Shubhakamana Builders Pvt.Ltd., Nashik V. ACIT-(Central), Circle-3, Nashik, Nashik

ITA 515/PUN/2006

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56432 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-06-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 01-05-2006
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K K OZHA
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Capital asset; Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER I.T.A. NO. 515/PN/2006 : A.Y. 2001-02 M/S. SHUBHAKAMANA BUILDERS PVT. LTD., 7 THAKKARS, NEAR NEHRU GARDEN, NASIK PAN AAACL 2769 E RESPONDENT VS. ASSTT. CIT (CENT) CIR. 3 NASIK APPELLANT APPELLANT BY: SHRI SUNIL PATHAK RESPONDENT BY : SHRI K.K. OZHA DATE OF HEARING: 30-8-2011 DATE OF PRONOUNCEMENT: 30-8-2011 ORDER PER SHAILENDRA KUMAR YADAV, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) ON THE ISSUE OF BUSINESS INCOME VERSUS CAPITAL GAIN WITH REGARDS TO PROFIT ON SALE OF PLOT S OF LAND AT SURVEY NO. 589/3 OF NASIK. 2. THE ASSESSEE IS A BUILDER AND DEVELOPER AS EVIDE NT FROM THE ARTICLES OF ASSOCIATION AND MEMORANDUM OF ASSOCIATION OF THE COMPANY. IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN PROFIT ON SAL E OF PLOT AT RS. 11,68,381/-. THE ASSESSEE HAS PURCHASED ONE AGRICULTURAL PLOT OF LAND AT SURVEY NO. 589/1/9 FRO M SHRI PANDURANG MAHADU GAIKWAD AND SHRI DATTU MAHADU GAIKWAD BY PURCHASE DEED DATED 13-6-1990 FOR A 2 ITA NO. 515/PN/2006 SHUBHAKAMANA BUILDERS A.Y. 2001-02 CONSIDERATION OF RS. 1,86,430/- INCLUSIVE OF STAMP DUTY CHARGES. THE SAID PLOT WAS THEREAFTER SUB-DIVIDED IN PLOT A AND PLOT B ADMEASURING 740.36 SQ. MTRS AND 76 9.17 SQ. MTRS RESPECTIVELY. THEREAFTER, CERTAIN RIGHTS WERE CREATED ON THE SAID PLOTS IN FAVOUR OF THACKER DEVE LOPERS LTD. (A SISTER CONCERN) WHICH WAS DECLARED AS THE CONSENTING PARTY WHICH IS EVIDENT FROM THE SALE D EED EXECUTED BY THE ASSESSEE. 3. PLOT A ADMEASURING 740.36 SQ. MTRS WAS SOLD TO SHRI NARENDRA SUGANDHLAL CHHAJED BY WAY OF A TRI-PARTY DEVELOPMENT AGREEMENT DATED 19-3-2001 BETWEEN THE ASSESSEE (OWNER), M/S. THAKKAR DEVELOPERS PVT. LTD. (CONSENTING PARTY) AND SHRI S.N. CHHAJED (DEVELOPER ). AS PER THE TERMS OF THE SAID DEVELOPMENT AGREEMENT, TH E PRICE OF THE PROPERTY WAS FIXED AT RS. 9,00,000/- OUT OF WHICH A SUM OF RS. 7,00,000/- WAS PAYABLE AS THE LAND PRICE TO THE ASSESSEE AND THE BALANCE OF RS. 2,00,000/- WAS PAYA BLE TO M/S. THAKKAR DEVELOPERS LTD (CONSENTING PARTY) FOR RELINQUISHMENT OF ITS RIGHT OVER THE SAID PROPERTY. THEREAFTER, IT WAS ALSO FOUND THAT THE ASSESSEE HAD CONVERTED THE SAID AGRICULTURAL LAND INTO NON-AGRIC ULTURAL LAND VIDE ORDER OF TEHSILDAR, NASIK DATED 