DCIT., Circle-15(1), Hyderabad, Hyderabad V. Sri B Venu Madhav, Hyderabad

ITA 82/HYD/2015

• Counselvise Citation: 8222514 RSA 2015
• Duration Of Justice: 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 16-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: P MURALI
• Keywords: Business income
• Section: 148

Judgement Text

ITA NO 82 OF 2015 B VENU MADHAV HYDERABAD PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER & SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO. 82/HYD/2015 (ASSESSMENT YEAR: 2005-06) DCIT, CIRCLE 15(1) I/C HYDERABAD VS. SHR I B. VENU MADHAV HYDERABAD PAN: AFKPB 0427 K (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI RAJAT MITRA, DR FOR ASSESSEE : SHRI P. MURALI DATE OF HEARING : 22.04.2015 DATE OF PRONOUNCEMENT : 24 .04.2015 O R D E R PER SMT.P. MADHAVI DEVI, J.M. THIS IS AN APPEAL PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE CIT (A) VI, HYDERABAD DATED 15.09.2014 RELATING TO THE A.Y 2005-06. THE REVENUE IS AGGRIEVED BY THE OR DER OF THE CIT (A) IN HOLDING THAT THE LAND SOLD BY THE ASSESS EE IS CAPITAL IN NATURE AND THE INCOME THEREFROM IS CAPITAL GAINS AN D NOT BUSINESS INCOME AS HELD BY THE AO. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A N INDIVIDUAL HAD FILED HIS RETURN OF INCOME FOR A.Y 2005-06 ON 2 3.12.2005 DECLARING A TOTAL INCOME OF RS.16,03,986. THE ASSES SEE HAD OFFERED CAPITAL GAINS OF RS.1,24,30,548 ON SALE OF LAND SITUATED AT NALLAGANDLA VILLAGE AND CLAIMED EXEMPTION U/S 54EC OF RS.1,24,30,548 BY INVESTING RS.1,25,00,000 IN NABAR D BONDS. ITA NO 82 OF 2015 B VENU MADHAV HYDERABAD PAGE 2 OF 5 THE RETURN WAS PROCESSED U/S 143(1) OF THE I.T. ACT . SUBSEQUENTLY, ON THE BASIS OF THE ASSESSMENT ORDER FOR A.Y 2006- 07, AO FORMED AN OPINION THAT ASSESSEES INCOME HAS ESCAPED ASSESSMENT FOR THE RELEVANT A.Y. THEREFORE, NOTICE U/S 148 WAS ISSUED AND DURING THE ASSESSMENT PROCEEDINGS U/S 14 3(3) R.W.S. 147 OF THE ACT, THE AO HAS OBSERVED THAT THE ASSESS EE HAD DIVIDED HIS AGRICULTURAL LAND INTO PLOTS AND THEREF ORE THE SAID ACTIVITY IS AN ADVENTURE IN NATURE AND INCOME FROM SALE OF PLOTS IS TO BE TREATED AS BUSINESS INCOME. THE ASSESSEE E XPLAINED THAT THE LAND WAS INHERITED BY HIM AFTER THE DEMISE OF H IS LATE MOTHER AND THAT AGRICULTURAL OPERATIONS WERE CARRIED OUT O N THE SAID LAND SINCE ITS PURCHASE IN 1979 AND THEREFORE, THE INCOME FROM THE SALE OF THE LAND IS TO BE CONSIDERED AS CAPITAL GAINS AND NOT AS BUSINESS INCOME AS SOUGHT TO BE HELD BY THE AO. AO WAS HOWEVER, NOT CONVINCED WITH ASSESSEES CONTENTIONS AND HELD THAT THE INCOME FROM SALE OF PLOTS IS BUSINESS INCO ME OF THE ASSESSEE AND ACCORDINGLY BROUGHT IT TO TAX. 3. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE T HE CIT (A), WHO ALLOWED THE SAME BY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE SUBSEQUENT A.Y I.E. 200 6-07. AGGRIEVED BY THE RELIEF GIVEN BY THE CIT (A), THE R EVENUE IS IN APPEAL BEFORE US. 4. HAVING CONSIDERED THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSMENT FOR THE YEAR UNDER CONSIDERATION I.E. A.Y 2005-06 WAS REOPENED BY THE AO BASED ON THE ASSESSMENT ORDER FOR A.Y 2006-07 AND THE ISSUE HAD TRAVELLED UPTO THE TRIBUNAL FOR A.Y 2006-07. THE TR IBUNAL VIDE ITA NO 82 OF 2015 B VENU MADHAV HYDERABAD PAGE 3 OF 5 ORDER DATED 11.10.2013 HAS CONSIDERED THE ISSUE AT LENGTH AND HAS HELD AT PARA NOS.9 & 10 AS UNDER: 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO PERUSED THE AUTHORITIES RELIED UPON BY THE PARTIES BEFORE US. I T IS NOT ALWAYS EASY TO DESCRIBE WHAT ARE THE CIRCUMSTANCES THAT RE NDER A TRANSACTION AS AN 'ADVENTURE IN THE NATURE OF TRADE '. IN DEALING WITH THE QUESTION, THE HON'BLE SUPREME COURT IN G. VENKATASWAMY NAIDU & CO (SUPRA) OBSERVED THAT NO PR INCIPLE CAN BE EVOLVED WHICH WOULD GOVERN THE DECISION OF A LL CASES IN WHICH THE CHARACTER OF SUCH A TRANSACTION FALLS TO BE CONSIDERED. SEC. 2(13) OF THE IT ACT DEFINES BUSINESS AS INCLUD ING ANY ADVENTURE IN THE NATURE OF TRADE, COMMERCE OR MANUF ACTURE. WITH REFERENCE TO THIS DEFINITION, THE HON'BLE SUPR EME COURT OBSERVED THAT WHEN THE SECTION REFERS TO AN ADVENTU RE IN THE NATURE OF TRADE, 'IT IS OBVIOUSLY REFERRING TO TRAN SACTIONS WHICH INDIVIDUALLY CANNOT THEMSELVES BE DESCRIBED AS TRAD E OR BUSINESS BUT ARE ESSENTIALLY OF SUCH A SIMILAR CHAR ACTER THAT THEY ARE TREATED AS IN THE NATURE OF TRADE'. IF A PERSON INVESTS MONEY IN LAND INTENDING TO HOLD IT, ENJOYS ITS INCOME FOR SOME TIME AND THEN SELLS IT AT A PROFIT, THE HON'BLE SUPREME COUR T HOLDS THAT IT WOULD BE A CLEAR CASE OF CAPITAL ACCRETION AND NOT PROFIT DERIVED FROM AN ADVENTURE IN THE NATURE OF TRADE. SEVERAL T ESTS WERE LAID DOWN IN THIS DECISION FOR DECIDING THE CHARACTER OF SUCH TRANSACTIONS: (A) WAS THE PURCHASER A TRADER AND WERE THE PURCHAS E OF THE COMMODITY AND ITS RESALE ALLIED TO HIS USUAL TRADE OR BUSINESS OR INCIDENTAL TO IT? THE ANSWER TO THIS IN THE PRESENT CASE IS IN THE NEGATIVE BECAUSE THERE IS NO EVIDENCE TO SHOW THAT ASSESSEE AT ANY TIME DID ANY BUSINESS ON LAND (B) IF THE COMMODITY PURCHASED IS GENERALLY THE SUB JECT-MATTER OF TRADE AND IF IT IS PURCHASED IN VERY LARGE QUANT ITIES, IT WOULD TEND TO ELIMINATE THE POSSIBILITY OF INVESTMENT? IN THE PRESENT, CASE AGRICULTURAL LAND PURCHASED BY ASSESSEE'S MOTH ER, WHO HAD NO INTENTION OF DOING ANY BUSINESS AT THE TIME OF P URCHASE AND IT WAS SHE, WHO SOUGHT HUDA PERMISSION FOR SALE TO OBT AIN BETTER PRICE AND ASSESSEE HAS ONLY INHERITED THE PROPERTY, THEREFORE, IT CANNOT BE ITA NO. 1698/HYD/2012 B. VENU MADHAV CONS IDERED OR TREATED THAT ASSESSEE HAS THE INTENTION TO INDUL GE IN TRADE, (C) DID THE PURCHASER BY ANY ACT SUBSEQUENT TO THE PURCHASE IMPROVE THE QUALITY OF THE COMMODITY TO MAKE IT MOR E READILY SALEABLE ? HERE IT COULD BE SAFELY STATED THAT ASSE SSEE HAS NOT OBTAINED ANY PERMISSION FROM THE AUTHORITIES FOR DE VELOPING ITA NO 82 OF 2015 B VENU MADHAV HYDERABAD PAGE 4 OF 5 RESIDENTIAL PLOTS AS THE APPLICATION WAS MADE BY AS SESSEE'S MOTHER AND ASSESSEE HAS SIMPLY INHERITED THE LAND, WHICH IS UNDER THE PROCESS OF DEVELOPMENT AS THE DEVELOPMENT AGREEMENT WAS ALSO ENTERED BY HIS MOTHER, THEREFORE , IMPROVING THE QUALITY OF COMMODITY WAS NOT DONE BY ASSESSEE, BUT, BY HIS MOTHER IN WHOSE CASE ALSO, IT CANNOT BE CONSIDERED THAT SHE HAD INTENDED TO TRADE ON THE LAND AND ONLY FOR BETTER PRICE REALIZATION SHE HAD APPLIED FOR HUDA PERMISSI ON. INCIDENTALLY, THE APPROVAL CAME MUCH LATER AND ASSE SSEE INHERITED THE PROPERTY AFTER THE DEATH OF HIS MOTHE R THAT DOES NOT MEAN THAT ASSESSEE HAS INDULGED IN BUSINESS AS AN ADVENTURE IN THE NATURE OF TRADE, (D) ARE THE TRANSACTIONS OF PURCHASE AND SALE REPEA TED ? THIS TEST IS ANSWERED NEGATIVELY IN THE CASE UNDER CONSI DERATION AS ASSESSEE HAS NOT PURCHASED ANY OTHER LAND AND HAS S OLD THE PROPERTY INHERITED BY HIM WHICH IS ITSELF WAS AGRIC ULTURAL LAND FOR MORE THAN 20 YEARS. IN THE AFORESAID DECISION THE HON'BLE SUPREME COURT HAS HELD THAT IN EACH CASE IT IS THE TOTAL EFFECT OF ALL REL EVANT FACTORS AND CIRCUMSTANCES THAT DETERMINES THE CHARACTER OF THE TRANSACTION. A CUMULATIVE CONSIDERATION OF THE FACTS OF THE PRES ENT CASE UNMISTAKABLY POINTS TO THE TRANSACTION OF SALE BEIN G A REALIZATION OF THE INVESTMENT IN LAND AND CONSEQUEN TLY THE GAINS ARE CHARGEABLE ONLY TO CAPITAL GAINS TAX AND NOT TO BE CONSIDERED AS GAINS OF AN ADVENTURE IN THE NATURE O F TRADE. 10. IN COMING TO THIS CONCLUSION WE HAVE DULY TAKEN NOTE OF THE FOLLOWING FACTS: (A) IN THE PRESENT CASE, ASSESSEE IS AN AGRICULTURI ST AND DID NOT CARRY ON ANY BUSINESS, (B) THE LAND WAS PURCHASED AS AGRICULTURAL LAND WAY BACK IN 1979, (C) AGRICULTURAL OPERATIONS WERE CARRIED ON FOR MOR E THAN 20 YEARS AND THE LAND WAS INHERITED BY ASSESSEE WHICH IS IN THE PROCESS OF DEVELOPMENT, (D) NECESSARY PERMISSION FOR CONVERSION OF LAND IN TO RESIDENTIAL PLOTS WAS SOUGHT BY ASSESSEE'S MOTHER AND JUST BECA USE ASSESSEE STEPPED INTO HIS MOTHER'S SHOES, IT CANNOT BE CONSI DERED THAT ASSESSEE IS IN THE BUSINESS OF PURCHASING AND SELLI NG OF PLOTS, WHEREAS, ASSESSEE HAS ONLY SOLD INHERITED LAND, THE REFORE, INTENTION TO PURCHASE FOR BUSINESS WAS ABSENT, AND ITA NO 82 OF 2015 B VENU MADHAV HYDERABAD PAGE 5 OF 5 (F) THOUGH, IT MAY NOT BE ENTIRELY RELEVANT BUT WE CANNOT IGNORE THE FACT THAT THE SALE PROCEEDS/CAPITAL GAINS WERE INVESTED IN APPROVED BONDS, (NABARD BONDS) AND WERE NOT INVESTE D IN ANY BUSINESS. FOR THESE REASONS, WE ARE OF THE OPINION THAT THE C IT(A) ERRED IN HOLDING THAT THE SALE PROCEEDS SHOULD BE ASSESSED A S BUSINESS INCOME AFTER RECORDING CERTAIN FACTUAL FINDINGS IN PARA 4.30 OF ORDER (SUPRA). 5. SINCE THE ISSUE IS COMMON FOR A.Y 2005-06 BEFORE US ALSO, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CI T (A). 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH APRIL, 2015. S D/ - S D/ - (P.M. JAGTAP) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 24 TH APRIL, 2015. VNODAN/SPS COPY TO: 1. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 15(1), 1 ST FLOOR, B BLOCK, IT TOWERS, AC GUARDS, HYDERABAD 2. SHRI B. VENU MADHAV, HOUSE NO.11-119 RAMANTHAPUR HYDERABAD 3. THE CIT(A)-VI HYDERABAD 4. THE CIT V HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER