Income Tax Appellate Tribunal - Hyderabad
B. Narasimha Reddy vs Income-Tax Officer on 18 December, 1992
Equivalent citations: [1993]47ITD398(HYD)
ORDER
T.V. Rajagopala Rao, Judicial Member
1. [This para is not reproduced here as it involve minor issue].
2. Following two common points are involved in each of these appeals:
(i) What is the correct income which can be estimated as having been derived by the assessee from his poultry farm for the three accounting years relevant to these three assessment years ?
(ii) When the assessee sold 4 acres of his ancestral land at Sahebnagar after carving out into house plots, can it be said that the assessee carried on an adventure in the nature of trade and if so whether the excess derived from the sale of lands can be assessed as business income or can the excess realised represent only capital gains if it is considered only as a sale of capital asset held by the assessee ?
3. to 11. [These paras are not reproduced here as they involved minor issues.]
12. The second point involved in these appeals is whether the sale of land in Survey No. 145 in Sahebnagar Kalan village is an adventure in the nature of trade and if so whether the sale proceeds are subjected to income-tax treating it as income from business. The Assessing Officer (Income-tax Officer, Circle-IV, Hyderabad) treated the sale transactions effected in each of these accounting years in question as sale of stock-in-trade held by the assessee. He held that the assessee derived profit from business on selling the plots from out of the lay out area in S.No. 145. The Income-tax Officer held that the extents of land sold in the three relevant accounting years are as follows :
Accounting year relevant to assessment year 1985-86 .. .. 3997 sq. yards.
Accounting year relevant to assessment year 1986-87 .. .. 6161 sq. yards. Accounting year relevant to assessment year 1987-88 .. .. 1862.5 sq. yards.
Sale price was uniformly taken at Rs. 18 per sq. yard. The opening balance at the beginning of the accounting year relevant to assessment year 1985-86 and the closing balance at the end of the accounting year relevant to assessment year 1987-88 were taken to be as follows :
Opening balance at the beginning of the accounting year relevant to assess Rs.
ment year 1985-86 .. 18,472 Less : Sale during the accounting year relevant to assessment year 1985-86 .. 3,997 Opening balance at the beginning of the 14,475 accounting year relevant to assessment year 1986-87 Less : Sale during the accounting year relevant to assessment year 1986-87 6,161 Opening balance at the beginning of the accounting year relevant to assessment year 1987-88 8,314 Less : Sale during the accounting year 1,862.5 relevant to closing balance 6,451.5
13. As already stated, the sale price was taken to be Rs. 18 per sq. yard. The profit said to have been derived from real estate business is computed by the Income-tax Officer for these three assessment years as follows :
Assessment year: 1985-86 .. Rs. 69,908 Assessment year: 1986-87 .. Rs. 1,07,756 Assessment year: 1987-88 .. Rs. 32,575
14. The case of the assessee is as follows : The assessee was the karta of a Joint Hindu family which was having 22 acres 32 guntas of land in survey Nos. 144, 145, 146 and 147 of Sahebnagar Kalan village besides other properties. The assessee had three sons. The larger HUF effected partition on 30-7-1980 and in that partition, the assessee got an extent of 5 acres 10 guntas. Out of the above extent, in survey No. 145, towards the share of his smaller HUF consisting of himself and his wife. The assessee entered into an agreement of sale for about 4 acres in S. No. 145 out of the said land which came to his share on 18-12-1981 with one Shri Ramanaiah Chowdhury at the rate of Rs. 18 per sq. yard. It is also the case of the assessee that out of his extent of 5 acres 10 guntas lay outs were formed in an extent of 4 acres and the approval of the Sahebnagar Kalan Gram Panchayat was obtained for the said extent of 4 acres in survey No. 145 on 28-4-1975. Some of the salient features of the agreement dated 18-12-1981 are the following Copy of the agreement is provided at pages 12 to 16 of paper book No. 1 filed on behalf of the assessee. In the preamble of the agreement, it is stated that 4 acres of land forms the north of the lay out sanctioned by the Gram Panchayat dated 28-4-1975. Whereas the sanctioned lay out comprised land covered by survey Nos. 145 & 146 of Sahebnagar Kalan village it is the case of the assessee that the order sanctioning lay out was ante dated and