29-5-1997 . THE SAID PLOT OF NON-AGRICULTURAL LAND WAS THEREAFTER TRANSFERRED TO THE DEVELOPER VIDE THE DEVELOPMENT AGREEMENT DATED 19-3-2001 WHICH PROVIDED THAT THE ASSESSEE WOULD GIVE CONSENT AND SIGNATURES FOR BUIL DING PLAN TO NASIK MUNICIPAL CORPORATION AS ALSO THE CON SENT AND SIGNATURES FOR RAISING FINANCE FROM HDFC AND HU DCO FOR CONSTRUCTION OF BUILDING ON SUCH PLOT. 4. THE PLOT B ADMEASURING 769.17 SQ. MTRS WAS SOL D TO MS K.P. SHUKLA BY WAY OF A TRI-PARTY AGREEMENT DATE D 3 ITA NO. 515/PN/2006 SHUBHAKAMANA BUILDERS A.Y. 2001-02 1-2-2001 BETWEEN THE ASSESSEE (OWNER), M/S. THAKKAR DEVELOPERS PVT. LTD (CONSENTING PARTY) AND MS. K.P. SHUKLA (PURCHASER). AS PER THE TERMS OF THE SAID AGREEMEN T, THE PRICE OF THE PROPERTY WAS FIXED AT RS. 11,10,262/- OUT OF WHICH A SUM OF RS. 7,00,000/- WAS PAYABLE AS THE LA ND PRICE TO THE ASSESSEE AND THE BALANCE OF RS. 4,10,2 62/- WAS PAYABLE TO M/S. THAKKAR DEVELOPERS LTD. (CONSENTING PARTY) AS REMUNERATION ON ACCOUNT OF RELINQUISHMENT OF CER TAIN RIGHTS HELD BY THEM. IT WAS ALSO OBSERVED THAT FRO M THE TIME OF PURCHASE OF THE SAID PLOT TO ITS SALE, THE ASSESSEE HAD CARRIED OUT FOLLOWING ACTIVITIES ON THE SAID PL OT NAMELY; I) THE APPELLANT OBTAINED A PLAN OF PROPERTY APPROVED BY NASIK MUNICIPAL CORPN. VIDE ITS ORDER DATED 10-7-1996 (PARA 3 OF THE PURCHASE DEED) DATED 1-4-2001; II) THE NA ORDER WAS OBTAINED FROM THE COLLECTOR, NASIK VIDE ORDER DATED 29-5-1997 III) THE PROPERTY WAS SUBJECT TO RESTRICTION U/S 43 OF THE BOMBAY TENANCY ACT SINCE IT WAS OCCUPIED BY CERTAIN TENANTS. THIS PROPERTY WAS CLEARED FROM TH E RESTRICTION U/S 43 BY DIVISION OFFICER. IV) NECESSARY PERMISSION WAS OBTAINED FROM DY. COLLECTOR FOR RETENTION OF SUCH PROPERTY UNDER THE ULC VIDE ORDER DATED 30-12-2000. 5. IN VIEW OF ABOVE, IT WAS OBSERVED BY THE CIT(A) THAT FROM THE TRANSACTION OF PURCHASE AND SALE CARRIED O UT BY THE ASSESSEE, IT WAS CLEAR THAT THE INTENTION AND T HE CONDUCT OF THE ASSESSEE CLEARLY CONSTITUTED AN ADVE NTURE IN THE NATURE OF TRADE AND THEREFORE, THE PROFITS EARN ED FROM THE SALE OF TWO PLOTS WAS TO BE TREATED AS INCOME F ROM BUSINESS. SOME OF THE INDICIA FOR TESTING WHETHER T HE TRANSACTION IS IN THE NATURE OF INVESTMENT OR OF AN 4 ITA NO. 515/PN/2006 SHUBHAKAMANA BUILDERS A.Y. 2001-02 ADVENTURE IN THE NATURE OF TRADE HAVE BEEN HIGHLIGH TED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF INDIAN HUME PIPE COMPANY LTD (195 ITR 386). THE CIT(A) APPLIED THE TESTS LAID DOWN BY THE BOMBAY HIGH COURT TO THE CAS E OF THE ASSESSEE TO DETERMINE THE NATURE OF THE TRANSAC TION FOR THE PURPOSE OF ITS TAXABILITY UNDER THE HEAD BUSINE SS INCOME. THE FACTS EMERGING IN THE