Shri.Suresh Nagaraja Rao Kestur , Bangalore V. The Income Tax Officer Ward-5(3)(3), Bangalore

ITA 367/BANG/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4608 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-12-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 06-02-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MANJEET SINGH CIT BENGALURU
• Assessee Lawyers: C RAMESH
• Keywords: Capital asset; Gift; Business income; Date of conversion; Capital Gains
• Section: 54F; 207; 264; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI. N. V. VASUDEVAN, VICE PRESIDENT AND SHRI. A. K. GARODIA , ACCOUNTANT MEMBER ITA NO. 367 /BANG/20 1 8 ASSESSMENT YEAR : 2013-14 SHRI. SURESH NAGARAJA RAO KESTUR, #670/5/2/, 11 TH D MAIN JAYANAGAR, BENGALURU 560 041. PAN : A JJPK 1231 F VS. THE INCOME TAX OFFICER, WARD 5(3)(3), 6 TH FLOOR, HMT BHAVAN, NO.59, BELLARY ROAD, BENGALURU 5 60 032. APPELLANT RESPONDENT ASSESSEE BY : SHRI. C. RAMESH , C A REVENUE BY : S HRI . MANJEET SINGH , ADDL. CIT (DR)(ITAT), BENGALURU DATE OF HEARING : 13 . 1 0.2020 DATE OF PRONOUNCEMENT : 16 . 1 0.2020 O R D E R PER A. K. GARODIA, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE AND THE SAME IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-5, BENGALURU, DATED 02.10.2017, FOR ASSESSMENT YEAR 2013-14. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS OPPOSED TO THE FACTS OF THE CASE AND LAW APPLICABLE TO IT. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER. ASSESSING THE PROFIT CONSEQUENT TO SALE OF LAND DURING THE PREVIOUS YEAR UNDER THE HEAD BUSINESS AS AGAINST CAPITAL GAINS DECLARED BY THE APPELLANT 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT CONSIDERING THE FACT THAT THE APPELLANT WAS NEVER IN THE BUSINESS OF REAL ESTATE. HELD THE ASSET AS CAPITAL ASSET AND THE INCOME WAS THEREFORE ASSESSABLE UNDER THE HEAD CAPITAL GAINS. ITA NO.367/BANG/2018 PAGE 2 OF 7 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER AND IGNORING THE FACT THAT. JUST AN ACT OF CONVERSION FROM AGRICULTURAL PURPOSES TO INDUSTRIAL PURPOSES WOULD NOT AMOUNT TO ADVENTURE IN THE NATURE OF TRADE AND HENCE THE PROFIT CONSEQUENT TO SALE WAS ASSESSABLE UNDER THE HEAD CAPITAL GAINS AND NOT UNDER THE HEAD BUSINESS. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT, THE APPELLANT IS NOT ELIGIBLE FOR EXEMPTION U/S.54F OF THE ACT. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT, THE ASSET BECAME A CAPITAL ASSET ONLY AFTER CONVERSION AND THE PERIOD OF HOLDING FOR THE PURPOSE OF DETERMINING THE PERIOD OF THREE YEARS. THE DATE OF CONVERSION SHOULD BE CONSIDERED AS DATE OF ACQUISITION AND ON THE CONTRARY THIS IS NOT THE POSITION OF LAW. ORIGINAL DATE OF ACQUISITION CONTINUES TO BE THE DATE OF ACQUISITION 7. THE APPELLANT CRAVES PERMISSION TO ADD, DELETE OR ALTER ANY OF THE GROUNDS AT THE TIME OF HEARING. PRAYER THE APPELLANT REQUEST THE HONOURABLE TRIBUNAL TO KINDLY HOLD THAT I) THE ASSET SOLD DURING THE PREVIOUS YEAR IS A CAPITAL ASSET AND THEREFORE THE PROFIT ON SALE OF SUCH ASSET IS ASSESSABLE UNDER THE HEAD CAPITAL GAINS II) THE DATE OF THE ACQUISITION OF THE ASSET FOR RECKONING THE PERIOD OF HOLDING SHOULD BE THE ORIGINAL DATE OF ACQUISITION AND NOT THE DATE OF CONVERSION AND THEREFORE THE ASSET IS A LONG TERM CAPITAL ASSET AND THE INCOME IS ASSESSABLE UNDER THE HEAD LONG TERM CAPITAL GAINS. III) THE APPELLANT IS ELIGIBLE FOR EXEMPTION U/S 54F OF THE ACT AS CLAIMED. 2. IN THE COURSE OF HEARING, IT WAS SUBMITTED BY LEARNED AR OF THE ASSESSEE THAT IN THE PRESENT CASE, AN AGRICULTURAL PROPERTY MEASURING 16 ACRES AND 20 GUNTAS WAS JOINTLY PURCHASED BY THE ASSESSEE ON 17.09.2005 ALONG WITH 2 CO- OWNERS, TOTALLY 3 CO-OWNERS INCLUDING THE PRESENT ASSESSEE AND AS HAS BEEN ITA NO.367/BANG/2018 PAGE 3 OF 7 NOTED BY THE AO ON PAGE 2 OF THE ASSESSMENT ORDER, THIS PURCHASE HAS BEEN MADE IN PURSUANCE OF ONE OF THE PURPOSES OF THE CO-OWNERSHIP DEED, COPY OF WHICH IS AVAILABLE ON PAGES 15 5O 17 OF THE PAPER BOOK AND THIS CO-OWNERSHIP AGREEMENT IS DATED 15.06.2002. HE SUBMITTED THAT ALTHOUGH THIS CO-OWNERSHIP AGREEMENT WAS EXECUTED ON 15.06.2002 BUT THE FIRST PURCHASE OF LAND IN PURSUANCE TO THIS AGREEMENT IS ONLY ON 17.09.2005 AND THIS PURCHASE OF LAND IS NOT FOR ANY BUSINESS PURPOSE AND THEREFORE, THE GAIN ARISING ON SALE OF THE SAID LAND IN THE PRESENT YEAR IS TAXABLE AS LONG TERM CAPITAL GAIN AND NOT AS BUSINESS INCOME. HE ALSO POINTED OUT THAT THERE IS THIS OBSERVATION OF THE AO AND CIT(A) ALSO THAT EVEN IF THE GAIN IS TAXABLE UNDER THE HEAD INCOME FROM CAPITAL GAIN, THE SAID GAIN IN THE PRESENT CASE IS SHORT TERM CAPITAL GAIN AND NOT LONG TERM CAPITAL GAIN BECAUSE THE LAND WAS CONVERTED FROM AGRICULTURAL LAND TO NON-AGRICULTURAL LAND ON 11.08.2010 AND IT WAS SOLD ON 25.07.2012, 07.08.2012 AND 17.08.2012 AND THEREFORE, IT WAS HELD FOR LESS THAN 3 YEARS AND HENCE, TAXABLE AS SHORT TERM CAPITAL GAIN. IN THIS REGARD, IT WAS THE SUBMISSION OF THE LEARNED AR OF THE ASSESSEE THAT THE PERIOD OF HOLDING SHOULD BE CONSIDERED FROM THE ACTUAL DATE OF PURCHASE BEING 17.09.2005 AND THEREFORE, IT SHOULD BE ASSESSED AS LONG TERM