Income Tax Appellate Tribunal - Chennai
Kakb Developers, Chennai vs Ito, Ncw 3 (4), Chennai on 21 June, 2017
आयकर अपील य अ धकरण, 'डी' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL
"D" BENCH, CHENNAI
ी चं पज
ू ार , लेखा सद य एवं ी जी. पवन कुमार, या$यक सद य के सम%
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER
आयकर अपील सं./ITA No. 3254/Mds/2016
नधा रण वष /Assessment Year : 2012-13
KAKB Developers, The Income-tax Officer Now
10 & 11, Dr. Radhakrishnan v. 3(4), Corporate Range - 5,
Salai, Chennai City Centre, Chennai - 34.
4th floor, Mylapore, ( यथ /Respondent)
Chennai - 600 004.
PAN AASFM3707C
(अपीलाथ /Appellant)
आयकर अपील सं./ITA No. 3255/Mds/2016
नधा रण वष /Assessment Year : 2012-13
Mega City Development The Assistant Commissioner of
Corporation, v. Income-tax (OSD),
10 & 11, Dr. Radhakrishnan Corporate Range - 5,
Salai, Chennai City Centre, Chennai - 34.
4th floor, Mylapore, ( यथ /Respondent)
Chennai - 600 004.
PAN AAKFM7436Q
(अपीलाथ /Appellant)
Assessees by : Shri N.C. Prabhakar, Advocate
Department by : Shri Nandakumar, JCIT
सन
ु वाई क तार ख/Date of Hearing : 20.04.2017
घोषणा क तार ख/Date of Pronouncement : 21.06.2017
-2- ITA 3254 & 3255/Mds/16
आदे श /O R D E R
PER CHANDRA POOJARI, ACCOUNTANT MEMBER
These two appeals by different assessees are directed against different orders of the Commissioner of Income- tax(Appeals) for the assessment year 2012-13. Since, the issue in both the appeals is common, these are clubbed together, heard together and disposed of by this common order.
2. The common issue in these two appeals is with regard to gain arise out of sale of landed property is to be considered as income under the head "capital gains" or "business income".
3. For the brevity, we consider the facts narrated in ITA No.3254/Mds/2016.Tthe facts of the case are that the assessee filed its return of income electronically for the relevant assessment year on 29.3.2014 declaring a total income of ₹19,60,93,871/- and subsequently the return was selected for scrutiny and a notice u/s.143(2) of the Act was served on the assessee on 22.9.2014.
-3- ITA 3254 & 3255/Mds/16 3.1 The assessee is engaged in buying and selling of lands.
The assessee purchased the lands and the assessment year 2011-12 was its first year of business operation and it was the investments made by the assessee in land. During the financial year 2011-12, the assessee sold these lands for gross consideration amounting to a sum of ₹ 20,19,53,770/- and deducted the original cost of investment of ₹28,80,675/- and net consideration amounting to ₹19,90,73,095/- which has been credited in the profit and loss account.
According to assessee, since, the assessee owns these lands as 'investment', the gain arising out of this to be considered as a long term capital gains. However, this claim was rejected by the AO ignoring the assessee's contention that the property has been held by the assessee as long term asset and since the assessee has continuously and consistently been purchasing the land and made it as layout on division of land into plots, hence the Learned Assessing Officer came to a conclusion that the sale of land is liable to be treated as business activity of the assessee and the income there from is treated as income from 'profits and gains of the
-4- ITA 3254 & 3255/Mds/16 business' and taxed accordingly. The AO treated the purchase of lands as business asset and ignored it as long term investment by the firm and treated the entire income as business income. Therefore, the assessee filed a letter on 17.3.2015 stating that the nature of the business of the firm is 'investment in lands' and 'development of lands' and to carry on business of real estate. The AO based on the 'object clause' of the Partnership Deed' came to the conclusion that the assessee carried on the business and charged the income under the head 'profits and gains' of the business. Before the lower authorities, the assessee relied on the decision of the Tribunal, Hyderabad Bench in the case of DCIT v. M/s. Maheshwari Plaza Resorts Ltd., 2015 (4) TMI 98 ITAT Hyderabad to supports his view. 3.3 The AO has also disallowed an amount of ₹18,75,100/- towards professional charges due to the reason that no TDS certificates has been produced by the assessee as evidence of tax not being deducted on the professional charges. According to the assessee, the assessee in fact, deducted the tax and paid to the credit of
-5- ITA 3254 & 3255/Mds/16 the Central Government.Therefore, the assessee contended that the income on account of transfer of land has been charged under capital gains and the question of computation of income under business or profession does not arise. However, the AO rejected the claim of assessee. Aggrieved by the order of ld. Assessing Officer, the assessee carried the appeal before the ld. Learned Commissioner of Income Tax(A). On appeal, the ld. Learned Commissioner of Income Tax(A) confirmed the order of A.O. Now, the assessee is in appeal before us.