CASE OF ASSESSEE ON APPLICATION OF THE TESTS LAID DOWN BY THE BOMBAY HI GH COURT IN THE CASE OF INDIAN HUME PIPE CO. LTD (SUPR A) ARE HIGHLIGHTED AS UNDER: I) WAS THE PURCHASE OF THE COMMODITY AND ITS RESALE ALLIED TO HIS USUAL TRADE OR BUSINESS OR INCIDENTAL TO IT? IN THE APPELLANTS CASE, THE PURCHASE OF LAND AND ITS DEVELOPMENT HAS BEEN ITS REGULAR BUSINESS AS EVIDENT FROM THE MEMORANDUM AND ARTICLE OF ASSOCIATION OF THE COMPANY; II) WHAT IS THE NATURE OF THE COMMODITY PURCHASED AND RESOLD AND IN WHAT QUANTITY WAS IT PURCHASED AN D RESOLD? IT IS A LAND WITHIN THE LIMITS OF NASIK MUNICIPAL CORPORATION WHICH WAS TRANSFERRED TO VENDEE BY WAY OF TRI-PARTY AGREEMENT. III) DID THE PURCHASER, BY ANY ACT SUBSEQUENT TO TH E PURCHASE, IMPROVE THE QUALITY OF THE COMMODITY PURCHASED AND THEREBY MAKE IT MORE READILY RESALEABLE? THERE IS A CLEAR EVIDENCE OF MARKED IMPROVEMENT/TRANSACTION OF THE PROPERTY EITHER HELD AND THEN SOLD BY THE APPELLANT WHICH HAS BEEN DESCRIBED IN DETAIL AT PARA NO. 2.6 AND 2.7 OF THIS ORDER. IV) WHAT WERE THE INCIDENTS ASSOCIATED WITH THE PURCHASE AND RESALE? THE APPELLANT HAD CARRIED OU T MANY ACTION AND STEPS FROM THE TIME OF ACQUISITION OF THE PROPERTY TO ITS SALE WHICH HAVE BEEN HIGHLIGHTE D IN PARA 2.6 AND 2.7 OF THIS ORDER. 5 ITA NO. 515/PN/2006 SHUBHAKAMANA BUILDERS A.Y. 2001-02 V) WERE THEY SIMILAR TO THE OPERATIONS USUALLY ASSOCIATED WITH TRADE OR BUSINESS? THE APPELLANT WA S ENGAGED IN THE BUSINESS OF DEVELOPER AND BUILDER AN D, THEREFORE, SUCH TRANSACTION OF TRI-PARTI AGREEMENT IS COMMONLY ASSOCIATED IN THE BUSINESS OF REAL ESTATE. 6. IN VIEW OF ABOVE, THE CIT(A) OBSERVED THAT THE I NTENTION AND CONDUCT OF THE ASSESSEE WAS IN THE NATURE OF AN ADVENTURE IN THE NATURE OF TRADE WHICH STANDS ESTAB LISHED BY THE ABOVE DISCUSSED TESTS AS LAID DOWN BY THE JURISDICTIONAL HIGH COURT. IT WAS ALSO FOUND THAT THE ASSESSEE HAS BEEN PURCHASING AGRICULTURAL/NON- AGRICULTURAL PLOTS FROM THE TIME OF ITS COMMENCEMEN T OF BUSINESS OF REAL ESTATE AND THE SAID PLOTS WERE SHO WN IN THE BOOKS OF ACCOUNT UNDER THE HEAD FIXED BUSINESS ASSETS AND THE PROFIT ON SALE OF SUCH PLOTS WAS SU O-MOTO SHOWN IN THE PROFIT AND LOSS ACCOUNT. FURTHER, THE ASSESSEE FOUND TO BE CONTENDED THAT THE PLOT ON SUR VEY NO. 589 WAS PURCHASED WITH THE INTENTION OF CONSTRUCTIN G HOSTEL FOR WORKING MEN AND WOMEN ALSO SHOWED TO PRO VE THAT THE INTENTION OF THE ASSESSEE FOR PURCHASING T HE SAID PLOT WAS FOR THE PURPOSE OF DEVELOPING IT AS BUSINE SS VENTURE AND NOT CAPITAL INVESTMENT. THE AGRICULTURA L LAND ON SURVEY NO. 589 WHICH HAS UNDERGONE SO MANY TANGI BLE STEPS FROM CONVERSION OF AGRICULTURAL TO NON AGRICU LTURAL LAND, ULC