in fact no lay out was sanctioned in 1975. It is further stated that 4 acres of land was divided into house sites. The vendee Shri Ramanaiah Chowdhury agreed to purchase the said land in terms of plots. In Clause 1 it is stated that the agreed price was at the rate of Rs. 18 per sq. yard and advance of Rs. 10,000 was given by the vendee to the vendor. Under Clause 4 the sale is to be completed within 9 months from the date of the agreement and the time can be extended by a further period of three months provided the vendor is satisfied with the difficulties confronted by the purchaser. Therefore, according to Clause 4, time for completion of sale agreement is set out as 12 months. Clause 5 states that the vendor agreed to convey the plots to the nominees of the purchaser free from all encumbrances, charges and arrears of tax etc. As per Clause 6 advance of Rs. 10,000 is agreed to be adjusted as last payment. According to Clause 6 itself further payments of sale price would be made as and when there would be execution of sale deeds in favour of the nominee of the purchaser. The actual wordings of Clause 6 is felt to be important and, therefore, it is extracted as under :
It is mutually agreed that the part payment amount of Rs. 10,000 paid this day will be taken into consideration and shall be adjusted as the last payment and whenever there are executions of sale deeds hereafter in favour of the nominees of the Purchaser further payments will be made by the purchaser to the Vendor.
Clause 9 is also felt important and, therefore, it is extracted as under:
It is further mutually agreed that if the: purchaser for its own reason falls to complete the sale transactions of all the plots even after the expiry of the extended period the Purchaser shall be liable to pay the entire balance sale consideration to the vendor and the vendor shall deliver such unsold plots to the Purchaser also execute a Power of Attorney Deed in favour of the Purchaser or in favour of his nominee authorising to execute the sale deeds in respect of the unsold plots and to present the same for registration.
It is the case of the assessee that he was born in an agriculturist family and that the land in survey No. 145 Sahebnagar Kalan village came to him from his ancestral generation after generation and thus it was his ancestral land. He was only an agriculturist and neither he nor anybody in his family carried on any business whatsoever since several decades past. His main purpose to get lay out sanction for the said land is only to get better price for this land which is assuming importance in view of fact urbanisation of the area. The nature of the land is agricultural and in order to prove the nature of the land the assessee filed a certified copy of the pahani patrak relating to year 1977-78 obtained from Tahsildar's office. The said copy of Pahani Patrak is furnished at page 50 of the paper book 1 filed on behalf of the assessee. Columns of the said document would disclose that Shri B. Narasimha Reddy, had raised, Jower, Vegetables, Paddy as well as red gram in the said land. Thus, the nature of the land is agricultural and the assessee has been deriving agricultural produce therefrom from year to year. This cultivation of the land continued up to 1980-81, inasmuch as the learned Commissioner (Appeals) in his impugned order at para 4.3 states that subsequent to assessment year 1980-81, there was no evidence of carrying on of any agricultural operations in these lands, thereby he admitted that up to 1980-81 there was clear evidence that agricultural operations were carried on. The contention of the assessee in the beginning was that it is an agricultural land, that is situated beyond 8 kms. from the municipal limits of Hyderabad, that he was not a trader or businessman in real estate and, therefore, the sale price does not represent the turnover of a businessman and also does not give rise to capital gains inasmuch as the agricultural land situated beyond 8 kms. from the outer limits of Hyderabad Municipality cannot be considered to be a capital asset from which capital gain is to be assessed. Thus, he is not liable to pay income-tax on the ground that he earned business income or on the ground that he sold a 'capital asset'. However, the learned Commissioner (Appeals) in his impugned orders stated that the land in survey No. 145 is situated not very much beyond the municipal limits of Hyderabad. He held that some Government housing colonies have been developed nearby. Residential houses have come up very near to the plots