Income Tax Appellate Tribunal - Rajkot
Dhaval Kantilal Acharya,, Gandhidham vs Assistant Commissioner Of Income Tax, ... on 28 November, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
RAJKOT BENCH, RAJKOT
Before: Shri S.S. Godara, Judicial Member
and Shri Amarjit Singh, Accountant Member
[Conducted through E-Court at Ahmedabad]
ITA No. 378/Rjt/2013
Assessment Year 2009-10
Dhaval Kantilal Acharya, The ACIT,
Plot No. 202, W ard- Gandhidham Circle,
12/B, Gandhidham Vs Gandhidham
PAN: AEZPA8841E (Respondent)
(Appellant)
Revenue by: Smt. Usha N. Shrote, Sr. D.R.
Assessee by: Shri Vimal Desai, A.R.
Date of hearing : 04-10-2016
Date of pronouncement : 28-11-2016
आदेश /ORDER
PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
This assessee's appeal for A.Y. 2009-10, arises from order of the CIT(A)-II, Rajkot dated 27-08-2013 in appeal no. CIT(A)- II/Rjt/0226/11-12, in proceedings under section 143(3) of the Income Tax Act, 1961; in short "the Act".
I.T.A No. 378/Rjt/2013 A.Y. 2009-10 Page No 2Dhaval Kantilal Acharya vs. ACIT
2. The assessee has raised following grounds of appeal:-
"1.The order u/s. 143(3) is bad in law.
2. The Ld. Assessing Officer has erred in law as well as on facts in making addition of Rs. 40,60,707/- treating the gain from the sale of agricultural land as adventure in the nature of trade. The Ld. C.IT(A) has erred in confirming the said treatment."
3. The return of income declaring income of Rs. 21,55,337/- was filed on 18-10-2010. The assessee is an individual deriving income as a director from Royal Plot India Pvt. Ltd, as partner in M/s. Bhavya Trading and M/s. Monarch and other from sources. During the course of assessment proceedings, the assessing officer noticed that assessee has shown profit of Rs. 40,60,707/- claiming to be from sale of agricultural land situated in village Rethal, Taluka Sanand. The said land was jointly purchased by the assessee and Shri Ramesh Arjanbhai Mayatra (director, Royal Infrasprojects Pvt. Ltd.) and proceed of the sale were are equally shared. The assessing officer asked the assessee why the profit from the sale of aforesaid land should not be taxed as adventure in the nature of trade. The assessee claimed it as exempt on the ground that the said land was not a capital asset within the meaning of section 2(14) of the act, therefore, the gain is not liable to tax u/s. 45 of the act and he further stated that capital gain tax on transfer of agricultural land is exempt from tax. The assessing officer stated that the genuineness of this transaction which has generated huge profit in short period is doubtful and it cannot be said that what was transferred was agricultural land within the meaning of section 2(14) of the act. The assessing officer I.T.A No. 378/Rjt/2013 A.Y. 2009-10 Page No 3 Dhaval Kantilal Acharya vs. ACIT further stated that the claim of the assessee is that he is an agriculturist and was holding the land for agricultural purposes is completely baseless. The assessee is a director in Royal Plot Pvt. Ltd (Royal Infrastructure Pvt. Ltd) and draw salary from the company and he further derives his share as partner in Monarch Movers and Bhavya Trading and from the return of income of earlier year and computation it is seen that assessee has not derived a single rupee from agricultural income nor he had any agricultural land holding for agricultural purposes. From the three year return of income and computation it is noticed that assessee is deriving income from partnership firm and salary in his capacity as a director. He further stated that there is clear intention to purchase land and sell it after approximately 10 months in a very short period for profit purpose only. The assessing officer has stated that the assessee has no intention to cultivate the land for agricultural purposes and his intention was to hold the land for a short period for the purpose of selling it when the price were high.The assessing officer further stated that the transaction made by the assessee are nothing but adventure in the nature of trade and the surplus arose as a result of this amount is a business profit.