CERTIFICATE, APPROVAL OF CONSTRUCTION PLA N ETC. WOULD SURELY CONSTITUTE ADVENTURE IN THE NATURE OF TRADE. MOREOVER, THE ASSESSEE HAD PURCHASED A TENANTED PRO PERTY 6 ITA NO. 515/PN/2006 SHUBHAKAMANA BUILDERS A.Y. 2001-02 WHICH WAS CLEARED OF SUCH RESTRICTION AND THEREAFTE R CERTAIN RIGHTS OVER THIS PROPERTY WERE GIVEN TO ITS SISTER CONCERN MS. THAKKAR DEVELOPERS LTD., WHO HAD RECEIV ED CERTAIN COMPENSATION FROM SALE EXECUTED BY THE ASSE SSEE. THIS TYPICAL TRANSACTION HAS INGREDIENTS/ELEMENTS O F BUSINESS TRANSACTION AND, THEREFORE, CANNOT BE TREA TED AS A CASE OF CAPITAL GAIN. SAME HAS BEEN OPPOSED BY THE ASSESSEE BEFORE US. 7. IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE PROFITS O N SALE OF PLOTS OF LAND AT SURVEY NO. 589/3 OF NASIK, AS BUSI NESS INCOME OF THE ASSESSEE INSTEAD OF CAPITAL GAINS. I T WAS FURTHER SUBMITTED THAT THE CIT(A) ERRED IN HOLDING THAT THOUGH THE LAND AT SURVEY NO. 589/3 WAS PURCHASE WI TH AN INTENTION OF CONSTRUCTING HOSTEL FOR WORKING MEN AN D WOMEN, IT CONSTITUTED STOCK IN TRADE FOR THE ASSESS EE. IT WAS ALSO SUBMITTED THAT THE CIT(A) ERRED IN HOLDING THAT BECAUSE NO SEPARATE BOOKS OF ACCOUNTS FOR BUSINESS PURPOSE AND PERSONAL INVESTMENTS WERE MAINTAINED, T HE INVESTMENT IN LAND AT SURVEY NO. 589/3 CONSTITUTED STOCK IN TRADE AND NOT A CAPITAL ASSET AND THEREFORE, FAI LED TO HOLD THAT THE LAND AT SURVEY NO. 589/3 CONSTITUTED THE CAPITAL ASSET OF THE ASSESSEE. ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7 ITA NO. 515/PN/2006 SHUBHAKAMANA BUILDERS A.Y. 2001-02 8. AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE ARE NOT INCLINED TO INTERFER E WITH THE FINDING OF THE CIT(A). AS STATED ABOVE, THE ASSESS EE IS ENGAGED IN THE BUSINESS OF BUILDER AND DEVELOPER. THE PROPERTY IN QUESTION WAS PURCHASED ON 13-6-1990. THEREAFTER, SAME WAS DIVIDED IN PLOT A AND PLOT B FOR DIFFERENT SIZES AS INDICATED ABOVE. THE PLOT A W AS SOLD TO SHRI NARENDRA SUGANDHLAL CHHAJED BY WAY OF TRI-PART Y DEVELOPMENT AGREEMENT DATED 19-3-2001 AS INDICATED ABOVE. AS PER THE TERMS OF SAID DEVELOPMENT AGREEM ENT, THE PRICE OF THE PROPERTY WAS FIXED AT RS. 9,00,000 /- OUT OF WHICH A SUM OF RS. 7,00,000/- WAS PAYABLE AS THE LA ND PRICE TO THE ASSESSEE AND THE BALANCE OF RS. 2,00,0 00/- WAS PAYABLE TO M/S. THAKKAR DEVELOPERS LTD. (CONSENTING PARTY) FOR RELINQUISHMENT OF ITS RIGHT OVER THE SAID PROPE RTY. IT IS PERTINENT TO MENTION HERE THAT THE ASSESSEE HAS CON VERTED THE SAID AGRICULTURAL LAND INTO NON-AGRICULTURAL LA ND VIDE ORDER OF TEHSILDAR NASIK DATED 29-5-1997 AND THE SA ME WAS TRANSFERRED TO THE DEVELOPER VIDE THE DEVELOPME NT AGREEMENT DATED 19-3-2001 WHICH PROVIDED THAT THE