and the argument that the land are beyond 8 kms from the outer limits of Hyderabad is abandoned and therefore it is admitted before us that though it is agricultural land, according to the present contention of the assessee they constitute capital asset and since the land is situated within 8 kms from the outer limits of Hyderabad, according to the decision of the Hon'ble Supreme Court in G.M. Omer Khan v. CIT [1992] 196 ITR 269 the land should be considered as capital asset the sale of which would yield capital gains. This land is actually situated even before Vanasthalipuram. The question which now remains for us to decide is whether the sales represent an adventure in the nature of trade on the part of the assessee or whether they represent sale of a capital asset yielding capital gains. We are of the view that the findings of the lower authorities that the assessee carried on business activity in real estate and thus derived business income from the sale of these lands, cannot be supported either on facts or on law. The learned Commissioner (Appeals) had very much relied upon the following three decisions :
(1) CIT v. B. Narasimha Reddy [1984] 150 ITR 347 : [1985] 20 Taxman 28 (Kar.) (2) Ghose Estates v. CIT [1985J 153 ITR 673 (Cal.) (3) P. Kannan v. CIT [1985] 154 ITR 441 (Kar.).
In support of his confirmation of the finding that the assessee derived business income and the plots sold by the assessee was stock-in-trade in his hands and the assessee carried on business in real estate while selling laid out plots and deriving income therefrom. However, we are of the view that the above three decisions are very much distinguishable from the facts of the present case and, therefore, the ratio of those decisions does not apply to the facts before us. The distinguishing features between the present case and the facts in B. Narasimha Reddy's case (supra) are the following:
(i) In that case, the assessee and his son purchased the land from agriculturists. In this case no purchase by the assessee was involved. The land plotted out and sold represents ancestral land of the assessee.
(ii) In the facts of that case, the land was left fallow during the period from 1962 to 1969 whereas in this case the land was being used as agricultural land arising different agricultural crops till 1980-81.
(iii) In the facts of that case, the assessee and his son were both businessmen and not agriculturists at any time. This was highlighted at page 350 when their Lordships stated the following :
The assessee did not purchase the land by himself. He along with his son purchased the land as joint owners. Both of them were businessmen and not agriculturists.
However, in this case, the assessee family was agriculturist family from the beginning and they were never businessmen at any time whatsoever.
(iv) In that case permission was obtained from the Special Tahsildar to convert the land into non-agricultural and such permission was also obtained since the Hon'ble High Court held at page 350 as follows:
We, therefore, obtained permission from the Special Tahsildar for conversion of the land into non-agricultural purposes. After obtaining the permission he formed a lay out for house sites and sold some of the laid out sites to the workers in the nearby factories.
However, in this case, though Section 62 of the A.P. (Telangana) Area Land Revenue Act 1317 Fasli ordains that unless permission is obtained from the Collector agricultural land cannot be used for non-agricultural purposes no such permission was obtained from the Collector. Permission of Gram Panchayat was merely obtained which does not amount to permission required from the Collector within the meaning of Section 62 of the above said Act.
15. In our opinion, the distinguishing feature between the facts on hand and the decision of the Calcutta High Court in Ghose Estate's case (supra) are the following :
(i) In that case the land was purchased. Here it is ancestral land.
(ii) In that case the assessee firm was a partnership firm whose partnership deed disclosed that the business of the firm shall be for acquiring and selling immovable properties. However, in this case, the assessee family is agriculturist and they are not dealers in real estate.
(iii) From the facts of that case, the land was not used for agricultural purposes since the balance sheet of the firm disclosed only an insignificant amount having been invested towards agricultural expenses. However, in this case, there is tangible evidence that cultivation was carried on in the said land till 1980-81.