4. Before us, the ld. AR submitted that the assessee is a partnership firm, consisting of 2 persons and they held the land as 'capital asset' in their name and brought in as 'capital' into the partnership firm and it was shown as a 'fixed asset' and subsequently, when the sale took place, it offered the same under the head 'capital gains'. The ld. AR further submitted that the assessee has been consistently showing this land as a 'fixed asset' from number of years and due to the then prevailing market conditions, could not sell the land immediately but sold it
-6- ITA 3254 & 3255/Mds/16 in the assessment year under consieration and offered the same for income under the head 'capital gains'. The ld. AR submitted that when the land had been subjected to development and plotting it out for sale, the AO opined that this constitutes a business activity as the object of the partnership firm was to sell the lands. At this juncture, according to the ld. AR, it is pertinent to note that when the lands were brought in as 'capital', there was no purchase of land and only the sale of land took place. The AO treated the sale of land as business income on the ground that when development activity took place, it is a sufficient ground for treating the same as 'business income'. Further, the ld. AR submitted that year after year when the land was shown as 'fixed asset' in the balance sheet and when there is consistency that is followed by the assessee, which itself is a sufficient ground to prove that the income offered under the head 'capital gains' gets justified. To support his view, he relied on the decisions of the Hyderabad Bench in the case of DCIT v. Maheshwari Plaza and Resorts Ltd. cited supra, wherein it was held that 'consistency is a virtue to be followed both the by the assessee and the revenue". The ld. AR also submitted that
-7- ITA 3254 & 3255/Mds/16 while rendering this decision, the Bench followed the Apex court judgment in the case of Radhaswamy Satsang, 1991 (11) TMI 2
- (SC).
4.1 Further, the ld. AR contended that during the course of appellate proceedings, it was brought to the notice of the first appellate authority that balance sheet was prepared only to arrive at the financial position of the assessee and after arriving at the profit or loss, the same being divided amongst the partners in their respective profit sharing ratio as per the partnership deed which does not have any bearing on the total income, since, the assessee offered the income under the head 'capital gains'. The ld. AR further contended that no other purchase of land had taken place and what was originally brought in as capital by the partners in the form of land is being sold. Therefore, the ld. AR submitted that the lower authorities are not justified in dismissing the case of the assessee.
5. The ld. DR, on the other hand, relied on the order of the CIT(Appeals).
-8- ITA 3254 & 3255/Mds/16
6. We have heard both the parties and perused the material on record. The issue as to whether income that is realised from the sale of land is chargeable to Income-tax as capital gains or, otherwise, as income from business. This has been the subject- matter of a considerable amount of judicial precedent. In Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21 (SC) the Supreme Court laid down the following guidelines (head-note) :
"If a transaction is related to the business which is normally carried on by the assessee, though not directly part of it, an intention to launch upon an adventure in the nature of trade may readily be inferred. A similar inference would arise where a commodity is pur chased and sub-divided, altered, treated, or repaired and sold, or is converted into a different commodity and sold. Magnitude of the transaction of purchase, the nature of the commodity, subsequent dealings and the manner of disposal may be such that the transaction may be stamped with a character of a trading venture. But a transaction of purchase of land cannot be assumed without more to be a venture in the nature of trade."