4. Aggrieved against the order of the Assessing Officer, the assessee preferred appeal before the Ld. Commissioner of Income Tax(A). The Ld. Commissioner of Income Tax(A) has decided the appeal against the assessee and the decision of the Ld. Commissioner of Income Tax(A) is reproduced as under:-
I.T.A No. 378/Rjt/2013 A.Y. 2009-10 Page No 4Dhaval Kantilal Acharya vs. ACIT "6.12 After carefully reviewing the appellant's contentions, the assessment order and the other judicial decisions, I find that the principles laid down by the Hon'ble Supreme Court in the case of G. Venkatswamy Naidu & Co. vs. (J1IT (supra) and P.M. Mohammed Meerakhan vs. CIT (supra) lay down the guiding principles for determining this issue. The other decisions are essentially, derived from the decision of the Hon'ble Apex Court. In this decision, the Hon'ble Supreme Court has stated as under:-
"As we have already observed it is impossible to evolve any formula which can be in determining the character of isolated transactions which come before the tax proceedings. It would besides be inexpedient to make any attempt to evolve such a rule or formula. Generally speaking, it would not be difficult to decide whether a given transaction is an adventure in the nature of trade or not. It is the cases on the border line thai cause difficulty. 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 derived from an advanture in the nature of trade. Cases of realisation of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventures in the nature of trade. In deciding the character of such transactions several factors are treated as relevant. Was the purchaser a trader and were the purchase of the commodity and its resale allied to his usual trade or business or incidental to it? Affirmative answers to these questions may furnish relevant data for determining the character of the transaction. What is the nature of the commodity purchased and resold and in what quantity was it purchased and resold? If the commodity purchased is generally the subject-matter of trade, and if it is purchased in very large quantities, it would tend to eliminate the possibility of investment for personal use, possession or enjoyment. Did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby made it' more readily resale able? What were the incidents associated with the purchase and resale? Were they similar to the operations usually associated with trade or business? Are the transactions of purchase and sale repeated? In regard to the purchase of the commodity and its subsequent possession by I.T.A No. 378/Rjt/2013 A.Y. 2009-10 Page No 5 Dhaval Kantilal Acharya vs. ACIT the purchaser, does the element of pride of possession come into the picture? A person may purchase a piece of art, hold it for some time and if a profitable offer is received may sell it. During the time that the purchaser had its possession he may be able to claim pride of possession and aesthetic satisfaction; and if such a claim is upheld that would be a factor against the contention that the transaction is in the nature of trade. These and other considerations are set out and discussed in judicial decisions which deal with the character of transactions alleged to be in the nature of trade. In considering these decisions it would be necessary to remember that they do not purport to lay down any general or universal test. The presence of all the relevant circumstances mentioned in any of them may help the court to draw a similar inference; but it is not a matter of merely counting the number of facts and circumstances pro and con; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction; and so, though we may attempt to derive some assistance from decisions bearing on this point we cannot seek to deduce any rule from them and mechanically apply it to the fact before us. In this connection it would be relevant to refer to another lest which is some limes applied in determining the character of the transaction. Was the purchase made with the intention to resell it at a profit? It is often said that a transaction of purchase followed by resale can either be an investment or an adventure in the nature of trade. There is no middle course and no half-way house. This statement may be broadly true and so some judicial decisions apply the test of the initial intention to resell in distinguishing adventures in the nature of trade from transactions of investment. Even in the application of this test distinction will have to be made between initial intention to resell at a profit which is present but not dominant or sole; in other words, cases do often arise where the purchaser may be willing and may intend to sell the property purchased at profit, but he would also intend and be willing to hold and enjoy it if a really high price is not offered. The intention to resell may in such cases be coupled with the intention to hold the property. Cases may, however, arise where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the I.T.A No. 378/Rjt/2013 A.Y. 2009-10 Page No 6 Dhaval Kantilal Acharya vs. ACIT properly for himself or otherwise enjoying or using it. The presence of such an intention is no doubt a relevant factor and unless it is offset by the presence of other factors it would raise a strong presumption that the transaction is an adventure in the nature of trade. "
It is very clearly laid down in this decision that the initial intention at the time of purchase would be a crucial factor to distinguish adventure in the nature of trade from investment. How to identify the initial intention of the appellant is a very difficult and intriguing question. This question has to be decided on the basis of the subsequent conduct of the appellant and the test of human probabilities as mentioned by the Hon'ble Supreme Court in the case of Sumati Dayal vs. CIT 214 ITR 801 (SC). It is also required to be seen whether the apparent is real or not. The totality of the circumstances has to be considered to draw a fair conclusion about the initial intention of the appellant. The following points would prove to be very relevant for the same :-
1. Though the appellant had purchased agricultural land, it is quite obvious that he did not intend to enjoy it as agricultural land.
This is evident from the fact that the appellant had donated the entire agricultural produce to the Rethal Gram Pancchayat. In other words, the income from agriculture from the said piece of land was of no relevance for the appellant. The time period of holding of ten months goes to show that there could not have been more than two crops on this plot. That the appellant has not shown any agricultural income or not enjoyed any agricultural income from the said land is a strong indicator to the the fast that the appellant had no intention whatsoever of enjoying this property as gricultural land. This points at the inescapable conclusion that the initial and only intention of the appellant was to sell this land and make a killing.