16. Similarly the facts of the case on hand are quite different and distinguishable from the facts in the Karnataka High Court since in that case the land was purchased with a view to construct a cinema theatre or start a hotel in the said land and thus the assessee in that case had an intention to enjoy the land purchased as commercial asset, whereas in the facts of this case the land was never purchased but it was ancestral land of the assessee and that it was being used as agrucultural land till 1980-81 whereafter it was sold under an agreement of sale to Shri P. Ramanaiah Chowdhuryon 18-12-1981.Thus, there was hardly a gap of about one year only between the ceasing of agricultural operations on the land and the sale of the same to Shri Ramanaiah Chowdhury.
17. Whether the sale of the land amounts to adventure in the nature of trade or realisation of investment would very much depend upon the facts and circumstances of each case. The facts and circumstances which are to be kept in mind while deciding the issue are laid down by the Hon'ble Supreme Court in its authoritative pronouncement - G. Venkataswami Naidu & Co. v. CIT [1959] 35 ITR 594. In that case the managing agents of M/s Janardana Mills Ltd., Coimbatore had purchased some vacant sites contiguous to the mill premises of which they were managing agents. Ultimately they sold the house sites for a profit to the said mills towards house sites for the employees and workers working in that mill. The question was whether the sale of vacant sites to the Mills is an adventure in the nature of trade or only a capital realisation. One of the arguments addressed to the Hon'ble Supreme Court was when the transactions are not multiple but constitute only one transaction can it be said to be an adventure in the nature of trade. Their Lordships of the Supreme Court kept that argument also in view and laid out the criteria as follows at page 609 of the reported decision:
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 that 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 adventure 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 incidential to it ? Affirmative answers to these questions may furnish relevant date 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 resaleable? 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 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 held the court to drawa 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 transactions.
18. We have borne in mind all the criteria laid down by the Hon'ble Supreme Court to decide the real nature of the transaction. We are of the view that the ratio of the following decision goes to establish the case of the assessee to the maximum. The decision is that of the Madras High Court in CIT v. Kasturi Estates (P.) Ltd. [1966] 62 ITR 578. In that decision it is stated as follows:
The decision of the question whether profits made by selling land by an assessee carrying on business is profits from business or merely capital gains will depend on the cumulative effect of all the facts and circumstances found by the Tribunal....
Developing land into building sites with a view to realise the best price, without anything more, is consistent with realisation of a capital investment. 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 could hardly be said that the transaction is anything more than a realisation of a capital investment or conversion of one form of asset into another. The surplus in such a case will not be trading or business profit because the transaction is one of realisation of assets in investment rather than one in the course of trade carried on by the assessee or an adventure in the nature of trade. The case of an assessee can stand on no different footing merely because it is a company which has among its objects power to trade or traffic in land.
Therefore, the case decided by the Madras High Court is an extreme case where in the objects clause of the Company it was specifically mentioned that to trade or traffic in land is specifically described as one of the objects of the company in its memorandum of association. However, in this case, the assessee was neveratrader or businessman. Previously he did not carry on any business much less business in real estate. He did not purchase any land or did not sell any land. He was purely an agriculturist. The land in question, namely S. No. 145 Sahebnagar Kalan village represents his ancestral property. He thought that he would profit very much or would get maximum by plotting out the land and getting a lay out approved by the Gram Panchayat and, therefore he got sanctioned the lay out from the Gram Panchayat. He converted the land into plots and sold them as house sites. He wanted to take all advantages due to fast urbanisation of the area. Can it be said under those circumstances that the assessee is carrying on an adventure in the nature of trade, simply because he wanted to realise the maximum out of the sale of his ancestral land. We have no reservation in our mind to come to the conclusion that the assessee never intended to do any business in real estate and that the sale of plots of land held by him in Survey No. 145 of Saheb Kalan village does not amount to an adventure in the nature of trade. In this regard we are of the opinion that the ratio of the decision in Kasturi Estates (P.) Ltd.'s case (supra) clearly comes to the aid of the assessee in support of his argument.