7. In G. Venkataswami Naidu and Co. v. CIT [1959] 35 ITR 594 (SC), the Supreme Court noted that several factors assumed relevance including (i) whether the purchaser was a
-9- ITA 3254 & 3255/Mds/16 trader and the purchase of the commodity and its resale were allied to his usual trade or business or incidental to it ; (ii) the nature and extent of the transaction involved in the purchase and sale; (iii) acts subsequent to the purchase for the improvement of the quality of the subject-matter ; (iv) any act prior to the purchase showing a design or purpose, the incidents associated with the purchase and resale and the similarity of the transaction to operations usually associated with trade or business ; (v) the repetition of the transaction ; and
(vi) the element of pride of possession.
8. In CIT v. V. A. Trivedi [1988] 172 ITR 95 (Bom) a Division Bench of this court, while holding that no single test or formula can be applied in determining whether a transaction involving purchase and sale of land is an adventure in the nature of trade observed that generally speaking, the original intention of the party in purchasing the property, the magnitude of the transaction of purchase, the nature of the property, the length of its ownership and holding, the conduct and subsequent dealings of the assessee in respect of the property, the manner
-10- ITA 3254 & 3255/Mds/16 of its disposal and the frequency and multiplicity of transactions afforded valuable guides in determining whether the assessee was carrying on a trading activity and whether a particular transaction should be stamped with the character of a trading adventure.
9. In CIT v. Dr. Indu Bala Chhabra [2002] 258 ITR 111 (Delhi), a Division Bench of the Delhi High Court dealt with a case where the assessee who derived her income from the medical profession had acquired certain properties as an asset for constructing a nursing home. Subsequently, after a laps of time, the assessee carried out construction on the property. The Tribunal had noted that after making the purchase, the assessee had disposed of the property nearly twenty years thereafter. No prudent person, the Tribunal held, would have waited for such a long period of time if it was a business proposition. The gain resulting from the sale transaction was treated as capital gains and not as income arising out of an adventure in the nature of trade. The Division Bench of the Delhi High Court, relying, inter alia, upon the judgment of the
-11- ITA 3254 & 3255/Mds/16 Supreme Court in G. Venkataswami Naidu (supra), affirmed the view of the Tribunal. Similarly, in a decision of the Punjab and Haryana High Court in CIT v. Sushila Devi Jain [2003] 259 ITR 671 (P&H), the assessee had acquired certain property under the will of her husband. The property consisted of a large tract of land which was sold out in part. The High Court held that the relevant test was to find out the intention of the assessee at the time of the purchase of the land. The assessee had never purchased her land since it had devolved on her through testamentary succession. The land was sold in parts because the huge area could not be sold in one transaction and such an activity was held not to amount to trade or business within the meaning of the Act.
10. Adverting to the facts of the present case, the assessee purchased the long track of land and made it as plots. As per the object clause of partnership deed, the business of the assessee to develop the continuous land brought in by the partners of the firm as their capital into plot and constructed residential premises on the said land. The gist of the Partnership deed is as under:-
-12- ITA 3254 & 3255/Mds/16 "6. It can be seen from the Partnership Deed that partners have held the lands of around 20.510 acres situated an Karanat Village and brought the same into the Firm as their capital and booked in the accounts of the firm, at the original cost price of the! land to the partners. Once the lands were brought into the firm, it would be 4 trading asset of the partnership firm, even if it is shown as 'Fixed Assets' in the Balance Sheet, since the firm is constituted only with an intention to develop the contiguous lands held in the hands of the partners into Plot and construct residential apartments etc. Further, once the partners brought in the lands into the firm as Capital, the land loses its identity as fixed assets and it will become the stock-in-trade of the firm due to its nature of trade,
7. Further, the assessee had entered into an agreement with M/s.ETA Stark, Property Developers Ltd.; Chennal, for the development of the schedule property into residential layouts/approved plots/villas and for obtaining
-13- ITA 3254 & 3255/Mds/16 necessary permission/approval from DTCP. The gist of the agreement is as under:
"1. that the parties hereby entered into this agreement for the purpose of developing schedule property into residential layouts/approved plots/villas by obtaining necessary permissions/approval from DTCP.
2. that the first party hereby authorise and appoint the second party as the Developer for the residential layout to be developed in the schedule property.....