CAPITAL GAIN AND NOT AS SHORT TERM CAPITAL GAIN AND DEDUCTION SHOULD ALSO BE ALLOWED UNDER SECTION 54F OF THE INCOME TAX ACT, 1961. LEARNED AR OF THE ASSESSEE HAS ALSO SUBMITTED THAT SIX JUDICIAL PRONOUNCEMENTS ARE SUBMITTED IN THE PAPER BOOK FOR CASE LAW COMPILATION CONTAINING 34 PAGES. HE SUBMITTED THAT IT INCLUDES JUDGMENTS OF VARIOUS HIGH COURTS SUCH AS ALLAHABAD HIGH COURT, DELHI HIGH COURT, PUNJAB AND HARYANA HIGH COURT, MADHYA PRADESH HIGH COURT, RAJASTHAN HIGH COURT AND ONE JUDGMENT IS OF HONBLE APEX COURT ALSO. HE SUBMITTED THAT THESE JUDGMENTS SHOULD ALSO BE CONSIDERED WHILE DECIDING THE ISSUE IN DISPUTE. LEARNED DR OF THE REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. ITA NO.367/BANG/2018 PAGE 4 OF 7 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT IN THE PAPER BOOK FROM PAGES 1 TO 9, THE LEARNED AR OF THE ASSESSEE HAS ALSO SUBMITTED WRITTEN SUBMISSIONS BEFORE THE TRIBUNAL AND ON PAGE 5 OF HE SAID WRITTEN SUBMISSION, IT IS SUBMITTED THAT THE INTENTION OF THE CO-OWNERSHIP AGREEMENT MADE BETWEEN THE ASSESSEES BROTHER AND RELATIVE IS ONLY FOR THE PURPOSE OF BETTER FUTURE UNDERSTANDING TO DIVIDE THE SHARE OF LAND, THE RIGHTS ON PROPERTY OR GAIN/LOSSES AND HENCE, IT IS SEEN THIS IS NOT THE CONTENTION OF THE ASSESSEE THAT THIS LAND WAS NOT PURCHASED IN PURSUANCE TO THE CO-OWNERSHIP AGREEMENT DATED 15.06.2002. HENCE, WE PROCEED ON THIS BASIS THAT THE LAND IN QUESTION WAS PURCHASED BY THE ASSESSEE ALONG WITH CO-OWNERS IN PURSUANCE TO THE DEED OF CO-OWNERSHIP ENTERED INTO BY THE ASSESSEE WITH OTHER 2 CO-OWNERS SHRI. N. SRINIVASAN AND K. N. RAMESH. COPY OF THIS CO-OWNERSHIP AGREEMENT IS AVAILABLE ON PAGES 15 TO 17 OF THE PAPER BOOK AND IN CLAUSE 4 OF THIS AGREEMENT, IT IS STATED THAT THE NATURE OF BUSINESS WILL BE JOINT PURCHASE OF THE LAND. IN PARA 6 OF THIS CO-OWNERSHIP AGREEMENT, IT IS ALSO STATED THAT THE NET INCOME OF THE CO-OWNERSHIP AFTER DEDUCTION OF ALL EXPENSES SHALL BE SHARED BY THE CO-OWNERS IN ACCORDANCE WITH THIS DEED OF CO-OWNERSHIP. IN OUR CONSIDERED OPINION, WHEN THIS IS ADMITTED POSITION THAT THE PURCHASE OF THE LAND IN QUESTION IN THE MONTH OF SEPTEMBER 2005 WAS IN PURSUANCE TO THIS CO- OWNERSHIP AGREEMENT ENTERED INTO IN JUNE 2002 AND AS PER THIS CO-OWNERSHIP AGREEMENT, THIS IS THE BUSINESS OF THIS CO-OWNERSHIP TO HAVE JOINT PURCHASE OF LAND AND THE NET INCOME OF THE CO-OWNERSHIP AFTER DEDUCTION OF ALL EXPENSES IS TO BE SHARED BY THE CO-OWNERS IN ACCORDANCE WITH THE MANNER PROVIDED IN THE CO-OWNERSHIP AGREEMENT, NOTHING FURTHER IS REQUIRED TO BE SEEN AND IT CAN CONCLUDED WITHOUT ANY HESITATION THAT THE INCOME ARISING ON PURCHASE AND SALE OF LAND IN PURSUANCE TO THIS CO-OWNERSHIP AGREEMENT IS TAXABLE AS BUSINESS INCOME AND THIS IS NOT RELEVANT AS TO WHETHER ANY OTHER ACTIVITY WAS DONE BY ITA NO.367/BANG/2018 PAGE 5 OF 7 THE CO-OWNERS ON THE LAND PURCHASED OR IN ANY OTHER MANNER. WE CONCLUDE ACCORDINGLY. 