19. The next decision to which a reference may be made is again a Madras High Court decision in the case of CIT v. A. Mohammed Mohideen [1989] 176 ITR 393 : 42 Taxman 1. In the headnote of the decision, the following is what is stated:
In order to hold that an activity is in the nature of an adventure in the nature of trade, there must be positive material to prove that the assessee intended to trade in such an activity and in the absence of evidence, the sale of immovable property consisting of land could give rise only to capital accretion. A sale or immovable property may possibly be a trading 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 could hardly be said that the transaction is anything more than a realisation of a capital investment or conversion of one form or asset into another. Obviously, the surplus in such a case will not be trading or business profit because the transaction is one of realisation of assets in investment rather than one in the course of trade carried on by the assessee or an adventure in the nature of trade.
Here in the case before us, there is no material, let alone positive material, produced by the Revenue to show that the assessee intended to carry on trade in real estate. Therefore, the ordinary presumption that sale of immovable property would give rise only to capital accretion would be applied to the case of the assessee.
20. At the time of hearing the arguments in these appeals, we were eager to know as to what exactly is the amount spent forgetting the lay out of the land sanctioned and put a specific question in this regard to the learned Departmental Representative on 18-11-1991 when these appeals were taken up for hearing. However, the learned Departmental Representative said that there was no information about the amount of investment made for the lay out. In the absence of any tangible evidence as to how much he spent for getting the lay out of the land, we have to presume that only a meagre or insignificant amount is spent just to demarcate the road, parks and other common places by peg mark or by drawing lines on the land. Thus, in fact no investment of any considerable amounts should have been spent towards improvement of the land.
21. The facts would show that even when an agreement was entered into with Sri Ramanaiah Choudhury, there was a complete understanding that the assessee should get only Rs. 18 per sq. yd. that Shri Ramanaiah Choudhury is at liberty to secure purchasers for himself at any higher price he likes. But the assessee is obliged to accept only at the rate of Rs. 18 per sq. yd. and leave the balance to Shri Choudhury towards his profit. As is already highlighted one of the clauses of the agreement is that the remaining sale price would be paid as and when the purchasers to the plots were procured by Shri Ramanaiah Choudhury. The time limit for purpose of the contract was set out as nine months at the first instance and 12 months in case the assessee appreciates the difficulties of the vendee, Shri Ramanaiah Choudhury and extends the time. But, however, the fact remains that the sales went on much beyond 12 months. It was stipulated in the agreement that if the assessee is to be asked to execute sale deeds in favour of the nominees of the vendee Sri Ramanaiah Choudhury beyond the period of one year, from the date of agreement, then the price of unsold plots should all be paid at the rate of Rs. 18 per sq. yd. to the assessee and the assessee should execute a power of attorney in favour of Shri Ramanaiah Choudhury or his nominee, entitling him to execute the sale deed in favour of the prospective purchasers for and on behalf of the assessee. True to this understanding, a general power of attorney dated 28-2-1985 in favour of the son of Shri Ramanaiah Choudhury, namely Shri P. Karunakar Choudhury was registered as document No. 110 of 1985 in the Sub-Registrar's office, Hyderabad East, copy of which is provided among the papers filed by the assessee. Under the said power of attorney, Shri P. Karunakar Choudhury is entitled to offer the remaining