIP HELD THAT IT WOULD BE A TRANSACTION WHICH ANY PRUDENT OWNER OF LAND WILL ENGAGE IN AND WHICH IS, THEREFORE, NO MORE THA N REALISATION OF CAPITAL INVESTMENT, CONVERSION OF LAND INTO MONEY, NOT A VE NTURE IN THE NATURE OF TRADE. IT WAS ALSO NOTED THAT THERE WAS ABSENCE OF ANY EVIDENCE OF TRADING ACTIVITY OR SPECULATIVE VENTURE. 9. FOR THE ABOVE REASONS, AND RESPECTFULLY APPLYING THE TESTS PROPOUNDED IN THE JUDGMENTS CITED ABOVE, INCLUDING THOSE OF THE H ONBLE JURISDICTIONAL HIGH COURT, I HOLD THAT THE CIT(A) RIGHTLY TREATED THE S URPLUS ON THE SALE OF THE LAND AS CAPITAL GAINS AND NOT AS PROFITS ARISING OUT O F AN ADVENTURE IN THE NATURE OF TRADE. I AFFIRM HIS DECISION IN ALL THE THREE CASES AND DISMISS THE APPEALS FILED BY THE REVENUE WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT 23 RD OCTOBER, 2009. SD/- (R.V.EASWAR) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 23-10-2009 PAGE - 7 ITA NO.3008, 3010 AND 3011/AHD/2003 -7- COPY OF THE ORDER FORWARDED TO: 1) : ASSESSEE 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR, ITAT, AHMEDABAD