4. REGARDING THE RELIANCE PLACED BY LEARNED AR OF THE ASSESSEE ON VARIOUS JUDICIAL PRONOUNCEMENTS, COPY OF WHICH IS SUBMITTED IN THE CASE LAW COMPILATION, WE FIND THAT IN THE FACTS OF THE PRESENT CASE, THESE JUDGMENTS ARE NOT APPLICABLE BECAUSE THE FACTS ARE DIFFERENT. IN THE FIRST JUDGMENT OF HONBLE ALLAHABAD HIGH COURT RENDERED IN THE CASE OF CIT VS. RAMA RANI KALI 358 ITR 499, THE ISSUE IN DISPUTE WAS REGARDING TAXABILITY OF THE GAIN IN A CASE WHERE LEASE HOLD RIGHT WAS CONVERTED INTO FREE HOLD RIGHT. THIS JUDGMENT IS NOT APPLICABLE IN THE PRESENT CASE. THE SECOND JUDGMENT RELIED UPON BY HIM IS THE JUDGMENT OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CIT VS. FRICK INDIA LTD., 369 ITR 328 AND IN THIS CASE, THE WRITTEN LEASE AGREEMENT WAS FOR 3 YEARS BUT THE ASSESSEE CONTINUED TO PAY RENT AND OCCUPIED THE PREMISES FOR 11 MORE YEARS AND UNDER THESE FACTS, IT WAS HELD THAT THE AMOUNT RECEIVED ON SURRENDER OF TENANCY IS LONG TERM CAPITAL GAIN. THIS JUDGMENT IS ALSO NOT APPLICABLE IN THE PRESENT CASE. THE THIRD JUDGMENT RELIED UPON BY HIM IS THE JUDGMENT OF HONBLE PUNJAB AND HARYANA HIGH COURT RENDERED IN THE CASE OF CIT VS. VED PRAKASH & SONS (HUF) 207 ITR 148 AND IN THIS CASE, IT WAS HELD THAT A PROPERTY TO BE CONSIDERED AS LONG TERM CAPITAL ASSET, IT IS NOT NECESSARY THAT THE ASSESSEE SHOULD BE OWNER OF THE CAPITAL ASSET AT THE REQUISITE TIME AND IT IS SUFFICIENT IF IT IS HELD BY THE ASSESSEE FOR THE REQUISITE TIME. IN THE PRESENT CASE, THIS JUDGMENT IS ALSO NOT APPLICABLE. 5. THE NEXT JUDGMENT IS THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF NAVIN JINDAL VS. ACIT 320 ITR 708. IN THIS CASE, IT WAS HELD THAT RIGHT TO SUBSCRIBE COMES INTO EXISTENCE ONLY WHEN COMPANY DECIDES TO COME OUT WITH OFFER AND NOT EARLIER AND THEREFORE, TO DETERMINE WHETHER THE GAIN ARISING ON RENUNCIATION OF SUCH RIGHT IS LTCG OR STCG, THE DATE RELEVANT IS ITA NO.367/BANG/2018 PAGE 6 OF 7 THE DATE ON WHICH THE RIGHT COMES INTO EXISTENCE AND THE DATE OF RENUNCIATION OF SUCH RIGHT. HENCE, THIS JUDGMENT IS ALSO NOT APPLICABLE IN THE PRESENT CASE. THE FIFTH JUDGMENT CITED IS THE JUDGMENT OF HONBLE MADHYA PRADESH HIGH COURT RENDERED IN THE CASE OF CIT VS. SURESH CHAND GOYAL 298 ITR 277. IN THIS CASE, THE DISPUTE WAS THIS AS TO WHETHER THE INCOME ARISING TO THE ASSESSEE ON SALE OF LAND IS BUSINESS INCOME OR CAPITAL GAINS. FROM THE FACTS OF THIS CASE, IT IS SEEN THAT THE AGRICULTURAL LAND WAS GIVEN TO THE ASSESSEE AS GIFT AND THE ASSESSEE DEVELOPED THE LAND AND SOLD IT AS PLOTS AND IT WAS HELD BY HONBLE MADHYA PRADESH HIGH COURT THAT THIS ACTIVITY IS NOT IN THE NATURE OF ADVENTURE IN THE NATURE OF TRADE AND THEREFORE, THE GAIN IS ASSESSABLE AS CAPITAL GAINS. THIS JUDGMENT IS ALSO NOT APPLICABLE IN THE PRESENT CASE BECAUSE IN THE PRESENT CASE, WE HAVE SEEN THAT THE PURCHASE OF LAND ITSELF WAS IN PURSUANCE TO CO- OWNERSHIP AGREED DATED 15.06.2002 AND AS PER THIS AGREEMENT, JOINT PURCHASE OF LAND BY THIS CO-OWNERSHIP WAS FOR THE PURPOSE OF BUSINESS AND THEREFORE, THE GAIN ARISING ON SUCH PURCHASE AND SALE OF LAND BY THE CO-OWNERSHIP HAS TO BE ASSESSED AS BUSINESS INCOME AND THIS JUDGMENT IS NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE. 6. THE LAST AND SIXTH JUDGMENT CITED IS THE JUDGMENT OF HONBLE RAJASTHAN HIGH COURT RENDERED IN THE CASE OF CIT VS. MANNA LAL NIRMAL KUMAR SURANA 264 ITR 116. IN THIS CASE, THE ISSUE INVOLVED WAS REGARDING INCOME ON SALE OF JEWELLERY AND PRECIOUS STONES, ETC., AND THIS WAS NOTED THAT THE ASSESSEE HAS NOT CARRIED ANY BUSINESS OF JEWELLERY AND PRECIOUS STONES, ETC., AND WHEN THE ASSET WAS DECLARED, THE ITEM IN QUESTION WAS TREATED AS CAPITAL ASSET AND THEREFORE, UNLESS THE ASSET IS CONVERTED INTO STOCK IN TRADE ACCOUNT, THERE IS NO QUESTION OF TREATING THE PROFIT ON SALE OF SUCH ITEM AS BUSINESS PROFIT. SINCE THE FACTS ARE DIFFERENT, THIS JUDGMENT IS ALSO NOT APPLICABLE IN THE PRESENT CASE. ITA NO.367/BANG/2018 PAGE 7 OF 7 7. WE HAVE SEEN THAT NONE OF THE JUDGMENTS CITED BY LEARNED AR OF THE ASSESSEE IS APPLICABLE IN THE FACTS OF THE PRESENT AND AS PER THE CO-OWNERSHIP AGREEMENT EXECUTED ON 15.06.2002, THE NATURE OF BUSINESS OF THIS CO- OWNERSHIP ARRANGEMENT IS TO HAVE JOINT PURCHASE OF LAND AND THE INCOME ARISING TO THIS CO-OWNERSHIP AFTER DEDUCTION OF ALL EXPENSES HAS TO BE SHARED BY THE CO-OWNERS IN ACCORDANCE WITH THIS DEED OF CO-OWNERSHIP AND THEREFORE, WE HOLD THAT THERE IS NOT INFIRMITY IN THE ORDER OF CIT(A) AND HENCE, NO INTERVENTION IS CALLED FOR IN THE ORDER OF CIT(A). 8. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. SD/- SD/- SD/- SD/- (N. V. VASUDEVAN) (A.K. GARODIA) VICE PRESIDENT ACCOUNTANT MEMBER BANGALORE, DATED: 16.10.2020. /NS/* COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.