unsold plots in Survey No. 145 to the prospective purchasers, settle the sale price with them and also entitled to execute the sale deeds for and on behalf of the assessee, Shri B. Narasimha Reddy, in favour of those purchasers and got them registered at the instance of the purchasers. There is also clear evidence on record that in the beginning, Shri Ramanaiah Chowdhury wanted to show that the purchase of land in Sahebnagar Kalan Village was taken up by a firm comprising of himself, his wife and son etc. as partners named as Bhagyasri Housing Corporation. However, at the assessment stage, the Assessing Officer held that the firm was only a benami and the real transactions were all done by Shri Ramanaiah Chowdhury and, therefore, the Income-tax Officer had computed the business income arising out of the sale of plots in Survey No. 145 of Sahebnagar Kalan Village in the hands of Shri Ramanaiah Chowdhury only. The Assessing Officer completed only protective assessments against M/s. Bhagyasri Housing Corporation whereas regular assessment is completed against Shri Ramanaiah Chowdhury. Before completing the assessment against Shri Ramanaiah Choudhury, there was a raid at his residential premises, as well as his so-called firm's premises under Section 132. In the raid it was found out that there was no real firm by name Bhagyasri Housing Corporation and the real person behind all the real estate transactions was Shri Ramanaiah Chowdhury himself. Shri Ramanaiah Chowdhury was found to have been taken up several projects as developer in Sehankar Hills, Rajagopala Raju Nagar, Nrupatunga Nagar alias Gayatri Nagar. Survey No. 145 Sahebnagar Kalan village was taken up as Gayatri Nagar/Nrupatunga Nagar Colony by Shri Ramanaiah Chowdhury. The assessments made against Shri Ramanaiah Chowdhury for assessment years 1983-84 as well as 1984-85 were filed in the paper compilations filed on behalf of the assessee. He is stated to have purchased the lands from all of the co-owners of the lands in Sahebnagar Kalan Village at the rate of Rs. 18 per sq. yd. The following is what is stated in the assessment order in respect of Shri Ramanaiah Chowdhury for assessment year 1983-84 which is dated 27-3-1991:
NRUPATUNGA NAGAR :
During the year 1982, the assessee undertook this venture. The lands belong to the following persons all residents of Sahebnagar Village, Hayatnagar Taluk:
S/Sri
(a) B. Narasimha Reddy
(b) B. Bhagyam Reddy
(c) B. Nagi Reddy
(d) B. Punyam Reddy
(e) B. Dharma Reddy
(f) S.L. Kantha Reddy The powers of attorney were obtained in favour of Sri P. Karunakara Chowdhury S/o. Sri P. Ramanaiah Chowdhury in respect of the lands owned by the above persons. The land belonging to the first four persons is about 8 acres and the land belonging to the last two in about 18 acres 8 guntas. The total area of the land is 26 acres. In a separate connection, there was a search in the premises of Sri B. Narasimha Reddy and Shri B. Bhagyam Reddy. The search material include an agreement entered into by Shri P. Ramanaiah Chowdhury for purchase of the laid out plots at the rate of Rs. 18 per sq.yd. The land was already laid out. The said land was sold at the rate varying between Rs. 25 per sq. yd. to Rs. 35 per sq. yd. The details are available at pages 70 to 82 of PR 138 seized from the premises of Bhagyasri Housing Corporation. The details mentioned in the said statements include S. No., name and address of the person, plot number, area in sq. yds., rate at which the land was sold, the total amount received/receivable from the said person and the name of the agent.
The fact is that the Bhagyasri Housing Corporation purchased these plots at the rate of Rs. 18 per sq. yd. (as seen from the agreement available in the seized material from Sri B. Narasimha Reddy) and sold the lands for a consideration of about Rs. 25 to 35. Therefore per sq. yd. the Bhagyasri Housing Corporation obtained a benefit of an average of Rs. 10.
Ultimately, the Income-tax Officer adopted 12 1/2% as estimated business income over the total receipts obtained on the sale of plots.