12. that the parties shall mutually decide the name of the project as "ETA The Good Life / WINGHAVEN Garden"
11. In the instant case, the assessee had developed the lands into plots and sold the same to various parties, not as a single unit, shows that the assessee has dealt with the impugned lands as stock-in- trade of the business, only with an intention earn profit. The assesse's activity squarely covers the judgement of the Hon'bl Supreme Court as cited above on the reason that the transaction is
-14- ITA 3254 & 3255/Mds/16 related to the business, which is normally carried on by the assessee, though not directly; part of it, an intention to earn upon an adventure in the nature of trade may readily be inferred.
12. In view of the above, the assessee's contention that the lands had been shown in the Balance Sheet as 'Fixed Assets' and therefore the sale proceeds on the sale of the lands had been computed and offered under Capital Gains, has not been accepted and the sale proceeds on the sale of the lands by the firm is treated as business income.
13. Further, the assessee not able to show that the findings of the lower authorities has based on no evidence or whether misdirected itself in law. Considering the totality of the facts of the case and the nature of business carried on by the assessee, it is not possible to hold that the assessee is treated the land as investments. In other words, though it is presumed, it was treated as investments it does not alternate the nature of the activities carried out by the assessee. It is only the business activity in land and gains arising out of the sale of such land to by making plots is nothing but adventure nature of
-15- ITA 3254 & 3255/Mds/16 trade and income there from to be considered as profit from business only in term sof Sec.28 of the Act. Accordingly, we are completely agreement with the findings of Ld.CIT(A) on this issue and the appeal filed by the assessee is rejected.
14. Since the same principle applies to other appeal in ITA No.3255/Mds./2016, this appeal is also dismissed.
15. In the result, both the appeals are dismissed.
Order pronounced on 21st June, 2017.
Sd/- Sd/-
(जी. पवन कुमार) (चं& पज
ू ार )
(G. Pavan Kumar) (Chandra Poojari)
8या यक सद:य/Judicial Member लेखा सद:य/Accountant Member
चे8नई/Chennai,
st
Bदनांक/Dated, the 21 June, 2017.
K S Sundaram
आदे श क तDलEप अFेEषत/Copy to:
1. अपीलाथ /Appellant 3. आयकर आयG
ु त (अपील)/CIT(A) 5.Eवभागीय त नJध/DR
2. यथ /Respondent 4. आयकर आयुGत/CIT 6. गाड फाईल/GF
आयकर अपील य अ धकरण, 'डी' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL
"D" BENCH, CHENNAI
ी चं पज
ू ार , लेखा सद य एवं ी जी. पवन कुमार, या$यक सद य के सम% BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER आयकर अपील सं./ITA No. 3254/Mds/2016 नधा रण वष /Assessment Year : 2012-13 KAKB Developers, The Income-tax Officer Now 10 & 11, Dr. Radhakrishnan v. 3(4), Corporate Range - 5, Salai, Chennai City Centre, Chennai - 34.
4th floor, Mylapore, ( यथ /Respondent)
Chennai - 600 004.
PAN AASFM3707C
(अपीलाथ /Appellant)
आयकर अपील सं./ITA No. 3255/Mds/2016
नधा रण वष /Assessment Year : 2012-13
Mega City Development The Assistant Commissioner of
Corporation, v. Income-tax (OSD),
10 & 11, Dr. Radhakrishnan Corporate Range - 5,
Salai, Chennai City Centre, Chennai - 34.
4th floor, Mylapore, ( यथ /Respondent)
Chennai - 600 004.
PAN AAKFM7436Q
(अपीलाथ /Appellant)
Assessees by : Shri N.C. Prabhakar, Advocate Department by : Shri Nandakumar, JCIT सन ु वाई क तार ख/Date of Hearing : 20.04.2017 घोषणा क तार ख/Date of Pronouncement : 21.06.2017
-2- ITA 3254 & 3255/Mds/16 आदे श /O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER These two appeals by different assessees are directed against different orders of the Commissioner of Income- tax(Appeals) for the assessment year 2012-13. Since, the issue in both the appeals is common, these are clubbed together, heard together and disposed of by this common order.
2. The common issue in these two appeals is with regard to gain arise out of sale of landed property is to be considered as income under the head "capital gains" or "business income".
