The Commr Of Income Tax vs M/S Gajanana Enterprises on 18 March, 2009

[Cites 2, Cited by 3]

Karnataka High Court

The Commr Of Income Tax vs M/S Gajanana Enterprises on 18 March, 2009

Bench: K.L.Manjunath

3 I.T.A. 50 - 04
IN THE HIGH COURT OF KARNATAKA AT BANGALORE

DATED THIS THE KST" DAY OF MARCH, 2009

PRESENT

THE HON'BLE MR. JUSTICE KL. MANJUNATIE-.1

AND

THE HON'BLE MR. JUSTICE A_._S..,.PACHHAPU1}"iE"'V   

INCOME TAX APPEAL No; 5C=j'0.E 20.044   AI' '

BETWEEN:

1. The Commissioner o_T:'Incon1e  V:
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BaI1ga1ore-~01}.  _ 7   

2. The Dy,.Commi.ss.i'oEere.o13_C1r§éo_1--;;eiirgix,
Spl. Ra-.n'ge.--II,  C.R. _1E3u.i1d~ing,V Q*e1een's

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. . . Appellants
  {By ;'A'S.eS}zé1cha1a, advocate)
AND', 'I A A A A A

 Mfg ..«GajanEnE Enterprises, No. 93,

 Madhu""vMarket, A.M. Lane, Chikpet

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A A Respondent

{By Sri S. Parthasarathy, advocate) ._T"I{Is 1.T.A. FILED UNDER SEC. 260A OF THE INCOME 'TAXACT, 1961 ARISING OUT OF THE ORDER DT. 8.7.2003 PASSED IN ITA NO. S91/BANG/1995 FOR THE ~-AOSSESSMENT YEAR 1993-94 PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO;

1. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN; AND 2 I.T.A. 50 - (34

2. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATETRIBUNAL, BANGALORE IN ITA NO. 591/BANG/1995 DT. 8.7.2003 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISISONER OF INCOME T£L'{. CENTRAL CIRCLE-II, BANGALORE ETC., KTHS Lrah HAVHWE BEEN HEARD AND RESERVED} Ca coMn«}oNFORrEoNoUNcEMENroFJUDGMENrfnnsg~--* DAY, PACHHAPURE, .1, DELIVERED THE FOLLQ_W'IN.G;--._i.:" 4 JUDGMENEM" 9 °'' This appeal is by the'i':'Rei;ient1e the concurrent ﬁndings oflithie~V..V_order passed the Commissioner of Income Tax--«i(A--ppeals) land. ftirther conﬁrmed by the Tribunal, Bangalore Benr_3h,__ 1995, dt.

8.7.2093 foriitlic. year 199394.

2. O' The for the purpose of this appeal are as u.nd'er;

I l'I':he riespondelnti Assessee is a private trust and it income on 30.6.1993 declaring an inco__n1ev_.of 88,62,897/«~ as an income from capital gains." The return was originally processed under Sec. :{f1~A) of the Income Tax Act (hereinafter referred to as the Act) and the Assessee entered into an agreement of sale on 6.4.1989 with Mrs. Sayeeda Fathirna Begum for purchase of the agriculture lands in Sy. Nos. 35 to 3 I.T.A. 50 - 04 39 (old Sy. No. 100) of B. Narayanapura in Bangalore south taluk and an advance of Rs. 10,000/-- was paid on that day and a further advance of Rs. 90,000 / -- was on 30.8.1989. The Assessee, after entering":infA9 agreement, initiated the process Mvvith _Vthe"

Government to convert the land into €_Vl'1'"1>.i':I1Cl.'1.>'.._StI~'il'»'.ll'l and the government granted the-.. permi'ssion«.._,_on 19.3.1992.

3. The assesseel Fathima Beguam entered into M / s Hara Housing Ltd., for sale of the propertj,*--for_a' R'S;"'1'Vi22,00,0OO/ -- and the sale agree'mer1tV:lv'cani:eexecuted on 29.10.1992. Thereafterl.'t«Ml/'5 Housing and Land Development _ Pvt. ," obtained vthpeppermission of BDA to change the »ind11stria1«.la=9li* to residential purpose. The parties to the 'agreement."japphlied for clearance from the appropriate

-- authority. "Bangalore and however, the appropriate sauthoritly' preemptively purchased this property as per

561..

.9 thebiprovisions of Chapter XXG of the Act. The assessee "Was paid a sum of Rs. 93,03,711/- as consideration amount and Mrs. Sayeeda Fathima Begum was paid a 55L 4 E.T.A. 50 -- 04 sum of Rs. 11,30,930/-. This amount was paid with the consent of the parties.

4. Out of the sum of Rs. 93,03,711/--, assessee declared a sum of Rs. 88,62,897/~ income under the head 'Capital Gains' and .cl'aimed_:the T expenditure of Rs. 4.40 lakh J improvement of the said property. '{"hei'-Assessifngpi officer."

found that the assessee had ispierit a huge"'an1ountWfor conversion of agriculturalplandlitoi' iindustriai1"use and thereafter to residential object of carrying on business claim of the assesseei--that'purchased for starting an industry was v'E'i'zei"Assessing officer found that a sum of ]i:7ts_,-M9 been paid to one Sri YB. Krtapiashankarli "te._pu1f-chase the other property at B. »N'arayarnapiu,vr;'*-. __All these facts amongst the others as stated assessment order were taken into conisicderation and it was concluded that the assessee '' was carrying on an adventure in the nature of a trade i'7apnid"itherefore, was iiable to be taxed under the head i' '"'Income from Business' and not under the head 'Income from Capital Gains.' The assessee was hence treated as an association of persons and the entire income received ~>/\ 5 I.T.A. Sf} - 04 from the sale of property was brought to the tax under the head 'lncomelfrom Business' in the assessment order, dt. 28.3.1994.

