Marudhar Hotels Pvt. Ltd., JODHPUR V. Addl. CIT, JODHPUR

ITA 75/JODH/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1621 (ITAT-JODHPUR)
• Duration Of Justice: 1 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 10-12-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 15-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K KHANDELWAL
• Keywords: Capital asset; Gift; Business income; Depreciation; Deemed to accrue or arise in india; Question of law; Cost of acquisition; Fair market value; Onus to prove; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K.SAINI, ACCOUNTANT MEMBER ITA NOS. 75 TO 77/JU/2012 ASSESSMENT YEARS: 2006-07 TO 2008-09 MARUDHAR HOTELS P. LTD VS. THE ADDL CIT UMAID BHAWAN PLACE RANGE - 1 JODHPUR JODHPUR PAN NO. AABCM 0773 G (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY VOHRA DEPARTMENT BY : SHRI A.K. KHANDELWAL DATE OF HEARING : 10.12.2012 DATE OF PRONOUNCEMENT : 15.02.2013 ORDER PER BENCH : THE ABOVE CAPTIONED APPEALS HAVE BEEN FILED BY TH E ASSESSEE-COMPANY FOR A.YS. 2006-07, 2007-08 AND 200 8-09. IN ALL THESE APPEALS, ALMOST IDENTICAL ISSUES ARE INVO LVED. THEREFORE, FOR THE SAKE OF CONVENIENCE AND BREVITY, WE ARE DECIDING THEM BY THIS COMMON ORDER. THE GROUNDS RAI SED IN 2 ALL THE APPEALS ARE ALMOST COMMON, EXCEPT FOR THE A MOUNTS OF ADDITION. THE A.Y. 2008-09 BEING THE BASE YEAR WE W OULD LIKE TO DISCUSS AND NARRATE THE FACTS OBTAINING IN ITA N O. 77/JODHPUR/2012. ITA NO. 77/JU/2012 [A.Y. 2008-09] 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS ENGAGE D IN THE HOTEL BUSINESS. THE ASSESSEE-COMPANY WAS INCORPORATED ON 26.3.1971. EARLIER UMAID BHAWAN WAS OWNED BY THE PARTNERSHIP F IRM CONSTITUTED OF THE APPELLANT COMPANY AND MAHARAJA G AJ SINGHJI. ON DISSOLUTION OF THE PARTNERSHIP ON 31.07.1973, UM AID BHAWAN PALACE CAME TO THE SHARE OF THE APPELLANT COMPANY. THE ASSESSEE-COMPANY ENTERED INTO A DEVELOPMENT AGREEME NT ON 20.09.2001 WITH M/S ESS GEE REAL ESTATE DEVELOPERS (ESS GEE) TO DEVELOP A RESIDENTIAL COLONY NAMED AS THE UMAID HER ITAGE. AS PER THIS AGREEMENT, THE ASSESSEE-COMPANY WAS ENTITL ED TO RECEIVE A PERCENTAGE OF SALE CONSIDERATION BASED ON THE RAT E OF LAND WHICH THE SAME HAS TO BE SOLD. THE A.O. HAS COMPUT ED THE AMOUNT RECEIVABLE BY THE ASSESSEE-COMPANY FROM THE SALE OF 3 PLOTS DURING F.Y. 2007-08 RELEVANT TO A.Y. 2008-09. AS PER THIS DEVELOPMENT AGREEMENT, RS. 34,61,32,307/- HAS BEEN SHOWN AS TOTAL SALE CONSIDERATION FOR THIS YEAR IN THE RETUR N OF INCOME [ROI] FILED FOR THE YEAR FOR THE PURPOSE OF COMPUTA TION OF LONG TERM CAPITAL GAIN/LOSS [LTCG, FOR SHORT]. THE ASS ESSEE COMPANY HAS COMPUTED THE LONG TERM CAPITAL LOSS IN THE FOLLOWING MANNER: SALES CONSIDERATION (1,01,301 SQYD BEING 40 PLOTS) 34,61,32,307 LESS: (I) INDEXED COST OF ACQUISITION 1.01.301 SQV X RS. 250X55 1 13,95,42,128 100 (II) INDEXED COST OF IM PROVEMENT OF DEVELOPED LAND 2.03.881 SQY X R S. 250X551 28,08,46,078 100 LONG TERM CAPITAL LOSS 7,42,55,899 SIMILAR CALCULATIONS WERE DONE IN RESPECT OF GAIN / LOSS UNDER THE HEAD CAPITAL GAINS FOR ASSESSMENT YEARS 2006-07 A ND 2007-08. 3. THE ASSESSEE HAS TAKEN THE VALUE OF LAND HELD AN D LAND USED FOR DEVELOPMENT AS ON 1.4.1981 AND HAS INDEXED IT TO F. Y. 2007-08. WHILE CALCULATING LTCG, THE COST OF ACQUISITION AS PER PROVISIONS OF LAW HAS BEEN CLAIMED AS DEDUCTION FROM THE SALE CON SIDERATION 4 RECEIVED. BECAUSE THE LAND WAS ACQUIRED IN THE YEAR 1971 AND, AS SUCH, THE FAIR MARKET VALUE [FMV, FOR SHORT] AS ON 1.4.1981 HAS BEEN ADOPTED AS A COST OF ACQUISITION OF THIS LAND. FOR DETERMINING THE COST OF ACQUISITION AS ON 1.4.1981, THE COMPANY HAS RELIED UPON A REPORT OBTAINED FROM THE APPROVED VALUER, WHO HAS T AKEN THE VALUE OF LAND IN QUESTION AT RS. 250 PER SQ YD, AS ON 1. 4.1981. THE APPROVED VALUER HAS TAKEN THE TOTAL VALUE OF LAND M EASURING 110 ACRES [= 5,32,400 SQ YD, AS ONE ACRE IS = 4840 SQ Y D]. WHEN THE A.O. DEMANDED FROM THE ASSESSEE-COMPANY THE PLOT-WISE DE TAILS SOLD DURING THE YEAR, IT WAS REPLIED THAT THE DEVELOPER HAS SOLD AS MANY AS 40 PLOTS QUA WHICH THE LAND TOTALING TO 101301 SQ Y D HAS BEEN SOLD, AND AFTER RETAINING ITS SHARE, THE DEVELOPER HAS RE MITTED A SUM OF RS. 34,61,32,307/- TO THE ASSESSEE-COMPANY AND THAT THI S AMOUNT HAS BEEN CONSIDERED FOR THE PURPOSES OF CALCULATING LTC G. ACCORDING TO THE A.O., THE LAND IS BEING DEVELOPED ON A REGULAR BASIS AND A COLONY IS BEING DEVELOPED WITH FACILITIES LIKE CLUB-HOUSE, PARKS, ROADS, COMMON-USE AREA AND SUCH OTHER AMENITIES WHICH ARE REQUIRED IN A RESIDENTIAL COLONY. THEREFORE, THE ASSESSEE WAS AS KED TO EXPLAIN VIDE LETTER DATED 8.12.2010, IN THE GIVEN FACTS AND CIR CUMSTANCES OF THE CASE, TO EXPLAIN AS TO WHY THE ACTIVITIES OF SALE O F PLOTS SHOULD NOT BE TREATED AS ADVENTURE IN THE NATURE OF TRADE AND A S TO WHY NOT THE 5 ENTIRE RECEIPT SHOULD BE TAXED UNDER THE HEAD BUS INESS INCOME. IN RESPONSE TO THIS, THE ASSESSEE REPLIED VIDE LETT ER DATED 14.12.2010 AS UNDER: 'YOUR HONOUR THE ASSESSES COMPANY IS RUNNING HOTELS AND RESTAURANTS AS ITS BUSINESS AND THE INCOME DERIVED FROM SUCH ACTIVITIES HAS BEEN SHOWN UNDER THE HEAD INCOM E FROM BUSINESS OR PROFESSION AS PER THE PROVISIONS O F LAW. THE ASSESSEE COMPANY OWNS THE PROPERTY COMMONLY KNOWN AS UMAID BHAWAN PALACE, JODHPUR AND AT THE FOOTHILL OF THE HOTEL PROPERTY SOME OPEN LAND WAS AVAILABLE, WHICH WAS DECIDED TO BE SOLD. FOR THIS PURPOSE AN AGREEMENT WAS ENTERED WITH M/S ESS GEE R EAL ESTATE DEVELOPERS PVT. LTD. WHO DEVELOPED THE LAND AND AS AGREED THEY RETAINED A PART OF SALE CONSIDERATION O F THE LAND TOWARDS DEVELOPMENT CHARGES. THE BUSINESS OF T HE COMPANY WAS NOT TO DEAL OR CARRY ON THE BUSINESS OF REAL ESTATE. IT IS ONLY A SURPLUS LAND WHICH WAS DECIDED TO BE SOLD. THE ASSESSEE COMPANY DID NOT DEVELOP THE LAND AND THIS JOB WAS ASSIGNED TO A PROFESSIONAL COMPANY WHO IS EXPERT IN THAT FIELD. AS THE LAND OWNED IN T HE ASSESSEE COMPANY WAS A LONG TERM CAPITAL ASSET HENC E THE INCOME DERIVED FROM SALE OF THAT LAND HAS BEEN CORRECTLY SHOWN UNDER THE HEAD CAPITAL GAINS. YOUR PREDECESSOR IN YOUR OFFICE HAS CORRECTLY ASSESSED T HE SAME AT THE TIME OF ORIGINAL ASSESSMENT U/S. 143(3) OF T HE INCOME TAX ACT, 1961. AS THE ASSESSEE COMPANY IS NO T A DEALER OR DEVELOPER OF REAL ESTATE HENCE THE INCOME 6 RECEIVED FROM SALE OF LAND IS PROPERTY ASSESSABLE U NDER THE HEAD CAPITAL GAINS. HOWEVER IT IS SUBMITTED THAT IF YOUR HONOUR DECIDES TO TAX THIS INCOME (ALTHOUGH WE DO NOT AGREE TO IT) FROM S ALE OF LAND AS BUSINESS INCOME FOR THAT PURPOSE AS PER THE PROVISIONS OF THE LAW THE VALUE OF LAND ON THE DATE OF ITS CONVERSION FROM STOCK IN TRADE TO BUSINESS ASSET HA S TO BE TAKEN AND THE COST OF ACQUISITION OF THE SAID LA ND, WHICH IS FAIR MARKET VALUE AS ON 01/04/1981 AFTER INDEXATION IS TO BE DEDUCTED AND BALANCE WOULD BE T HE LONG TERM CAPITAL GAINS. THEREAFTER FROM THE SALE CONSIDERATION THE VALUE OF LAND, THE VALUE OF LAND ON THE DATE OF ITS CONVERSION FROM STOCK IN TRADE TO BUSIN ESS ASSET IS TO BE DEDUCTED AND BALANCE WOULD BE THE IN COME FROM BUSINESS. ALTHOUGH WE DO NOT AGREE TO SUCH PROPOSITION EVEN IF THAT THE LAND IS CONVERTED INTO STOCK IN TRADE AS ON 01/04/2005 THE SAME IS TO BE TAKEN A 30 00/- PER SQ. YD. WHICH WAS THE RATE AS PER THE SUB- REGISTRAR'S ORDERS AND THE SITUATION WOULD BE AS UN DER:- V VALUE OF LAND 101043 SQ. YARDS AS ON 01/04 /2007 IOI043-X5,400/- 54.56.32.200/ - LESS:- COST OF ACQUISITION VALUE AS ON 01/04/1981 101043-X250X551 I3,91,86,732/- INCOME FROM LONG TERM CAPITAL GAINS 40,64,45,468/ H. SALE CONSIDERATION RECEIVED FOR 101043 SQ. YARD S 34.6I.32.307/- LESS: VALUE ON CONVERSION FROM C'APITAL ASSETS TO S TOCK IN TRADE ON 01/04/2007 AS MENTIONED ABOVE 54,56,32,200/- BUSINESS LOSS 19,94,99,893/- 7 4. BUT, AFTER REFERRING TO CLAUSES OF MEMORANDUM OF ASSOCIATION OF THIS COMPANY, AND ALSO RELYING ON VA RIOUS DECISIONS, THE A.O. HAS FINALLY CONCLUDED THAT THE ACTIVITIES OF THE ASSESSEE-COMPANY, IN GETTING AND SELLING THE LA ND DEVELOPED THROUGH DEVELOPER AND THEREAFTER TAKING ITS SHARE A S PER DEVELOPER-AGREEMENT, IS ADVENTURE IN THE NATURE OF TRADE. WHILE COMING TO THIS CONCLUSION, THE A.O. HAS ALSO OBSERVED THAT THE ASSESSEE HAS DECLARED THE LAND UNDER THE HEAD FIXED ASSET IN ITS BALANCE-SHEET, BUT ITS INITIAL INTENTION AND ACTUAL CONDUCT SHOWS THAT THIS INCOME IS A BUSINESS INCOME. THUS, BY TREATING THE INCOME UNDER THE HEAD INCOME FROM BUSINESS, I NSTEAD OF INCOME UNDER THE HEAD CAPITAL GAINS, THE A.O. HAS HELD THAT THE LAND IN QUESTION IS A PART OF STOCK IN TRADE OF THE ASSESSEE- COMPANY FROM THE VERY BEGINNING. THE A.O. HAS ALSO DISALLOWED INTEREST U/S 36(III) AMOUNTING TO RS. 60 LAKHS BEIN G DEEMED AMOUNT OF INTEREST ON SECURITY DEPOSIT OF RS. 5 CRO RES AND RS. 49,79,418/- FOR ADVANCES GIVEN TO SHRI GAJ SINGH JI , JODHPUR, WHICH ARE TREATED AS ADVANCES OUT OF BORROWED FUNDS AND NOT FROM ITS OWN FUNDS. THE FACTS IN ALL OTHER YEARS A RE ALMOST IDENTICAL EXCEPT FOR THE FIGURE OF INCOME COMPUTED OR THE AMOUNT OF DISALLOWANCE. THESE ADVANCES HAVE BEEN CO NFIRMED BY 8 THE LD. CIT(A) AS WELL VIDE HIS ORDER DATED 26.12.2 011. THE ASSESSEE IS AGGRIEVED AND HAS FILED APPEAL FOR ALL THE THREE ASSESSMENT YEARS BEFORE THE TRIBUNAL. 5. GROUNDS RAISED IN A.Y. 2008-09 ARE COMMON IN OT HER A.YS. I.E. 2006-07 AND 2007-08. IN A.Y. 2008-09, THE FOLLOWIN G GROUNDS HAVE BEEN RAISED: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD. CIT(A) HAS ERRED :- 1. IN CONFIRMING THE ASSESSMENT ORDER PASSED U/S 1 43(3) OF IT ACT, 1961 AND FURTHER ERRED IN NOT HOLDING THE SAME TO BE, UNJUST, BAD IN LAW AND NOT BINDING ON THE APPELLANT AND ALSO IN NOT FOLLOWING PROVISIONS OF LAW. 2. IN UPHOLDING LD. AO'S FINDING THAT APPELLANT IS CAR RYING ON BUSINESS OF DEALER OR DEVELOPER OF REAL ESTATE S INCE ITS INCORPORATION AND IN NOT CONSIDERING AND DISREGARDI NG THE FACT THAT BUSINESS OF APPELLANT COMPANY IS OF OPERA TING HOTELS AND RESTAURANTS AND FURTHER ERRED IN TAXING INCOME RECEIVED FROM SALE OF OPEN LAND AS INCOME FROM BUSI NESS OR PROFESSION IN PLACE OF TAXING THE SAME UNDER THE HE AD LONG TERM CAPITAL GAINS AS DECLARED BY THE APPELLAN T AND NOT FOLLOWING THE PROVISIONS OF LAW AND CITATIONS O F HON'BLE JURISDICTIONAL HIGH COURT ON THE SUBJECT. 9 3. IN UPHOLDING LD. AO'S DETERMINATION OF BUSINESS INC OME FROM SALE OF PLOTS IN UMAID HERITAGE AT RS. 34,55,5 7,898/- IN PLACE OF RS. 7,42,55,8997- AS DECLARED BY APPELLANT AS LOSS UNDER THE HEAD CAPITAL GAINS AND FURTHER ERRED IN N OT FOLLOWING PROVISION OF LAW. 4. IN NOT CONSIDERING THE DETERMINATION OF AREA LEFT FOR DEVELOPMENT AT 42,564 SQ. YDS IN PLACE OF 2,03,381 SQ. YDS. LEFT BY THE APPELLANT FOR DEVELOPMENT OF UMAID HERI TAGE COLONY AND FURTHER ERRED IN DETERMINING COST OF ACQ UISITION OF LAND AT RS. 4.29 PER SQ. YD IN PLACE OF RS. 250/- P ER SQ. YD. AS DETERMINED BY THE APPROVED VALUER AS ON 01/04/1981. 5. IN UPHOLDING DISALLOWANCE OF INTEREST U/S. 36(L)(II I) AMOUNTING TO RS. 60,00,000/- BEING DEEMED AMOUNT OF INTEREST ON SECURITY DEPOSIT OF RS. 5 CRORES AND RS . 49,79,4187- FOR ADVANCE GIVEN TO SHRI GAJ SINGH JOD HPUR AND IN HOLDING THAT THESE ADVANCES HAVE BEEN GIVEN OUT OF THE BORROWED FUNDS AND NOT FROM THE OWN FUNDS AND FURTH ER HOLDING THAT ADVANCES WERE OUT OF INTERMINGLED FUND S THEREBY NOT FOLLOWING PROVISIONS OF LAW ON THE SUB JECT. 6. IN NOT ACCEPTING DECLARED SETOFF OF LOSS AND DEPREC IATION AS CLAIMED BY THE APPELLANT IN COMPUTATION OF INCOME A S PER THE PROVISIONS OF LAW. 6. GROUND NO. 1 IS GENERAL IN NATURE AND DOES NOT R EQUIRE ANY SPECIFIC ADJUDICATION. 10 7. GROUND NOS. 2 TO 4 ARE IN RESPECT THE ISSUE OF H EAD OF TAXABILITY OF INCOME, WHETHER BUSINESS INCOME OR INCOME FRO M CAPITAL GAIN. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAR EFULLY PERUSED THE ENTIRE MATERIAL ON RECORD. IT WAS ARGUED ON BE HALF OF THE APPELLANT BY THE LD. A.R. SHRI AJAY VOHRA, LD. ADVO CATE THAT UMAID BHAWAN WAS OWNED BY THE PARTNERSHIP FIRM CONSTITUTE D OF THE ASSESSEE-COMPANY AND MAHARAJA GAJ SINGH JI. THIS PARTNERSHIP-FIRM WAS DISSOLVED ON 31.07.1973 AND UMAID BHAWAN PALACE CAME TO THE SHARE OF THE APPELLANT COMPANY. IN THIS COMPANY, MA HARAJA GAJ SINGHJI HAS 90.38% SHARES. AT THE TIME OF DISSOLUT ION OF THE FIRM, THE VALUE OF THE PROPERTY WAS ADOPTED AT RS. 57,20,000, INCLUDING THE VALUE OF PALACE BUILDING, FURNITURE AND FIXTURES AN D LAND ADMEASURING 13,31,778 SQ. YDS, OUT OF WHICH THE PALACE BUILDING OCCUPIED LAND TO THE EXTENT OF 22,445 SQ. YDS. ONLY. THEREAFTER, TH E APPELLANT IS ENGAGED IN RUNNING A HOTEL IN UMAID BHAWAN PALACE. AS A RESULT OF DECLINING BUSINESS WHICH RESULTED IN HEAVY LOSSES A ND WITH A VIEW TO RAISE FUNDS FOR RENOVATION/ REFURNISHING OF THE HOT EL PROPERTY, THE ASSESSEE-COMPANY ENTERED INTO DEVELOPMENT AGREEMENT DATED 20.09.2001 WITH M/S ESS GEE REAL ESTATE DEVELOPERS (HEREINAFTER REFERRED TO AS 'ESS GEE'), TO DEVELOP AND SELL LAND ADMEASURING 11 4,84,000 SQ. YDS., OUT OF THE SURPLUS LAND, WHICH W AS NOT REQUIRED FOR RUNNING THE HOTEL. AS PER THIS AGREEMENT, ESS GEE A S LICENSEE OF THE ASSESSEE-COMPANY WAS TO DEVELOP THE LAND AND INCUR EXPENDITURE IN RESPECT THEREOF AND THE APPELLANT AS LAND OWNER, WA S ENTITLED TO RECEIVE PERCENTAGE OF SALE CONSIDERATION OF PLOTS S OLD BY ESS GEE. THE DEVELOPED PLOTS WERE TO BE SOLD UNDER TRIPARTITE AR RANGEMENT BETWEEN THE APPELLANT, ESS GEE AND THE BUYER. AS A RESULT, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE-COMPANY RECE IVED SALE CONSIDERATION OF RS.34,61,32,307 UNDER THE HEAD 'CA PITAL GAINS'. THE ASSESSEE-COMPANY DETERMINED LOSS OF RS.7,42,55,899 DISCUSSED IN PARA 2 OF THIS ORDER. 9. SIMILAR CALCULATIONS WERE DONE IN RESPECT OF GAI NS/LOSS UNDER CAPITAL GAIN FOR A.YS. 2006-07 AND 2007-08. HOWEVE R, THE A.O. HELD THE ACTIVITY OF THE ASSESSEE AS ADVENTURE IN THE NA TURE OF TRADE AND HAS COMPUTED THE INCOME UNDER THE HEAD BUSINESS. FOR COMING TO THE ABOVE CONCLUSION, THE A.O. HAS CONSIDERED THE F OLLOWING ASPECTS: A) THE MEMORANDUM OF ASSOCIATION ('MOA') REFLECTED THE INTENTION OF THE APPELLANT COMPANY TO ENTER INTO REAL ESTATE BUS INESS; B) LAND WAS BEING DEVELOPED BY THE APPELLANT ON REGULA R BASIS AND C) THE APPELLANT WAS ACTIVELY INVOLVED IN SALE OF EACH PLOT SINCE THE 12 APPELLANT WAS REQUIRED TO SIGN EACH SALE DEED. 10. ACCORDINGLY, THE A.O. HAS COMPUTED THE INCOME O F THE ASSESSEE OF THIS YEAR AS UNDER: V VALUE OF LAND 101043 SQ. YARDS AS ON 01/04 /2007 IOI043-X5,400/- 54.56.32.200/ - I.ESS:- COST OF ACQUISITION VALUE AS ON 01/04/1981 101043-X250X551 I3,91,86,732/- INCOME FROM LONG TERM CAPITAL GAINS 40,64,45,468/ H. SALE CONSIDERATION RECEIVED FOR 101043 SQ. YARD S 34.6I.32.307/- LESS: VALUE ON CONVERSION FROM C'APITAL ASSETS TO S TOCK IN TRADE ON 01/04/2007 AS MENTIONED ABOVE 54,56,32,200/- BUSINESS LOSS 19,94,99,893/- 11. IN THE FIRST APPEAL, THE LD. CIT(A) HAS ALSO CO NFIRMED THE ORDER OF THE A.O. IN TREATING THE TRANSACTION OF SA LE OF PLOTS AS ADVENTURE IN THE NATURE OF TRADE. 12. THE LD. A.R. HAS TAKEN US THROUGH VARIOUS JUDIC IAL DECISIONS RENDERED BY COURTS/TRIBUNALS TO BRING HOME THE FACT THAT THE ACTIVITIES DONE BY THE ASSESSEE-COMPANY ARE NOT IN THE NATURE OF BUSINESS BUT IN THE GIVEN FACTS AND CIRCUMSTANCES O F THE CASE, IT HAS DERIVED ONLY CAPITAL GAINS/LOSS ON ALL TRANSACT IONS SO DONE 13 EVEN UNDER THE SAID DEVELOPMENT AGREEMENT. IN TH IS REGARD IT HAS BEEN SUBMITTED THAT IT IS SETTLED LAW THAT FOR THE PURPOSES OF ASSESSABILITY OF PROFITS DERIVED FROM SALE OF ANY A SSET, IT IS PREDOMINANTLY THE INTENTION OF THE ASSESSEE WHICH I S RELEVANT. THE INTENTION OF THE ASSESSEE IS TO BE ASCERTAINED FROM THE FACTS OF EACH CASE AND THE ATTENDANT CIRCUMSTANCES. THE ISSUE WHE THER AN ASSET IS HELD BY AN ASSESSEE AS 'INVESTMENT' OR AS 'STOCK IN TRADE' AND WHETHER PROFIT DERIVED FROM THE SALE OF SUCH ASSET IS ASSESSABLE AS 'CAPITAL GAINS' OR 'BUSINESS INCOME' DEPENDS UPON T HE INTENTION OF THE ASSESSEE WHICH, INTER ALIA, IS TO BE ASCERTAINE D PREDOMINANTLY FROM THE FOLLOWING FACTS: A) WHAT WAS THE OBJECTIVE OF ACQUIRING THE ASSET? WHET HER OBJECTIVE WAS TO ACQUIRE ASSET AS CAPITAL ASSET/ INVESTMENT AND ENJOY INCOME THEREFROM/ EXPLOIT THE SAME FOR USE IN THE BUSINESS OR TO MAKE PROFIT BY BUYING AND SELLING? B) CLASSIFICATION IN THE FINANCIAL STATEMENTS WHETHE R CLASSIFIED AS CAPITAL ASSET/ INVESTMENT OR AS STOCK -IN-TRADE? C) THE PERIOD FOR WHICH ASSET IS HELD PRIOR TO SAL E. 13. OUR ATTENTION WAS ALSO INVITED TOWARDS VARIOUS DECISIONS. WE HAVE EXAMINED THEM AND WE DISCUSS THE SAME AS BELOW : 14 IN THE CASE OF G. VENKATESWAMI NAIDU AND CO. VS. CIT: 35 ITR 594 (SC), THE SUPREME COURT HELD AS UNDER: ' WHERE THE QUESTION IS WHETHER A TRANSACTION IS IN T HE NATURE OF TRADE EVEN IF THE CONCLUSION OF THE TRIBUNAL ABOUT THE CHARACTER OF THE TRANSACTION IS TREATED AS A CONCLU SION ON A QUESTION OF FACT, IN ARRIVING AT ITS FINAL CONCLUSI ON ON FACTS PROVED, THE TRIBUNAL HAS UNDOUBTEDLY AND NECESSARIL Y TO ADDRESS ITSELF TO THE LEGAL REQUIREMENTS ASSOCIATED WITH THE CONCEPT OF TRADE OR BUSINESS. THE FINAL CONCLUSION OF THE TRIBUNAL CAN, THEREFORE, BE CHALLENGED ON THE GROUN D THAT THE RELEVANT LEGAL PRINCIPLES HAVE BEEN MISAPPLIED BY T HE TRIBUNAL IN REACHING ITS DECISION ON THE POINT: AND SUCH A CHAL LENGE IS OPEN UNDER SECTION 66(1) BECAUSE IT IS A CHALLENGE ON A GROUND OF LAW. IF A PERSON INVESTS MONEY IN LAND INTENDING TO HOLD IT, ENJOYS ITS INCOME FOR SOME TIME, AND THEN SELLS IT AT A PR OFIT, IT WOULD BE A CLEAR CASE OF CAPITAL ACCRETION AND NOT PROFIT DERIVED FROM AN ADVENTURE IN THE NATURE OF TRADE. IN DECIDING THE CHARACTER OF SUCH TRANSACTIONS SEVERAL FACTORS ARE RELEVANT. WHETHER THE PURCHASER WAS A TRADER AND TH E PURCHASE OF THE COMMODITY AND ITS RESALE WERE ALLIED TO HIS USUAL TRADE OR BUSINESS OR INCIDENTAL TO IT? .... WHAT IS THE NATURE AND QUANTITY OF THE COMMODITY PURCHASED AND RESOLD? ... . DID THE PURCHASER BY ANY ACT SUBSEQUENT TO THE PURCHASE IMP ROVE THE QUALITY OF COMMODITY PURCHASED AND THEREBY MAKE IT MORE READILY RESALEABLE? ... WHERE THEY (ACTS OF PURCHAS E OR SALE) SIMILAR OPERATIONS USUALLY ASSOCIATED WITH TRADE OR BUSINESS? ... ARE THE TRANSACTIONS OF PURCHASE AND SALE REPEA TED' IN 15 REGARD TO THE PURCHASE OF THE COMMODITY AND ITS SUB SEQUENT POSSESSION BY THE PURCHASERS, DOES NOT ELEMENT OF P RIDE OF POSSESSION COME INTO THE PICTURE. A PERSON MAY PURC HASE A PIECE OF ART, HOLD IT FOR SOME TIME AND IF A PROFIT ABLE OFFER IS RECEIVED SELL IT. DURING THE TIME THAT THE PURCHASE R HAD ITS POSSESSION HE MAY BE ABLE TO CLAIM PRIDE OF POSSESS ION AND AESTHETIC SATISFACTION; AND IF SUCH A CLAIM IS UPHE LD THAT WOULD BE A FACTOR AGAINST THE TRANSACTION BEING IN THE NA TURE OF TRADE THE PRESENCE OF ALL THESE RELEVANT FACTORS MAY HELP THE COURT TO DRAW AN INFERENCE THAT A TRANSACTION IS IN THE N ATURE OF TRADE; BUT IT IS NOT A MATTER OF MERELY COUNTING TH E NUMBER OF FACTS AND CIRCUMSTANCES PRO AND CON; WHAT IS IMPORT ANT TO CONSIDER IS THEIR DISTINCTIVE CHARACTER. IN EACH CA SE, IT IS THE TOTAL EFFECT OF ALL RELEVANT FACTORS AND CIRCUMSTAN CES THAT DETERMINES THE CHARACTER OF THE TRANSACTION. WHERE THE PURCHASE HAS BEEN MADE SOLELY AND EXCLUSI VELY WITH THE INTENTION TO RESELL AT A PROFIT AND THE PURCHAS ER HAS NO INTENTION OF HOLDING THE PROPERTY FOR HIMSELF OR OT HERWISE ENJOYING OR USING IT.... THE PRESENCE OF SUCH AN IN TENTION IS NO DOUBT, A RELEVANT FACTOR AND UNLESS IT IS OFFSET BY THE PRESENCE OF OTHER FACTORS, IT WOULD RAISE A STRONG PRESUMPTI ON THAT THE TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE. EVEN