3. For the brevity, we consider the facts narrated in ITA No.3254/Mds/2016.Tthe facts of the case are that the assessee filed its return of income electronically for the relevant assessment year on 29.3.2014 declaring a total income of ₹19,60,93,871/- and subsequently the return was selected for scrutiny and a notice u/s.143(2) of the Act was served on the assessee on 22.9.2014.
-3- ITA 3254 & 3255/Mds/16 3.1 The assessee is engaged in buying and selling of lands.
The assessee purchased the lands and the assessment year 2011-12 was its first year of business operation and it was the investments made by the assessee in land. During the financial year 2011-12, the assessee sold these lands for gross consideration amounting to a sum of ₹ 20,19,53,770/- and deducted the original cost of investment of ₹28,80,675/- and net consideration amounting to ₹19,90,73,095/- which has been credited in the profit and loss account.
According to assessee, since, the assessee owns these lands as 'investment', the gain arising out of this to be considered as a long term capital gains. However, this claim was rejected by the AO ignoring the assessee's contention that the property has been held by the assessee as long term asset and since the assessee has continuously and consistently been purchasing the land and made it as layout on division of land into plots, hence the Learned Assessing Officer came to a conclusion that the sale of land is liable to be treated as business activity of the assessee and the income there from is treated as income from 'profits and gains of the
-4- ITA 3254 & 3255/Mds/16 business' and taxed accordingly. The AO treated the purchase of lands as business asset and ignored it as long term investment by the firm and treated the entire income as business income. Therefore, the assessee filed a letter on 17.3.2015 stating that the nature of the business of the firm is 'investment in lands' and 'development of lands' and to carry on business of real estate. The AO based on the 'object clause' of the Partnership Deed' came to the conclusion that the assessee carried on the business and charged the income under the head 'profits and gains' of the business. Before the lower authorities, the assessee relied on the decision of the Tribunal, Hyderabad Bench in the case of DCIT v. M/s. Maheshwari Plaza Resorts Ltd., 2015 (4) TMI 98 ITAT Hyderabad to supports his view. 3.3 The AO has also disallowed an amount of ₹18,75,100/- towards professional charges due to the reason that no TDS certificates has been produced by the assessee as evidence of tax not being deducted on the professional charges. According to the assessee, the assessee in fact, deducted the tax and paid to the credit of
-5- ITA 3254 & 3255/Mds/16 the Central Government.Therefore, the assessee contended that the income on account of transfer of land has been charged under capital gains and the question of computation of income under business or profession does not arise. However, the AO rejected the claim of assessee. Aggrieved by the order of ld. Assessing Officer, the assessee carried the appeal before the ld. Learned Commissioner of Income Tax(A). On appeal, the ld. Learned Commissioner of Income Tax(A) confirmed the order of A.O. Now, the assessee is in appeal before us.
4. Before us, the ld. AR submitted that the assessee is a partnership firm, consisting of 2 persons and they held the land as 'capital asset' in their name and brought in as 'capital' into the partnership firm and it was shown as a 'fixed asset' and subsequently, when the sale took place, it offered the same under the head 'capital gains'. The ld. AR further submitted that the assessee has been consistently showing this land as a 'fixed asset' from number of years and due to the then prevailing market conditions, could not sell the land immediately but sold it
-6- ITA 3254 & 3255/Mds/16 in the assessment year under consieration and offered the same for income under the head 'capital gains'. The ld. AR submitted that when the land had been subjected to development and plotting it out for sale, the AO opined that this constitutes a business activity as the object of the partnership firm was to sell the lands. At this juncture, according to the ld. AR, it is pertinent to note that when the lands were brought in as 'capital', there was no purchase of land and only the sale of land took place. The AO treated the sale of land as business income on the ground that when development activity took place, it is a sufficient ground for treating the same as 'business income'. Further, the ld. AR submitted that year after year when the land was shown as 'fixed asset' in the balance sheet and when there is consistency that is followed by the assessee, which itself is a sufficient ground to prove that the income offered under the head 'capital gains' gets justified. To support his view, he relied on the decisions of the Hyderabad Bench in the case of DCIT v. Maheshwari Plaza and Resorts Ltd. cited supra, wherein it was held that 'consistency is a virtue to be followed both the by the assessee and the revenue". The ld. AR also submitted that
-7- ITA 3254 & 3255/Mds/16 while rendering this decision, the Bench followed the Apex court judgment in the case of Radhaswamy Satsang, 1991 (11) TMI 2
- (SC).
4.1 Further, the ld. AR contended that during the course of appellate proceedings, it was brought to the notice of the first appellate authority that balance sheet was prepared only to arrive at the financial position of the assessee and after arriving at the profit or loss, the same being divided amongst the partners in their respective profit sharing ratio as per the partnership deed which does not have any bearing on the total income, since, the assessee offered the income under the head 'capital gains'. The ld. AR further contended that no other purchase of land had taken place and what was originally brought in as capital by the partners in the form of land is being sold. Therefore, the ld. AR submitted that the lower authorities are not justified in dismissing the case of the assessee.
5. The ld. DR, on the other hand, relied on the order of the CIT(Appeals).
-8- ITA 3254 & 3255/Mds/16
6. We have heard both the parties and perused the material on record. The issue as to whether income that is realised from the sale of land is chargeable to Income-tax as capital gains or, otherwise, as income from business. This has been the subject- matter of a considerable amount of judicial precedent. In Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21 (SC) the Supreme Court laid down the following guidelines (head-note) :
"If a transaction is related to the business which is normally carried on by the assessee, though not directly part of it, an intention to launch upon an adventure in the nature of trade may readily be inferred. A similar inference would arise where a commodity is pur chased and sub-divided, altered, treated, or repaired and sold, or is converted into a different commodity and sold. Magnitude of the transaction of purchase, the nature of the commodity, subsequent dealings and the manner of disposal may be such that the transaction may be stamped with a character of a trading venture. But a transaction of purchase of land cannot be assumed without more to be a venture in the nature of trade."
7. In G. Venkataswami Naidu and Co. v. CIT [1959] 35 ITR 594 (SC), the Supreme Court noted that several factors assumed relevance including (i) whether the purchaser was a
-9- ITA 3254 & 3255/Mds/16 trader and the purchase of the commodity and its resale were allied to his usual trade or business or incidental to it ; (ii) the nature and extent of the transaction involved in the purchase and sale; (iii) acts subsequent to the purchase for the improvement of the quality of the subject-matter ; (iv) any act prior to the purchase showing a design or purpose, the incidents associated with the purchase and resale and the similarity of the transaction to operations usually associated with trade or business ; (v) the repetition of the transaction ; and
(vi) the element of pride of possession.
8. In CIT v. V. A. Trivedi [1988] 172 ITR 95 (Bom) a Division Bench of this court, while holding that no single test or formula can be applied in determining whether a transaction involving purchase and sale of land is an adventure in the nature of trade observed that generally speaking, the original intention of the party in purchasing the property, the magnitude of the transaction of purchase, the nature of the property, the length of its ownership and holding, the conduct and subsequent dealings of the assessee in respect of the property, the manner
-10- ITA 3254 & 3255/Mds/16 of its disposal and the frequency and multiplicity of transactions afforded valuable guides in determining whether the assessee was carrying on a trading activity and whether a particular transaction should be stamped with the character of a trading adventure.
9. In CIT v. Dr. Indu Bala Chhabra [2002] 258 ITR 111 (Delhi), a Division Bench of the Delhi High Court dealt with a case where the assessee who derived her income from the medical profession had acquired certain properties as an asset for constructing a nursing home. Subsequently, after a laps of time, the assessee carried out construction on the property. The Tribunal had noted that after making the purchase, the assessee had disposed of the property nearly twenty years thereafter. No prudent person, the Tribunal held, would have waited for such a long period of time if it was a business proposition. The gain resulting from the sale transaction was treated as capital gains and not as income arising out of an adventure in the nature of trade. The Division Bench of the Delhi High Court, relying, inter alia, upon the judgment of the
-11- ITA 3254 & 3255/Mds/16 Supreme Court in G. Venkataswami Naidu (supra), affirmed the view of the Tribunal. Similarly, in a decision of the Punjab and Haryana High Court in CIT v. Sushila Devi Jain [2003] 259 ITR 671 (P&H), the assessee had acquired certain property under the will of her husband. The property consisted of a large tract of land which was sold out in part. The High Court held that the relevant test was to find out the intention of the assessee at the time of the purchase of the land. The assessee had never purchased her land since it had devolved on her through testamentary succession. The land was sold in parts because the huge area could not be sold in one transaction and such an activity was held not to amount to trade or business within the meaning of the Act.
10. Adverting to the facts of the present case, the assessee purchased the long track of land and made it as plots. As per the object clause of partnership deed, the business of the assessee to develop the continuous land brought in by the partners of the firm as their capital into plot and constructed residential premises on the said land. The gist of the Partnership deed is as under:-
-12- ITA 3254 & 3255/Mds/16 "6. It can be seen from the Partnership Deed that partners have held the lands of around 20.510 acres situated an Karanat Village and brought the same into the Firm as their capital and booked in the accounts of the firm, at the original cost price of the! land to the partners. Once the lands were brought into the firm, it would be 4 trading asset of the partnership firm, even if it is shown as 'Fixed Assets' in the Balance Sheet, since the firm is constituted only with an intention to develop the contiguous lands held in the hands of the partners into Plot and construct residential apartments etc. Further, once the partners brought in the lands into the firm as Capital, the land loses its identity as fixed assets and it will become the stock-in-trade of the firm due to its nature of trade,
7. Further, the assessee had entered into an agreement with M/s.ETA Stark, Property Developers Ltd.; Chennal, for the development of the schedule property into residential layouts/approved plots/villas and for obtaining
-13- ITA 3254 & 3255/Mds/16 necessary permission/approval from DTCP. The gist of the agreement is as under:
"1. that the parties hereby entered into this agreement for the purpose of developing schedule property into residential layouts/approved plots/villas by obtaining necessary permissions/approval from DTCP.
2. that the first party hereby authorise and appoint the second party as the Developer for the residential layout to be developed in the schedule property.....
12. that the parties shall mutually decide the name of the project as "ETA The Good Life / WINGHAVEN Garden"
11. In the instant case, the assessee had developed the lands into plots and sold the same to various parties, not as a single unit, shows that the assessee has dealt with the impugned lands as stock-in- trade of the business, only with an intention earn profit. The assesse's activity squarely covers the judgement of the Hon'bl Supreme Court as cited above on the reason that the transaction is
-14- ITA 3254 & 3255/Mds/16 related to the business, which is normally carried on by the assessee, though not directly; part of it, an intention to earn upon an adventure in the nature of trade may readily be inferred.
12. In view of the above, the assessee's contention that the lands had been shown in the Balance Sheet as 'Fixed Assets' and therefore the sale proceeds on the sale of the lands had been computed and offered under Capital Gains, has not been accepted and the sale proceeds on the sale of the lands by the firm is treated as business income.
13. Further, the assessee not able to show that the findings of the lower authorities has based on no evidence or whether misdirected itself in law. Considering the totality of the facts of the case and the nature of business carried on by the assessee, it is not possible to hold that the assessee is treated the land as investments. In other words, though it is presumed, it was treated as investments it does not alternate the nature of the activities carried out by the assessee. It is only the business activity in land and gains arising out of the sale of such land to by making plots is nothing but adventure nature of
-15- ITA 3254 & 3255/Mds/16 trade and income there from to be considered as profit from business only in term sof Sec.28 of the Act. Accordingly, we are completely agreement with the findings of Ld.CIT(A) on this issue and the appeal filed by the assessee is rejected.
14. Since the same principle applies to other appeal in ITA No.3255/Mds./2016, this appeal is also dismissed.
15. In the result, both the appeals are dismissed.
Order pronounced on 21st June, 2017.
Sd/- Sd/-
(जी. पवन कुमार) (चं& पज
ू ार )
(G. Pavan Kumar) (Chandra Poojari)
8या यक सद:य/Judicial Member लेखा सद:य/Accountant Member
चे8नई/Chennai,
st
Bदनांक/Dated, the 21 June, 2017.
K S Sundaram
आदे श क तDलEप अFेEषत/Copy to:
1. अपीलाथ /Appellant 3. आयकर आयG
ु त (अपील)/CIT(A) 5.Eवभागीय त नJध/DR
2. यथ /Respondent 4. आयकर आयुGत/CIT 6. गाड फाईल/GF