SHRI SURAJ MAL, ALWAR V. INCOME TAX OFFICER, ALWAR

ITA 659/JPR/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3584 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 29-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2008-2009
• Appeal Filed On: 16-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SEEMA MEENA JCIT DHK
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Gift; Business income; Cost of acquisition; Date of conversion; Fair market value; Difference of opinion
• Section: 45(2); 54B; 50C; 2(14); 148; 54

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH HKKXPAN] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, A M VK;DJ VIHY LA-@ ITA NO. 659/JP/2017 FU/KZKJ.K O'KZ@ ASSESSMENT YEAR : 2008-09 SURAJ MAL, 159, KIKARWALI, WARD-I, KHAIRTHAL, DISTRICT- ALWAR. CUKE VS. INCOME TAX OFFICER, WARD 1(3), ALWAR. TAN/PAN NO. CBDPM 3763 N VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.C. PARWAL (CA) JKTLO DH VKSJ LS@ REVENUE BY : SMT. SEEMA MEENA (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 26/04/2018 MN?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 01/05/2018 VKNS'K@ ORDER PER: BHAGCHAND, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE EMANATES FR OM THE ORDER OF THE LD. CIT(A), ALWAR DATED 28/07/2017 FOR THE A.Y. 2 008-09. 2. IN THIS CASE, NOTICE U/S 148 OF THE INCOME TAX A CT, 1961 (IN SHORT THE ACT) WAS ISSUE ON 05/3/2015 AFTER RECORDING REASONS TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR THE YEAR UNDER CONSIDERATION. IN RESPONSE TO THE NOTICE ISSUED U/S 148 OF THE ACT, THE ASSESSEE FILED HIS RETURN OF INCOME ON 16/3/2015 DE CLARING TOTAL INCOME OF ITA 659/JP/2017_ SURAJ MAL VS ITO 2 RS. 90,770/- AND AGRICULTURAL INCOME OF RS. 1,80,00 0/-. THE ASSESSING OFFICER FINALIZED THE ASSESSMENT U/S 148/143(3) OF THE ACT AT THE TOTAL INCOME OF RS. 30,74,520/- ON ACCOUNT OF LONG TERM C APITAL GAIN AND AGRICULTURAL INCOME OF RS. 1,80,000/- DECLARED BY T HE ASSESSEE. THE LD. CIT(A) HAS CONFIRMED THE ACTION OF THE ASSESSING OFF ICER. NOW THE ASSESSEE IS IN APPEAL BEFORE THE ITAT BY TAKING FOLLOWING GROU NDS OF APPEAL: 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN HOLDING THAT ASSESSEE HAS NOT FILED ANY EVIDENCE THAT THE AGRICULTURAL LA ND SOLD BY THE ASSESSEE IS COVERED U/S 2(14) OF THE ACT AND THEREB Y HOLDING THAT ASSESSEE IS LIABLE FOR CAPITAL GAIN IN RESPECT OF T HE AGRICULTURAL LAND SOLD BY HIM. 2. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN HOLDING THAT EXPLOITATION OF AGRICULTURAL LAND BY CONVERTING IT INTO RESIDENTIAL PLOT BEFORE SELLING THEM IS AN ADVENTURE IN THE NATURE O F TRADE AND THE INCOME ARISING THEREFROM IS LIABLE TO BE TAXED IN T HE HANDS OF ASSESSEE AS BUSINESS INCOME AS AGAINST INCOME FROM LONG TERM CAPITAL GAIN ASSESSED BY THE AO. 2.1 THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN ADOPTING THE SALES CONSIDERATION OF THE LAND U/S 50C AT RS.33,38,015/- AS AGAINST ACTUAL CONSIDERATION OF RS.28,24,000/- DECLARED BY THE ASS ESSEE WHILE HOLDING THAT INCOME IS ASSESSABLE AS BUSINESS INCOM E. 2.2 THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT DIRECTING THE AO TO ASSESS THE INCOME AS PER THE PROVISIONS OF SECTION 45(2) OF THE ACT EVEN WHEN HOLDING THAT ASSESSEE HAS CONVERTED HIS A GRICULTURAL LAND INTO A BUSINESS VENTURE AND THEREBY ASSESSING THE E NTIRE INCOME AS BUSINESS INCOME INSTEAD OF BIFURCATING THE SAME BET WEEN THE CAPITAL GAIN INCOME AND THE BUSINESS INCOME AND NOT ALLOWIN G DEDUCTION U/S 54B WITH REFERENCE TO THE CAPITAL GAIN INCOME. 3. THE ASSESSEE CRAVES TO AMEND, ALTER AND MODIFY A NY OF THE GROUNDS OF APPEAL. ITA 659/JP/2017_ SURAJ MAL VS ITO 3 4. THE APPROPRIATE COST BE AWARDED TO THE ASSESSEE. 3. IN THE GROUND NO. 1 OF THE APPEAL, THE ISSUE INV OLVED IS THAT THE AGRICULTURAL LAND SOLD BY THE ASSESSEE IS COVERED U /S 2(14) OF THE ACT. THE LD. CIT(A) HAS UPHELD THE ACTION OF THE ASSESSING OF FICER BY HOLDING AS UNDER: 5.2 I HAVE GONE THROUGH THE SUBMISSIONS MADE BY T HE APPELLANT. IF AN AGRICULTURAL LAND IS COVERED UNDER SECTION 2(14) OF THE ACT, THEN INCOME ARISEN FROM SALE OF SUCH LAND IS EXEMPT FROM CAPITA L GAIN AS SUCH LAND IS NOT TREATED AS CAPITAL ASSET. HOWEVER, IN ORDER TO CLAIM THE BENEFIT OF SECTION 2(14) OF THE ACT, THE ASSESSEE IS REQUIRED TO SUBMIT EVIDENCES WITH REGARD TO CLAUSE (III)(A) AND (III)(B) OF SECTION 2 (14) OF THE ACT. THE APPELLANT HAS ONLY SUBMITTED A GENERAL STATE LIST OF URBAN AR EA FOR DETERMINATION OF AGRICULTURAL LAND. BUT ON OTHER EVIDENCE OR TEHSILD AR REPORT WAS SUBMITTED DURING THE APPELLATE PROCEEDINGS. IT IS ALSO UNDERS TOOD THAT THE APPELLANT HIMSELF HAS DECLARED THE AGRICULTURAL LAND AS CAPIT AL ASSET IN THE RETURN OF INCOME AS HE HAS CLAIMED DEDUCTION UNDER SECTION 54 B OF THE ACT. THEREFORE, IN ABSENCE OF ANY EVIDENCES IN FAVOUR OF ITS CONTENTION, THE CLAIM OF THE APPELLANT WITH REGARD TO THE AGRICULTU RAL LAND COVERED UNDER SECTION 2(14) OF THE ACT IS NOT TENABLE. ACCORDINGL Y, APPELLANTS GROUND OF APPEAL ON THIS ISSUE IS DISMISSED. 4. WHILE PLEADING ON BEHALF OF THE ASSESSEE, THE LD AR HAS SUBMITTED THAT THE ASSESSEE OWNING LAND AT VILLAGE CHAKNA SARA HBAD, TEHSIL- KHAIRTHAL, DISTRICT- ALWAR. THE DETAILS OF THE LAND A RE AS UNDER: KHASRA NO. AREA SHARE OF ASSESSEE SHARE OF ASSESSEE (IN BISWA) REMARKS 2404 6 BISWA SHARE 3 BISWA SOLD ON 20/03/2007 FOR RS. 1.50 LACS (PB(22) 2406 8 BISWA SHARE 4 BISWA ITA 659/JP/2017_ SURAJ MAL VS ITO 4 2418 1 BIGHA 3 BISWA SHARE 11 BISWA KHASRA GIRDAWARI AT PB 22 2419 1 BIGHA 4 BISWA SHARE 12 BISWA KHASRA GIRDAWARI AT PB 22 2427 1 BIGHA 12 BISWA FULL 1 BIGHA 12 BISWA PURCHASED ON 22/06/1986 (PB 10-17). OUT OF 32 BISWA, 30.4 BISWA SOLD ON 20/03/2007 FOR RS. 9.50 LACS. 2428 11 BISWA FULL 11 BISWA PURCHASED ON 22/06/1986 (PB 10-17) 2417 12 BISWA SHARE 6 BISWA PURCHASED FROM BROTHER ON 16/07/2003 (PB 18-21) THE ASSESSEE HAS CLAIMED THAT THIS LAND WAS NOT A CAP ITAL ASSET IN TERMS OF SECTION 2(14) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT), HENCE NOT LIABLE TO BE CAPITAL GAIN TAX. THE LD. CIT(A) HAS TAX ED THE SALE OF PLOTS AS INCOME FROM PROFIT AND GAIN IN BUSINESS AND PROFESS ION NOT AS A LONG TERM CAPITAL GAIN AS ASSESSED BY THE ASSESSING OFFICER. THE ASSESSEE HAS ALSO OBJECTED TAKING THE SALE CONSIDERATION AT RS. 33,38 ,015/- AS AGAINST THE SALE CONSIDERATION DECLARED AT RS. 28,24,000/-. THE ASSESSEE HAS ALSO CONTENDED THAT THE LD. CIT(A) HAS NOT DIRECTED THE A SSESSING OFFICER TO APPLY PROVISIONS OF SECTION 45(2) OF THE ACT AND TH E ASSESSEE HAS ALSO CONTESTED THAT THE CONTENTION U/S 54B OF THE ACT SH OULD HAVE BEEN ALLOWED. 