2. The appellant has been shown to be an agriculturist in the purchase deed. This may be true as per Government records. However, if the profile of the appellant is carefully scrutinized, by no iota of imagination can he be described to be an agriculturist. The appellant is essentially in the business of sale and purchase of land and finance. In fact, it has been mentioned by the A.O. in the assessment order that the appellant had never disclosed any agricultural income. Getting himself classified as an agriculturist is very similar to the famous case in Maharashtra of Shri Amitabh Bachchan declaring himself to be an agriculturist.
I.T.A No. 378/Rjt/2013 A.Y. 2009-10 Page No 7Dhaval Kantilal Acharya vs. ACIT
3. The appellant has sold the land after a short period often months. There has been a massive increase of about 800% in the price of the land within a very short span of time. There are two possibilities. Either the purchase price has been doctored or there are some exceptional circumstances leading to such an abnormal increase in price. The first possibility cannot be commented upon as no efforts have been done by the A.O. in this regard. However, there has been a substantial change about the surrounding location of the land.
This is the land where TATAs shifted the Nano Plant from Singur. It is true that the declaration to shift from Singur was officially made by the TATAs on 3/10/2008 and the announcement of moving to Sanand was made on 7/10/2008. The land has been sold by the appellant on 16/6/2008. Hence, it can be argued that the appellant was not aware of this development and he sold the land because he was in need of money. (This is the exact argument taken by the appellant during assessment and appellate proceedings.) What needs to be appreciated is that major decisions like shifting of a big factory like the Nano from place A to place B is not a decision that can be taken impulsively and on the spur of the moment. There are various factors which are required to be connsidered for such a massive dislocation. Out of various locations, the TATAs must have shortlisted one or two locations and then finally the decision must have been taken. For this purpose, the State Government must have held detailed talks with TATAs. In fact, it is a well-known fact that the Hon'ble C.M. of Gujarat had openly welcomed TATAs to Gujarat for setting up the Nano factory when the initial unrest started in Singur. The State Government must have also proposed some areas as the probable location for setting up of the factory. In other words, all this process must have been going on for a reasonable amount of time.
It is important to note that the appellant was Director in a company which was doing the work of developing and sale of land in and around Sanand. It would therefore be very reasonable to assume that the appellant had full knowledge of the above referred developments leading to the rise in the land price. The appellant can be reasonably assumed to have insider information about these developments. Hence, the appellant has waited for the right moment and went in for a massive kill at the right moment. The entry and exist of the appellant are very much based on the market information I.T.A No. 378/Rjt/2013 A.Y. 2009-10 Page No 8 Dhaval Kantilal Acharya vs. ACIT which he was privy to because of his business and other relevant factors.
4. The contention of the appellant that he had sold it to an agriculturist will not be of much help in this case. What is important is the initial intention of the appellant and his subsequent conduct. Also, from the sale deed, it is obvious that the person to whom the land has been sold appears to be an agriculturist similar to the appellant, as discussed in para-3 above. The purchaser has purchased the land at Rs.90 lakh, a staggering sum. The purchaser is also a resident of Ahmedabad of Vaishali Society, Satellite, Ahmedabad. In fact, the land has been jointly purchased by seven people in the same family out of which only two have been mentioned as agriculturist (Dhandho : Kheti). It is thus obvious that though the sale has been made to an agriculturist, it is only-a facade.
5. There has been a massive increase in the price of the land. The appellant purchased it for Rs. 11 lakhs and within a span often months the price shot up to Rs.90 lakhs. There was no change in the productivity of the land, irrigation facilities and the crop patterns. In fact, as discussed earlier, hardly any significant agricultural operations were carried out on this land after purchase by the appellant. The only reason for this abnormal increase in rate is the shifting of TATAs and acquisition of land by GIDC for this purpose. It is true that the appellant has sold this land before the announcement by TATAs of shifting to Sanand. However, as discussed earlier, this cannot be an instantaneous decision and must have been brewing for a long time. What the appellant has done is utilise his knowledge of the market conditions and scenario to decide the correct time for entry and exit so as to earn maximum profit from the transaction. This can definitely be held to be the only intention of the appellant for entering into this transaction.
In light of the above discussion, it is held that the appellant's case is squarely covered by the decision of the Hon'ble Supreme Court in case of G. Venkatswamy Naidu (supra). This transaction of the appellant is held to be an adventure in the nature of trade. The A.O's action is therefore upheld.