ASSESSEE WOULD GIVE CONSENT AND SIGNATURES FOR BUIL DING PLAN TO NASIK MUNICIPAL CORPORATION AS ALSO THE CON SENT AND SIGNATURES FOR RAISING FINANCE FROM HDFC AND HU DCO FOR CONSTRUCTION OF BUILDING ON SUCH PLOT. 8 ITA NO. 515/PN/2006 SHUBHAKAMANA BUILDERS A.Y. 2001-02 9. WITH REGARDS TO PLOT B ADMEASURING 769.17 SQ. MTRS WAS SOLD TO MS K.P. SHUKLA BY WAY OF A TRI PARTY AG REEMENT DATED 1-2-2001 BETWEEN THE ASSESSEE (OWNER), THAKKA R DEVELOPERS PVT. LTD. (CONSENTING PARTY) AND MS K.P. SHUKLA (PURCHASER). AS PER THE TERMS OF SAID AGREEMENT, TH E PRICE OF THE PROPERTY WAS FIXED AT RS. 11,10,262/- OUT OF WHICH A SUM OF RS. 4,10,262/- WAS PAYABLE TO M/S. THAKKAR DEVELOPERS LTD. (CONSENTING PARTY) AS REMUNERATION ON ACCOUNT OF RELINQUISHMENT OF CERTAIN RIGHTS HELD BY THEM. IT IS PERTINENT TO MENTION HERE THAT THE ASSESSEE HAS CONDUCTED THE FOLLOWING ACTIVITIES WITH REGARDS TO THE SAID PLOT. (A) THE ASSESSEE OBTAINED A PLAN OF PROPERTY APPROV ED BY NASIK MUNICIPAL CORPORATION VIDE ITS ORDER DATED 10-7-1996; (B) THE NA ORDER WAS OBTAINED FROM THE COLLECTOR, NASIK VIDE ORDER DATED 29-5-1997 FOR CONVERTING THE ABOVE SAID AGRICULTURAL LAND TO NON-AGRICULTURAL LA ND. (C) THE PROPERTY WAS SUBJECT TO RESTRICTION U/S 43 OF THE BOMBAY TENANCY ACT WHICH WAS OCCUPIED BY TENANTS. THE PROPERTY WAS CLEARED FROM THE RESTRIC TION U/S 43 BY DIVISIONAL OFFICER. 9 ITA NO. 515/PN/2006 SHUBHAKAMANA BUILDERS A.Y. 2001-02 (D) NECESSARY PERMISSION WAS OBTAINED FROM DY. COLLECTOR FOR RETENTION OF SUCH PROPERTY UNDER THE ULC VIDE ORDER DATED 30-12-2000. 10 IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE TRANS ACTION OF PURCHASE AND SALE CARRIED OUT BY THE ASSESSEE CONST ITUTED AN ADVENTURE IN NATURE OF TRADE AND THEREFORE, PROF IT EARNED FROM SALE OF TWO PLOTS WAS RIGHTLY TREATED A S INCOME FROM BUSINESS BY LOWER AUTHORITIES. IN VIEW OF ABO VE, THE CIT(A) WAS JUSTIFIED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER WHEREIN IT HAS BEEN HELD THAT THE PROFIT ON SALE OF PLOT OF LAND AT SURVEY NO. 589/3 WAS BUSINESS INCO ME INSTEAD OF CAPITAL GAIN. THE SAME IS UPHELD. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. DECISION IS ALREADY PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST 2011. S D/ - (D. KARUNAKARA RAO) ACCOUNTANT MEMBER S D/ - SHAILENDRA KUMAR YADAV JUDICIAL MEMBER PUNE DATED THE 30 TH AUGUST 2011 ANKAM COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)- I NASIK 4. THE CIT I NASIK 5. THE D.R, ITAT PUNE BENCH, PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR 10 ITA NO. 515/PN/2006 SHUBHAKAMANA BUILDERS A.Y. 2001-02 INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES, PUNE.