5. ON THE OTHER HAND, THE LD DR HAS RELIED ON THE O RDERS OF THE AUTHORITIES BELOW. 6. THE BENCH HAVE HEARD BOTH THE SIDES ON THIS ISSUE . IT IS A FACT THAT THE ASSESSEE WAS HAVING AGRICULTURAL LAND. TWO PIECES OF THE AGRICULTURAL ITA 659/JP/2017_ SURAJ MAL VS ITO 5 LAND SITUATED AT VILLAGE CHAKNA SARAHBAD WERE SOLD I N THE IMMEDIATE PRECEDING YEAR. THE ASSESSEE HIMSELF HAS CONSIDERED THIS SALE OF THE AGRICULTURAL LAND AS A SALE OF CAPITAL ASSET AS PER INCOME TAX ACT AND CLAIMED DEDUCTION U/S 54B OF THE ACT FOR INVESTING IN AGRICULTURAL LAND. THE ASSESSEE HAD ALSO OFFERED THE SALE OF LAND IN THIS YEAR AS SALE OF CAPITAL ASSET AND CLAIMED DEDUCTION U/S 54B OF THE ACT. THU S, THE ISSUE OF THE AGRICULTURAL LAND HELD BY THE ASSESSEE AT VILLAGE C HAKNA SARAHBAD, TEHSIL- KHAIRTHAL, DISTRICT- ALWRA IS SETTLED BEING THE CAP ITAL ASSET. THEREFORE, THE ISSUE RAISED IN THE GROUND NO.1 OF THE ASSESSEES A PPEAL HAS NO MERIT AND THE SAME STANDS DISMISSED. 7. THE GROUNDS NO. 2, 2.1 AND 2.2 OF THE APPEAL ARE INTERLINKED AND AGAINST EXPLOITATION OF AGRICULTURAL LAND BY CONVER TING IT INTO RESIDENTIAL PLOT BEFORE SELLING THEM IS AN ADVENTURE IN THE NATURE O F TRADE AND THE INCOME ARISING THEREFROM IS LIABLE TO BE TAXED IN THE HAND S OF ASSESSEE AS BUSINESS INCOME AS AGAINST INCOME FROM LONG TERM CAPITAL GAI N ON SALE OF CAPITAL ASSET ADOPTING THE SALE CONSIDERATION OF THE LAND U/S 50C OF THE ACT AT RS. 33,38,015 AS AGAINST ACTUAL CONSIDERATION OF RS. 28 ,24,000/- DECLARED BY THE ASSESSEE AND NOT DIRECTING THE ASSESSING OFFICE R TO ASSESS THE INCOME AS PER THE PROVISIONS OF SECTION 45(2) OF THE ACT A ND NOT ALLOWING DEDUCTION U/S 54B OF THE ACT. THE LD. CIT(A) HAS DEALT THE ISSU E BY HOLDING AS UNDER: ITA 659/JP/2017_ SURAJ MAL VS ITO 6 6.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER AS WEL L AS SUBMISSIONS MADE BY THE APPELLANT. FOLLOWING FACTS HAVE EMERGED; 1. THAT THE APPELLANT IS THE OWNER OF AGRICULTURAL LAND AT KHAIRTAL, WHICH IS HIS ANCESTRAL LAND. 2. THAT DURING THE YEAR UNDER CONSIDERATION, THE AP PELLANT HAS DIVIDED HIS LAND INTO SMALL PLOTS AND SOLD TO INDIVIDUALS WHO HAVE P URCHASED IT FOR RESIDENTIAL PURPOSES. 3. THAT DURING THE YEAR UNDER CONSIDERATION, 17 SUC H PLOTS HAVE BEEN SOLD TO 17 DIFFERENT PERSONS AS PER DETAILS BELOW; SR. NO. NAME OF TH E PURCHASER DATE SALE PRICE VALUE ADOPTED BY SUB-REGISTRAR 1. UMESH KUMAR GUPTA 30/05/2007 150000/ - 172084/ - 2. KANHAIYA LAL GUPTA 30/05/2007 150000/ - 156440/ -- 3. YOGESH CHAND 30/05/2007 100000/ - 176000/ - 4. SUREKEHA YADAV 06/06/2007 150000/ - 176000/ - 5. PAWAN KUMAR 06/06/2007 150000/ - 172084/ - 6. VIPIN ARORA 06/06/2007 170000/ - 242000/ - 7. SEEMA DEVIX 06/06/2007 170000/ - 242664/ - 8. KRISHAN KUMAR 07/06/2007 150000/ - 231104/ - 9. KRISHAN KUMAR 07/06/2007 150000/ - 215107/ - 10 BALBEER SINGH 16/06/20 07 100000/ - 136884/ - 11. JASWANT SINGH 22/06/2007 160000/ - 180000/ - 12. SUBHASH CHAND 11/07/2007 100000/ - 154880/ - 13. SAVITRI DEVI 16/07/2007 150000/ - 193000/ - 14. USHA TATWANI 08/08/2007 230000/ - 254214/ - 15. ROSHNI DEVI 06/09/2007 500000/ - 554400/ - 16. SMT. SANTOSH DEVI 26/09/2007 124000/ - 125154/ - 17. SMT. PINKI DEVI 26/09/2007 120000/ - 132000/ - TOTAL 2824000/ - 3338015/ - 4. THAT THE A.O HAS STATED THAT THE LAND WAS TRANSF ERRED /SOLD FOR RESIDENTIAL PURPOSES AS THEY WERE DIVIDED INTO SMALL PLOTS IN S Q.YARDS. 5. THAT THE A.O HAS REJECTED THE CLAIM OF DEDUCTION U/S 54B OF THE ACT HOLDING THAT THE ASSESSEE DID NOT MEET THE CONDITIONS AS ST IPULATED IN SECTION 54B OF THE ACT. THE LAND WAS NOT BEING USED FOR AGRICULTUR AL PURPOSE FOR 2 YEARS IMMEDIATELY PRECEDING THE DATE OF TRANSFER AND THAT THE SALE PROCEED WAS NOT INVESTED IN NEW AGRICULTURAL LAND IN HIS OWN NA ME. 6. THAT THE APPELLANT IS CLAIMING THE LAND AS COVER ED U/S 2(14), HENCE NO CAPITAL GAIN IS LEVIABLE AND ALTERNATIVELY CLAIMING THAT TH E NEW AGRICULTURAL LAND WAS PURCHASED IN THE NAME OF APPELLANTS MINOR SONS WHO SE INCOME IS CLUBBED IN THE HAND OF THE APPELLANT U/S 64 OF THE ACT, HENCE THE DEDUCTION U/S 54B IS ALLOWABLE IN HIS HAND. ITA 659/JP/2017_ SURAJ MAL VS ITO 7 6.3.2 I HAVE CONSIDERED THE ABOVE MENTIONED SUBMIS SION. THE MOOT QUESTION INVOLVED IN THIS CASE IS WHETHER THE LAND PARCEL DI VIDED BY THE APPELLANT INTO SMALL PLOT OF LANDS AND SOLD TO DIFFERENT PERS ONS AS RESIDENTIAL UNITS AND EVEN THE REGISTERING AUTHORITY HAS CONSIDERED T HE LAND SOLD AS RESIDENTIAL UNITS, AND THEN CAN THE ASSESSEE CLAIM DEDUCTIONS UNDER THE ACT RESERVED FOR AGRICULTURAL LAND? I HAVE ALSO CON SIDERED THE FACT THAT THE APPELLANT IS SELLING THE AGRICULTURAL LAND AFTER DI VIDING INTO SMALLER PLOTS FOR RESIDENTIAL PURPOSES FOR QUITE SOME TIME. IN THIS B ACKGROUND IT IS WORTHWHILE TO LOOK INTO THE ACTUAL NATURE OF TRANSA CTION. WHETHER IT IS ONE- OFF SALE PURCHASE OF AGRICULTURAL LAND OR SOME DESIGN TO EXPLOIT THE ASSET AS BUSINESS VENTURE? 