SO, THE PRESUMPTION IS NOT CONCLUSIVE; AND IT IS CONCEIVABL E THAT, ON CONSIDERING ALL THE FACTS AND CIRCUMSTANCES IN THE CASE, THE COURT MAY, DESPITE THE ID INITIAL INTENTION, BE INC LINED TO HOLD THAT THE TRANSACTION WAS NOT AN ADVENTURE IN IE NAT URE OF TRADE'.' (EMPHASIS SUPPLIED) 16 14. THE APEX COURT IN THE CASE OF SUTLEJ COTTON MILLS SUPPLY AGENCY LTD: 100 ITR 706 (SC) HAS OBSERVED AS FOLLOWS : ' .......... WHERE THE PURCHASE OF ANY ARTICLE OR O F ANY CAPITAL INVESTMENT, FOR INSTANCE, SHARES, IS MADE WITHOUT T HE INTENTION TO RESELL AT A PROFIT, A RESALE UNDER CHANGED CIRCU MSTANCES WOULD ONLY BE A REALIZATION OF CAPITAL AND WOULD NOT STAM P THE TRANSACTION WITH A BUSINESS CHARACTER. WHERE A PURCHASE IS MADE WITH THE INTENTION OF RESA LE, IT DEPENDS UPON THE CONDUCT OF THE ASSESSEE AND THE CIRCUMSTAN CES OF THE CASE WHETHER THE VENTURE IS ON CAPITAL ACCOUNT OR IN THE NATURE OF TRADE. A TRANSACTION IS NOT NECESSARILY IN THE NATURE OF T RADE BECAUSE THE PURCHASE WAS MADE WITH THE INTENTION OF RESALE . A CAPITAL INVESTMENT AND RESALE DO NOT LOSE THEIR C APITAL NATURE MERELY BECAUSE THE RESALE WAS FORESEEN AND CONTEMPL ATED WHEN THE INVESTMENT WAS MADE AND THE POSSIBILITY OF ENHANCED VALUES MOTIVATED THE INVESTMENT.' (EMPHASIS SUPPLIED) 15. AGAIN, I N COMMISSIONER OF INLAND REVENUE V. FRASER: [1942] 24 TC 498,502, LORD NORMAND HAS OBSERVED AS UNDER:- 'THE INDIVIDUAL WHO ENTERS INTO A PURCHASE OF AN AR TICLE OR COMMODITY MAY HAVE IN VIEW THE RESALE OF IT AT A PR OFIT, AND YET IT MAY BE THAT THAT IS NOT THE ONLY PURPOSE FOR WHI CH HE PURCHASED THE ARTICLE OR THE COMMODITY, NOR THE ONL Y PURPOSE TO WHICH HE MIGHT TURN IT IF FAVOURABLE OPPORTUNITY FOR SALE DOES NOT OCCUR... AN AMATEUR MAY PURCHASE A PICTURE WITH A VIEW TO 17 ITS RESALE AT A PROFIT, AND YET HE MAY RECOGNIZE AT THE TIME OR AFTERWARDS THAT THE POSSESSION OF THE PICTURE WILL GIVE HIM AESTHETIC ENJOYMENT IF HE IS UNABLE ULTIMATELY , OR AT HIS CHOSEN TIME, TO REALIZE IT AT A PROFIT...' AN ACCRETION TO CAPITAL DOES NOT BECOME INCOME MERE LY BECAUSE THE ORIGINAL CAPITAL WAS INVESTED IN THE HOPE AND E XPECTATION THAT IT WOULD RISE IN VALUE; IF IT DOES SO RISE, IT S REALIZATION DOES NOT MAKE IT INCOME. LORD DUNEDIN SAID IN LEEMING V. JONES AT PAGE 360: 'THE FACT THAT A MAN DOES NOT MEAN TO HOL D AN INVESTMENT MAY BE AN ITEM OF EVIDENCE TENDING TO SH OW WHETHER HE IS CARRYING ON A TRADE OR CONCERN IN THE NATURE OF TRADE IN RESPECT OF HIS INVESTMENTS BUT PER SE IT L EADS TO NO CONCLUSION WHATEVER.' THIS COURT LAID DOWN IN G. VENKATASWAMI NAIDU & CO. V. COMMISSIONER OF INCOME- TAX: [1959] 35 ITR 594, 610 , 622 (SC) THAT THE DOMINANT OR EVEN SOLE INTENTION TO RESELL IS A RELEVANT FACTOR AND RAISES A STRONG PRESUMPTION, BUT BY ITSE LF IS NOT CONCLUSIVE PROOF, OF AN ADVENTURE IN THE NATURE OF TRADE ' IN THE CASE OF RAJA BAHADUR KAMAKHYA NARAIN SINGH V S. CIT: 77 ITR 253 (SC) THE SUPREME COURT OBSERVED AS UNDER: IT IS FAIRLY CLEAR THAT WHERE A PERSON IN SELLING HIS INVESTMENT REALISES AN ENHANCED PRICE, THE EXCESS OVER HIS PUR CHASE PRICE IS NOT PROFIT ASSESSABLE TO TAX. BUT IT WOULD BE SO, IF WHAT IS DONE IS NOT A MERE REALISATION OF THE INVESTMENT BUT AN ACT DONE FOR MAKING PROFITS. THE DISTINCTION BETWEEN THE TWO TYP ES OF TRANSACTIONS IS NOT ALWAYS EASY TO MAKE. WHETHER TH E TRANSACTION 18 IS OF ONE KIND OR THE OTHER DEPENDS ON THE QUESTION WHETHER THE EXCESS WAS AN ENHANCEMENT OF THE VALUE BY REALISING A SECURITY OR GAIN IN AN OPERATION OF PROFIT-MAKING. IF THE TRANS ACTION IS IN THE ORDINARY LINE OF THE ASSESSEE'S BUSINESS, THERE WOU LD HARDLY BE ANY DIFFICULTY IN CONCLUDING THAT IT WAS A TRADING TRAN SACTION, BUT WHERE IT IS NOT, THE FACTS MUST BE PROPERLY ASSESSE D TO DISCOVER WHETHER IT WAS IN THE NATURE OF TRADE. THE SURPLUS REALISED ON THE SALE OF SHARES, FOR INSTANCE, WOULD BE CAPITAL IF T HE ASSESSEE IS AN ORDINARY INVESTOR REALISING HIS HOLDING: BUT IT WOU LD BE REVENUE IF HE DEALS WITH THEM AS AN ADVENTURE IN THE NATURE OF TRADE. THE FACT THAT THE ORIGINAL PURCHASE WAS MADE WITH THE I NTENTION OF RESELL IF AN ENHANCED PRICE COULD BE OBTAINED IS BY ITSELF NOT ENOUGH BUT IN CONJUNCTION WITH THE CONDUCT OF THE A SSESSEE AND OTHER CIRCUMSTANCES IT MAY POINT TO THE TRADING CHA RACTER OF THE TRANSACTION. FOR INSTANCE, AN ASSESSEE MAY INVEST H IS CAPITAL IN SHARES WITH THE INTENTION TO RESELL THEM IF IN FUTU RE THEIR SALE MAY BRING IN A HIGHER PRICE. SUCH AN INVESTMENT, THOUGH MOTIVATED BY A POSSIBILITY OF ENHANCED VALUE, DOES NOT RENDER TH E INVESTMENT A TRANSACTION IN THE NATURE OF TRADE. 16. IT MAY ALSO BE PERTINENT TO REPRODUCE HEREUNDER THE OBSERVATIONS OF THE SUPREME COURT IN THE CASE OF JA NKI RAM BAHADUR RAM V. CIT: 57 ITR 21, REFERRED IN THE AFOR ESAID DECISION, WHEREIN THE COURT HAD PUT THE ONUS ON THE REVENUE TO ESTABLISH THAT THE PROFIT EARNED IN A TRANSACTION I S IN THE NATURE OF TRADE: 19 'NO USEFUL PURPOSE WOULD BE SERVED BY ENTERING UPON A DETAILED ANALYSIS AND REVIEW OF THE OBSERVATIONS MADE IN THE LIGHT OF THE RELEVANT FACTS, FOR NO SINGLE FACT HAS DECISIVE SIG NIFICANCE, AND THE QUESTION WHETHER A TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE MUST DEPEND UPON THE COLLECTIVE EFF ECT OF ALL THE RELEVANT MATERIALS BROUGHT ON THE RECORD. BUT G ENERAL CRITERIA INDICATING THAT CERTAIN FACTS HAVE DOMINAN T SIGNIFICANCE IN THE CONTEXT OF OTHER FACTS HAVE BEEN ADOPTED IN THE DECIDED CASES. IF FOR INSTANCE, A TRANSACTION IS RELATED TO THE BUSINESS WHICH IS NORMALLY CARRIED ON BY THE ASSESSEE,, THOU GH NOT DIRECTLY PART OF IT. AN INTENTION TO LAUNCH UPON AN ADVENTURE IN THE NATURE OF TRADE MAY READILY BE INFERRED. A SIMILAR INFERENCE WOULD ARISE WHERE A COMMODITY IS PURCHASE D AND SUB-DIVIDED, ALTERED, TREATED OR REPAIRED AND SOLD, OR IS CONVERTED INTO A DIFFERENT COMMODITY AND THEN SOLD. MAGNITUDE OF THE TRANSACTION OF PURCHASE, THE NATUR E OF THE COMMODITY, SUBSEQUENT DEALINGS AND THE MANNER OF DI SPOSAL MAY BE SUCH THAT THE TRANSACTION MAY BE STAMPED WIT H THE CHARACTER OF A TRADING VENTURE: FOR INSTANCE, A MAN WHO PURCHASES A LARGE QUANTITY OF AEROPLANE LINEN AND S ELLS IT IN DIFFERENT LOTS, AND, FOR THE PURPOSE OF SELLING STA RTS AN ADVERTISING CAMPAIGN, RENTS OFFICES, ENGAGES AN ADV ERTISING MANAGER, A LINEN EXPERT AND A STAFF OF CLERKS, MAIN TAINS ACCOUNT BOOKS NORMALLY USED BY A TRADER, AND PASSES RECEIPTS AND PAYMENTS IN CONNECTION WITH THE LINEN THROUGH A SEPARATE BANKING ACCOUNT: MARTIN V. LOWRY [1926] 11 TAX CAS. 297 (HL): A PERSON WHO CARRIES ON A MONEY-LENDING BUSINESS PURC HASES VERY CHEAPLY A VAST QUANTITY OF TOILET PAPER AND WITHIN A SHORT TIME THEREAFTER SELLS THE WHOLE CONSIGNMENT AT A CONSIDE RABLE PROFIT: 20 RUTLEDGE V. COMMISSIONERS OF INLAND REVENUE [1929] 14 TAX CAS. 490 (C. SESS): AND A PERSON, EVEN THOUGH HE HAS NO SPECIAL KNOWLEDGE OF THE TRADE IN WINES AND SPIRITS, PURCHA SES A LARGE QUANTITY OF WHISKEY AND SELLS IT WITHOUT TAKING DEL IVERY OF IT AT A CONSIDERABLE PROFIT: COMMISSIONERS OF INLAND REVE NUE V. FRASER [1942] 24 TAX CAS. 498 (C. SESS) MAY BE PRES UMED, HAVING REGARD TO THE NATURE OF THE COMMODITY AND EXTENT OF THE TRANSACTION COUPLED WITH THE OTHER CIRCUMSTANCES, T O BE CARRYING ON AN ADVENTURE IN THE NATURE OF TRADE. TH ESE ARE CASES OF COMMERCIAL COMMODITIES. BUT A TRANSACTION OF PURCHASE OF LAND CANNOT BE ASSUMED WITHOUT MORE TO BE A VENTURE IN THE NATURE OF TRADE. A DIRECTOR OF A COM PANY CARRYING ON THE BUSINESS OF WAREHOUSEMAN PURCHASING A NUMBER OF HOUSES WITH A VIEW TO RESALE, AND SELLING THEM AT A PROFIT SOME YEARS AFTER THE PURCHASE: COMMISSIONERS OF INLAND REVENUE V. REINHOLD [1953] 34 TC 389 (C SESS): A PE RSON CARRYING ON BUSINESS IN VARIOUS LINES, INCLUDING AN ENGINEER ING WORKS, PURCHASING LAND WHICH WAS UNDER REQUISITION BY THE GOVERNMENT, NEGOTIATING SALE THEREOF BEFORE THE LAN D WAS DEREQUISITIONED, AND SELLING IT AFTER THE LAND WAS RELEASED: SAROJ KUMAR MAZUMDAR V. CIT [1959] 37 ITR 242 (SC) AND A SYNDICATE FORMED TO ACQUIRE AN OPTION OVER A RUBBER ESTATE WITH A VIEW TO EARN PROFIT, AND FINDING THE ESTATE ACQUIRED TOO SMALL ACQUIRING ANOTHER ESTATE AND SELLING THE TWO ESTATES AT A PROFIT: LEEMING V. JONES [1930] 15 TAX CAS. 333 (HL ), MAY NOT BE REGARDED AS COMMENCING A VENTURE IN THE NATURE O F TRADE. THESE ARE CASES IN WHICH THE COMMODITY PURCHASED AN D SOLD IS NOT ORDINARILY COMMERCIAL, AND THE MANNER OF DEALIN G WITH THE COMMODITY DOES NOT STAMP THE TRANSACTION AS A TRADI NG VENTURE. 