6.13 The third point required to be considered is whether this is a sham transaction or not. The A.O. has taken recourse to famous McDowell decision (154 ITR 148). The applicability of McDowell decision is brought about by the Hon'ble Supreme Court in the I.T.A No. 378/Rjt/2013 A.Y. 2009-10 Page No 9 Dhaval Kantilal Acharya vs. ACIT recent decision of Vodafone vs. Union of India (2012) 341 ITR 1 (SC) has said as under: -
"Our Analysis
58. Before coming to Indo-Mauritius DTAA, we need to clear the doubts raised on behalf of the Revenue regarding the correctness of Azadi Bachao Andolan case (supra) for the simple reason that certain tests laid down in the judgments of the English Courts subsequent to Commissioners of Inland Revenue v. His Grace the Duke of Westminster 1935 All E.R. 259 and W.T. Ramsay Ltd. v. Inland Revenue Commissioners [1981] 1 All E.R. 865 help us to ' understand the scope of Indo-Mauritius DTAA. It needs to be clarified, that, McDowell & Co. Ltd. case (supra) dealt with two aspects. First, regarding validity of the Circular(s) issued by CBDT concerning Indo-Mauritius DTAA. Second, on concept of tax avoidance/evasion. Before us, arguments were advanced on behalf of the Revenue only regarding the second aspect.
59. The Westminster principle states that, "given that a document or transaction is genuine, the court cannot go behind it to some supposed underlying substance". The said principle has been reiterated in subsequent English Courts Judgments as "the cardinal principle"................................
64. The majority judgment in McDowell & Co. Ltd. case (supra) held that "tax planning may be legitimate provided it is within the framework of law" (para 45). In the latter part of para 45, it held that "colourable device cannot be a part of tax planning and it is wrong to encourage the belief that it is honourable to avoid payment of tax by resorting to dubious methods". It is the obligation of every citizen to pay the taxes without resorting to subterfuges. The above observations should be read with para 46 where the majority holds "on this aspect one of us, Chinnappa Reddy, J. has proposed a separate opinion with which we agree". The words "this aspect"
express the majority's agreement with the judgment of Reddy, J. only in relation to tax evasion through the use of colourable devices and by resorting to dubious methods and subterfuges. Thus, it cannot be said that all tax planning is illegal/illegitimate/impermissible. ") Moreover, Reddy, J. himself says that he agrees with the majority. In the judgment of Reddy, J. there are repeated references to schemes and devices in contradistinction to "legitimate avoidance of tax liability" (paras 7-10, 17 & 18). In our view, although Chinnappa Reddy, J. makes a number of observations regarding the need to depart from the "Westminster" and tax avoidance - these are clearly I.T.A No. 378/Rjt/2013 A.Y. 2009-10 Page No 10 Dhaval Kantilal Acharya vs. ACIT only in the context of artificial and colourable devices. Reading McDowell, in the manner indicated hereinabove, in cases of treaty shopping and/or tax avoidance, there is no conflict between McDowell and Azadi Bachao or between McDowell and Mathuram Agrawal.
6.14 This issue has also been dealt with by the Hon'ble Gujarat High Court in the case of Banyan & Berry (222 ITR 831) has held as "Every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may be subjected in future, can no be viewed with suspicion and be treated as a device for avoidance of tax irrespective of legitimacy or genuineness of the act. The principle enunciated in Dowell's case has not affected the freedom of citizen to act in a manner Wording to his requirements, his wishes in the manner of doing any trade, activity or planning his affairs with circumspection, within the frame work of law, unless the same fall in the category of colourable device which may properly be called a device or a dubious method or a subterfuge clothed with apparent dignity. What has been deprecated as taxes planning for avoidance of tax are those acts which have doubtful, or questionable character as to their bona fides and righteousness not all legitimate acts of the taxpayer which in ordinary course of conducting his affairs a person does and are under law he is entitled to do, can be branded of questionable character on the anvil of McDowell. Any act of an assessee which results in reduction of a tax liability or expectation of tax benefit in future cannot be said to amount to colourable device, a dubious method or subterfuge lo avoid tax and can be ignored if the facts are unambiguous and bona fide, merely on the ground that treating those as deliberate would result in tax liability in future. While the planning adopted as a device to avoid tax had been deprecated, principle cannot be read as laying down the law that a person is to arrange his affairs so as to attract maximum tax liability, and every act which results in tax reduction, exemption of tax or not attracting tax authorised by law is to be treated as device of tax avoidance. "
6.15 In the appellant's case, the veracity of all the transactions is neverdoubted. There are no indications anywhere to show that the transaction is artificial or can be said to be a colourable device. Because there was a substantial gain in a relatively short period and the gain was shown to be exempt from taxation due to the asset sold being outside the purview of S.45, it cannot be said that this is a sham transaction. There are no attributes to label it as a colourable I.T.A No. 378/Rjt/2013 A.Y. 2009-10 Page No 11 Dhaval Kantilal Acharya vs. ACIT device or a sham transaction. The contention of the A.O. is therefore not held to be correct.
6.16 In light of the above discussion, the following conclusions emerge:-
1. The land sold is agricultural land as defined in s. 2(14). The gain on sale of this land is beyond the purview of capital gains.
2. The is an adventure in the nature of trade and the profits from the same are held to be business profits.
3. This is not a sham or colorable transaction."
5. During the course of appellate proceedings before us, Ld. A.R. contended that Ld. Commissioner of Income Tax(A) has erred in sustaining the addition made by the assessee on the reasoning that gain from sale of agricultural land is an adventure in the nature of trade. He also submitted paper book containing written submission, submission made before the Ld. Commissioner of Income Tax(A), copy of purchase deed of agricultural land, copy of sale deed of agricultural land, form 7/12 and 8A of agricultural land and copy of judicial pronouncement relied by the learned counsel. The learning Counsel also stated that the said agricultural land was being used for agricultural operations. He also referred to the copy of form 7/12 and 8A of agricultural land which reflects that the crops were taken on the said and agricultural land. He also stated that the part of such crops were used for home consumption and remaining part were given to the local authority as voluntary contribution. He also referred to the certificate of the local authority in this regard. He again submitted that the said agricultural land was a yielding fixed asset and not a trading asset or stock in trade. He again contended that under the settled principles of income tax act, gain on disposal of such asset does not I.T.A No. 378/Rjt/2013 A.Y. 2009-10 Page No 12 Dhaval Kantilal Acharya vs. ACIT fall under the head business income. He again submitted that trade or business is not permissible in agricultural lands in Gujarat. He purchased the land as an asset and carried all agricultural operations thereon. The same was not treated as trading item/ stock. The same was sold for requirement of funds. It was a solitary transaction happened for the first time. The resultant gain was not on account of any contribution from the side of the assessee but was due to external factors on the other hand the business income normally arises on some contributions/ efforts on the part of a businessman. He has also placed reliance on the judicial pronouncement of the coordinate Bench of ITAT Ahmedabad in ITA No.826/AHD/2010 in the case of Sh.Ajitkumar T. Patel Vs DCIT. Circle 1 Ahmedabad, Karnatka High Court in the case of CIT Central Circle Banglore v.Irfan Razack 51 taxmann.com 45,Punjab and Haryana High Court in the case of CIT-II, Chandigarh v.Harjit Singh Sangha 37 taxmann.com
63. On the other hand, Ld. D.R. relied on the order of Ld. Commissioner of Income Tax(A).
6. We have heard both the sides and perused the material on record carefully. We find that the land in question was never treated as a stock in trade and it was treated as capital asset in the books of account of the assessee. We find that there was no systematic or repetitive buying or selling of land which could indicate an adventure in the nature of trade. we noticed that the assessee has not obtained I.T.A No. 378/Rjt/2013 A.Y. 2009-10 Page No 13 Dhaval Kantilal Acharya vs. ACIT any permission for conversion of said agricultural land to non- agricultural land and he has sold the same agricultural land to the persons who was also an agriculturalist . The assessing officer has not disproved the facts that said agricultural land was shown as a fixed asset in books of account of the assessee and agricultural operation were carried out by the assessee.The assessing officer has also not disproved the fact that 7/12 and 8A of agricultural land reflects that the crops were taken on the said agricultural land. Considering the above stated facts and legal findings we observed that the assessing officer has not proved with relevant supporting evidences that the sale of agricultural land was an adventure in the nature of trade, therefore, we are not inclined to uphold the order of the Ld.CIT(A).
7. In the result the appeal of the assessee is allowed.
Order pronounced in the open court on 28-11-2016 Sd/- Sd/-
(S.S. GODARA) (AMARJIT SINGH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad : Dated 28/11/2016
आदेश क त ल प अ े षत / Copy of Order Forwarded to:-
1. Assessee
2. Revenue
3. Concerned CIT
4. CIT (A)
5. DR, ITAT, Ahmedabad
I.T.A No. 378/Rjt/2013 A.Y. 2009-10 Page No 14
Dhaval Kantilal Acharya vs. ACIT
6. Guard file.
By order,
Assistant Registrar,
Income Tax Appellate Tribunal,
Rajkot