6.3.3 I HAVE CONSIDERED THE ABOVE MENTIONED FACTS. AS PER THE KHASRA THE APPELLANT HAS INHERITED THE LAND AS AGRICULTURAL LA ND. HOWEVER, THE APPELLANT HAD DEVELOPED PART OF INHERITED LAND INTO RESIDENTIAL PLOTS. OUT OF THE ABOVE PLOTS THE APPELLANT HAD SOLD 17 PLOTS DURING THE PERIOD 30/05/2007 TO 26/09/2007. DURING THE YEAR UNDER CON SIDERATION THE APPELLANT HAD SOLD 17 PLOTS AND RECEIVED A TOTAL AM OUNT OF RS. 28,24,000/-. I HAVE GONE INTO THE FACT OF THE CASE TO FIND AN AN SWER WHETHER THE SALE OF PLOTS COMES UNDER THE PURVIEW OF ADVENTURE IN THE NATURE OF TRADE OR NOT. IN THIS REGARD, THE APPELLANT HAD CITED A LAR GE NUMBER OF JUDICIAL PRONOUNCEMENTS IN FAVOUR OF ITS CLAIM. I HAVE GONE INTO THE PLETHORA OF JUDGMENTS CITED BY THE APPELLANT. HOWEVER THE GIST OF MOST OF THE CITED JUDGMENTS HINGE BROADLY ON THE PARAMETERS SET BY TH E HONBLE SUPREME COURT IN THE CASE OF G. VENKATASWAMY NAIDU VS. CIT (1959) 35 ITR 594 (SC). THEREFORE IT IS PERTINENT TO GO INTO THE RATIONALE AND THE PARAMETERS SET BY THE APEX COURT IN THE SAID JUDGMENT. THE RELEVANT P ART OF THE JUDGMENT IS REPRODUCED AS UNDER; THE TRIBUNAL AND THE HIGH COURT HAVE FOUND THAT TH E TRANSACTION IN QUESTION IS AN ADVENTURE IN THE NATURE OF TRADE; AND IT IS T HE CORRECTNESS OF THIS VIEW ITA 659/JP/2017_ SURAJ MAL VS ITO 8 THAT IS CHALLENGED IN THE PRESENT APPEAL. THE EXPRE SSION ' ADVENTURE IN THE NATURE OF TRADE' IS USED BY THE ACT IN S. 2. SUB-S. (4) WHICH DEFINES BUSINESS AS INCLUDING ANY TRADE, COMMERCE OR MANUFACTURE, OR ANY ADVENTURE OR CONCERN IN THE NATURE OF TRADE, COMMERCE OR MANUFAC TURE. UNDER S. 10, TAX SHALL BE PAYABLE BY AN ASSESSEE UNDER THE HEAD PROF ITS AND GAINS OF BUSINESS, PROFESSION OR VOCATION IN RESPECT OF THE PROFIT OR GAINS OF ANY BUSINESS, PROFESSION OR VOCATION CARRIED ON BY HIM. THUS THE APPELLANT WOULD BE LIABLE TO PAY THE TAX ON THE RELEVANT AMOU NT IF IT IS HELD THAT THE TRANSACTION WHICH BROUGHT HIM THIS AMOUNT WAS BUSIN ESS WITHIN THE MEANING OF A, 2, SUB-S. (4) AND IT CAN BE SAID TO B E BUSINESS OF THE APPELLANT IF IT IS HELD THAT IT IS AN ADVENTURE IN THE NATURE OF TRADE. IN OTHER WORDS, IN REACHING THE CONCLUSION THAT THE TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE, THE TRIBUNAL HAS TO FIND PRIMARY EVIDENTIARY FACTS AND THEN APPLY THE LEGAL PRINCIPLES INVOLVED IN THE EXPRESSION ' ADVEN TURE IN THE NATURE OF TRADE ' USED BY S. 2. SUB-S (4). IT IS PATENT THAT THE CL AUSE ' IN THE NATURE OF TRADE ' POSTULATES THE EXISTENCE OF CERTAIN ELEMENTS IN THE ADVENTURE WHICH IN LAW WOULD INVEST IT WITH THE CHARACTER OF A TRADE OR BU SINESS; AND THAT WOULD MAKE THE QUESTION AND ITS DECISION ONE OF MIXED LAW AND FACT. THIS VIEW HAS BEEN INCIDENTALLY EXPRESSED BY THIS COURT IN THE CA SE OF MEENAKSHI MILLS, MADURAI (1) IN REPELLING THE APPELLANT'S ARGUMENT B ASED ON THE DECISION OF THE (1) [1956] S. C. R. 691. THIS QUESTION HAS BEEN THE SUBJECT-MATTER OF SEVER AL JUDICIAL DECISIONS; AND IN DEALING WITH IT ALL THE JUDGES APPEAR TO BE AGRE ED THAT NO PRINCIPLE CAN BE EVOLVED WHICH WOULD GOVERN THE DECISION OF ALL CASE S IN WHICH THE CHARACTER OF THE IMPUGNED TRANSACTION FALLS TO BE CONSIDERED. WHEN S. 2. SUB-S. (4), REFERS TO AN ADVENTURE IN THE NATURE OF TRADE IT CL EARLY SUGGESTS 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 CHARACTERISED BY SOME OF THE ESSENTIAL FEATURES THAT MAKE UP TRADE OR BUSINESS BUT NOT BY ALL OF THEM; A ND SO, EVEN AN ISOLATED TRANSACTION CAN SATISFY THE DESCRIPTION OF AN ADVEN TURE 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 NAT URE OF TRADE. THIS STATEMENT MAY BE TRUE; BUT IN ITS APPLICATION DUE R EGARD MUST BE SHOWN TO THE REQUIREMENT THAT THE SINGLE PLUNGE MUST BE IN T HE WATERS OF TRADE. IN OTHER WORDS, AT LEAST SOME OF THE ESSENTIAL FEATURE S OF TRADE MUST BE PRESENT IN THE ISOLATED OR SINGLE TRANSACTION. ON T HE OTHER HAND, IT IS SOMETIMES SAID THAT THE APPEARANCE OF ONE SWALLOW D OES NOT MAKE A SUMMER. THIS MAY BE TRUE IF, IN THE METAPHOR, SUMME R REPRESENTS TRADE; BUT IT MAY NOT BE TRUE IF SUMMER REPRESENTS AN ADVE NTURE IN THE NATURE OF TRADE BECAUSE, WHEN THE SECTION REFERS TO AN ADVENT URE IN THE NATURE OF ITA 659/JP/2017_ SURAJ MAL VS ITO 9 TRADE, IT IS OBVIOUSLY REFERRING TO TRANSACTIONS WH ICH INDIVIDUALLY CANNOT THEMSELVES BE DESCRIBED AS TRADE OR BUSINESS BUT AR E ESSENTIALLY OF SUCH A SIMILAR CHARACTER THAT THEY ARE TREATED AS IN THE N ATURE OF TRADE. IT WAS FAINTLY ARGUED FOR THE APPELLANT THAT IT WOULD BE D IFFICULT TO REGARD A SINGLE OR AN ISOLATED TRANSACTION AS ONE IN THE NATURE OF TRA DE BECAUSE INCOME RESULTING FROM IT WOULD INEVITABLY LACK THE CHARACT ERISTICS ATTRIBUTED TO IT BY SIR GEORGE LOUNDES IN COMMISSIONER OF I. T. V. SHAW WALLACE AND COMPANY (1) 'INCOME THEIR LORDSHIPS (1) (1932) L. R. 59 I.A . 206. LORD CARMONT OBSERVED THAT HE DID NOT WISH TO READ THE SAID PASSAGE OUT OF ITS CONTEXT AND WITHOUT REGARD TO THE FACTS OF THE CASE THEN UNDER CONSIDERATION. THEN LORD CARMONT ADDED THAT THOUGH THE LANGUAGE USED BY LORD DUNEDIN ' MAY COVER THE PURCHASE OF HOUSES' IT ' WOULD NOT COVER A SITUATION IN WHICH A PURCHASER BOUGHT A COMMODITY W HICH FROM G ITS NATURE CAN GIVE NO ANNUAL RETURN 'THIS COMMENT OF MINE ', SAID LORD CARMONT,' IS JUST ANOTHER WAY OF SAYING THAT CERTAIN TRANSACTION S SHOW INHERENTLY THAT THEY ARE NOT INVESTMENTS BUT INCURSIONS INTO THE RE ALM OF TRADE OR ADVENTURES OF THAT NATURE THEN REFERENCE WAS MADE T O THE FACT THAT THE ASSESSEE WAS A WAREHOUSE COMPANY DIRECTOR AND NOT A PROPERTY AGENT OR SPECULATOR AND THAT THE ONLY PURCHASES OF PROPERTY WITH WHICH HE WAS CONCERNED WERE TWO SEPARATED BY TEN YEARS AND THAT THE FIRST HERITAGE WAS ACQUIRED WITHOUT THE INTENTION TO SELL, WHICH ONLY AROSE FORTUITOUSLY. HIS LORDSHIP THEN PUT HIS CONCLUSION IN THIS WAY: 'I WO ULD THEREFORE SAY THAT THE COMMISSIONERS OF INLAND REVENUE HAVE FAILED TO PROV E AND THE ONUS IS ON THEM THE CASE THEY SOUGHT TO MAKE OUT'. ACCORDING T O LORD CARMONT, LORD DUNEDIN'S OBSERVATIONS DO NOT SUGGEST THAT THE INIT IAL DECLARATION OF INTENTION PER SE LEADS TO THE CONCLUSION THAT THE T RANSACTION WAS IN THE NATURE OF TRADE. HE THOUGHT THAT MUCH MORE WAS REQU IRED TO SHOW THAT THE ASSESSEE WAS ENGAGED IN AN ADVENTURE IN THE NATURE OF TRADE THAN WAS PROVED IN THE CASE BEFORE THE COURT. LORD RUSSELL, WHO CONCURRED WITH THIS OPINION, BEGAN WITH THE OBSERVATION THAT' PRIMA FAC IE THE DIFFERENCE OF OPINION AMONG THE GENERAL COMMISSIONERS SUGGESTS TH AT THE CASE IS A NARROW ONE AND THAT THE ONUS ON THE APPELLANTS OF S HOWING THAT THE TRANSACTION WAS AN ADVENTURE IN THE NATURE OF TRADE IS NOT A LIGHT ONE'. LORD RUSSELL THEN MENTIONED THE ARGUMENT OF THE LORD ADV OCATE THAT IF A PERSON BUYS ANYTHING WITH A VIEW TO SALE THAT IS A TRANSAC TION IN THE NATURE OF TRADE BECAUSE THE PURPOSE OF THE ACQUISITION IN THE MIND OF THE PURCHASER IS ALL- IMPORTANT AND CONCLUSIVE; AND THAT THE NATURE OF TH E THING PURCHASED AND THE OTHER SURROUNDING CIRCUMSTANCES DO NOT AND CANN OT OPERATE SO AS TO RENDER THE TRANSACTION OTHER THAN AN ADVENTURE IN T HE NATURE OF TRADE, AND OBSERVED THAT IN HIS OPINION THE ARGUMENT SO FORMUL ATED' IS TOO ABSOLUTE AND IS NOT SUPPORTED BY THE JUDICIAL PRONOUNCEMENTS ON WHICH IT WAS SOUGHT ITA 659/JP/2017_ SURAJ MAL VS ITO 10 TO BE RAISED '. HE THEN REFERRED TO THE VARIETY OF CIRCUMSTANCES WHICH ARE OR MAY BE RELEVANT TO THE DETERMINATION OF SUCH A QUES TION; AND HE CONCLUDED WITH THE OBSERVATION THAT THE APPELLANTS HAD NOT DI SCHARGED THE BURDEN OF SHOWING THAT THE TRANSACTION WAS AN ADVENTURE IN TH E NATURE OF TRADE. LORD KEITH ALSO TOOK THE SAME VIEW AND STATED THAT ' THE FACTS WERE, IN HIS OPINION, INSUFFICIENT TO ESTABLISH THAT THIS WAS AN ADVENTURE IN THE NATURE OF TRADE THIS CASE WAS NO DOUBT A CASE ON THE BORDER L INE; AND IF WE MAY SAY SO WITH RESPECT IT WAS PERHAPS NEARER AN ADVENTURE IN THE NATURE OF TRADE THAN OTHERWISE. IT WOULD NOT BE UNREASONABLE TO SUGGEST THAT, IN THIS CASE, IF THE COMMISSIONERS HAD FOUND THAT THE TRANSACTION WAS AN ADVENTURE IN THE NATURE OF TRADE, THE COURT WOULD PROBABLY NOT HAVE INTERFERED WITH THE SAID CONCLUSION; BUT THE COMMISSIONERS WERE EQUALLY DIVI DED AND SO THE ASSESSMENT HAD BEEN DISCHARGED BY THEM. IT WAS UNDE R THESE CIRCUMSTANCES THAT THE POINT ABOUT THE ONUS OF PROOF BECAME A MAT TER OF SUBSTANCE; AND, AS WE HAVE ALREADY POINTED OUT, ALL TILE LEARNED JU DGES HAVE EMPHASIZED THAT THE ONUS HAD NOT BEEN DISCHARGED AND THAT NO CASE H AD BEEN MADE OUT FOR REVERSING THE ORDER OF DISCHARGE -PASSED BY THE COM MISSIONERS. HOWEVER THAT MAY BE, IT WOULD, WE THINK, BE UNSAFE TO TREAT THIS CASE AS LAYING DOWN ANY GENERAL PROPOSITION THE APPLICATION OF WHICH WO ULD ASSIST THE APPELLANT BEFORE US. WE WOULD ALSO LIKE TO ADD THAT THERE CAN BE NO DOUBT THAT LORD RUSSELL'S CRITICISM AGAINST THE CONTENTION RAISED B Y THE LORD ADVOCATE WAS FULLY JUSTIFIED BECAUSE THE CONTENTION AS RAISED CL EARLY OVERSTATED THE SIGNIFICANCE AND EFFECT OF THE INITIAL INTENTION. A S WE HAVE ALREADY POINTED OUT, IF IT IS SHOWN THAT, IN PURCHASING THE COMMODI TY IN QUESTION, THE ASSESSEE WAS ACTUATED BY THE SOLE INTENTION TO SELL IT AT A PROFIT, THAT NO DOUBT IS A RELEVANT CIRCUMSTANCE WHICH WOULD RAISE A STRONG PRESUMPTION THAT THE PURCHASE AND SUBSEQUENT SALE ARE AN ADVENT URE IN THE NATURE OF TRADE; BUT THE SAID PRESUMPTION IS NOT CONCLUSIVE A ND IT MAY BE REBUTTED OR OFFSET BY OTHER RELEVANT CIRCUMSTANCES. WHAT THEN A RE THE RELEVANT FACTS IN THE PRESENT CASE? THE PROPERTY PURCHASED AND RESOLD IS LAND AND IT MUST BE CONCEDED IN FAVOUR OF THE APPELLANT THAT LAND IS GE NERALLY THE SUBJECT- MATTER OF INVESTMENT. IT IS CONTENDED BY MR. VISWAN ATHA SASTRI THAT THE FOUR PURCHASES MADE BY THE APPELLANT REPRESENT NOTHING M ORE THAN AN INVESTMENT AND IF BY RESALE SOME PROFIT WAS REALISE D THAT CANNOT IMPRESS THE TRANSACTION WITH THE CHARACTER OF AN ADVENTURE IN T HE NATURE 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 P URCHASE WAS MADE IT IS DIFFICULT TO TREAT IT AS A MATTER OF INVESTMENT. TH E PROPERTY WAS A SMALL PIECE OF 28-1/4 CENTS AND IT COULD YIELD NO RETURN WHATEV ER TO THE PURCHASER. IT IS CLEAR THAT THIS PURCHASE WAS THE FIRST STEP TAKEN B Y THE APPELLANT IN EXECUTION OF A WELL-CONSIDERED PLAN TO ACQUIRE OPEN PLOTS NEAR THE MILLS AND THE WHOLE BASIS FOR THE PLAN WAS TO SELL THE SAID L ANDS TO THE MILLS AT A ITA 659/JP/2017_ SURAJ MAL VS ITO 11 PROFIT., JUST AS THE CONDUCT OF THE PURCHASER SUBSE QUENT TO THE PURCHASE OF A COMMODITY IN IMPROVING OR CONVERTING IT SO AS TO MA KE IT MORE READILY RESALEABLE IS A RELEVANT FACTOR IN DETERMINING THE CHARACTER OF THE TRANSACTION, SO WOULD HIS CONDUCT PRIOR TO THE PURC HASE BE RELEVANT IF IT SHOWS A DESIGN AND A PURPOSE. AS AND WHEN PLOTS ADJ OINING THE MILLS WERE AVAILABLE FOR SALE, THE APPELLANT CARRIED OUT HIS P LAN AND CONSOLIDATED HIS HOLDING OF THE SAID PLOTS. THE APPELLANT IS THE MAN AGING AGENT OF THE JANARDANA MILLS AND PROBABLY IT WAS FIRST THOUGHT T HAT PURCHASING THE PLOTS IN ITS OWN NAME AND SELLING THEM TO THE MILLS MAY I NVITE CRITICISM AND SO THE FIRST PURCHASE WAS MADE BY THE APPELLANT IN THE NAM E OF ITS BENAMIDAR V. G. RAJA. APPARENTLY THE APPELLANT CHANGED ITS MIND AND TOOK THE SUBSEQUENT SALE DEEDS IN ITS OWN NAME. THE CONDUCT OF THE APPE LLANT IN REGARD TO THESE PLOTS SUBSEQUENT TO THEIR PURCHASE CLEARLY SHOWS TH AT IT WAS NOT INTERESTED IN OBTAINING ANY RETURN FROM THEM. NO DOUBT THE APP ELLANT SOUGHT TO EXPLAIN-ITS PURPOSE ON THE GROUND THAT IT WANTED TO BUILD TENEMENTS FOR THE EMPLOYEES OF THE MILLS; BUT IT HAD TAKEN NO STEPS I N THAT BEHALF FOR THE WHOLE OF THE PERIOD DURING WHICH THE PLOTS REMAINED IN ITS POSSESSION. BESIDES, IT WOULD NOT BE EASY TO ASSUME IN THE CASE OF A FIRM LIKE V E APPELLANT THAT THE ACQUISITION OF THE OPEN PLOTS CO ULD INVOLVE ANY PRIDE POSSESSION TO THE PURCHASER. IT IS REALLY NOT ONE T RANSACTION OF PURCHASE AND RESALE IT IS A SERIES OF FOUR TRANSACTIONS UNDERTAK EN BY THE APPELLANT IN PURSUANCE OF A SCHEME AND IT WAS AFTER THE APPELLAN T HAD CONSOLIDATED ITS HOLDINGS THAT AT A CONVENIENT TIME IT SOLD THE LAND S TO THE JANARDANA MILLS IN TWO LOTS. WHEN THE TRIBUNAL FOUND THAT, AS THE MANA GING AGENT OF THE MILLS, THE APPELLANT WAS IN A POSITION TO INFLUENCE THE MI LLS TO PURCHASE ITS PROPERTIES ITS VIEW CANNOT BE CHALLENGED AS UNREASO NABLE. IF THE PROPERTY HAD BEEN PURCHASED BY THE APPELLANT AS A MATTER OF INVESTMENT IT WOULD HAVE TRIED EITHER TO CULTIVATE THE LAND, OR TO BUIL D ON IT; BUT THE APPELLANT DID NEITHER AND JUST ALLOWED THE PROPERTY TO REMAIN UNU TILISED EXCEPT FOR THE NET RENT OF RS. 80 PER ANNUM WHICH IT RECEIVED FROM THE HOUSE ON ONE OF THE PLOTS. THE REASON GIVEN BY THE APPELLANT FOR THE PU RCHASE OF THE PROPERTIES BY THE MILLS HAS BEEN REJECTED BY THE TRIBUNAL; AND SO WHEN THE MILLS PURCHASED THE PROPERTIES IT IS NOT SHOWN THAT THE S ALE WAS OCCASIONED BY ANY SPECIAL NECESSITY AT THE TIME. IN THE CIRCUMSTA NCES 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 WHENEV ER IT THOUGHT IT PROFITABLE SO TO DO. THUS THE APPELLANT PURCHASED THE FOUR PLO TS DURING TWO YEARS WITH THE SOLE INTENTION TO SELL THEM TO THE MILLS AT A P ROFIT 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 