G.K.Sampath, CHENNAI V. ITO, CHENNAI

ITA 879/CHNY/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7166 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 09-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 20-04-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: S SRIDHAR
• Keywords: Capital asset; Business income
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! # $ , % & BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NO. 879/MDS/2012 ( / ASSESSMENT YEAR: 2007-08) MR. G.K.SAMPATH, 107, PANNER NAGAR, MOGAPPAIR, CHENNAI-600 037. VS INCOME TAX OFFICER, BUSINESS WARD-XIV(2) CHENNAI-600 034. PAN: ABEPS2852F ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. S.SRIDHAR, ADVOCATE /RESPONDENT BY : MR. A.V.SREEKANTH, JCIT / DATE OF HEARING : 9 TH DECEMBER, 2014 /DATE OF PRONOUNCEMENT : 12 TH DECEMBER, 2014 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE O RDER OF THE COMMISSIONER OF INCOME TAX, (APPEALS)-XII, C HENNAI DATED 15.02.2012 FOR THE ASSESSMENT YEAR 2007-08. THE ONLY ISSUE IN THE APPEAL OF THE ASSESSEE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTA INING THE ADDITION OF ` 16,45,499/- UNDER THE HEAD INCOME FROM BUSINESS. 2. BRIEF FACTS ARE THAT THE ASSESSEE, AN INDIVIDUAL CARRYING ON BUSINESS OF CONSTRUCTION, PURCHASE AND SALE OF L ANDS, FILED 2 ITA NO.879/MDS/2012 HIS RETURN OF INCOME ON 2.11.2007 ADMITTING INCOME OF ` 2,44,881/-. THE ASSESSMENT WAS COMPLETED UNDER SECT ION 143(3) OF THE ACT ON 30.12.2009 DETERMINING THE INC OME AT ` 22,50,022/-. THE ASSESSING OFFICER WHILE COMPLETIN G THE ASSESSMENT NOTICED THAT ASSESSEE ADMITTED PROFIT ON SALE OF AGRICULTURAL LAND AT ` 16,45,499/- IN THE PROFIT AND LOSS ACCOUNT. WHILE COMPUTING THE INCOME IN THE STATEMEN T OF TOTAL INCOME ASSESSEE CLAIMED THIS INCOME AS EXEMPT AS PR OFIT ON SALE OF AGRICULTURAL LAND. THE ASSESSING OFFICER NO TICED THAT ASSESSEE SOLD THESE AGRICULTURAL LANDS BY MEANS OF MANY POWER OF ATTORNEYS. THE ASSESSING OFFICER NOTICED THAT POWER OF ATTORNEYS WERE EXECUTED IN THE NAME OF THE ASSES SEE JUST BEFORE TWO WEEKS OF THE DATE OF EXECUTION OF SALE D EED. THE ASSESSING OFFICER THEREFORE OF THE VIEW THAT CAPIT AL GAINS ARISING OUT OF SALES IS EXEMPT IN THE HANDS OF THE VENDORS ONLY AS THEY ARE THE OWNERS /CULTIVATORS OF THE AG RICULTURAL ASSETS. THEREFORE, THE ASSESSING OFFICER TREATED T HE SURPLUS ON SALE OF AGRICULTURAL LAND AS ASSESSEES BUSINESS INCOME SINCE HE IS INTO THE BUSINESS OF PURCHASE AND SALE OF LANDS. THE ASSESSING OFFICER BROUGHT TO TAX THE PROFIT O N SALE OF AGRICULTURAL LANDS AS BUSINESS INCOME IN THE HANDS OF THE 3 ITA NO.879/MDS/2012 ASSESSEE. ON APPEAL, THE COMMISSIONER OF INCOME TA X (APPEALS) SUSTAINED THE ADDITION MADE BY THE ASSESS ING OFFICER AGAINST WHICH THE ASSESSEE IS IN APPEAL BEF ORE US. 3. COUNSEL FOR THE ASSESSEE FIRSTLY SUBMITS THAT LA NDS ARE AGRICULTURAL LANDS AND THE PROFIT ON SALE OF AGRICU LTURAL LANDS IS NOT TAXABLE. COUNSEL FURTHER SUBMITS THAT ASSUMING FOR A MOMENT, PROFIT ON SALE OF AGRICULTURAL LANDS IS TAX ABLE, IT IS TAXABLE IN THE HANDS OF THE VENDORS AND NOT IN THE HANDS OF THE ASSESSEE. COUNSEL FURTHER SUBMITS THAT IF AT AL L IT IS TAXABLE IN THE HANDS OF THE ASSESSEE, IT IS NOT THE BUSINESS INCOME OF THE ASSESSEE BUT IT HAS TO BE TAXED UNDER THE HEAD CAPITAL GAINS. COUNSEL FOR THE ASSESSEE PLACING R ELIANCE ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT VS. SHRI C.SUGUMARAN IN TAX CASE APPEA L NO.840 OF 2014 DATED 3.11.2014 SUBMITS THAT CAPITA L GAINS CANNOT BE TAXED IN THE HANDS OF POWER OF ATTORNEY H OLDER. HE ALSO PLACES RELIANCE ON THE DECISION OF THE JURISDI CTIONAL HIGH COURT IN THE CASES OF MRS.SAKUNTHALA VEDACHALAM AN D MRS.VANITHA MANICKAVASAGAM VS. ACIT IN TAX CASE APP EAL NOS.566 & 567 OF 2013 DATED 6.8.2014 AND SUBMITS T HAT 4 ITA NO.879/MDS/2012 PROFIT ON SALE OF AGRICULTURAL LANDS ARE EXEMPT FRO M INCOME- TAX. 4. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDERS OF LOWER AUTHORITIES IN BRINGING TO TAX THE PROFIT ON SALE OF AGRICULTURAL LANDS AS ADMITTED BY THE ASSESSEE I N HIS PROFIT AND LOSS ACCOUNT AS BUSINESS INCOME OF THE ASSESSEE . 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISIONS RELIED ON. THE COMMISSIONER OF IN COME TAX (APPEALS) CONSIDERED THE ISSUE ELABORATELY AND CAME TO THE CONCLUSION THAT THE ASSESSING OFFICER HAS RIGHT LY ASSESSED THE SURPLUS/PROFIT RECEIVED IN THE TRANSAC TIONS AS INCOME FROM BUSINESS OF THE ASSESSEE. WHILE HOLDING SO, COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED AS UN DER:- AS OBSERVED BY THE ASSESSING OFFICER THE ASSESSEE I S ENGAGED IN THE HOUSE CONSTRUCTIONS AND PURCHASE AND SALE OF LANDS AND THE SAME CONSTITUTES THE BUSINESS ACTIVITY OF THE ASSESSEE FROM YEAR TO YEAR. DURING THE F.Y.2006-07,THE ASSESSEE REGISTERED/EXECUTED TWO S ALE DEEDS (VIDE DOCUMENT NOS. 1010/2007 AND 1007/2007, ON 23.01.2007 ON BEHALF OF SMT. K. RANIAMMAL AND SM T. GAYATHIRI SHARMA (VENDORS), FOR SALE OF 0.89 CENTS AND 0.78 CENTS OF LANDS. FOR THIS PURPOSE THE ASSESSEE OBTAINED POWER OF ATTORNEY FROM THE TWO VENDORS ON 09.01.2007. 5 ITA NO.879/MDS/2012 THUS FROM THE ABOVE IT IS CLEAR THAT - A) THE PERIOD OF HOLDING THE LANDS BY THE ASSESSEE, AS A POWER OF ATTORNEY HOLDER IS JUST 14 DAYS. B) THE ASSESSEE NEVER BECAME THE OWNER OF THE SAID LANDS AT ANY GIVEN POINT OF TIME, C) THE ASSESSEE EXECUTED THE SALE DEEDS AS A POWER OF ATTORNEY HOLDER ONLY AND NOT IN THE CAPACITY OF THE OWNER, D) THE BENEFIT / PROFIT OF RS.16,45,499 DERIVED BY THE ASSESSEE WAS ON ACCOUNT OF HANDLING THE MATTER OF EXECUTION OF THE SALE DEEDS (WITH OR WITHOUT INVOLVING IN THE ENTIRE PROCESS OF TRANSFER OF THE 1ANDS I.E. STARTING FROM IDENTIFYING THE BUYER TO THE FINAL EXECUTION). HENCE IT IS THE REMUNERATION / PROFIT FOR THE ASSESSEE FOR HANDLING THE TRANSACTION. IN OTHER WORDS, THIS REPRESENTS THE INCOME FOR THE SERVICES RENDERED BY THE ASSESSEE TO THE VENDORS AND/ OR VENDEES. E) SINCE THE ASSESSEE'S BUSINESS ACTIVITY ITSELF CONSTITUTES BUYING AND SELLING THE LANDS, THE ABOVE TRANSACTION (I.E. EXECUTING THE SALE DEEDS) ALSO AMOUNTS TO BUSINESS TRANSACTION AND ANY GAINS ARISING OUT OF SUCH TRANSACTIONS SHOULD BE ASSESSED TO TAX AS BUSINESS INCOME ONLY. FURTHER, THIS INCOME HAS NOTHING TO DO WITH THE CULTIVATION OF THE CROPS AND HENCE THIS CANNOT BE TREATED AS AGRICULTURAL INCOME WITHIN THE MEANING OF SEC.2(LA) OF THE ACT. FURTHER, AND WITHOUT PREJUDICE TO THE ABOVE, EVEN I F IT IS TO BE PRESUMED THAT THE ASSESSEE PURCHASED THE ABOV E LANDS FROM SMT. K. RANIAMMAL AND SMT. GAYATHIRI SHARMA, AND OBTAINED A POWER OF ATTORNEY (INSTEAD O F GETTING THE LANDS REGISTERED IN HIS NAME) AND LATER ON SOLD THE LANDS TO THIRD PARTIES, STILL THE SURPLUS GENERATED FROM THE TRANSACTION WILL REPRESENTS THE BUSINESS PROFITS ONLY AND NOT CAPITAL GAINS. THIS I S PARTICULARLY SO BECAUSE - A) THE ASSESSEE'S BUSINESS ACTIVITY ITSELF CONSTITUTES BUYING AND SELLING THE LANDS 6 ITA NO.879/MDS/2012 B) THE INTENTION OF THE ASSESSEE WAS NOT TO HOLD THE L ANDS AS INVESTMENT CAPITAL ASSET (WHETHER AGRICULTURAL LAND OR BUSINESS LAND), BUT TO MAKE PROFIT ONLY. TH IS IS CLEAR FROM THE VERY FACT THAT THE ASSESSEE JUST RETAINED THE LANDS UNDER POWER OF ATTORNEY HOLDING ONLY SUGGESTING THAT THE ASSESSEE WANTED TO SELL TH E LANDS AT THE EARLIEST AND MAKE PROFIT. C) THE ASSESSEE NEVER BECAME THE OWNER OF THE LANDS AN D HENCE THE SURPLUS GENERATED FROM THE SAID TRANSACTION CANNOT BE TREATED AS CAPITAL GAINS (WHETHER SUCH GAINS ARE TAXABLE OR NOT). THE PRIMAR Y REQUISITE CONDITION BEFORE ATTRACTING THE CAPITAL GAINS, THE ASSETS MUST HAVE BEEN OWNED BY THE SELLER. SINCE THE ASSESSEE IS A MERE POWER OF ATTORNEY' HOLDER (EVEN IF HE HAS PAID THE FULL CONSIDERATION TO THE ORIGINAL OWNERS OR THE VENDORS AND OBTAINED A FULL AND IRREVOCABLE GENERAL POWER O F ATTORNEY) HE CANNOT BECOME THE OWNER. THIS CAN EVEN BE SUPPORTED BY THE FACT THAT IN CASE OF DEATH OF T HE POWER OF ATTORNEY HOLDER, THE PROPERTY REVERTS BACK TO THE ORIGINAL OWNERS/VENDORS ONLY AND THE LEGAL HEIRS OF THE POWER OF ATTORNEY HOLDER CANNOT HAVE A NY CLAIM ON SUCH PROPERTY. D) EVEN, IF IT IS TO BE CONSIDERED AS A FULL PLEDGED PURCHASE, THE SAME CANNOT PERMITTED AS THE VERY PURPOSE OF SUCH ARRANGEMENT IS EVASION OF REGISTRATION CHARGES PAYABLE TO THE RESPECTIVE STAT ES AND THE TRANSACTIONS SHOULD BE TREATED AS ILLEGAL. IN ANY CASE, SINCE THE ASSESSEE HAS NEVER BECAME TH E OWNER OF THE LANDS AND THE VERY PURPOSES OF THE TRANSACTION WAS TO MAKE PROFITS, THE SURPLUS OR PRO FIT GENERATED BY THE ASSESSEE CANNOT BECOME CAPITAL GAI NS. FURTHER, THE ASSESSEE'S BUSINESS ITSELF CONSTITUTES BUYING AND SELLING LANDS, THE SURPLUS OR PROFIT GENERATED IN THIS TRANSACTION CLEARLY BECOMES BUSINESS PROFIT AND TAX ABLE UNDER THE HEAD SSESSED THE SURPLUS / PROFIT RECEIVED IN THE TRANSACTION AS INCOME FROM THE BUSINESS. THE ACTION OF THE ASSESSING OFFICER IS CONFIRMED. 6. ON GOING THROUGH THE ORDER OF THE COMMISSIONER O F INCOME TAX (APPEALS), IT IS CLEAR THAT BENEFIT / PR OFIT DERIVED BY THE ASSESSEE WAS ON ACCOUNT OF HANDLING THE MATT ER OF 7 ITA NO.879/MDS/2012 EXECUTION OF SALE DEEDS AND IT IS A REMUNERATION / PROFIT FOR THE ASSESSEE FOR HANDLING THE TRANSACTIONS AND IT I S INCOME FOR THE SERVICES RENDERED BY THE ASSESSEE TO THE VE NDORS. IT IS THE FINDING OF THE COMMISSIONER OF INCOME TAX (APPE ALS) THAT ASSESSEES BUSINESS ACTIVITY ITSELF CONSTITUTES BUY ING & SELLING OF LANDS, THE TRANSACTION AMOUNTS TO BUSI NESS TRANSACTION AND ANY GAINS ARISING OUT OF SUCH TRANS ACTIONS SHOULD BE ASSESSED TO TAX AS BUSINESS INCOME ONLY. FURTHER, THIS INCOME IS NOTHING TO DO WITH THE CULTIVATION O F CROPS AND HENCE CANNOT BE TREATED AS AGRICULTURAL INCOME WITH IN THE MEANING OF SECTION 2(1A) OF THE ACT. NONE OF THE FI NDINGS WERE REBUTTED BY THE ASSESSEE WITH EVIDENCE. THE A SSESSEE IS INTO THE BUSINESS OF PURCHASE AND SALE OF LANDS. THE ASSESSEE HAS SHOWN THE PROFIT ON SALE OF LANDS AS I NCOME IN THE PROFIT & LOSS ACCOUNT. THERE IS NO EVIDENCE ON RECORD TO SHOW THAT THESE LANDS ARE AGRICULTURAL LANDS ONLY. IN VIEW OF THE ABOVE CIRCUMSTANCES, WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND REJECT THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE. 8 ITA NO.879/MDS/2012 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY , THE 12 TH DAY OF DECEMBER, 2014 AT CHENNAI. SD/- SD/- ( . ) ( ( *+ ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDR A PRASAD ) - / ACCOUNTANT MEMBER * - / JUDICIAL MEMBER * /CHENNAI, / /DATED, 12 TH DECEMBER, 2014 SOMU 12 32 /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 4 () /CIT(A) 4. 4 /CIT 5. 2 7 /DR 6. /GF .