22. It may here itself be mentioned that the copies of pages 70 to 82 of PRNo. 138 seized from the premises of Bhagyasri Housing Corporation were given by the learned Departmental Representative and they are duly kept on record. Therefore, it is very clear that though the assessee agreed to realise only Rs. 18 per sq. yd. towards sale price of the carved out plots in the lay out of survey No. 145, the real person who carried on the adventure in the nature of trade was Shri P. Ramanaiah Chowdhury who secured purchasers for amounts between Rs. 25 to Rs. 35 per sq. yd. He got the sale deeds executed in favour of those purchasers who will be his nominees or his son Shri P. Karunakar Chowdhury in whose name he obtained a registered general power of attorney from the assessee, which is already adverted to above. Since the sales are relating to immovable property any time set out in agreement of sale cannot be considered to be essence of contract. Further no notice was given by the assessee to Shri P. Ramanaiah Chowdhury making the time limit agreed to in the agreement executed as essence of contract, even subsequent to the agreement of sale. Further the amount of Rs. 10,000 paid by Shri P.Ramanaiah Chowdhury to the assessee was agreed to be adjusted towards price of the land at the end, no portion of this amount was earmarked as earnest money in which the case, the same can be forfeited by the vendor in case the time limit is not adhered to or abrogated or transgressed. Here we want to clearly state that what was executed in favour of Shri Ramanaiah Chowdhury was the agreement of sale. Possession of land was not at all delivered to him. Only the amount of Rs. 10,000 was received as advance which is agreed to be adjusted at the last. Therefore, Shri Ramanaiah Chowdhury had got only an equitable right to obtain specific performance from the assessee. Under Section 54 of the Transfer of Property Act the agreement by itself does not confer any title in favour of vendee. Therefore, by mere execution of the sale agreement no title passes. A title passes only on execution of regular registered sale deed. Therefore, in the set of circumstances before us, the said title passed only when either the assessee or his power of attorney holder Shri P.Karunakar Chowdhury executed regular registered sale deeds in favour of the ultimate purchasers. As soon as the title to the land passes that event only gives rise to capital gains. From the records of the Income-tax Officer it is very clear as to the total extent of land for which regular registered sale deeds were executed in favour of the ultimate purchasers for each of the accounting years in question and what is the total price derived by the assessee at the rate of Rs. 18 per sq. yd. We are of the opinion that this is a clear case where the assessee tried to obtain maximum price for his land. Intendment to plot out and get the lay out approved by the Gram Panchayat are only in that direction. We, therefore, have no hesitation to come to the conclusion that the whole of the transactions would only amount to his endeavour to realise the maximum from out of the capital asset held by him which would give rise only to capital gains tax. We reject the argument that was given up belatedly that the lands are situated beyond 8 KMs from the Hyderabad Municipal limits. We hold that the material on record would justify the finding that the land sold were situated within 8 KMs from the Hyderabad Municipal limits. Therefore, according to the Hon'ble Supreme Court's decision in G.M. Omer Khan's case (supra) they are to be held as capital asset. The A.P. High Court in its latest decision in CIT v. Smt. Kaziamunnisa Begum [1992] 65 Taxman 390 found that Section 2(1 A) of the Income-tax Act was amended by Finance Act 1989 with retrospective effect from 1-4-1970. Under the definition of Section 2(14), land which is situated within 8 KMs from the local limits of the municipality should be considered as capital asset. This definition of Section 2(14) has got retrospective operation from 1-4-1970. The A.P. High Court held that even while deciding the reference under Section 256(1) or 256(2), the provision and retrospective operation should be applied to the facts coming before the High Court even though the said retrospective provision was not available at the time when the matter was decided by the lower authorities. Deep Chandra & Co. v. CIT [1977] 107 ITR 716 (All.) and CIT v. MLM. Mahalingam Chettiar [1977] 107 ITR 236 (Mad.) cited and relied upon by the learned counsel for the assessee generally support the assessee's case and the arguments that the assessee did not carry on any adventure in the nature of trade but the transaction amounts to maximum realisation as price to the capital asset held by the assessee and hence it is only a capital accretion. We, therefore, hold that the assessee is liable for capital gains tax. We direct the Income-tax Officer to compute capital gains according to law after duly taking consideration our findings in this order and determine the capital gains tax payable by the assessee for each of the three assessment years under consideration. We set aside the orders of the lower authorities determining the biisiness income at Rs. 69,908 for assessment year 1985-86, Rs. 1,07,756 for assessment year 1986-87 and Rs. 32,575 for assessment year 1987-88.
23. The appeals of the assessee are partly allowed.