CIRCUMSTANCE S 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 P RESUMPTION. WE MUST, ITA 659/JP/2017_ SURAJ MAL VS ITO 12 THEREFORE, HOLD THAT THE HIGH COURT WAS RIGHT IN TA KING THE VIEW THAT, ON THE FACTS AND CIRCUMSTANCES PROVED IN THIS CASE, THE TR ANSACTION IN QUESTION IS AN ADVENTURE IN THE NATURE OF TRADE. THE RESULT IS THE APPEAL FAILS AND MUST BE DISMISSED WITH COSTS. THEREFORE, THE ABOVE MENTIONED JUDGMENT HAS LAID DO WN CERTAIN TESTS TO FIND OUT WHETHER A PARTICULAR TRANSACTION OF PURCHA SE AND SALE WOULD AMOUNT TO AN ADVENTURE IN THE NATURE OF TRADE OR NO T, AND AT THE SAME TIME CAUTIONED THAT IN EACH CASE, IT IS THE TOTAL E FFECT OF ALL RELEVANT FACTORS AND CIRCUMSTANCES THAT DETERMINE THE CHARACTER OF T HE TRANSACTION. THE SUPREME COURT IN THAT CASE OBSERVED THAT THE FOLLOW ING FACTORS ARE RELEVANT FOR DECIDING THE CHARACTER OF A TRANSACTIO N: (1) WAS THE PURCHASER, A TRADER AND WHETHER THE PUR CHASE OF THE COMMODITY AND ITS RESALE ALLIED TO HIS USUAL TRADE OR BUSINES S OR INCIDENTAL TO IT? (2) WHAT IS THE NATURE OF COMMODITY PURCHASED AND S OLD AND IN WHAT QUANTITY WAS IT PURCHASED OR RESOLD? (3) DID THE PURCHASER BY ANY ACT SUBSEQUENT TO THE PURCHASE IMPROVE THE QUALITY OF COMMODITY PURCHASED AND THEREBY MADE IT MORE READILY RE- SALEABLE? (4) WHAT WERE THE INCIDENCES ASSOCIATED WITH THE PU RCHASE AND SALE AND WHETHER THEY ARE AKIN TO THE OPERATIONS USUALLY ASS OCIATED WITH TRADE OR BUSINESS? (5) ARE THE TRANSACTIONS OF THE PURCHASE AND SALE R EPEATED? (6) IN REGARD TO THE PURCHASE OF THE COMMODITY AND ITS SUBSEQUENT POSSESSION BY THE PURCHASER, DOES THE ELEMENT OF PRIDE OF POSS ESSION COME INTO PICTURE? 8.3.4 NOW, APPLYING THE PARAMETERS SET BY THE HONB LE SUPREME COURT IN THE PRESENT CASE, THE SEQUENCE OF EVENTS LEADING TO THE EVENTUAL SALE OF THE LAND PLOTS DO NOT SEEM TO HELP THE CAUSE OF THE APP ELLANT. THE APPELLANT HAD INHERITED THE LAND WHICH WAS AN AGRICULTURAL LA ND AT THE TIME OF INHERITANCE. THEN THE APPELLANT HAD DEVELOPED PART OF THE AGRICULTURAL ITA 659/JP/2017_ SURAJ MAL VS ITO 13 LAND INTO SMALLER PLOTS, DEVELOPED ACCESS ROAD WITH IN THE PLOTTED LAND AND SOLD TO INDIVIDUAL PURCHASERS AS RESIDENTIAL PLOTS OVER A PERIOD. THUS, THE NATURE OF THE LAND HAD UNDERGONE IRREVERSIBLE CHANG E. THE DEVELOPMENT OF LAND WAS DONE WITH THE UNDISPUTED INTENTION OF E XPLOITING THE LAND ASSETS TO MAXIMIZE THE GAIN. THE EXPLOITATION OF TH E LAND ASSETS WAS DONE OVER A PERIOD OF TIME AND THE ENTIRE AREA HAS BEEN DEVELOPED AS A RESIDENTIAL COLONY. IF WE LOOK AT THE SEQUENCE OF EVENTS AS MENTIONED ABOVE, I HAVE NO DOUBT WHATSOEVER, THAT THE MOTIVE, INTENTION AND REALIZAT ION OF THE ENTIRE SCHEME OF THING ADOPTED BY THE APPELLANT WAS TO MAX IMIZE THE VALUE OF THE ASSET AND USING IT FOR BUSINESS PURPOSES. IN TH AT PURSUIT THE APPELLANT HAD CONSTANTLY TRIED AND EXECUTE DIFFERENT METHODS AT DIFFERENT TIME EXPLOITING THE RESOURCES AND MAXIMIZE THE PROFIT OU T OF IT. THE REGISTERING AND STAMP DUTY AUTHORITIES HAVE ALSO RECOGNIZED THE PLOTTING AS RESIDENTIAL PLOTS. IN THIS REGARD, I HAVE ALSO NOTED THE ABOVE MENTIO NED APEX COURT JUDGMENT WHERE IT HAS SAID THAT JUST AS THE CONDUCT OF THE PURCHASER SUBSEQUENT TO THE PURCHASE OF A COMMODITY IMPROVING OR CONVERTING IT SO AS TO MAKE IT MORE READILY RESALABLE IS A RELEVANT FACTOR IN DETERMINING THE CHARACTER OF THE TRANSACTION, SO WOULD IS CONDUCT P RIOR TO PURCHASE BE RELEVANT IF IT SHOWS A DESIGN AND PURPOSE. I HAVE CLEARLY NOTED A PURPOSE AND DESIGN IN THE U TILIZATION OF THE LAND AND IT ALL POINTED TOWARDS A BUSINESS SENSE AND EVENTUA LLY A BUSINESS TRANSACTION. THE APPELLANT HAS CITED HONBLE RAJASTHAN HIGH COU RT JUDGMENT IN THE CASE OF SOHAN KHAN AND MOHAN KHAN AS REPORTED IN 304 ITR 194(RAJ.), IN FAVOUR ITA 659/JP/2017_ SURAJ MAL VS ITO 14 OF HIS CLAIM. I HAVE PERUSED THE JUDGMENT. HOWEVER, THE CONCLUDING PARA OF THE JUDGMENT HAS ITSELF SAID THAT .IT IS THE DIFFERENT STORY THAT THE QUESTION, AS TO WHETHER A PARTICULAR TRANSACTION FALLS WITHIN THE CATEGORY OF ADVENTURE IN THE NATURE OF TRADE OR IS MERELY A TRANSACTION OF TRANSFER OF CAPITAL ASSE T, SINCE DEPENDS ON APPRECIATION OF FACTS I HAVE FOUND THAT THE PRESENT CASE IS DISTINGUISHED FROM FACTS OF THE CASE DECIDED BY THE HONBLE RAJASTHAN HIGH COURT JUDGMEN T. IN THE PRESENT CASE IT IS NOT ONLY THE MERE SALE AND PURCHASE OF L ANDS. IT IS A SEQUENCE OF EVENTS SHOWING EXPLOITATION OF THE LAND OVER A PERI OD OF TIME THAT SHOWS THE INTENT AND MOTIVE OF THE APPELLANT IN THE PRESE NT CASE AS IS DISCUSSED IN DETAILS ABOVE. THEREFORE, IT IS MY CONSIDERED VIEW THAT THE EXPLO ITATION OF AGRICULTURAL LAND BY CONVERTING IT INTO RESIDENTIAL PLOTS BEFORE SELLING THEM TO THE PURCHASERS IS INDEED A BUSINESS VENTURE. AS PER THE APEX COURT PARAMETERS ALSO THE FACTS OF THE CASE SUGGEST THAT THE EXPLOITATION OF LAND ASSETS BY THE ASSESSEE COMES UNDER THE PURVIEW OF ADVENTURE IN THE NATURE OF TRADE AND THE INCOME ARISEN IS LIABLE TO BE TAXED IN THE HAND OF THE APPELLANT AS BUSINESS INCOME. ACCORDINGLY, THE INCOME ARISEN FROM SALE OF SUCH PLOTS OF LAND CANNOT CLAIM DEDUCTION U NDER SECTION 54B OF THE ACT ACCORDINGLY, THE APPELLANTS GROUNDS OF APPEAL ON THE ISSUE ARE DISMISSED. 8. WHILE PLEADING ON BEHALF OF THE ASSESSEE, THE LD AR HAS SUBMITTED AS UNDER: 1. IT IS SUBMITTED THAT THE AO ASSESSED THE GAIN FR OM SALE OF AGRICULTURAL PLOTS UNDER THE HEAD CAPITAL GAIN BUT THE LD. CIT(A) HELD THAT IT IS AN ADVENTURE IN THE NATURE OF TRADE AND THEREFORE, ASSESSED IT AS BUSINESS INC OME. IT MAY BE NOTED THAT ITA 659/JP/2017_ SURAJ MAL VS ITO 15 ASSESSEE NEVER INTENDED TO ENTER INTO ANY REAL ESTA TE BUSINESS/ADVENTURE. IN THE AY 2007-08, ASSESSEE HAS SOLD CERTAIN AGRICULTURAL LAND ON WHICH NO TAX WAS LEVIED. DURING THE YEAR TO HAVE A BETTER REALISATIO N OF THE CAPITAL ASSET, THE SAME IS SOLD AFTER PLOTTING. SELLING OF AN AGRICULTURAL LAND AFTER PLOTTING IN ORDER TO SECURE BETTER PRICE IS NOT AN ADVENTURE IN THE NATU RE OF TRADE OR BUSINESS. THE WORD 'BUSINESS' HAS BEEN DEFINED U/S 2(13) OF THE I T ACT, 1961 WHICH INCLUDES ANY TRADE, COMMERCE OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATURE OF TRADE, COMMERCE OR MANUFACTURE. TO CONSIDER THE QUESTION OF BUSINESS, THERE MUST BE REGULAR ACTIVITY OF PURCHASING AND SELLING. IN THE PRESENT CASE, THERE IS NOTHING ON RECORD TO SHOW THAT THE LAND WHEN ACQUIR ED WAS WITH AN INTENTION TO SELL IT BY PLOTTING. 2. IN VARIOUS CASES IT HAS BEEN HELD THAT PURCHASE OF LAND ONCE UPON A TIME AND THEREAFTER SELLING THE SAME IN PIECEMEAL AFTER DEVE LOPMENT, THE PROFIT ARISING WOULD BE TAXED UNDER THE HEAD CAPITAL GAIN AND CANN OT BE TREATED AS ADVENTURE IN THE NATURE OF TRADE. SOME OF THESE DECISIONS ARE AS UNDER: COMMISSIONER OF INCOME-TAX VS. SOHAN KHAN & MOHAN K HAN [2008] 304 ITR 194 (RAJ.) IN ORDER TO ARRIVE AT A CONCLUSION, AS TO WHETHER S ALE CONSIDERATION IS TO BE TAXED AS CAPITAL GAIN OR THE SALE TRANSACTION IS TO BE TREAT ED TO BE AN ADVENTURE IN THE NATURE OF TRADE, THINGS CANNOT BE PUT IN ANY STRAIT JACKE T FORMULA, AND IT IS DEPENDENT UPON THE FACTS AND CIRCUMSTANCES OF EACH CASE TO BE DECI DED ON THE BASIS OF RELEVANT CONSIDERATIONS. ONE OF MOST SIGNIFICANT CONSIDERATI ONS WOULD BE THE REGULARITY OF TRANSACTION OF PURCHASE AND SALE. MERE FACT THAT TH ERE WAS A SERIES OF TRANSACTIONS OF SALE ONLY, BY SELLING THE PART OF THE WHOLE LAND, P URCHASED IN ONE GO, OR PURCHASED ONCE UPON A TIME, IN PIECEMEAL, WOULD NOT RENDER TH E ACTIVITY OF SALE TO BE AN ADVENTURE IN THE NATURE OF TRADE. THE ASSESSEES PURCHASED A CHUNK OF LAND MEASURING FEW LAKHS SQUARE FEETS, SOMEWHERE IN 1970 UNDER A VALID DOCUMENT AND THE LA ND WAS LYING FALLOW, DURING ALL THIS TIME. THE LAND WAS UNDER THE CLOUD OF CEILING LAWS AND AFTER IT GOT CLEARED THEREFROM, THE ASSESSEE PICKED UP THE IDEA OF DISPO SING IT OF BY MAKING THE BEST PROFIT, I.E., BY ENSURING THAT IT FETCHED THE BEST PRICE, AND ACCORDINGLY, THE SITE PLAN WAS PREPARED, SHOWING THE LAND TO BE DIVIDED INTO D IFFERENT PLOTS, AND THE PLOTS WERE, ITA 659/JP/2017_ SURAJ MAL VS ITO 16 ACCORDINGLY, SOLD. THE ASSESSING OFFICER FOUND THE SALE TO BE NOT TAXABLE AS CAPITAL GAIN, BUT IT WAS TREATED AS A BUSINESS INCOME. HELD THAT THERE WAS NOTHING TO SHOW THAT THE LAND W AS PURCHASED WITH THE INTENTION TO SELL AT A PROFIT, OR WITH REQUISITE INTENTION, T O BRING IT WITHIN THE PARAMETERS OF STOCK-IN- TRADE. THE ASSESSEE WAS NOT A REGULAR D EALER IN REAL ESTATE. IT APPEARED THAT THE LAND WAS PURCHASED IN 1970, WHICH WAS UNDE R CLOUD OF LAND CEILING LAWS, AND AFTER THAT CLOUD WAS CLEARED, AND OTHER ADJOINING L ANDS HAD BEEN DEVELOPED, AND SINCE THE LAND WAS NOT YIELDING ANY RETURN, IT WAS DECIDED TO BE SOLD IN PIECEMEAL, BY EARMARKING PLOTS BUT THEN NONETHELESS IT WOULD REMA IN A DISPOSAL OF THE CAPITAL ASSET ONLY AND NOT A TRANSACTION OF ANY STOCK-IN-TRADE SO AS TO BE DESCRIBED AS ADVENTURE IN THE NATURE OF TRADE. OBVIOUSLY THEREFORE, IT WA S LIABLE TO BE TAXED ONLY AS CAPITAL GAIN.' CIT VS. HARJIT SINGH SANGHA (2013) 217 TAXMAN 201 ( P&H) (HC) (MAG.) LAND PURCHASED BY ASSESSEE WAS REGISTERED IN LAND R EVENUE RECORDS AS AGRICULTURAL LAND AND IT WAS BEING USED BY ASSESSEE AS SUCH. LAT ER ON IT WAS SOLD IN SMALL PLOTS TO DIFFERENT PURCHASER. NO DEVELOPMENT OF LAND WAS MAD E BY ASSESSEE PRIOR TO ITS SALE. IT WAS HELD THAT ASSESSEES ACTIVITY COULD NOT BE TERM ED AS AN ADVENTURE IN THE NATURE OF TRADE AND GAIN/PROFIT ARISING FROM SALE COULD NOT B E TAXED AS BUSINESS INCOME. SMT. M. VIJAYA & ORS. VS DCIT (2015) 116 DTR 393 (H YD.) (TRIB.) LAND IN QUESTION IS SHOWN AS AGRICULTURAL IN REVENU E RECORDS, NOT UNDER CONVERSION PROCEEDINGS, NOT PUT TO NON-AGRICULTURAL USE, NOT S ITUATED IN DEVELOPED AREA AND NOT FALLING IN ANY MUNICIPALITY BUT FALLING IN A VILLAG E WAS AGRICULTURAL LAND NOT LIABLE TO CAPITAL GAIN TAX ON SALE, THE FACT THAT THE LAND WA S PURCHASED BY A DEVELOPER CANNOT BE A DETERMINING FACTOR BY ITSELF TO SAY THAT THE L AND WAS CONVERTED INTO USE FOR NON- AGRICULTURAL PURPOSES. SAROJ KUMAR MAZUMDAR VS. COMMISSIONER OF INCOME TAX 37 ITR 242 (SC) SECTION 2(13) OF THE INCOME-TAX ACT, 1961 - ADVENTU RE IN NATURE OF TRADE - WHETHER WHERE TRANSACTION UNDER EXAMINATION IS NOT IN LINE OF BUSINESS OF ASSESSEE AND IS AN ISOLATED OR A SINGLE INSTANCE OF A TRANSACTION LIKE THAT, BURDEN LIES ON REVENUE TO BRING CASE WITHIN WORDS OF STATUTE, NAMELY, THAT IT WAS A N ADVENTURE IN NATURE OF TRADE - HELD, YES - ASSESSEE ENTERED INTO AGREEMENT WITH A SOCIETY TO PURCHASE PLOT OF LAND UNDER DEVELOPMENT SCHEME OFFERED BY SOCIETY AND PAI D 25 PER CENT OF ESTIMATED PRICE - ASSESSEE FINDING NO IMMEDIATE PROSPECT OF LAND IN QUESTION BEING DEREQUISITIONED BY GOVERNMENT, NEGOTIATED FOR ASSIGNMENT OF HIS RIGHTS UNDER AGREEMENT WITH SOCIETY TO A THIRD PARTY AND RECEIVED A SUM IN EXCESS OF AMOUN T PAID BY HIM TO SOCIETY - WHETHER SINCE DEALING IN LANDED ESTATE WAS NOT IN LINE OF A SSESSEE'S BUSINESS AND SALE ITA 659/JP/2017_ SURAJ MAL VS ITO 17 TRANSACTION IN QUESTION WAS ONLY ONE OF ITS KIND AN D DEPARTMENT FAILED TO MAKE OUT THAT DOMINANT INTENTION OF ASSESSEE WAS TO EMBARK O N A VENTURE IN NATURE OF TRADE WHEN HE ENTERED INTO SAID TRANSACTION WHICH RESULTE D IN PROFITS, SUCH PROFITS COULD NOT BE TAXED IN HANDS OF ASSESSEE AS PROFIT FROM ADVENT URE IN NATURE OF TRADE. JANKI RAM BAHADUR RAM VS. COMMISSIONER OF INCOME TA X 57 ITR 21 (SC) SECTION 2(13), READ WITH SECTION 28(I) OF THE INCOM E-TAX ACT, 1961 - ADVENTURE IN NATURE OF TRADE - ASSESSEE AGREED TO PURCHASE A JUT E PRESS FROM COMPANY SUBJECT TO LITIGATION PENDING IN HIGH COURT - POSSESSION OF PR OPERTY EXCEPT PREMISES IN OCCUPATION OF TENANT WAS OBTAINED AND SALE DEED WAS EXECUTED - ASSESSEE AGREED TO SELL THAT PRESS TO ONE P - LATER, ASSESSEE WAS SU BSTITUTED AS PLAINTIFF IN SUIT FILED BY COMPANY AGAINST TENANT - AFTER OBTAINING POSSESSION OF DEMISED PREMISES, ASSESSEE EXECUTED A SALE DEED CONVEYING PROPERTY AND DELIVER ED POSSESSION TO P - WHETHER PURCHASE OF PROPERTY BY ASSESSEE WAS AN ISOLATED TR ANSACTION NOT RELATED TO ITS BUSINESS - HELD, YES - WHETHER ADMITTING THAT ASSES SEE MADE A PROFITABLE BARGAIN WHEN HE PURCHASED PROPERTY, AND FURTHER THAT ASSESS EE HAD WHEN HE PURCHASED IT A DESIRE TO SELL PROPERTY, IF A FAVOURABLE OFFER WAS FORTHCOMING, COULD NOT WITHOUT OTHER CIRCUMSTANCES JUSTIFY AN INFERENCE THAT ASSESSEE IN TENDED BY PURCHASING PROPERTY TO START A VENTURE IN NATURE OF TRADE - HELD, YES - WH ETHER SURPLUS RECEIVED BY ASSESSEE AS A RESULT OF SALE OF JUTE PRESS DID NOT ARISE OUT OF AN ADVENTURE IN NATURE OF TRADE AND WAS THEREFORE NOT RIGHTLY ASSESSED TO TAX - HEL D, YES CIT VS. SURESHCHAND GOYAL 298 ITR 277 (MP) PARA 15 OF THIS ORDER IS REPRODUCED AS UNDER: CONSIDERING THE AFORESAID FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE ALSO OF THE VIEW THAT THE SELLING OF OWN LAND AFTER PLOTTING IT OUT IN ORDER TO SECURE BETTER PRICE, IS NOT AN ADVENTURE IN THE NATURE OF TRADE OR BUSINESS . THE WORD 'BUSINESS' HAS BEEN DEFINED UNDER SECTION 2(13) OF THE INCOME TAX ACT, 1961, WHICH INCLUDES ANY TRADE, COMMERCE OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATURE OF TRADE, COMMERCE OR MANUFACTURE. AN ISOLATED TRANSACTION OR ACTIVITY CAN ALSO BE PART OF BUSINESS, BUT TO CONSIDER THE QUESTION OF BUSINESS, THERE MUST BE REGULAR ACTIVITY OF PURCHASING AND SELLING. IN THIS CASE, THERE IS NOTH ING ON RECORD TO SHOW THAT THE LAND WAS PURCHASED FOR THE PURPOSE OF SELLING INTO PLOTS . BASICALLY, IT IS A GIFTED LAND AND THE LAND WAS DEVELOPED AND WAS SOLD AFTER CONVERTIN G INTO THE PLOTS WITH A VIEW TO SECURE THE BETTER PRICE, THEREFORE, THE ISOLATED AC TIVITY CANNOT COME WITHIN THE PURVIEW OF ADVENTURE IN THE NATURE OF TRADE AND BUS INESS. THE MAIN EARNING ON THE SALE OF THE LAND WAS IN THE NATURE OF CAPITAL GAIN AND, THEREFORE, NOT ASSESSABLE AS INCOME FROM BUSINESS AND THIS QUESTION IS ESSENTIAL LY A QUESTION OF FACT. CIT VS. A MOHAMMED MOHIDEEN 176 ITR 393 (MADRAS) ITA 659/JP/2017_ SURAJ MAL VS ITO 18 PARA 14 OF THIS ORDER IS REPRODUCED AS UNDER: BEARING IN MIND THE PRINCIPLES LAID DOWN BY THE SU PREME COURT, IT IS NECESSARY TO EXAMINE THE FACTS OF THE PRESENT CASE. ALREADY WE H AVE NOTICED THE CONTENTIONS URGED FOR THE REVENUE. THE FIRST CONTENTION IS THAT THE T RIBUNAL IS IN ERROR IN HOLDING THAT THE DEPARTMENT HAS NOT ESTABLISHED BY EVIDENCE THAT THE INTENTION OF THE ASSESSEE IN PURCHASING THE PROPERTY WAS NOT BY WAY OF INVESTMEN T BUT TO TRADE IN HOUSE SITES. IT IS POINTED OUT BY LEARNED COUNSEL FOR THE REVENUE THAT THE TRIBUNAL HAS NOT CONSIDERED ALL THE ASPECTS BEFORE HOLDING THAT IT WAS NOT ESTA BLISHED THAT THE ASSESSEE INTENDED TO TRADE IN HOUSE SITES. WE ARE OF THE VIEW THAT TH IS DOES NOT VITIATE THE CONCLUSION REACHED BY THE TRIBUNAL. IN THIS CONTENT. IT IS WOR THWHILE TO NOTICE THE PRINCIPLE LAID DOWN BY THE SUPREME COURT THAT THE REVENUE SHOULD E STABLISH BY POSITIVE EVIDENCE THAT THE PURCHASE AND SALE OF THE PROPERTY BY THE A SSESSEE WAS WITH THE VIEW TO EARN PROFITS THROUGH TRADING TRANSACTION. THE CIRCUMSTAN CES RELIED ON BY LEARNED COUNSEL FOR THE REVENUE ONLY THROW SUSPICION ON THE ASSESSE E'S ACT OF PURCHASING A PROPERTY WHICH DID NOT IMMEDIATELY YIELD ANY INCOME. BUT THE RE ARE NO MATERIALS TO FURTHER PROVE THAT THE ASSESSEE INTENDED TO INDULGE IN A TR ADING ACTIVITY. SIMILARLY, FROM THE FACT THAT THE ASSESSEE CONVERTED THE PROPERTY INTO SMALL HOUSE SITES AND AFTER LEAVING SPACE FOR ROADS SOLD THE REST OF THE PLOTS, THE REV ENUE WANTED TO DRAW AN INFERENCE THAT THE ASSESSEE, EVEN AT THE TIME OF PURCHASE OF THE PROPERTY, HAD THIS IDEA OF INDULGING IN AN ADVENTURE IN THE NATURE OF TRADE TO MAKE MAXIMUM PROFITS. SUPPOSE AN OWNER OF A PROPERTY FINDS THAT THE SALE OF THE E NTIRE PROPERTY IN ONE LOT IS NOT BENEFICIAL AND INSTEAD ENTERS INTO AN AGREEMENT WIT H A CIVIL ENGINEER AND PLANS TO PUT UP FLATS AND AFTER RETAINING A PORTION FOR HIS OWN REQUIREMENT, SELLS THE EXCESS FLOORS TO THIRD PARTIES, CAN IT BE SAID THAT HE HAS PLUNGE D INTO THE WATERS OF TRADE TO MAKE HUGE PROFITS? IT MAY BE THAT FOR REALISING THE MAXI MUM PRICE, HE UNDERTAKES CERTAIN ACTS WHICH ANY OTHER OWNER WOULD UNDERTAKE; BUT THA T BY ITSELF WOULD NOT ESTABLISH THAT IN SUCH CASES, THE PERSON CONCERNED WOULD BE I NDULGING IN A TRADING ACTIVITY. IN THE ABOVE ILLUSTRATION, IF THE PERSON, INSTEAD OF P UTTING UP THE MULTI-STOREYED BUILDING IN HIS OWN PLOT, PURCHASES A PLOT AND WITH BORROWED FUNDS PUTS UP THE FLATS AND SELLS THEM, THEN IT CAN BE SAID THAT HE IS INDULGING IN A TRADING ACTIVITY. AS POINTED OUT BY THE SUPREME COURT IN SAROJ KUMAR MAZUMDAR V. CIT [1 959] 37 ITR 242, THE DIVIDING LINE BETWEEN THE TWO TYPES OF CASES IS VERY THIN. T HE DECISION OF THIS COURT IN CIT V. KASTURI ESTATES (P.) LTD. [1966] 62 ITR 578, HAS ON LY REITERATED THE POSITION THAT IN ORDER TO HOLD THAT AN ACTIVITY IS IN THE NATURE OF AN ADVENTURE, THERE MUST BE POSITIVE MATERIALS TO PROVE THAT THE ASSESSEE INTENDED TO TR ADE IN SUCH AN ACTIVITY AND, IN THE ABSENCE OF EVIDENCE, THE SALE OF IMMOVABLE PROPERTY CONSISTING OF LAND COULD GIVE RISE ONLY TO CAPITAL ACCRETIONS. PLOTTING AND DEVELOPING OF LAND BEFORE SALE BY ITSE LF WOULD NOT ESTABLISH THAT THE PERSON CONCERNED WAS INDULGING IN A TRADING ACTIVIT Y. IT MAY BE THAT FOR REALIZING THE MAXIMUM PRICE, HE UNDERTAKES CERTAIN ACTS WHICH ANY OTHER OWNER WOULD UNDERTAKE. ITA 659/JP/2017_ SURAJ MAL VS ITO 19 REVENUE HAS TO ESTABLISH BY POSITIVE EVIDENCE THAT THE PURCHASE AND SALE OF PROPERTY WAS WITH THE VIEW TO EARN PROFITS THROUGH TRADING T RANSACTION. IN THE PRESENT CASE, CIRCUMSTANCES RELIED ON BY REVENUE ONLY THROW SUSPI CION ON THE ASSESSEES ACT OF PURCHASING A PROPERTY WHICH DID NOT IMMEDIATELY YIE LD INCOME, BUT THERE ARE NO MATERIALS TO FURTHER PROVE THAT ASSESSEE INTENDED T O INDULGE IN A TRADING ACTIVITY. TRANSACTION OF ASSESSEE IN PURCHASING AND SELLING T HE PROPERTY DID NOT, THEREFORE, AMOUNT TO AN ADVENTURE IN THE NATURE OF TRADE. B. NARASIMHA REDDY VS. ITO (1994) 48 TTJ 329/47 ITD 398 (HYD) (TRIB.) THE ASSESSEE WAS NEVER A TRADER OR BUSINESSMAN. PRE VIOUSLY HE DID NOT CARRY ON ANY BUSINESS MUCH LESS BUSINESS IN REAL ESTATE. HE DID NOT PURCHASE ANY LAND OR DID NOT SELL ANY LAND. HE WAS PURELY AN AGRICULTURIST. THE LAND IN QUESTION REPRESENTS HIS ANCESTRAL PROPERTY. HE THOUGHT THAT HE WOULD PROFIT VERY MUCH OR WOULD GET MAXIMUM BY PLOTTING OUT THE LAND AND GETTING A LAY OUT APPROVE D BY THE GRAM PANCHAYAT AND, THEREFORE, HE GOT SANCTIONED THE LAY OUT FROM THE G RAM PANCHAYAT. HE CONVERTED THE LAND INTO PLOTS AND