5. Aggrieved by the order, an appeal cameto preferred to the Commissioner of Income Tax :"

who held that, income should be i.assesse'diiunrjia-rithe.' head 'Capital Gains' and further held {ﬂ"1.'§l:l2 the should be assessed in the hari_ds--..of beiieficiariesi a;r1d,no.t in the status of A0? and according1y,--the came to be allowed under an order', __Aggrieved by the said order of A the Appellate Coinniissiorier, an appeal came the~~~.I.n'come Tax Appellate Tribunal, ' BanV5galao'~rei "which considered the various grounds ' rais_e'd_:..and conﬁrmed the ﬁndings recorided"by Appellate Commissioner (vide order, dt. 'aggrieved by the concurrent ﬁndings, this luapipeal filed.

" _ After hearing, we have formulated the "'-"_subs"tantia1 questions of law as hereunder;

1. Whether the appellate authorities were correct in holding that the consideration received by the assessee of Rs. 93,03,711/- for selling the land bearing Sy. Nos. 35 to 39 e4

6 I.'!".A. 50 - 04 of Mayam Gutta village, which had been acquired under an agreement for Rs. 1 lakh should be brought to tax under the head "Capital Gains" and not under the head "Business" despite the assessee carrying on a systematic activity bf conver_tihgl 4' " ii 3 "

agriculture land to nonwagriculture.l.:b§,I:'ii. making an huge investment?'

2. Whether the appellate iifailed_ , to take into consideration "nu1"nbe'ri:

materials relied on by thie.._lAL=sessin-g p_oI'filcer?§ to arrive at a conelusionlllthatjp ._Assess"see"

was carrying one" aetixrity in order to derive vthe».i:ncorne__fron'ir'business and co'nse-:1-uently =i reCo'i'ded""-a...§ perverse finding? e' '* Whe:}"Q~l\,%.t1qe«.4vappella_te authorities were correct in holding__ti1at--~ the Assessee cannot be assessed. asanfassociation of persons' 'but shouldbe assessed in the hands of the be"nefi.epiaries'?" lllll it Apex Court in the decision reported in 196$ Tax Reports at page 21 (Janki Ram Bahadeurt' Ram vs. Commissioner of Income Tax, "'--li_aC.alcfutta) held that, "The facts that the appellant made a profitable bargain when it purchased the property and that it had a desire to sell the property if a favourable offer was forthcoming could not without other 54 7 l.T.A. 50 - 04 circumstances justify an inference that the appellant intended by purchasing the property to start a venture in the nature of trade."

So also, in the decision reported in 1959:v~1~r¢;c;rf;e'V:' Tax Reports at page 735 (P.M. Mohammed..M_eerai{han 9 Vs. Commissioner of Income Tax}; Kerala),*__it* that, "It is not possible to evolve any---- single legal 'test on' formula which can be appliediiinjdetermiiiing a transaction is an adventure trade or not. The answer to the depend in each case on§~vtlje_p:ptotal=i__imp.ress«iorii.:_and_:Veffect of all the relevant faict0r.s'iandv..circigtmstancies 'proved therein and whichividetermine thecharacter of the transaction."

7. 9' 4' So,ir_1iithe ¢anie::'t of the principles laid down by the I_~Ionii'bleiAApex 'Court in the decisions referred to i * above, Eifwe zconsideriithe facts on hand,_it reveal that the , As_seis3.eie.._g private trust and entered into an agreemeiiti sale on 6.4.1989 with Mrs. Sayeed Fathia:1f1pi:'Begurn to purchase the land bearing Sy. Nos. 39 and an advance amount of Rs. 1 lakh was paid and the process was initiated to convert the land into an industrial land and the permission was accorded on 19.3.1992. It is, at this stage, that M/s Hara Housing 8 I.T.A. 50 -- 04 and Land Development Pvt. Ltd, agreed to purchase the said land for an amount of Rs. 1,22,00,000/-- and the agreement came to be executed on 29.10.1992 and the agreed purchaser obtained the permission of change the industrial land to residential purposge"and..litlV1' is in these circumstances that the appropriate. preemptively purchased this piropertyjj. as provisions of Chap. XX of the: Act and the Asp.-gégsee "way; paid a sum of Rs. 93,03,711/--l'a.sliconsideration amount and some amount was"paid_'lAltoV_'Mrs-iS~ayeedaVl'AFathima Begum. So, taking into consid.era§tionvlVthjevnature of the transaction, be»; said" -i_b3z____Hany stretch of imagination that_¢Vthere.<V9Was any intention to make the proﬁt and _ even' we do not ﬁnd that the transaction 'was' in the "nature of trade. It is in the cont.exi;."i'Aofl'these cilrcumstanccs that the Commissioner and also the Income Tax Appellate Tribunal .concurrent1y held that it is not in the nature of a tradenand the proﬁt earned thereby cannot be under ihead "Business" and it has to be under the head

9. 'Capital Gains." X4

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