21 IT MAY BE EMPHASIZED FROM AN ANALYSIS OF THESE CASE S THAT A PROFIT MOTIVE IN ENTERING INTO A TRANSACTION IS NOT DECISIVE, FOR, AN ACCRETION TO CAPITAL DOES NOT BECOME TAXABL E INCOME, MERELY BECAUSE AN ASSET WAS ACQUIRED IN THE EXPECTATION THAT IT MAY BE SOLD AT PROFIT.' (EMPHASIS SUPPLIED) 17. THE FOLLOWING OBSERVATIONS OF THE SUPREME COURT IN THE CASE OF KARAM CHAND THAPAR & BROS. (P) LIMITED V. C IT: 82 ITR 899 WHEREIN THEIR LORDSHIPS OBSERVED THAT MAN NER OF DISCLOSURE IN THE BALANCE-SHEET, THOUGH I NOT CONCLUSIVE, WAS A RELEVANT CIRCUMSTANCE. IN THAT CASE THE ASSESSEE HAD SOLD CERTAIN SHARES, WHICH WAS HELD TO BE CAPITAL LOSS. THE SHARES WERE SHOWN BY THE ASSESSEE AS 'INVESTMENT' IN THE B ALANCE SHEET. WHILE HOLDING THAT THE FACT THAT THE ASSESSEE WAS S HOWING THE SHARES AS INVESTMENT IN ITS BOOKS AS WELL AS IN THE BALANCE-SHEET, THOUGH BY ITSELF NOT A CONCLUSIVE CIRCUMSTANCE, WAS A RELEVANT CIRCUMSTANCE FOR DRAWING INFERENCE AS TO THE NATURE OF LOSS, THE COURT OBSERVED AS UNDER: ' THE TRIBUNAL ALSO RELIED ON THE CIRCUMSTANCE THAT THE ASSESSEE WAS SHOWING THESE SHARES AS INVESTMENT SHA RES IN ITS BOOKS AS WELL AS IN THE BALANCE-SHEET. IT IS TR UE THAT THAT CIRCUMSTANCE BY ITSELF IS NOT A CONCLUSIVE CIRCUMSTANCE. IT CANNOT BE DENIED THAT THAT IS A RE LEVANT 22 CIRCUMSTANCE ON WHICH THE TRIBUNAL COULD HAVE RELIE D FOR DRAWING THE INFERENCE IT DID. THE EXPLANATION THAT IT HAD TO DO SO BECAUSE OF THE PROVISIONS OF THE COMPANY LAW IS UNFOUNDED.' (EMPHASIS SUPPLIED) 18. FURTHER THE BOMBAY HIGH COURT IN THE CASE OF BHOGILAL H. PATEL VS. CIT: 74 ITR 692 HELD THAT IF A PERSON INVESTS MONEY IN LAND INTENDING TO HOLD IT, ENJOYS ITS INCOME FOR SOME TIME, AND THEN SELLS IT ON PROFIT, IT WOULD BE A CASE OF CAPITAL ACCRETION AND N OT PROFIT DERIVED FROM AN ADVENTURE IN THE NATURE OF TRADE. THE COURT FURTHER HELD THAT CASES OF REALIZATION OF INVESTMENT CONSISTING OF PURCHASE AND RESALE, THOUGH PROFITABLE, ARE OUTSIDE THE DOMAIN OF ADVENTURE IN THE NATURE OF TR ADE. THE COURT FURTHER HELD THAT THOUGH INTENTION SUBSEQUENTLY FOR MED MAY BE TAKEN INTO ACCOUNT, THE INTENTION AT THE INCEPTION IS CRUCIAL. THE PERTINENT OBSERVATIONS OF THE COURT ARE REPRODUCED HEREUNDER: 'APART FROM THE FACTS WHICH WE HAVE POINTED OUT, IN OUR OPINION, THERE ARE CERTAIN ERRORS IN THE DECISION O F THE TRIBUNAL WHICH AMOUNT TO CLEAR ERRORS OF LAW. FIRSTLY, THAT IT DID NOT HAVE PRESENT TO ITS MIND THIS DISTINCTION BETWEEN T HE EXPECTATION OF PROFIT AND THE INTENTION TO EARN PRO FITS. IN ORDER THAT IT MAY BE HELD THAT A PERSON IS UNDERTAKING A TRADE OR BUSINESS OR ENTERING INTO AN ADVENTURE IN THE NATUR E OF TRADE IT 23 IS ESSENTIAL THAT THE PARTICULAR TRANSACTIONS UNDER SCRUTINY SHOULD HAVE BEEN ENTERED INTO WITH THE INTENTION OF EARNING A PROFIT. THOUGH THAT IS NOT A CONCLUSIVE TEST IT IS CERTAINLY AN ESSENTIAL TEST BEFORE SUCH A CONCLUSION COULD BE DR AWN, BUT SUCH A CASE IS QUITE DIFFERENT FROM THE CASE OF A P ERSON PURCHASING THE PROPERTY WITH THE DOMINANT INTENTION OF USING IT HIMSELF OR ENJOYING IT HIMSELF BUT, AT THE SAME TIME, EXPECTING AT SOME FUTURE DATE, IF IT GOES UP IN VALUE, HE MAY TAKE ADVANTAGE OF THE RISE IN THE PRI CE. ALL THE CIRCUMSTANCES REFERRED TO BY THE TRIBUNAL IN COMING TO THE CONCLUSION THAT THE ASSESSEE HAD ENTERED INTO AN AD VENTURE IN THE NATURE OF TRADE ARE CIRCUMSTANCES WHICH SHOW PE RHAPS THAT THE ASSESSEE EXPECTED TO MAKE PROFIT OUT OF THE LAN D BUT THEY DO NOT SHOW THAT HE INTENDED TO DO BUSINESS WITH TH E LAND OR TO ENTER INTO AN ADVENTURE IN THE NATURE OF TRADE.' (E MPHASIS SUPPLIED) 19. FOLLOWING THE AFORESAID DECISION IN BHOGIL AL PATEL (SUPRA), THE BOMBAY HIGH COURT IN THE CASE O F CIT VS. ANANDLAL BECHARLAL & CO: 107 ITR 677 SIMILARLY HELD THAT THE FACT THAT THE ASSESSEE HELD THE LAND FOR A PERIOD OF SIX YEARS OF PURCHASE WOULD MILITATE AGAINST ANY INFERENCE BEING DRAWN THAT THE PURCHASE ITSELF WAS MAD E WITH THE INTENTION OF EMBARKING ON A VENTURE IN THE NATURE OF TRADE. IN THAT CASE, THE ASSESSEE/FIRM WAS ENGAGED I N THE BUSINESS OF PURCHASE AND SALE OF JEWELLERY. THE ASSESS EE PURCHASED A 24 PLOT OF LAND AT GHATKOPAR ON 26 TH NOVEMBER, 1952, WHICH WAS SOLD ON 16* FEBRUARY, 1959 RESULTING IN PROFIT OF RS.46, 876. THE ASSESSEE, THEREAFTER, PURCHASED PLOT OF LAND AT RAJ KOT FOR AN AMOUNT LITTLE LESS THAN THE SALE CONSIDERATION/THE ASSESSING OFFICER HELD THAT THE PURCHASE AND SALE OF LAND AT GHATKOPAR BY THE ASSESSEE WAS AN ADVENTURE IN THE NATURE OF TRAD E. THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE AS SESSEE THAT THE LAND WAS ORIGINALLY PURCHASED FOR CONSTRUCTION OF H OUSE FOR THE PARTNERS AND WAS SUBSEQUENTLY SOLD SINCE THE LOCALI TY WAS FOUND TO BE UNHEALTHY. ON FURTHER APPEAL, THE TRIBUNAL AC CEPTED THE CONTENTION OF THE ASSESSEE. ON A REFERENCE AT THE I NSTANCE OF THE REVENUE, DISMISSING THE APPEAL, THEIR LORDSHIPS OBS ERVED AS UNDER: 'TURNING TO THE FACTS OF THE PRESENT CASE, IN THE L IGHT OF THESE PRINCIPLES LAID DOWN BY THE HIGHEST COURT, THERE CA N, IN MY OPINION, BE NO DOUBT THAT THE TRIBUNAL'S VIEW IS FIRST AND FOREMOST, IT MUST BE BORNE IN MIND THAT THE PROPERT Y IN QUESTION IN THE PRESENT CASE IS LAND WHICH, AS OBSE RVED BY THE SUPREME COURT IN JANKI RAM'S CASE [1965] 57 ITR 21 (SO. IS NOT ORDINARILY A COMMERCIAL COMMODITY. SECO NDLY, THE RESALE OF THE SAID LAND TOOK PLACE A LITTLE OVE R SIX YEARS AFTER THE PURCHASE WHICH WOULD MILITATE AGAINST ANY INFERENCE BEING DRAWN THAT THE PURCHASE ITSELF HAD BEEN 25 MADE WITH THE INTENTION OF EMBARKING ON A VENTURE I N THE NATURE OF TRADE. THIRDLY, THE PURCHASE OF THE RAJKOT PROPERTY MUST BE VIEWED IN THE CONTEXT OF THE FACT THAT RAJKOT WAS THE NATIVE PLACE OF THE PARTNERS, AND TH ERE IS, THEREFORE, NO REASON, AS OBSERVED BY THE TRIBUNAL T O REJECT THE EXPLANATION GIVEN BY THE ASSESSEE-FIRM. THE MER E FACT THAT SOME PROFIT WAS MADE IN THE TRANSACTION WOULD NOT, AS STATED BY THE SUPREME COURT IN JANKI RAM'S CASE [19 651 57 ITR 21 (SO. WITHOUT ANYTHING MORE, INDICATE THAT TH E INTENTION OF THE PARTIES WAS TO TRADE IN LANDED PRO PERTY, AND, INDEED, THERE IS NOTHING MORE TO INDICATE THE SAME. IN THE RESULT, IN MY OPINION, THE QUESTION REFERRED TO US IN THIS REFERENCE MUST BE ANSWERED IN FAVOUR OF THE AS SESSEE- FIRM.' (EMPHASIS SUPPLIED) 20. SIMILAR VIEW HAS BEEN TAKEN IN THE FOLLOWING DE CISIONS : CANARA BANK LTD.: 63 ITR 328 (SC) CIT VS. SIMSON GENERAL FINANCE CO. LTD.: 230 ITR 22 2 (MAD) CIT VS. SHREYAS CHINU BHAI: 237 ITR 358 (GUJ) CIT VS. HANSALYA PROPERTIES: 236 ITR 660 (DEL) ASHOK KUMAR GOYAL VS. ITSC: 274 ITR 264 (ALL) CIT VS. R. V. GUPTA: 258 ITR 261 (DEL) ITO VS. OMKARMAL RAMBILAS GINNING AND PRESSING FACTORY: (2011) 44 SOT 544 (HYD) 26 21. THE UNDERLYING PRINCIPLE THAT EMERGES FROM THE AFORESAID DECISIONS IS THAT THE RELEVANT/ CRUCIAL FACTOR IN D ETERMINING THE NATURE OF THE GAIN ARISING ON TRANSFER OF AN ASSET IS THE INTENTION AT THE TIME OF PURCHASE. IF THE INTENTION AT THE TI ME OF PURCHASE WAS TO MERELY RESELL AT PROFIT, THE ASSET WOULD BE IN THE NATURE OF STOCK-IN-TRADE. ON THE OTHER HAND, IF THE INTENT ION AT THE TIME OF ACQUISITION IS TO HOLD THE ASSET FOR USE AND/ OR EARN INCOME THEREFROM, THEN THE CHARACTER OF SUCH ASSET WOULD B E 'CAPITAL ASSET'/ 'INVESTMENT' AND INCOME FROM ITS SALE WOULD BE 'CAPITAL GAINS' AND NOT BUSINESS INCOME. 22. APPLYING THE PRINCIPLES LAID DOWN IN THE AFORES AID DECISIONS, THE COURT HAVE HELD THAT TO DETERMINE WHETHER A TRA NSACTION INVOLVING SALE OF LAND IS IN THE NATURE OF BUSINESS , THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF LAND IS CRITICAL. IF THE INTENTION AT THE TIME OF PURCHASE OF LAND WAS NOT T O TRADE IN THE LAND, MERELY BECAUSE THE ASSESSEE PROCEEDS TO SELL THE LAND OWNED BY DEVELOPING THE SAME FURTHER AT ANY LATER/ SUBSEQUENT STAGE IN ORDER TO REALIZE THE POTENTIAL OF THE LAND, GAINS REALIZED COULD NOT BE ASSESSED AS 'BUSINESS I NCOME': 27 THE MADRAS HIGH COURT IN THE CASE OF CIT V. MLM MAH ALINGAM CHETTIAR [1977] 107 ITR 236 FOLLOWING ITS EARLIER D ECISION IN THE CASE OF CIT V. KASTURI ESTATES (P.) LTD. [1966] 62 ITR 578 (MAD.) HELD THAT DEVELOPING OF LANDS INTO BUILDING SITES W ITH A VIEW TO REALIZE THE BEST PRICE WITHOUT ANYTHING MORE, IS CO NSISTENT WITH THE REALIZATION OF THE CAPITAL INVESTMENT AND THE S URPLUS RECEIVED BY THE ASSESSEE WILL NOT BE TRADING OR BUS INESS PROFIT. 23. THIS COURT IN CIT V. KASTURI ESTATES (P.) LTD. [1966] 62 ITR 578 EXPLAINED THE TEST TO BE APPLIED TO SUCH CASES THUS (AT PAGE 600 ) 'A SALE OF IMMOVABLE PROPERTY MAY POSSIBLY BE A TRA DING OR COMMERCIAL TRANSACTION, BUT NEED NOT NECESSARILY BE SO. IF A LAND-OWNER DEVELOPED HIS LAND, EXPENDED MONEY ON IT, LAID ROADS, CONVERTED THE LAND INTO HOUSE SITES AND WITH A VIEW TO GET A BETTER PRICE FOR THE LAND, EVENTUALLY SOLD THE PLOTS FOR A CONSIDERATION YIELDING A SURPLUS, IT CO ULD HARDLY BE SAID THAT THE TRANSACTION IS ANYTHING MORE THAN A REALISATION OF A CAPITAL INVESTMENT OR CONVERSION O F ONE FORM OF ASSET INTO ANOTHER. OBVIOUSLY, THE SURPLUS IN SUCH A CASE WILL NOT BE TRADING OR BUSINESS PROFITS BECAUS E THE TRANSACTION IS ONE OF REALISATION OF ASSETS IN INVE STMENT RATHER THAN ONE IN THE COURSE OF TRADE CARRIED ON B Y THE ASSESSEE OR AN ADVENTURE IN THE NATURE OF TRADE.' 28 WE ARE OF THE VIEW THAT EVEN IN THIS CASE, THE SAME POSITION HOLDS GOOD AS THERE IS NO MATERIAL TO INDI CATE THAT THE ASSESSEE EVER INTENDED TO INDULGE IN ANY TRADIN G ACTIVITY.' (EMPHASIS SUPPLIED) 24. IN CIT VS. B.K. BHAUMIK: 245 ITR 614 (DEL.), TH E ASSESSEE ENTERED INTO AN AGREEMENT WITH A BUILDER TO GET A M ULTI- STOREYED RESIDENTIAL UNIT CONSTRUCTED ON THE PLOT O F LAND WHERE A SINGLE STOREY HOUSE, OCCUPIED BY THE ASSESSEE SIN CE 1973, EXISTED UPTO 1989. THEIR LORDSHIPS AFFIRMED THE DEC ISION OF THE TRIBUNAL HOLDING THAT THE ENTIRE EXERCISE UNDERTAKE N BY THE ASSESSEE WAS MERELY TO REALIZE THE CAPITAL ASSET. T HEIR LORDSHIPS FURTHER OBSERVED THAT THE INTENTION AT THE TIME OF PURCHASE OF A HOUSE IS IMPORTANT. THE PERTINENT OBSERVATIONS OF THE COURT ARE REPRODUCED HEREUNDER: 'IN THE PRESENT CASE, WHILE HOLDING THAT THE ASSESS EE ENTERING INTO AN AGREEMENT WITH THE BUILDER TO GET THE MULTI -STOREYED RESIDENTIAL UNITS CONSTRUCTED ON THE PLOT OF LAND W HERE A SINGLE-STOREVED HOUSE, OCCUPIED BY THE ASSESSEE SIN CE 1973. EXISTED UP TO 1989. DID NOT CONSTITUTE AN ADVENTURE IN THE NATURE OF TRADE, THE TRIBUNAL HAS OBSERVED THAT THE ENTIRE EXERCISE UNDERTAKEN BY THE ASSESSEE WAS FOR REALISA TION OF A CAPITAL ASSET; THE INTENTION AT THE TIME OF PURCHAS E OF THE HOUSE ; HIS CONTEMPORANEOUS CONDUCT AND THE CIRCUMS TANCES PECULIAR TO THE ASSESSEE'S CASE LEFT NO ROOM FOR DO UBT THAT 29 THE TRANSACTION RESULTED ONLY IN CAPITAL GAINS. THESE FACTS, FOUND BY THE TRIBUNAL, ARE NOT SOUGHT TO BE CHALLEN GED BY THE REVENUE IN THE PROPOSED QUESTION.' (EMPHASIS SUPPLI ED) 25. THE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. MOHAKAPUR ICE AND COLD STORAGE: 281 ITR 354 SIMILARLY HELD THAT IN ORDER TO TREAT THE TRANSACTION AS COMING WI THIN THE PURVIEW OF ADVENTURE IN THE NATURE OF TRADE, IT IS TO BE SEEN WHETHER THE PROPERTY HAS BEEN PURCHASED OR ACQUIRED WITH THE INTENTION TO SELL THE PROPERTY FOR PROFIT BY INVOLV ING IN SEVERAL TRANSACTIONS OF SALE OR TO EARN PROFIT ON ITS INVES TMENT. IN THAT CASE, THE ASSESSEE SOLD THE LAND ACQUIRED AND HELD AS INVESTMENT TO ONE L, WHO SUBSEQUENTLY SOLD THE SAME TO VARIOUS PLOT HOLDERS, IN RESPECT OF WHICH SALE DEEDS WERE EXECUT ED BY THE ASSESSEE SINCE THE LAND WAS IN THE NAME OF THE ASSE SSEE. THE ASSESSING OFFICER ASSESSED THE PROFIT AS ONE ARISIN G FROM ADVENTURE IN THE NATURE OF TRADE, WHICH WAS REVERSED BY THE C IT(A). THE ORDER OF THE CIT(A) WAS AFFIRMED BY THE TRIBUNAL AN D THE REVENUES REFERENCE AGAINST THE ORDER OF THE TRIBUN AL WAS DISMISSED BY THE HIGH COURT. 30 26. FROM THE ABOVE CITED DECISIONS, IT IS CLEAR THA T TO TREAT A TRANSACTION WITHIN THE PURVIEW OF ADVENTURE IN THE NATURE OF TRADE, IT IS TO BE SEEN WHETHER THE PROPERTY HAD BE EN PURCHASED OR ACQUIRED BY THE ASSESSEE WITH THE INTE NTION TO SELL THE PROPERTY TO EARN PROFIT BY INVOLVING IN SE VERAL TRANSACTIONS OF SALE OR TO EARN PROFIT ON ITS INVES TMENT. THE AFORESAID DECISION SQUARELY COVERS THE CASE OF THE APPELLANT SINCE IN THE APPLICANTS CASE AS WELL, THE LAND IN QUESTION WAS ACQUIRED FOR RUNNING BUSINESS WAY BACK IN THE YEAR 1971. THE LAND IN QUESTION WAS ALWAYS SHOWN AS CAPITAL ASSET AND FORMED PART OF THE FIXED ASSETS IN THE BOOKS OF A CCOUNTS AND THE AUDITED FINANCIAL STATEMENT. IN THESE FACTS, GA INS ARISING ON SALE OF LAND COULD NOT BE ASSESSED AS BUSINESS INC OME AND WAS RIGHTLY DECLARED AS CAPITAL GAINS BY THE APPELLAN T. 27. AGAIN IN CIT VS. SURESH CHAND GOYAL: 298 ITR 27 7 (MP) THE ASSESSEE RECEIVED AGRICULTURAL LAND AS GIFT. THEREA FTER THE ASSESSEE TOOK STEPS FOR CONVERTING IT TO NON-AGRICU LTURAL PURPOSE AND CONVERTED THE LAND INTO PLOTS. THE ASSESSING OF FICER NOTED THAT APART FROM THE APPROVAL OF MAP, DEPOSIT OF TAX, OTH ER ACTIVITIES 31 FOR DEVELOPING THE PLOTS LIKE MAKING OF ROADS, ETC. , WERE ALSO TAKEN UP AND IN TWO OUT OF THE THREE ASSESSMENT YEA RS, EXPENDITURE HAD BEEN CLAIMED FOR SUCH DEVELOPMENT A CTIVITY. THE ASSESSING OFFICER HELD THAT THE ACTIVITY AMOUNTED T O AN ADVENTURE IN THE NATURE OF TRADE AND ASSESSED THE GAINS AS BU SINESS PROFITS, WHICH WAS UPHELD BY THE COMMISSIONER (APPEALS). THE TRIBUNAL, HOWEVER, HELD THAT THE GAINS WERE ASSESSABLE AS CAP ITAL GAINS. ON APPEAL BY THE REVENUE, AFFIRMING THE ORDER OF THE T RIBUNAL, THEIR LORDSHIPS OBSERVED AS UNDER: 'CONSIDERING THE AFORESAID FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE ALSO OF THE VIEW THAT THE SELLING OF OWN LAN D 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 O R MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATU RE OF TRADE, COMMERCE OR MANUFACTURE. AN ISOLATED TRANSAC TION OR ACTIVITY CAN ALSO BE PART OF BUSINESS BUT TO CONSID ER THE QUESTION OF BUSINESS, THERE MUST BE REGULAR ACTIVITY OF PURC HASING AND SELLING. IN THIS CASE, THERE IS NOTHING ON RECORD T O SHOW THAT THE LAND WAS PURCHASED, FOR THE PURPOSE OF SELLING INTO PLOTS. BASICALLY, IT IS A GIFTED LAND AND THE LAND WAS DEV ELOPED AND WAS SOLD AFTER CONVERTING INTO THE PLOTS WITH A VIE W TO SECURE THE BETTER PRICE, THEREFORE, THE ISOLATED ACTIVITY CANNOT COME WITHIN THE PURVIEW OF ADVENTURE IN THE NATURE OF TR ADE AND 32 BUSINESS. THE MAIN EARNING ON THE SALE OF THE LAND WAS IN THE NATURE OF CAPITAL GAIN AND, THEREFORE, NOT ASSESSAB LE AS HIS INCOME FROM BUSINESS AND THIS QUESTION IS ESSENTIAL LY A QUESTION OF FACT ' 28. IT WILL ALSO BE PERTINENT TO NOTE THE OBSERVATI ONS OF THE JURISDICTIONAL RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. SOHAN KHAN AND MOHAN KHAN: 304 ITR 194, EXTRACTED BELOW: 'IN OUR VIEW, ONE OF THE MOST SIGNIFICANT CONSIDERA TIONS WOULD BE, THE REGULARITY OF TRANSACTION OF PURCHASE AND S ALE. MERE FACT THAT THERE WAS A SERIES OF TRANSACTIONS OF SALE ONL Y, BY SELLING THE PART OF THE WHOLE LAND, PURCHASED IN ONE SO. 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'. IN THE PRESENT CASE, THERE IS NOTHING TO SHOW THAT THE LAND WAS PU RCHASED WITH THE INTENTION TO SETT AT A PROFIT, OR WITH REQUISIT E INTENTION, TO BRING IT WITHIN THE PARAMETERS OF 'STOCK-IN-TRADE'. IT IS NOT SHOWN THAT THE ASSESSEE IS A REGULAR DEALER IN REAL ESTATE. IT APPEARS, THAT THE LAND WAS PURCHASED IN 1970. WHICH WAS UNDER CLOUD OF LAND CEILINS LAWS, AND AFTER THAT CLOUD WA S CLEARED, AND OTHER ADJOININS LANDS HAD BEEN DEVELOPED, AND SINCE THE LAND WAS NOT YIELDING ANY RETURN, IT WAS DECIDED TO BE S OLD IN PIECEMEAL, BY EARMARKING PLOTS, BUT THEN NONETHELES S IT WOULD REMAIN A DISPOSAL OF THE CAPITAL ASSET ONLY, AND NO T A TRANSACTION OF ANY 'STOCK-IN-TRADE' SO AS TO BE DESCRIBED AS 'A DVENTURE IN THE NATURE OF TRADE'. OBVIOUSLY THEREFORE, IT IS LIABLE TO BE TAXED ONLY, AS THE CAPITAL GAIN.' (EMPHASIS SUPPLIED) 33 29. EVEN IN THE FOLLOWING CASES, IT HAS BEEN HELD T HAT THE ACT OF DEVELOPING LAND/PROPERTY TO REALIZE BEST PRICE D OES NOT ALTER THE NATURE OF TRANSACTION WHICH REMAINS TO BE TAXED UNDER THE HEAD 'CAPITAL GAINS' AND NOT BUSINESS INCOME: CIT VS. S. RAJAMANNAR: 329 ITR 626 (KAR) CIT VS. S PALANICHAMY: ITA NO. 232/2005 (MAD) ITO VS. SITARAM CHAMARIA: 6 SOT 594 (MUM) ASHA HOUSING ENTERPRISES V. DOT: 127ITD 94 (BANG) 30. IT HAS BEEN HELD LIKEWISE BY THE JAIPUR BENCH O F THE TRIBUNAL IN THE CASE OF JAI MARWAR CO. P. LTD VS. ACIT: ITA NO. 765/JP/94. IN THAT CASE, THE ASSESSEE PURCHASED PIECE OF LAND FOR DEVELOPING THE SAME FOR THE PURPOSE OF HOUSING WHIC H WAS THEREAFTER SOLD TO A PARTY, VIDE AGREEMENT TO SELL EXECUTED IN 1974. BUT THE SALE DEED COULD NOT BE EXECUTED UNTIL YEAR 1983 BECAUSE OF CERTAIN DISPUTES RAISED BY THE STATE GOV ERNMENT. THE ASSESSEE WAS FORCED TO KEEP THE LAND AS IT IS FOR A PERIOD OF 9 YEARS. ALL EXPENDITURE INCURRED DURING SUCH PERIOD WAS CAPITALIZED BY THE ASSESSEE. ON THE OTHER HAND, THE DEPARTMENT TOOK THE VIEW THAT THE ASSESSEE COULD NO T TREAT THIS 34 EXPENDITURE AS CAPITAL EXPENDITURE. THE TRIBUNAL, W HILE DECIDING ON FAVOR OF THE ASSESSEE, OBSERVED AS UNDER: ' HERE, IN THE PRESENT CASE THE EXPENDITURE WERE MA DE FOR THE PURPOSE OF DEVELOPMENT AND FOR THE PURPOSE OF PAYME NT OF INTEREST ON THE BORROWINGS FROM THE VARIOUS PERSONS . THEREFORE, ALL THE EXPENDITURES ARE IN NATURE OF CAPITAL IN NATURE .' 31. STILL FURTHER THE JODHPUR BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. SHIV DEEP INDUSTRIES IN ITA NO. 485/JU/2008 HAS TAKEN A SIMILAR VIEW. IN THAT CASE, THE ASSESSEE WAS ENGA GED IN THE BUSINESS OF MANUFACTURE AND SALE OF BHUJIA, NAMKEEN AND SWEETS. IT HAD PURCHASED CERTAIN AGRICULTURAL LAND FOR THE INSTALLATION OF FACTORY BUILDING. SUBSEQUENTLY, DUE TO URBANIZATION OF THE AREA, THE FACTORY COULD NOT BE INSTALLED AND THE ASSESSEE, IN ORDER TO GET BETTER CAPITAL APPRECIATION, CONVER TED A PORTION OF LAND IN THE ABADI AND THEREAFTER SOLD THE SAME. THE TRIBUNAL HELD THAT IF THE INTENTION OF THE ASSESSEE WAS TO R ETAIN THE ASSET AS CAPITAL ASSET, THEN, THE PROFIT ARISING FROM SAL E OF SUCH ASSET WAS TAXABLE AS CAPITAL GAINS. AFTER RELYING ON THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF CIT VS. SOHAN KHAN AND MOHAN KHAN (SUPRA), THE TRIBUNAL HELD THAT SALE OF LAND AFTER 35 DEVELOPMENT, AMOUNTED TO DISPOSAL OF CAPITAL ASSET ONLY, RESULTING IN CAPITAL GAINS AND NOT BUSINESS INCOME. 32. ON A CAREFUL PERUSAL OF THE AFORESAID SERIES OF JUDICIAL PRECEDENTS, FOLLOWING LEGAL PRINCIPLES MAY BE CULLE D OUT: (A) ON CONSIDERING WHETHER OR NOT A TRANSACTION IS AN A DVENTURE IN THE NATURE OF TRADE, THE INTENTION OF THE ASSESSEE IN ENTERING INTO A TRANSACTION IS CRITICAL. ONE OF THE ESSENTIA L ELEMENTS OF AN ADVENTURE IN THE NATURE OF TRADE IS THE INTENTIO N OF TRADE AND THAT INTENTION MUST BE PRESENT AT THE TIME OF P URCHASE OF LAND: (B) THE PERIOD FOR WHICH A LAND IS HELD IS AN IMPORTANT FACTOR IN DETERMINING THE INTENTION OF THE ASSESSEE. THE FACT THAT AN ASSESSEE HOLDS THE LAND FOR A FAIRLY LONG PERIOD OF TIME WOULD MILITATE AGAINST ANY INFERENCE BEING DRAWN THAT THE PURCHASE ITSELF HAD BEEN MADE WITH THE INTENTION OF EMBARKIN G ON A VENTURE IN THE NATURE OF TRADE. (C) IT IS FOR THE REVENUE TO ESTABLISH THAT A TRANSACTI ON ENTERED INTO BY THE ASSESSEE WAS AN ADVENTURE IN THE NATURE OF TRADE; (D) THE MERE FACT THAT AN ASSESSEE PROCEEDS TO SUB DIVI DE/ALTER THE LAND/PROPERTY HELD AND SELL IT IN SUCH NEW FORM CAN NOT BE THE SOLE BASIS FOR DRAWING THE INFERENCE THAT THE ACTIV ITY UNDERTAKEN BY THE ASSESSEE WAS IN THE NATURE OF TRA DE. AN 36 ACTIVITY INVOLVING CONSTRUCTION/ SUB-DIVISION/ DEVE LOPMENT OF THE LAND/ PROPERTY MERELY TO GET BETTER PRICE/ REAL IZATION FROM LAND/ PROPERTY CANNOT BE REGARDED AS AN ADVENT URE IN THE NATURE OF TRADE; (E) A TRANSACTION DIFFERENT FROM THE ORDINARY LINE OF B USINESS OF THE ASSESSEE WOULD NORMALLY LEAD TO AN INFERENCE TH AT SUCH TRANSACTION/ ACTIVITY UNDERTAKEN BY THE ASSESSEE WA S NOT AN ADVENTURE IN THE NATURE OF TRADE. THUS, IF AN ASSE SSEE IS NOT ORDINARILY ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF PROPERTIES/ LAND, THE NORMAL/ PRIMARY INFERENCE WOU LD BE THAT ANY TRANSACTION OF PURCHASE/ SALE OF LAND IS N OT AN ADVENTURE IN THE NATURE OF TRADE. 33. ON THE IMPUGNED ISSUE, NEITHER A STRAIGHT-JACKE T REPLY IS AVAILABLE IN THE PROVISIONS OF THE INCOME- TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT', FO R SHORT], NOR ANY DIRECT SOLUTION IS SUPPLIED BY ANY OR MANY JUDICIAL PRONOUNCEMENTS. THE PROVISIONS OF TH E ACT ARE GENERAL IN NATURE. THE PRECEDENT PREDOMINA NTLY SPEAK ABOUT THE GIVEN FACTS AND THE CIRCUMSTANCES O F A GIVEN CASE TO ASCERTAIN AS TO WHETHER ANY ASSET WHI CH IS HELD BY THE ASSESSEE IS TO BE TREATED AS AN INVEST MENT OR AS A STOCK IN TRADE. BUT THE JUDICIAL DECISIO NS VERILY LAY DOWN SOME SPECIFIC SITUATIONS OR CONDITIONS WHI CH 37 EXIST IN A GIVEN CASE THEY CAN BE DETERMINANT FACTO RS TO ANSWER IF THE SALE-PROCEED OF AN ASSET HAS TO BE CONSIDERED AS A BUSINESS RECEIPT OR A CAPITAL RECEI PT. AFTER ANALYZING CATENA OF JUDICIAL PRONOUNCEMENTS I N DETAIL, WE ARE ABLE TO CULL OUT THE FOLLOWING FACTO RS, WHICH IF FOUND IS EXIST IN A GIVEN CASE, IT CAN BE INSTRUMENTAL IN DECIDING WHETHER THE SALE OF ASSET WOULD RESULT IN A CAPITAL-GAIN OR BUSINESS-INCOM E. THESE FACTORS ARE: (1) INTENTION OF THE ASSESSEE AT THE TIME OF ACQUIS ITION OF THE ASSETS. WHAT IS THE OBJECTIVE OF THE ASSESSEE AT THE TIME O F ACQUIRING THAT ASSET? IF THIS OBJECTIVE WAS TO ACQ UIRE IT AS A CAPITAL ASSET/INVESTMENT THEN INCOME ARISING O N ITS SALE, HAS TO BE TREATED AS A CAPITAL GAIN. IN CA SE THIS OBJECTIVE WAS TO DERIVE INCOME THEREFROM FOR TREATI NG IT AS ADVENTURE IN THE NATURE OF TRADE OR BUSINESS, LI KE MAKING PROFIT BY BUYING AND SELLING ITS INCOME OR S ALE THEREOF HAS TO BE TREATED AS A BUSINESS INCOME. 38 (2) TREATMENT GIVEN TO THAT ASSET IN THE BOOKS WHAT TREATMENT HAS BEEN GIVEN BY THE ASSESSEE IN IT S FINANCIAL STATEMENTS. IT IS CLASSIFIED AS A CAPITA L ASSESS/INVESTMENT, THEN IT IS TO BE TREATED AS SUCH . WHEN IT IS CLASSIFIED AS STOCK IN TRADE, ITS SALE-P ROCEED HAS TO BE ASSESSED AS BUSINESS INCOME. (3) PERIOD OF HOLDING THE THIRD IMPORTANT FACTOR IS THE PERIOD FOR WHIC H THE ASSET IS HELD PRIOR TO ITS SALE. 34. THE HON'BLE SUMMIT COURT HAD LONG-BACK LAID DOW N THE FOLLOWING TEST TO DECIDE SUCH LIKE ISSUES, WHIL E DECIDING THE CASE OF G. VENKATASWAMI NAIDU & CO. VS . CIT REPORTED IN 35 ITR 594 [SC]: ' WHERE THE QUESTION IS WHETHER A TRANSACTION IS IN T HE NATURE OF TRADE EVEN IF THE CONCLUSION OF THE TRIBUNAL ABOUT THE CHARACTER OF THE TRANSACTION IS TREATED AS A CONCLU SION ON A QUESTION OF FACT, IN ARRIVING AT ITS FINAL CONCLUSI ON ON FACTS 39 PROVED, THE TRIBUNAL HAS UNDOUBTEDLY AND NECESSARIL Y TO ADDRESS ITSELF TO THE LEGAL REQUIREMENTS ASSOCIATED WITH THE CONCEPT OF TRADE OR BUSINESS. THE FINAL CONCLUSION OF THE TRIBUNAL CAN, THEREFORE, BE CHALLENGED ON THE GROUN D THAT THE RELEVANT LEGAL PRINCIPLES HAVE BEEN MISAPPLIED BY T HE TRIBUNAL IN REACHING ITS DECISION ON THE POINT: AND SUCH A CHAL LENGE IS OPEN UNDER SECTION 66(1) BECAUSE IT IS A CHALLENGE ON A GROUND OF LAW. IF A PERSON INVESTS MONEY IN LAND INTENDING TO HOLD IT, ENJOYS ITS INCOME FOR SOME TIME, AND THEN SELLS IT AT A PROFIT , IT WOULD BE A CLEAR CASE OF CAPITAL ACCRETION AND NOT PROFIT DERI VED FROM AN ADVENTURE IN THE NATURE OF TRADE. IN DECIDING THE C HARACTER OF SUCH TRANSACTIONS SEVERAL FACTORS ARE RELEVANT. WHE THER THE PURCHASER WAS A TRADER AND THE PURCHASE OF THE COMM ODITY AND ITS RESALE WERE ALLIED TO HIS USUAL TRADE OR BUSINE SS OR INCIDENTAL TO IT? .... WHAT IS THE NATURE AND QUANTITY OF THE COMMODITY PURCHASED AND RESOLD? .... DID THE PURCHASER BY ANY ACT SUBSEQUENT TO THE PURCHASE IMPROVE THE QUALITY OF C OMMODITY PURCHASED AND THEREBY MAKE IT MORE READILY RESALEAB LE? WHERE THEY (ACTS OF PURCHASE OR SALE) SIMILAR OPERATIONS USUALLY ASSOCIATED WITH TRADE OR BUSINESS? ... ARE THE TRAN SACTIONS OF PURCHASE AND SALE REPEATED' IN REGARD TO THE PURCHA SE OF THE COMMODITY AND ITS SUBSEQUENT POSSESSION BY THE PURC HASERS, DOES NOT ELEMENT OF PRIDE OF POSSESSION COME INTO T HE PICTURE. A PERSON MAY PURCHASE A PIECE OF ART, HOLD IT FOR S OME TIME AND IF A PROFITABLE OFFER IS RECEIVED SELL IT. DURI NG THE TIME THAT THE PURCHASER HAD ITS POSSESSION HE MAY BE ABL E TO CLAIM PRIDE OF POSSESSION AND AESTHETIC SATISFACTION; AND IF SUCH A CLAIM IS UPHELD THAT WOULD BE A FACTOR AGAINST THE TRANSACTION 40 BEING IN THE NATURE OF TRADE THE PRESENCE OF ALL TH ESE RELEVANT FACTORS MAY HELP THE COURT TO DRAW AN INFE RENCE THAT A TRANSACTION IS IN THE NATURE OF TRADE; BUT IT IS NOT A MATTER OF MERELY COUNTING THE NUMBER OF FACTS AND CIRCUMSTANC ES PRO AND CON; WHAT IS IMPORTANT TO CONSIDER IS THEIR DIS TINCTIVE CHARACTER. IN EACH CASE, IT IS THE TOTAL EFFECT OF ALL RELEVANT FACTORS AND CIRCUMSTANCES THAT DETERMINES THE CHARA CTER OF THE TRANSACTION. WHERE THE PURCHASE HAS BEEN MADE SOLELY AND EXCLUSI VELY WITH THE INTENTION TO RESELL AT A PROFIT AND THE PURCHAS ER HAS NO INTENTION OF HOLDING THE PROPERTY FOR HIMSELF OR OT HERWISE ENJOYING OR USING IT.... THE PRESENCE OF SUCH AN IN TENTION IS NO DOUBT, A RELEVANT FACTOR AND UNLESS IT IS OFFSET BY THE PRESENCE OF OTHER FACTORS, IT WOULD RAISE A STRONG PRESUMPTI ON THAT THE TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE. EVEN SO, THE PRESUMPTION IS NOT CONCLUSIVE; AND IT IS CONCEIVABL E THAT, ON CONSIDERING ALL THE FACTS AND CIRCUMSTANCES IN THE CASE, THE COURT MAY, DESPITE THE ID INITIAL INTENTION, BE INC LINED TO HOLD THAT THE TRANSACTION WAS NOT AN ADVENTURE IN IE NAT URE OF TRADE'.' (EMPHASIS SUPPLIED) 35. FURTHER, SIMILAR TEST WAS REITERATED BY THE SUP REME COURT IN THE CASE OF SUTLEJ COTTON MILLS SUPPLY AGE NCY LTD. REPORTED IN 100 ITR 706 [SC]. IN THIS CASE, I T HAS BEEN HELD THUS: ' .. WHERE THE PURCHASE OF ANY ARTICLE OR OF ANY CA PITAL INVESTMENT, FOR INSTANCE, SHARES, IS MADE WITHOUT T HE 41 INTENTION TO RESELL AT A PROFIT, A RESALE UNDER CHA NGED CIRCUMSTANCES WOULD ONLY BE A REALIZATION OF CAPITA L AND WOULD NOT STAMP THE TRANSACTION WITH A BUSINESS CHARACTER . WHERE A PURCHASE IS MADE WITH THE INTENTION OF RESA LE, IT DEPENDS UPON THE CONDUCT OF THE ASSESSEE AND THE CIRCUMSTANCES OF THE CASE WHETHER THE VENTURE IS ON CAPITAL ACCOUNT OR IN THE NATURE OF TRADE. A TRANSACTION IS NOT NECESSARILY IN THE NATURE OF TRADE BECAUSE THE PURC HASE WAS MADE WITH THE INTENTION OF RESALE. A CAPITAL INVESTMENT AND RESALE DO NOT LOSE THEIR C APITAL NATURE MERELY BECAUSE THE RESALE WAS FORESEEN AND CONTEMPL ATED WHEN THE INVESTMENT WAS MADE AND THE POSSIBILITY OF ENHA NCED VALUES MOTIVATED THE INVESTMENT.' (EMPHASIS SUPPLIED) 36. LET US NOW EXAMINE THE ARGUMENTS ADVANCED BY TH E LD. CIT, (DR) IN SUBSTANCE, THE LD. CIT, (DR) HAS HIGHL IGHTED THE FOLLOWING POINTS : A) UMAID BHAWAN PALACE PROPERTY WAS SHOWN AS STOCK IN TRADE OF THE ERSTWHILE PARTNERSHIP FIRM; B) THE APPELLANT IS AUTHORIZED UNDER CLAUSES A-2, B-6, 8 AND 12 OF THE OBJECTS CLAUSE OF THE MEMORANDUM OF ASSOCIATION TO CARRY ON REAL ESTATE BUSINESS; 42 C) THE DIRECTOR'S REPORT FOR THE FINANCIAL YEARS 2002- 03 TO 2007-08 MAKES REFERENCE TO THE 'REAL ESTATE ACTIVIT Y' AS BUSINESS OPERATION; D) VARIOUS CLAUSES OF DEVELOPMENT AGREEMENT SHOW THAT (I) THE SALE DEED IS TO BE SIGNED BY THE APPELLANT AS V ENDOR AND ESS GEE AS DEVELOPER, AND (II) RISKS AND REWARD IN THE PROJECT VEST IN THE APPELLANT, IN AS MUCH AS THE AP PELLANT IS REWARDED BY WAY OF INCREASING SHARE IN SALE PRICE, I.E., HIGHER PERCENTAGE SHARE IN HIGHER SALE PRICE AND LO WER PERCENTAGE IN LOWER PRICE, AND AS EVIDENT FROM CLAU SES 13, 21 AND 22 OF THE DEVELOPMENT AGREEMENT, RISK OF UN SOLD STOCK OF THE PROJECT IS BORNE BY THE APPELLANT; E) THE APPELLANT COMPANY IN PARTNERSHIP (50% SHARE) I S ALSO INVOLVED IN CONSTRUCTION OF VILLAS ON THE PLOTTED L AND. THE ENTIRE DEVELOPMENT OF THE PLOTTED AREA, AND CONSTRU CTION OF VILLAS, IS ONE INTEGRATED TRANSACTION, IN THE FO RM OF COMPOSITE BUSINESS ACTIVITY BEING CARRIED ON BY THE APPELLANT COMPANY 37. BUT WE ARE NOT IN AGREEMENT WITH THE ABOVE SUBM ISSIONS BECAUSE THE DECISION OF THE HON'BLE BOMBAY HIGH COU RT IN THE CASE OF K.H. MODY VS. UNKNOWN REPORTED IN [1940] 8 ITR 179, BOMBAY, ON WHICH LD. CIT(DR) HAS RELIED WAS RENDERE D ENTIRELY ON DIFFERENT FACTS. IN THAT CASE THE LD. CIT HAD A LREADY GIVEN A FINDING OF FACT THAT THE ASSESSEE WAS ENGAGED IN TH E BUSINESS OF 43 PURCHASE AND SALE OF LAND. IT WAS A REFERENCE MADE U/S 66(2) OF THE ACT IN VOGUE IN THAT YEAR [I.E. 1940]. SO, THIS DECISION IS OF NO AVAIL AND CANNOT HELP THE REVENUES CASE. 38 THE OTHER DECISION OF HON'BLE CALCUTTA HIGH COUR T IN THE CASE OF PRAISE AND CO. [PRIVATE] LTD. VS. CIT WEST REPORTED IN [1966] 60 ITR 566 CAL WAS AGAIN RENDERED UNDER THE SIMILAR CIRCUMSTANCES, THEREFORE, THE RATIO OF THIS CASE IS ALSO NOT APPLICABLE TO THE PRESENT CASE. 39. AGAIN, THE DECISION OF THE HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF ESTATE INVESTMENT CO. LTD V S. CIT 1[1980] 121 ITR 580 [BOM] WAS RENDERED ON DISTINGUISHABLE F ACTS. IN THAT CASE ONE OF THE MAIN OBJECTS FOR WHICH THE ASSESSEE -COMPANY WAS INCORPORATE WAS TO ENTER INTO TRANSACTIONS RELA TING TO LAND AND PROPERTIES. 40. THE DECISION OF HON'BLE APEX COURT IN THE CASE OF P.M. MOHAMMAD MEERAKHAN VS. CIT REPORTED IN [1969] 73 IT R 735 [SC] IS ALSO DISTINGUISHABLE. AGAIN THE FACTS OF THIS C ASE ARE DIFFERENT FROM THE ONE WE ARE DEALING WITH. IN THAT CASE FRO M THE RECITAL 44 OF THE AGREEMENT DATED 15.10.1955 THE INTENTION OF THE ASSESSEE IN PURCHASING THE ESTATE BECAME CLEAR THAT IT WAS P URCHASED TO RESALE IT AT A PROFIT. THE HON'BLE APEX COURT HAS CLEARLY HELD THAT HAVING REGARD TO THE TOTAL EFFECT OF ALL THES E CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE HIGH COURT WAS RIGHT IN ITS CONCLUSION. THE ASSIGNMENT OF RECEIVABLES UNDER TH E DEVELOPMENT AGREEMENT WAS IN THE FORM OF SECURITY O FFERED BY THE APPELLANT COMPANY TO HDFC FOR DISBURSEMENT OF L OAN OF RS.10 CRORES BY HDFC TO THE APPELLANT COMPANY FOR U NDERTAKING RENOVATION / REFURNISHMENT OF THE HOTEL. WE FAIL TO COMPREHEND AS TO HOW THE ASSIGNMENT OF RECEIVABLES COULD RESULT IN THE ACTIVITY OF DEVELOPMENT AND SALE OF PLOTS BE ING REGARDED AS AN ADVENTURE IN THE NATURE OF TRADE. 41. THE VARIOUS CLAUSES OF THE DEVELOPMENT AGRE EMENT HIGHLIGHTED EARLIER (AS PART OF THE APPELLANT'S SU BMISSION) WOULD SHOW THAT THE ENTIRE WORK IN RELATION TO THE DE VELOPMENT OF PLOTS IS TO BE CARRIED OUT BY THE DEVELOPER. AH COS TS FOR OBTAINING NECESSARY PERMISSIONS, DEVELOPMENT OF LAN D ARE TO BE INCURRED AND BORNE BY THE DEVELOPER. THE APPELLANT AS A LAND OWNER IS ENTITLED TO RECEIVE SPECIFIED PART OF THE SALE CONSIDERATION. MERELY BECAUSE THE CONSIDERATION REC EIVABLE BY 45 THE APPELLANT VARIES WITH THE SALE PRICE OF THE DEV ELOPED PLOT REALIZED BY THE DEVELOPER, DOES NOT LEAD TO THE INF ERENCE THAT THE APPELLANT WAS CARRYING ON ADVENTURE IN THE NATU RE OF TRADE. THE RISKS IN RELATION TO THE PROJECT VESTED SOLELY AND EXCLUSIVELY WITH THE DEVELOPER. THE PROFIT / LOSS ON THE PROJEC T WAS TO THE ACCOUNT OF THE DEVELOPER, WITH THE APPELLANT COMPAN Y BEING ENTITLED TO RECEIVE THE AGREED PERCENTAGE OF THE SA LE PRICE, WITHOUT REFERENCE TO THE PROFIT EARNED / LOSS SUFFE RED BY THE DEVELOPER. 42. THE VARIOUS CLAUSES OF THE DEVELOPMENT AGREEM ENT HIGHLIGHTED BY THE CIT DR DO NOT DEAL WITH THE RISK ASSOCIATED WITH THE PROJECT. CLAUSE 13, FOR INSTANCE, POINTS O UT THAT IN CASE OF ANY UNSOLD PLOTS REMAINING, THE SAME SHALL BE AP PORTIONED BETWEEN THE APPELLANT AS THE LAND OWNER AND THE DEV ELOPER. THE SAID CLAUSE FURTHER PROVIDES A FORMULA FOR COMP ENSATION BETWEEN THE PARTIES INTER SE FOR THE VALUE OF LAND OWNED BY THE APPELLANT AND THE COST OF DEVELOPMENT INCURRED BY T HE DEVELOPER. A READING OF THE SAID CLAUSE NOWHERE INDICATES THAT ANY RISKS IN THE PROJECT VEST IN THE APPELLANT. 46 43. CLAUSES 21 AND 22 OF THE DEVELOPMENT AGREEMENT DEAL WITH THE REMEDY AVAILABLE TO THE APPELLANT, IN CASE THE DEVELOPER WAS TO COMMIT BREACH OF THE TERMS OF THE AGREEMENT OR THERE IS NON EXECUTION OF THE PROJECT DUE TO FORCE MAJEURE. THE AFORESAID CLAUSES WOULD COME INT O OPERATION ONLY IN THE EVENT OF MATERIAL BREACH OF T HE AGREEMENT BY THE DEVELOPER / FORCE MAJEURE CONDITIO NS OPERATING. THE SAID CLAUSES HAVE NO RELEVANCE DURIN G THE NORMAL CURRENCY OF THE AGREEMENT AND CANNOT, IN ANY MANNER, BE CONSTRUED AS RESULTING IN THE APPELLANT BEING EN GAGED IN THE ORGANIZED AND SYSTEMATIC ACTIVITY OF DEVELOPMEN T AND SALE OF PLOT(S). 44. THE DEVELOPMENT OF PLOT AND THE CONSTRUCTION OF VILLAS ARE TWO SEPARATE AND DISTINCT ACTIVITIES. THE DEV ELOPMENT OF PLOTS IS UNDERTAKEN BY ESS GEE UNDER THE DEVELOPMENT AGREEMENT, IN TERMS OF LICENSE GRANTED BY THE APPELLANT AS THE LAND OWNER. THE CONSTRUCTION OF VI LLAS IS UNDERTAKEN BY PARTNERSHIP FIRM IN WHICH THE APPELLA NT COMPANY IS 50% PARTNER, PURSUANT TO AN AGREEMENT WI TH THE DEVELOPER, VIZ., ESS GEE AND/ OR THE PLOT OWNER. SU CH AN 47 AGREEMENT IS POST HANDING OVER OF THE DEVELOPED PLO T TO EITHER THE PARTNERSHIP FIRM OR THE PLOT OWNER. IN THESE CIRCUMSTANCES, THE DEVELOPMENT OF PLOT AND CONSTRUC TION OF VILLAS THEREON BY THE PARTNERSHIP FIRM CANNOT BE VI EWED AS ONE COMPOSITE INTEGRATED ACTIVITY. 45. IT MAY ALSO BE PERTINENT TO POINT OUT THAT IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT AS A CONSEQUENCE OF THE APPE LLANT COMPANY BEING 50% PARTNER IN THE PARTNERSHIP FIRM UNDERTAKIN G CONSTRUCTION OF VILLAS, THE ACTIVITY OF DEVELOPMENT AND SALE OF PLO TS HAS TO BE TREATED AS A BUSINESS VENTURE. IT MAY ALSO BE PERTINENT TO MENTION THAT THE ASSESSING OFFICER HAS SEPARATELY TAXED PROFIT FROM THE DEVELOPMENT AND SALE OF PLOTS AS BUSINESS INCOME WHILE EXEMPTIN G THE SHARE OF PROFIT FROM THE PARTNERSHIP FIRM UNDERTAKING CONSTRUC TION OF VILLAS. AS CAN BE SEEN FROM PAGE 17 OF THE ASSESSMENT ORDER, I N THE COMPUTATION OF ASSESSABLE INCOME, AMOUNT OF RS. 3,10,0 00 REPRESENTING SHARE OF PROFIT FROM THE PARTNERSHIP FI RM IS TREATED AS EXEMPT FROM TAX UNDER SECTION IO(2A)OF THE ACT. 46. I T IS NOT OPEN TO THE ID CIT DR TO CHANGE THE STAND TAKE N BY THE ASSESSING OFFICER, IN THE APPEAL FILED BY THE A SSESSEE. THE REVENUE CAN ONLY SUPPORT THE ORDER OF THE ASSESSING OFFICER AND CANNOT SEEK TO CHANGE THE COMPLETION OF THE CASE, B Y SETTING UP AN 48 ALTOGETHER DIFFERENT LINE OF ARGUMENT, THE ID CIT DR HAS CONTENDED THAT THE TRIBUNAL MUST LOOK AT THE SUBSTA NCE OR ESSENCE OF THE AGREEMENT RATHER THAN THE FORM. IN THAT CONN ECTION, THE ID. CIT DR HAS CITED SEVERAL CASES AT PAGE 11 OF THE WRITTE N SUBMISSIONS. THERE IS DISPUTE WITH THE AFORESAID PROPOSITION. TH E DEVELOPMENT AGREEMENT WHEN CONSIDERED IN ITS ENTIRETY IT WOULD SHOW THAT IT IS INTENDED FOR EXPLOITATION OF LAND OWNED BY THE APPE LLANT THROUGH THE DEVELOPER, ACTING AS A LICENSEE. ALL WORK AND R ESPONSIBILITY UNDER THE DEVELOPMENT AGREEMENT VESTED IN THE DEVELOPER WI TH THE APPELLANT BEING A PASSIVE PARTICIPANT, IN THE CAPAC ITY OF A LAND OWNER. BEYOND MAKING THE LAND AVAILABLE, THE APPELL ANT HAS NO ROLE /RESPONSIBILITY UNDER THE SAID DEVELOPMENT AGR EEMENT. IT SEEMS AS MORE PROBABLE AND PLAUSIBLE THAT THE DEVEL OPMENT AGREEMENT HAS BEEN ENTERED INTO BY THE APPELLANT TO EARN BEST/MAXIMUM PRICE FOR ITS LAND - RATHER THAN SELLI NG THE SURPLUS ON DEVELOPED LAND ON AN OUTRIGHT, AS IS WHERE IS BASIS , WHICH WOULD HAVE FETCHED MUCH LOWER AND UNREMUNERATIVE PRICE. 47. THE LD. CIT DR HAS CONTENDED THAT ACCOUNTING T REATMENT IN THE BOOKS OF ACCOUNT IS CONCLUSIVE OF THE ISSUE. WE AGREE WITH LD. CIT (DR) TO THAT EXTENT. HOWEVER THE ACCOUNTING TRE ATMENT, 49 THOUGH NOT CONCLUSIVE, BUT WHEN SEEN IN CONJUNCTION WITH SURROUNDING CIRCUMSTANCES, IT BECAUSE MATERIAL TO D ECIDE WHETHER THE ACTIVITY CARRIED OUT BY THE ASSESSEE AC COUNTS TO MERE REALIZATION OF A CAPITAL ASSET OR AMOUNTS TO C ARRYING ON AN ADVENTURE IN THE NATURE OF TRADE. THUS, IN THE GIVE N FACTS AND THE CIRCUMSTANCES OF THE CASE, AND IN VIEW OF THE ABOVE STATED LEGAL INESCAPABLE CONCLUSION THAT FOLLOWS IS THAT THE SHA RE OF SALE CONSIDERATION RECEIVED BY THE APPELLANT FROM DEVELO PER ON SALE OF PLOTS UNDER THE DEVELOPMENT AGREEMENT WAS IN THE COURSE OF REALIZATION OF A CAPITAL ASSET HELD BY THE APPELLAN T FOR OVER 30 LONG YEARS, GIVING RISE TO INCOME TAXABLE UNDER THE HEAD 'CAPITAL GAINS'. SUCH AN ACTIVITY COULD NOT, ON THE UNDISPUT ED FACTS OF THE CASE, BE REGARDED AS CARRYING AN ADVENTURE IN THE N ATURE OF TRADE. CONSEQUENTLY, THE ORDERS OF THE AUTHORITIES BELOW NEED TO BE REVERSED. 48. ON THE ALTERNATE SUBMISSIONS MADE BY THE APPELL ANT WITHOUT PREJUDICE, THE LD. CIT DR HAD ONLY OBJECTE D TO THE COST OF DEVELOPMENT OF 2,03,881 SQ. YDS. BEING TAKEN INT O ACCOUNT IN COMPUTING INCOME UNDER THE HEAD 'BUSINESS', ON THE GROUND THAT THE SAID LAND WAS NOT DEVELOPED DURING THE YEAR. IN REBUTTAL, IT 50 MAY BE POINTED OUT THAT THE APPELLANT HAD CLAIMED D EDUCTION OF THE LAND LIFT FOR DEVELOPMENT UPTO 31 ST MARCH, 2008 IN RESPECT OF 2,03,881 SQ. YDS. LAND CORRESPONDING TO THE LAND SO LD UPTO THAT DATE. IN THAT VIEW OF THE MATTER, THE SAID COST OF DEVELOPMENT OF 2,03,881 SQ. YDS. HAD BEEN CORRECTLY CLAIMED IN THE COMPUTATION OF TAXABLE INCOME FROM DEVELOPMENT AND SALE OF PLOT S. IN THE EVENT THAT THE ENTIRE COST OF DEVELOPMENT OF 2,03,8 81 SQ. YDS. IS NOT TO BE ALLOWED IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2008-09, THE SAME WOULD HAVE TO BE SPREAD OVER THE ASSESSMENT YEARS 2006-07 AND 2007-08, WHICH ARE ALS O PENDING IN APPEAL BEFORE THE HON'BLE TRIBUNAL, (WHICH APPEALS HAVE BEEN HEARD TOGETHER ALONGWITH APPEAL FOR ASSESSMENT YEAR 2008-09). BUT SINCE WE HAVE ALLOWED THE MAIN ISSUE IN FAVOUR OF THE ASSESSEE COMPANY, WE DONT FIND ANY REASON TO DECIDE THE ALT ERNATIVE PLEA SO RAISED. 49. ACCORDINGLY, WE DECIDE THE MAIN ISSUE IN FAVOUR OF THE ASSESSEE IN ALL THESE APPEALS AND HOLD THAT THE ASS ESSEE WAS NOT CARRYING ON ANY BUSINESS ACTIVITIES AND THE INCOME OFFERED BY IT AS ITS LONG TERM CAPITAL GAIN HAS TO BE ACCEPTED. 51 50. THE SECOND COMMON ISSUE RELATES TO DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT. DURING THE ASSE SSMENT PROCEEDINGS IT CAME TO NOTICE THAT THE ASSESSEE- COMPANY HAS ADVANCED A SUM OF RS. 5 CRORES TO M/S. BALSAMAND HORTICULTURE AND ANIMAL HUSBANDRY ENTERPRISES (BHAHE) AND HAS NOT CHARGED ANY INTERES T ON THIS AMOUNT. IN THIS REGARDS THE A.O. HAS FOUND SOM E MORE FACTS WHICH ARE AS UNDER :- I) IN THE P&L ACCOUNT AN AMOUNT OF RS. 4,81,36,174/- HAS BEEN DEBITED ON ACCOUNT OF INTEREST PAID ON BORROWED FUNDS. II) SHRI GAJ SINGH JI IS SHARE HOLDER OF 90% IN MARUDHAR HOTELS PVT. LTD. AND IS ALSO PARTNER IN A FIRM M/S. BALSAMAND HORTICULTURE AND ANIMAL HUSBANDRY ENTERPRISES WHERE PARTNERSHIP SHARE IS 95% ALONG WITH 5% SHARE OF HHRM KRRISHNA KUMARI, HER MOTHER. III) THE ASSESSEE HAS ADVANCED AN AMOUNT OF RS. 5 CRORES TO M/S. BALSAMAND HORICULTURE AND ANIMAL HUSBANDRY ENTERPRISES TOWARDS LEASE RENT AGREEMENT MADE WITH M/S. BALSAMAND HORTICULTURE AND ANIMAL HUSBANDRY ENTERPRISES. IV) M/S. BALSAMAND HORTICULTURE AND ANIMAL HUSBANDRY ENTERPRISES HAD FURTHER ADVANCED RS. 5 CRORE TO JODHAN INVESTMENT & FINANCE CORPORATION PVT. LTD. WHICH HAS 4% SHARE HOLDING IN MARUDHAR HOTELS PVT. LTD. AND IS GROUP COMPANY OF THE SAME GROUP. 52 V) THIS AMOUNT HAS ENDURING NATURE OF GENERATING A T LEAST INTEREST IF INVESTED IN LOAN MARKET OR WOULD HAVE REDUCED THE BURDEN OF INTEREST OF ASSESSEE IF LOAN AMOUNT OF FINANCIAL INSTITUTIONS HAD BEEN REPAID. VI) JUST BY WAY OF COLOURFUL DEVICE THIS DEEMED INCOME REMAINS TO BE TAXED IN YOUR HANDS, AND ON OTHER SIDE YOU ARE PAYING INTEREST EXPENDITURE ON BORROWED FUNDS. 51. FROM THE ABOVE, THE A.O. HAS CONCLUDED THAT IT IS A COLOURABLE DEVICE TO CLAIM INTEREST EXPENDITURE IN THE CASE OF MARUDHAR HOTELS PVT. LTD. AND BIFURCATE LEA SE RENT CONSIDERATION INTO LEASE-RENT-LICENCE-FEE AND DEEMED INCOME OF INTEREST ON DEPOSITS AGAINST LEASE AGREEMENT. ACCORDINGLY, THE A.O. PROCEEDED TO DISAL LOW INTEREST EXPENDITURE EQUIVALENT TO 12% OF INTEREST INCOME AT NORMAL MARKET RATE ON RS. 5 CRORE, I.E., RS. 60,00,000/-. THE ASSESSEE-COMPANY OBJECTED TO THE ABOVE PROPOSAL SENT THROUGH LETTER DATED 08.12.2010 TO IT. THE ASSESSEE-COMPANY REPLIED VIDE LETTER DATED 14.12.2010 AS UNDER :- THE ASSESSEE COMPANY HAS BORROWED LOANS FROM BANKS AND FINANCIAL INSTITUTIONS. THESE LOANS HAVE BEEN UTILIZED FOR THE PURPOSES FOR WHICH THOSE WER E GRANTED BY THE BANK OR FINANCIAL INSTITUTIONS TO T HE 53 SATISFACTION OF THE LENDERS AND ALSO AUDITORS OF T HE COMPANY. YOUR HONOUR NO BANK OR FINANCIAL INSTITUTION WOULD SANCTION A LOAN FOR GRANTING INTEREST FREE LOAN OR ADVANCE TO A THIRD PARTY. TH E LOANS TO THE ASSESSEE-COMPANY HAVE BEEN GRANTED FOR UP-GRADATION AND RENOVATION OF ITS PROPERTIES AND WERE UTILIZED FOR THAT PURPOSE. INTEREST HAS BEEN PAID AND DEBITED IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE COMPANY ON THE LOANS BORROWED BY IT FOR THE ABOVE MENTIONED PURPOSES FROM BANKS AND FINANCIAL INSTITUTIONS HENCE IT IS FULLY ALLOWABLE AS PER THE PROVISIONS OF THE LAW O N THE SUBJECT. AS REGARDS THE SECURITY DEPOSIT WITH M/S. BALSAMAND HORTICULTURE AND ANIMAL HUSBANDRY OF RS. 5 CRORES IT IS SUBMITTED THAT THE SAME HAS BEEN GIVEN TOWARDS THE PROPERTY TAKEN BY THE ASSESSEE COMPANY ON LICENSE FROM THE LESSOR. THE SECURITY DEPOSIT HAS NOT BEEN GIVEN OUT OF THE BORROWED FUNDS AND THE SAME HAS BEEN GIVEN OUT OF ITS OWN FUNDS OF THE ASSESSEE COMPANY. AS PER THE PROVISIONS OF THE LAW, THE TAX IS PAYABLE ONLY ON THE INCOME EARNED BY AN ASSESSEE AND NO TAX IS PAYABLE BY AN ASSESSEE ON AN INCOME WHAT IT COULD HAVE EARNED INTEREST ON THE AMOUNT OF RS. 5 CRORES BY PLACING THE SAME INTO FIXED DEPOSIT WITH A BANK HA S NO RELEVANCE IN THIS CASE. APART FROM IT THE SECUR ITY DEPOSIT HAS BEEN PLACED FOR THE BUSINESS CONSIDERATION OF THE ASSESSEE COMPANY FOR SECURING UNINTERRUPTED LICENSE OF A PROPERTY IN WHICH IT IS RUNNING A HOTEL HENCE EVEN OTHERWISE THE SECURITY DEPOSIT IS FULLY JUSTIFIED AND IT MAKES NO DIFFERE NCE THAT WHO ARE THE OWNERS OF THE PROPERTY TAKEN ON LICENSE BY THE ASSESSEE COMPANY. HOWEVER NO BANK WAS PAYING INTEREST @ 12% IN THIS YEAR. THE RATE O F INTEREST ON FIXED DEPOSIT WAS 6 TO 7% PER ANNUAM DURING THAT PERIOD. AS SUBMITTED ABOVE THAT THE AMOUNT OF SECURITY DEPOSIT HAS NOT BEEN GIVEN OUT OF THE BORROWED FUNDS HENCE NO PART OF INTEREST PAID TO THE BANKS AND FINANCIAL INSTITUTIONS, LOAN OF WHICH HAVE BEE N UTILIZED FOR UP-GRADATION AND RENOVATION OF THE 54 PROPERTIES, COULD BE DISALLOWED AS PER THE PROVISIONS OF THE LAW NOR ANY ADDITION OR DISALLOWANCE COULD BE MADE OUT OF THE INTEREST PAI D UNLESS IT IS PROVED THAT THE AMOUNT INTEREST FREE LOAN HAS BEEN ADVANCED OUT OF THE BORROWED FUNDS AND AS SUBMITTED ABOVE THE SECURITY DEPOSIT HAS BEEN GIVEN OUT OF OWN FUNDS AND THE SAME WAS GIVEN FOR BUSINESS CONSIDERATION. AS MENTIONED ABOVE THAT THE SECURITY DEPOSIT HAS BEEN MADE OUT OF OWN FUNDS AND NOT FROM BORROWED FUNDS; THE SECURITY DEPOSIT IS FOR BUSINESS CONSIDERATION OF THE ASSESSEE COMPANY HENCE THE INTEREST PAID ON BORROWED FUNDS IS FULLY ALLOWABLE . IT IS ALSO SUBMITTED THAT ONCE THE SECURITY DEPOSI T HAS BEEN GIVEN TO THE LESSOR, THE ASSESSEE COMPANY IS NOT CONCERNED AS TO HOW THE LESSOR HAS UTILIZED THOSE FUNDS. IT WAS AT THE FULL DIRECTION OF THE PARTNERS OF THE LESSOR FIRM TO UTILIZE THE FUNDS A ND ASSESSEE COMPANY HAS NO RIGHT TO INTERFERE IN THAT . 52. AFTER CONSIDERING THE ABOVE REPLY, THE A.O. WAS NOT AGREEABLE THAT COMPANYS OWN SURPLUS FUNDS WERE USE D IN THE BORROWINGS OR THAT INTEREST-FREE FUNDS WERE AVAILABLE WITH IT. HENCE HE HAS FOUND THAT THE ASSE SSEE- COMPANY HAS DIVERTED ITS FUNDS TO ITS SISTER CONCER N. HE WAS NOT AGREEABLE THAT THERE WAS A REDUCTION IN LEA SE- RENT FROM 15% TO 7.5% OF THE TURNOVER, AS COPY OF T HE REVISED LEASE AGREEMENT WAS NOT PROVIDED. HE HAS AL SO CONSIDERED THE FACT THAT THE ASSESSEE-COMPANY IS 55 RUNNING LOSS AND AT THE SAME TIME PAYING INTEREST T O THE FINANCIAL INSTITUTIONS. THEREFORE, ON THE SUM OF 5 CRORES ADVANCED INTEREST FREE TO ITS SISTER CONCERN M/S. BALSAMAND HORTICULTURE AND ANIMAL HUSBANDRY ENTERPRISES, BY CALCULATING MARKET INTEREST RATE @1 2% WHICH COMES TO RS. 60,00,000/- HAS BEEN DISALLOWED U/S 36(1)(III) FROM THE INTEREST PAID BY THE ASSESSEE- COMPANY OF RS. 4,81,36,174/- AND HAS ADDED IT BACK TO THE ITS TOTAL INCOME. 53. THE LD. CIT(A) HAS ALSO CONFIRMED THIS DISALLOW ANCE ON THE REASONING THAT IT IS INCUMBENT ON THE COMPAN Y TO EXHIBIT BUSINESS EXPEDIENCY IN PAYING THIS AMOUNT T O PROVE THE NEXUS BETWEEN THE INTEREST-FREE FUNDS AVAILABLE WITH IT FOR MAKING THE IMPUGNED ADVANCE. HE HAS ALSO IGNORED THE CASH FLOW STATEMENT FURNISHED BEFORE HIM BY TREATING IT AS GENERAL IN NATURE. 54. BEFORE US BOTH PARTIES HAVE MAINTAINED THEIR EA RLIER STAND. IT WAS SUBMITTED BY LD. AR THAT THE SECURITY DEPOSIT OF RS. 5 CRORES TO BHAHE WAS NOT GIVEN DURI NG 56 THE CURRENT YEAR, AND WAS GIVEN IN THE F.Y. 2002-03 OUT OF CAPITAL (PREFERENCE SHARES RAISED DURING THAT YE AR). HE EMPHASIZED ON THE CONTENTION THAT IT WAS THE A.O ., WHO ALLEGED DIVERSION OF FUNDS, SO IT WAS HE WHO HA S TO PROVE THAT BORROWED FUNDS WERE DIVERTED IN MAKING T HE ADVANCE FOR SECURITY DEPOSIT. HE ARGUED THAT THIS ADVANCE WAS GIVEN OUT OF CASH PROFITS BEFORE DEPRECIATION AMOUNTING TO RS. 373 LACS AND AMOUNT RECEIVED ON SALE OF PLOTS TOTALING TO RS. 3461 LACS . IN THIS REGARD LD. AR ALSO PLACED RELIANCE ON THE DECI SION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF THE ASSESSEE REPORTED AS 245 ITR 138 RAJ, INTER ALIA. I T WAS VEHEMENTLY ARGUED THAT THERE IS A BUSINESS NEXUS AS THE ASSESSEE HAD TAKEN ITS PROPERTY ON LEASE TO THE BES T OF ASSESSEES BUSINESS NEEDS. 55. PER CONTRA, LD. CIT(DR) HAS HEAVILY RELIED ON T HE ORDERS OF THE AUTHORITIES BELOW. HE HAS FURTHER ARG UED THAT THE ASSESSEE-COMPANY IS HEAVILY INDEBTED WITH A LOAN OF RS. 37,32 CRORES AND STILL IT HAS CHOSEN TO PAY INTEREST OF RS. 4,72,96,659/- IN THE A.Y. 2007-08, 57 THEREFORE, IT HAS CLEARLY DIVERTED INTEREST BEARING FUNDS TO ITS SISTER CONCERN. HE HAS, THUS, JUSTIFIED THE ADDITION OF RS. 60 LACS. 56. WE HAVE CAREFULLY CIRCUMSPECTED THE ENTIRE RECO RDS IN THE LIGHT OF THE FACTS OF THE GIVEN CASE. IN FAC T LD. CIT(A) HAS PLACED RELIANCE ON THE DECISION OF THE C ASE IN CIT VS. ABHISHEK INDUSTRIES LTD. 286 ITR 1 OF HONB LE P&H HIGH COURT. IN THAT CASE IT HAS BEEN HELD THAT THE BURDEN TO PROVE THAT THE ADVANCE WAS NOT OUT OF INTEREST-BEARING FUNDS AND THAT THERE IS BUSINESS N EXUS IN ADVANCING INTEREST FREE LOANS TO SISTER CONCERN IS ON THE ASSESSEE. THE LD. AR HAS RELIED ON THE EXACTLY DIAGONICALLY OPPOSITE DECISIONS RENDERED BY HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. HOTEL SAVE RA 239 ITR 795 (MD) AND OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. TIN BOX CO. 260 ITR 637 (DEL) AND A BOVE ALL ON THE DECISION OF THE JURISDICTION (RAJ.) HIGH COURT DECISION RENDERED IN ASSESSEES OWN CASE ON IDENTIC AL FACTS AND REPORTED AS DCIT VS. MARUDHAR HOTELS P. L TD. 245 ITR 138 (RAJ.). WHEN A DECISION OF HONBLE 58 JURISDICTIONAL HIGH COURT IS AVAILABLE AND THE RATI O OF WHICH IS JUST OPPOSITE TO THE DECISION OF HONBLE P &H HIGH COURT, WE WHILE SITTING IN RAJASTHAN ARE BOUND TO FOLLOW THE RATIO DECIDENDI OF THE HONBLE RAJASTHAN HIGH COURT. MOREOVER, THIS RATIO HAS BEEN GIVEN IN ASSES SEES OWN CASE, SO IT IS MORE THE REASON THAT WE HAVE TO FOLLOW THE SAME. THE HONBLE RAJASTHAN HIGH COURT H AS HELD IN THIS CASE AS UNDER :- THAT THE QUESTION WHETHER DELETING THE DISALLOWANCE OF INTEREST ATTRIBUTABLE TO INTEREST FREE ADVANCES TO THE SISTER CONCERN OF THE ASSESSE E- COMPANY WAS NOT A SUBSTANTIAL QUESTION OF LAW FOR THE PURPOSE OF SECTION 260A. MOREOVER, WE HAVE NOTICED THAT APART FROM HONBLE MADRAS HIGH COURT AND HONBLE DELHI HIGH COURT IS I N FAVOUR OF THE ASSESSEE, THE DECISION OF ABHISHEK INDUSTRIES (SUPRA) IS UNDER CHALLENGE BEFORE HONBL E APEX COURT WHERE SLP HAS BEEN FILED, WHICH HAS BEEN ADMITTED VIDE ORDER DATED 12.01.2007 IN SLP NO. 21673/2006. THE DECISION OF ABHISHEK INDUSTRIES HAS BEEN SUBSEQUENTLY DISTINGUISHED BY THE VERY HIGH CO URT IN THE CASES OF CIT VS. ROCKMAN CYCLE INDUSTRIES (P ) LTD. 331 ITR 401 AND CIT VS. SIYA RAM GARG (HUF) 237 CTR 59 321. THEREFORE IN VIEW OF THE FOREGOING DISCUSSION WE HAVE TO REVERSE THE FINDING OF LD. CIT(A) AND HAVE TO ALLOW THE GROUND RAISED BY THE APPELLANT. THE LD. A R HAS, HOWEVER, TAKEN US THROUGH VARIOUS PAGES OF PB G-1 AND G-12 AND ESTABLISHED THE CASE OF THE ASSESSEE. ON THE CONTRARY, THE DEPARTMENT HAS NOT DISCHARGED ITS ONUS. THEREFORE, WE ARE LEFT WITH NO OPTION BUT TO ALLOW THIS ISSUE IN FAVOUR OF THE ASSESSEE-COMPANY. 57. ANOTHER CONNECTED ISSUE IS REGARDING DISALLOWAN CE OF INTEREST U/S 36(1)(III) AMOUNTING TO RS. 94,56,0 00/- ON THE REASONING THAT THIS ADVANCE IS OUT OF BORROW ED FUNDS. THE FACTS APROPOS THIS ISSUE ARE THAT DURING ASSESSMENT PROCEEDINGS FOR A.Y. 2006-07 ON EXAMINAT ION OF THE COPY OF THE ACCOUNTS OF ASSESSEE-COMPANYS M AIN DIRECTOR SHRI GAJ SINGH IT WAS NOTICED THAT A DEBIT BALANCE OF RS. 3,01,30,422/- (RS. 2,22,86,764/- + R S. 77,43,658/-) HAS BEEN SHOWN BUT ON THAT AMOUNT NO INTEREST HAS BEEN CHARGED. THE REASONS FOR NOT CHAR GING INTEREST ON THIS AMOUNT GIVEN BY THE ASSESSEE AND T HE REASONS FOR DISALLOWANCE OF DEEMED INTEREST EXACTLY 60 IDENTICAL TO THE PRECEDING, ISSUE REGARDING ADVANCE OF RS. 5 CRORES TO ITS SISTER CONCERN. ACCORDINGLY, WI TH SIMILAR REASONS, WHICH APPLY MUTATIS MUTANDIS THIS GROUND ALSO, WE ORDER TO DELETE THE IMPUGNED ADDITI ON AND DECIDE THIS ISSUE. 58. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE COURT ON 15 TH FEBRUARY, 2013. SD/- SD/- (N.K.SAINI) [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 15 TH FEBRUARY, 2013 VL/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) BY ORDER 5. THE DR ASSISTANT REGISTRAR ITAT, JODHPUR