SOLD THEM AS HOUSE SITES. HE WA NTED TO TAKE ALL ADVANTAGES DUE TO FAST URBANIZATION OF THE AREA. CAN IT BE SAID UNDER THOSE CIRCUMSTANCES THAT THE ASSESSEE IS CARRYING ON AN ADVENTURE IN THE NATURE OF TRADE, SIMPLY BECAUSE HE WANTED TO REALIZE THE MAXIMUM OUT OF THE SALE OF HI S ANCESTRAL LAND? WITHOUT ANY RESERVATION, ONE COULD COME TO THE CONCLUSION THAT THE ASSESSEE NEVER INTENDED TO DO ANY BUSINESS IN THE REAL ESTATE AND THAT THE SALE O F PLOTS OF LAND HELD BY HIM DOES NOT AMOUNT TO AN ADVENTURE IN THE NATURE OF TRADE. THER E IS NO MATERIAL, LET ALONE POSITIVE MATERIAL, PRODUCED BY THE REVENUE TO SHOW THAT THE ASSESSEE INTENDED TO CARRY ON TRADE IN REAL ESTATE. THEREFORE, THE ORDINARY PRESU MPTION THAT SALE OF IMMOVABLE PROPERTY WOULD GIVE RISE ONLY TO CAPITAL ACCRETION WOULD BE APPLIED TO THE CASE OF THE ASSESSEE. THIS IS A CLEAR CASE WHERE THE ASSESSEE T RIED TO OBTAIN MAXIMUM PRICE FOR HIS LAND. INTENDMENTS TO PLOT OUT AND GET THE LAY OUT A PPROVED BY THE GRAM PANCHAYAT ARE ONLY IN THAT DIRECTION. THERE IS, THEREFORE, NO HESITATION TO COME TO THE CONCLUSION THAT THE WHOLE OF THE TRANSACTIONS WOULD ONLY AMOUN T TO ENDEAVOR TO REALIZE THE MAXIMUM FROM OUT OF THE CAPITAL ASSET WHICH WOULD G IVE RISE ONLY TO CAPITAL GAINS TAX. IN VIEW OF ABOVE, EVEN IF IT IS HELD THAT INCOME FR OM SALE OF THE AGRICULTURAL PLOTS IS LIABLE FOR TAX, IT CAN BE TAXED ONLY AS A CAPITAL G AIN AND NOT AS A BUSINESS INCOME. 3. THE ASSESSEE AFTER SALE OF THE AGRICULTURAL LAND AS PLOTS INVESTED THE SALE PROCEEDS IN PURCHASE OF ANOTHER AGRICULTURAL LAND. THESE LAN DS WERE PURCHASED ON 09.08.2007 FOR RS.22 LACS IN THE NAME OF MINOR SONS (PB 28-36) AND ON 21.08.2007 FOR RS.5,50,000/- IN HIS OWN NAME (PB 37-41). THE I NVESTMENT IS MADE OUT OF THE WITHDRAWAL FROM BANK OF RS.26 LACS ON 12.07.2007 AN D RS.7,60,000/- ON ITA 659/JP/2017_ SURAJ MAL VS ITO 20 21.08.2007 (PB 24-26). THUS, WHEN THE INVESTMENT IS MADE IN THE NAME OF MINOR SONS AND IN OWN NAME FROM THE SALE PROCEEDS OF THE AGRICULTURAL PLOTS, THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 54B. FURTHER , THE OBSERVATION OF AO THAT THE LAND SOLD WAS NOT USED FOR AGRICULTURAL PURPOSE IN THE PRECEDING 2 YEARS FROM THE DATE OF TRANSFER IS INCORRECT IN AS MUCH AS FROM TH E KHASRA GIRDAWARI IT IS EVIDENT THAT THE LAND WAS USED FOR AGRICULTURAL PURPOSE IN THE PRECEDING TWO YEARS. 4. WITHOUT PREJUDICE TO ABOVE, EVEN IF IT IS HELD T HAT ASSESSEE HAS ENTERED INTO AN ADVENTURE IN THE NATURE OF TRADE, ITS TAXABILITY WO ULD BE GOVERNED BY SECTION 45(2) IN AS MUCH AS IT WOULD BE A CASE OF CONVERSION OF A GRICULTURAL LAND INTO STOCK IN TRADE. AS PER THIS SECTION, PROFITS & GAINS ARISING FROM THE TRANSFER BY WAY OF CONVERSION BY THE OWNER OF A CAPITAL ASSET INTO OR ITS TREATMENT BY HIM AS STOCK IN TRADE OF BUSINESS CARRIED ON BY HIM, SHALL BE CHARG EABLE TO TAX AS INCOME OF THE PREVIOUS YEAR IN WHICH SUCH STOCK IN TRADE IS SOLD AND FOR THE PURPOSE OF SECTION 48, THE FMV OF THE ASSET ON THE DATE OF SUCH CONVER SION SHALL BE DEEMED TO BE FULL VALUE OF CONSIDERATION RECEIVED AS A RESULT OF THE TRANSFER OF CAPITAL ASSET. THEREFORE, FMV OF THE ASSET ON THE DATE OF CONVERSI ON AS REDUCED BY THE INDEXED COST OF ACQUISITION IS REQUIRED TO BE ASSESSED UNDE R THE HEAD CAPITAL GAIN AND EXCESS OVER SUCH FMV IS REQUIRED TO BE ASSESSED AS BUSINESS INCOME. THE LD. CIT(A) HAS NOT CONSIDERED THE PROVISION OF THIS SEC TION AND THEREFORE, THE ENTIRE INCOME ASSESSED BY HIM AS BUSINESS INCOME IS NOT AS PER LAW. FURTHER, ONCE HE CONSIDERED THE INCOME AS BUSINESS INCOME, HE CANNOT SUBSTITUTE THE ACTUAL SALES CONSIDERATION BY THE VALUE ADOPTED/ASSESSED U/S 50C AS HELD BY MADRAS HIGH COURT IN CASE OF CIT VS. THIRUVENGADAM INVESTMENTS (P) LTD. 320 ITR 345. FURTHER, THE LONG TERM CAPITAL GAIN ARISING AT THE TIME OF C ONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE WOULD BE ELIGIBLE FOR DEDUCTION U/S 54B. IN VIEW OF ABOVE, THE INCOME ASSESSED BY LD. CIT(A ) AS BUSINESS INCOME BE DIRECTED TO BE DELETED OR ALTERNATIVELY, BE MODIFIE D AS EXPLAINED IN PARA NO.4 ABOVE. ITA 659/JP/2017_ SURAJ MAL VS ITO 21 9. ON THE OTHER HAND, THE LD. DR HAS RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 10. THE BENCH HAVE HEARD BOTH THE SIDES ON THIS ISSU E, PERUSED THE MATERIAL AVAILABLE ON THE RECORD AND ALSO CONSIDERE D THE CASE LAWS RELIED UPON. THE ASSESSEE HAS SOLD RESIDENTIAL PLOT ON H IS AGRICULTURAL LAND. THE SAME HAS BEEN TREATED BY THE LD. CIT(A) AS ADVENTUR E IN NATURE OF TRADE AND TAXED THE RECEIPT IN THE HANDS OF THE ASSESSEE UNDER THE HEAD PROFIT AND GAIN IN BUSINESS AND PROFESSION. WE HOLD THAT THE ASSESSEE HAS SOLD SMALL RESIDENTIAL PLOTS TO VARIOUS PERSONS. THE SALE OF THESE RESIDENTIAL PLOTS AT HIS AGRICULTURAL LAND WAS DEFINITELY AN ACT OF BU SINESS AND AN ADVENTURE IN THE NATURE OF TRADE. THE ANNEXURE TO THE SALE D EED PLACED IN THE PAPER BOOK CLEARLY ESTABLISHES THAT THE ASSESSEE HAS SOLD THE RESIDENTIAL PLOTS OF LAND AFTER DEVELOPING ROADS ETC. THUS, THIS ESTABLI SHES SALE OF THE PLOTS ON THIS LAND AND IT WAS AN ACT OF ADVENTURE IN NATURE O F TRADE. HOWEVER, WE AGREE WITH THE PLEADINGS OF THE LD. AR THAT ONCE THI S WAS AN ADVENTURE IN NATURE OF TRADE AND INCOME IS TO BE TAXED AS PER TH E PROVISIONS OF SECTION 45(2) OF THE ACT. THE CAPITAL GAIN SHALL BE WORKED O UT ON THE DATE OF CONVERSION OF AGRICULTURAL LAND TO THE STOCK IN TR ADE AND THEN ONLY WORK OUT THE PROFIT AND GAIN OF BUSINESS. THEREFORE, CONSIDER ING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES, THE ISSUE IS RESTORED BACK TO THE FILE OF THE ITA 659/JP/2017_ SURAJ MAL VS ITO 22 ASSESSING OFFICER. THE ASSESSING OFFICER WILL INVOKE THE PROVISIONS OF SECTION 45(2) OF THE ACT AND DECIDE AS PER LAW. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 01/05/2018. SD/- SD/- FOT; IKY JKO HKKXPAN (VIJAY PAL RAO) (BHAGCHAND) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 01 ST MAY, 2018 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- SHRI SURAJ MAL, ALWAR. 2. IZR;FKHZ @ THE RESPONDENT- THE ITO, WARD 1(3), ALWAR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 659/JP/2017) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR