Income Tax Appellate Tribunal - Pune
Alpana Surendra Sancheti, Pune vs Department Of Income Tax on 12 February, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
BEFORE: SHRI G.S. PANNU, ACCOUNTANT MEMBER
AND
SHRI R.S. PADVEKAR, JUDICIAL MEMBER
ITA Nos. 1081, 1082 & 1083/PN/2011
Assessment Years : 2005-06, 2006-07 & 2007-08
Asst. Comm. of Income- Alpana Surendra Sancheti, 8,
tax, Central Circle-1(1), Pooja Housing Society,
PMT Building, Swargate, Vs. Bibwewadi, Pune
Pune
(Appellant) (Respondent)
PAN No.: AHOPS2336Q
Appellant By: Ms. Ann Kapthuama & Shri
Mukesh Verma
Respondent By: Shri P.I. Patwa
Date of hearing : 12-02-2013
Date of pronouncement : 22-03-2013
ORDER
PER R.S. PADVEKAR, JM:
This batch of 3 appeals are filed by the revenue challenging the respective impugned orders of the Ld.CIT(A), Pune dated 20-01-2011 for the A.Ys. 2005-06, 2006-07 and 2007-08. The revenue has taken following ground which is common in all the appeals:
"Whether on the facts and in the circumstances of the case, Ld.CIT(A) was justified in granting relief to the assessee vis-à-vis addition made by the Assessing Officer by treating the Long Term Capital Gain shown by the assessee as her business income."
2. As the facts as well as issues are identical in all the 3 years, hence, these appeals are disposed of by this consolidated order for the sake of convenience.
3. The facts as noted by the Assessing Officer are as under. There was a search and seizure action u/s.132(1) of the Income-tax Act against the assessee and other group concerns. The assessee is Proprietor of M/s. Sancheti Promoters and Builders. In consequence of the notice issued u/s.153A of the Income-tax Act, the assessee filed the return of 2 ITA Nos. 1081, 1082 & 1083/PN/2011, Alpana Surendra Sancheti, Pune income. So far as the issue before us is concerned i.e. in respect of sale of 3 lands which particulars are as under:
Sl. Particulars Year of Year of Sale Long Term No. Sale Purchase consideration Capital Gain amount declared by the assessee 1 Land at 2005- 1995-96 45,00,000/- 36,54,900 Kartaj 06 2 Land at 2006- 2001-02 49,50,000/- 34,67,500/-Baner 07
3 Land at 2007- 2001-02 13,33,334/- 10,89,125/-Kasar 08
Amboli In respect of the sale consideration on the sale of the above lands the assessee has declared Long Term Capital Gain and also claimed deduction u/s.54EC of the Income-tax Act.
4. The Assessing Officer was of the opinion that the transactions of the sale of the land as mentioned in above chart are to be assessed under the head 'business income' and not under the head 'Capital Gain'. The assessee contended before the Assessing Officer that the assessee had acquired the said lands for the purpose of investment as well as agriculture activity only. The assessee further contended that she was carrying out agriculture activity regularly since the purchase of the said lands and agriculture income from the said land was declared in the return of income filed for the respective assessment years. The said lands were never converted into main agriculture land and even if the assessee is in the business of construction but unless the lands are converted into non-agriculture lands no inference can be drawn that the investment in the land was a part of assessee's business activity. The assessee also contended that the land at Kasar Amboli was purchased in the year 1996 and land at Baner and Katraj were purchased in the year 2001. The assessee had also another agriculture land at Warje since 2001 which was not sold till date of the assessment. The assessee also contended that those lands were held by her as a matter of pride 3 ITA Nos. 1081, 1082 & 1083/PN/2011, Alpana Surendra Sancheti, Pune possession. It was also contended that there was no regular purchase and sale of any land during the period and lands were purely held as an investment. The assessee also pleaded that to bring the sale of her above 3 lands into the basket of the 'business income' there must be continuous activity in terms of frequency of the transactions of the regular nature.
4.1. Moreover, intention of the assessee is also decisive as the assessee never sold those lands as a part of her business. The assessee has never shown the said lands as a business assets. The assessee relied on the Plethora of the decisions in support of her claim that the sale transactions of the lands cannot be treated under the head 'business income'. The Assessing Officer was not impressed with the explanation of the assessee. He brought to tax the sale consideration under the head "Business income". The reasons given by the Assessing Officer in A.Y. 2005-06 for not accepting the contention of the assessee are as under:
i) During the course of search, it is noticed that Mrs. Alpana S. Sancheti, though seems to be a house wife only, is showing business of share trading and also buying and selling properties in the returns filed by her.
It has been stated by Shri Surendra Sancheti in Q No 6 of his statement that he is looking after all the business activities and investments done in the name of wife.
ii) The assessee has also developed some projects by herself in her proprietary concern M/s Sancheti Promoters and Builders.
iii) The assessee is also a partner in M/s Jairaj Developers Unit-3 and M/s Gagan Developers which are also engaged in business of development and real estate.
iv) Even her husband Shri. Surendra Sancheti, who is looking after the business activities of the Lake Town project as partner, has admitted to be looking after business activities of the assessee.
v) There is no element of "pride possession" into it and the assessee has dealt into purchase and sale of these lands in the same manner as a persons engaged in real estate business would do and such transactions 4 ITA Nos. 1081, 1082 & 1083/PN/2011, Alpana Surendra Sancheti, Pune would b e i n the nature of venture into the nature of trade.
vi) Thus it is quite vivid that the intention of the assessee is to earn quick profit.
vii) It would be pertinent to note the case laws of Janki Ram Bahadur Ram (1965) 57 ITR 21 (SC), Khan Bahadur Ahmad Alladin & Sons Vs. CIT (1968) 68 ITR 573 (SC). Wherein similar views have been held. I have also gone through the case laws cited by the assessee. Those have been found to be in different factual contexts.
4.5. Further, it would be appropriate to rely upon the Circular No.4/2007 dated 15-6-2007 of the CBDT. The circular is relating to transaction involving shares, but the ratio can be used to determine whether the sale of agricultural land is business transaction or otherwise. On careful perusal of the said circular, it appears that the said circular is in fact confirming the case of the revenue as far as instant case is concerned.
(i) In the said circular, reference has been made to observation of Supreme Court in the case of Associated Industrial Development Co. Pvt. Ltd. reported in 82 ITR
586. The said observation is as below:-
" Whether a particular holding of share is by way of investment or forms part of stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares, which are its stock-in- trade and those which are held by way of investment."
The assessee has not provided any evidence from her records to whether such distinctive business and investment portfolios were maintained.
(ii) The second test given by the said circular is as below:-
" Where a company purchases and sells shares, it must be shown that they were held as stock-in-trade and that existence of the power to purchase and sell shares in the Memorandum of Association is not decisive of the nature of transaction."
As the present case is of a proprietor, this test does not apply to the instant case.
(iii) The third test is as below:-
"The substantial nature of transaction, the manner of maintaining books of account, the magnitude of purchases and sale and the ratio between purchases & sales and the holding would furnish a good guide to determine the nature of transaction."5
ITA Nos. 1081, 1082 & 1083/PN/2011, Alpana Surendra Sancheti, Pune As far as this test is concerned, following observations will make us to consider income from sale of land of the assessee as income from business:-
• The assessee is consistently selling the properties claimed to be an investment. The assessee has sold alleged agricultural lands in the previous years relevant to assessment years 2005-06, 2006-07 and 2007-08.
• Secondly, for three of these assessment years there are very little transaction in the proprietor concern M/s Sancheti Promoters and Builders. Therefore for these relevant assessment years the sale of agricultural land is the substantive transaction which is an adventure in the nature of trade.
(iv) The fourth test given by the circular is as below.-
"Ordinarily the purchase and sale of shares with the motive of earning a profit, would result in the transaction being in the nature of trade/adventure in the nature of trade; but where the object of the investment in shares of a company is to derive income by way of dividend, etc., then the profits accruing by change in such investment (by sale of shares) will yield capital gain and not revenue receipt."
Here the relevant transaction is sale of agricultural land hence agricultural income should be considered as analogous to dividend. The agricultural income claimed by assessee is as below:
Sr. No. A.Y. Agricultural Income
1. 2002-03 Rs. 60,000/-
2. 2003-04 Rs. 65,000/-
3. 2004-05 Rs. 9.250/-
4. 2005-06 45,000/-
5. 2006-07 NIL
6. 2007-08 NIL
On this test also, the case of the assessee miserably fails. It is seen from the above table that the assessee has earned meager agricultural income for respective assessment years. This vividly demonstrates that the assessee's real intention was not to use this asset as an agricultural land and earn income from it by way of agricultural produce. That income, as can be seen, can at best be described as only incidental.
(v) The fifth test given by the circular is as below:-
"The CBDT also wishes to emphasize that it is possible for a taxpayer to have two portfolios, i.e. an investment portfolio comprising of securities which are to be treated as capital asset and a trading portfolio comprising of stock-in-trade which are to be treated as trading asset. Where an assessee has two portfolios, the assessee may have income under both heads, i.e. capital gain as well as business income."6
ITA Nos. 1081, 1082 & 1083/PN/2011, Alpana Surendra Sancheti, Pune As already discussed in subpara 4.5(i) above, the assessee did not provide any evidence to establish distinction between business and investment portfolio. Hence, this test again confirms the case for treating income from sale of agricultural land as income from business.
(vi) In addition to the tests above, there is a very recent decision of Pune Tribunal on the same issue in the case of Gopal Kasai Vs ITO Jalgaon No. 513, 514/PN/2005 and 50/PN/2006. The decision has been given on 22-08-2008. The assessee had gone in appeal against this decision before the Aurangabad Bench of the Hon'ble Mumbai High Court. The assessee's appeal has been dismissed by Hon'ble High Court in its recent judgment.
The main issue involved here is what constitutes an adventure in the nature of trade. Very elaborate discussion has been made by Pune Tribunal in this decision. It would be worthwhile to quote the findings of Pune Tribunal on this issue. The findings are as under:
"In nutshell, on the basis of the detailed discussions made hereinabove, the conclusion can be drawn that the entire activity of this appellant was within the domain of adventure in nature of trade. We are aware that by profession, Karta an Advocate but he has also entered into an activity, which can be held to be incidental to the business activity. His act prior to the acquisition was definitely assailed with the profit motive. He was aware at the time of purchase that the land in question was within the acquisition proceedings, hence it cannot be held as an investment for a long period. The land in question could never be a pride of possession since it was about to be acquired by the Government. The land in question was not going to be held, least to say, for a long time but even for sometime because the acquisition proceedings were in succession. Even it cannot be said to be a purchase for aesthetic possession. What is important for our consideration is its distinctive character, total effect of the intention of this appellant at the time of purchase, all the relevant factors as also surrounding circumstances so as to finally determine the true character of the transaction. We have also seen from the above precedents, which have been either applied or been distinctive on facts while discussing ante, that this appellant has not shown any other intention at the time of acquisition of land other than the intention of earning profit by way of compensation. Before we part with, we may like to add that one cannot remain untouched by the plight of the farmers their agricultural land are generally being purchased by interested persons immediately before the acquisition of land at throw away prices with their motive to encash heavy returns in the shape of huge amount of compensation. What the farmers get out of such deal is merely peanuts on sale of their precious land under of fear and apprehension of acquisition by the Government for a consideration a t a nominal price being sale in stress while the astute purchaser notching rich fruits happened to be the expert of this trade. We acknowledge that we are not acting as a moral police being our job is confined within four corners of the Income tax Act. Neither we are making any allegation on any one nor we have any authority to stop this malpractice being very much prevalent wherever in the country the acquisition of land takes pace but simply out of compassion we have placed our sentiments, though definitely not swayed by the omissions in arriving at unbiased decision. To conclude we draw the result that it was nothing but an adventure in the nature of trade, hence rightly taxed in the hands of the assessee. Grounds no. 1 and 2 of 7 ITA Nos. 1081, 1082 & 1083/PN/2011, Alpana Surendra Sancheti, Pune the concise grounds or the ground no. 1 and its sub-grounds as per the grounds of appeal are hereby dismissed.
In the instant case, the assessee is in the business of promoter, builder and developer. Therefore the assessee was well aware of the exit point to fetch quick profits. The findings of above referred case vividly substantiate the transaction involving sale of agricultural land as an adventure in the nature of trade.
5. Following reasons in the A.Y. 2005-06 Assessing Officer accordingly brought to tax the entire sale consideration in all the 3 assessment years under the head 'business income' and declined to give the benefit of Section 54EC to the assessee. The assessee challenged the action of the Assessing Officer before the Ld.CIT(A) and found favour.
The Ld.CIT(A) accepted the contention of the assessee that the lands were held as a pride possession and it were in the nature of investments and not held as a business assets. Moreover the Ld.CIT(A) also considered the long period of holding of the lands by the assessee as well as the fact that the assessee never converted those lands for non-
agriculture use.
5.1. The operative part of the reasons given by the Ld.CIT(A) is as under:
" I have carefully considered the grounds of appeal and the facts as well as law which are apparent from record. The appellant is an individual engaged in the activity of business, agriculture etc. and was searched u/s 132 of the IT. Act on 08.08.2007 along with other members of this group. In view of the same this assessment was completed u/s 143(3) r.w.s. 153A. It was found by the Assessing Officer that the appellant has sold agriculture land in A.Y. 2005-06, 2006-07 and 2007-
08. All the relevant details in respect of sale of these agriculture lands situated at Katraj, Baner and Kasar Amboli are available in the assessment order as well as in the submissions of the appellant which have already been quoted above. The appellant has shown that the lands sold were held by her as investment in agriculture land from 4 to 10 years on the dates of sale. It was also shown that the above referred lands were "Agriculture lands" as per the revenue records and therefore it was not eligible for any other commercial use unless the competent authority had granted permission of its conversion into "Non agricultural land". The appellant has further contended that no action what so ever was made for its conversion to NA land and therefore according to them it 8 ITA Nos. 1081, 1082 & 1083/PN/2011, Alpana Surendra Sancheti, Pune should be taken as an evidence for their intention to purchase and hold the land as agricultural investment. The appellant had further shown that agricultural activities were carried out on those lands on regular basis till A.Y. 2005-06 and income from this activity ranging from Rs.9250/- to Rs. 60,000/- was shown between A.Y. 2002-03 to A.Y. 2005-06. All these primary facts have not been found by the Assessing Officer to be incorrect. However, the Assessing Officer, as could be seen from the discussions available in the assessment order, came to the conclusion that the agricultural lands sold were business assets of the appellant (Stock in trade) and therefore the income arising on the sale of these lands has to be assessed under the head "Business and Profession" because the appellant is showing income from share trading, the husband of the appellant Mr. Surendra Sancheti in his statement recorded during search had stated that he looks after the business activity and the investment made in the name of his wife, the appellant has developed some projects in her proprietary concern M/s Sancheti Promotors and Builders, the appellant is partner in firms engaged in real estate development, there is no element of pride possession in respect of land sold. The Assessing Officer for coming to the above conclusion also relied on the circular No.4/2007 of CBDT which is to be applied for cases of share trading to claim that the principle laid in the said circular is also applicable to the facts of this case and how as per the said circular the case of the appellant can be covered to hold that the land sold is to be assessed as a business income. The Assessing Officer has also relied upon the decision of the Pune Tribunal given in the case of Gopal Kasat Vs ITO Jalgaon ITA No. 513.514/PN/2005 and 50/PN/2006. After considering all these facts the Assessing Officer held that the income of Rs. 37,65,0007- arising on the sale of the land in this year is to be assessed under the head Business and Profession. The appellant in addition to the basic facts already mentioned above, had argued before the Assessing Officer that the land was always held as agricultural land for carrying out the activity of agriculture and also for the pride of possession, agricultural income has been earned regularly which were accepted by the Assessing Officer, these lands were not shown in the business balance sheet, the lands were agricultural land in revenue record which were never got converted to NA land, were held for long period of time, the sale was not frequent or regular so as to constitute an organized activity essential for holding an activity as a business and because of the above facts it was claimed that the sale of agricultural land cannot be treated as a business activity, The appellant has also relied on numerous judgment which are noted in the assessment order to claim before the Assessing Officer that the claim made by them are legally correct. During appeal also similar arguments were put forth which can be seen from the submission already quoted above. It was further argued that the Assessing Officer erred in drawing the conclusion referred to above. It was claimed that the Assessing Officer has passed the assessment order on presumption and not on hard facts. It was claimed that the 9 ITA Nos. 1081, 1082 & 1083/PN/2011, Alpana Surendra Sancheti, Pune construction business carried out by the appellant was separate and only because of this it is wrong to presume that the appellant was also engaged in the business of land trading. Reliance for this was made on the Supreme Court judgment given in the case of Saroj Kumar Majumdar Vs. Commissioner of Income Tax reported in CTR 12 335 PC 54 R 242 (SC). It was further claimed that her husband in individual capacity is not associated with the construction activity, on the contrary it was stated that he was involved in this activity as Karta of the HUF. Therefore it was claimed that the inference drawn by the Assessing Officer was incorrect. It was stated that had the intention been to trade in land the appellant would had got the land converted into NA and then would have brought improvements so as to make the land more valuable as a trading commercial property. The detailed submission made by the appellant is already quoted above and can be seen for details. On careful consideration of the facts and the law, I find that the Assessing Officer has erred in drawing the inference. He has travelled in the arena of presumptions for coming to the conclusion. In the process relevant facts and evidence available on record have been ignored. Nothing was found or brought on record which could show that the appellant was engaged in the business of land trading. On the contrary all the facts which are available on the records viz the lands were available in the revenue records as agricultural land which were never converted into NA land, there was no activity to improve the land so as to make it commercially more valuable, actual activity of agriculture on the land over a period of time evidenced by the showing of agricultural/income in almost all the years, long period of holding, etc. etc. deafly shows that the appellant was holding the lands as investment in/agricultural lands. The Assessing Officer is also found to have incorrectly brushed aside relevant judgments relied upon by the appellants when the same in many cases were in favour of the appellant. The Assessing Officer has incorrectly held that the circular of the CBDT which was for deciding the similar issue in respect of share transactions can be applied in this case also and in doing so he is seen to have further erred in coming to the conclusion that the facts of the case matches with the circumstances mentioned in the circular for arriving at the conclusion drawn by him. He has also clearly erred in applying the judgment of the ITAT Pune given in the case of Gopal Kasat quoted supra. The facts of the Gopal Kasat is entirely different from the facts of the appellant. In the said case the appellant had bought land after knowing the fact that those lands were under acquisition so as to make quick buck and therefore after noticing those facts the Honourable tribunal came to the conclusion that e said appellant had made investment with the objective of making quick money, because of which the investment was held as adventure in the nature of trade. The facts of the appellant are much different and therefore the AO can be seen to have erred completely in following this judgment. Considering the entire facts of the case and the law I am of the opinion that the appellant is 10 ITA Nos. 1081, 1082 & 1083/PN/2011, Alpana Surendra Sancheti, Pune correct in claiming the relief and therefore the appeal is allowed.
Now the revenue is in appeal before us.
6. We have heard the rival submissions of the parties and also anxiously considered the reasons recorded by the Assessing Officer for treating the sale consideration of those 3 lands for assessing the same as a 'business income' as well as the reason given by the Ld.CIT(A) for accepting the contention of the assessee. The assessee is in the business as a Builder and Promoter and which is an admitted fact. So far as the issue in controversy in respect of the head under which the Sale consideration of the 3 lands is to be assessed, it is seen that the assessee has sold those 3 lands in the present 3 assessment years one by one. It is also seen that the holding period of those lands is quite long. So far as land at Katraj is concerned the said land was held for the period of the 4 years. So far as land at Kasar Amboli is concerned the said land was held for the period of 10 years and land at Baner is concerned the period for holding goes up to 5 years.
7. If the assessee wants to make a quick profit then she would not have locked the money in those lands for considerable long period.
Another aspect we find here is that those lands were never converted into stock in trade nor those lands were converted as non-agriculture lands. It is also seen that the assessee has declared agriculture income in respect of those lands. Nothing is on record to show that the assessee has made any development to those lands and thereafter sold those lands.
8. We have considered plathora of decisions relied on both the parties. In our opinion, the basic facts are decisive to apply the principles laid down in each precedent or decision. If we have to support the case of the Assessing Officer that lands were purchased to earn quick profit then important fact goes against the Assessing Officer 11 ITA Nos. 1081, 1082 & 1083/PN/2011, Alpana Surendra Sancheti, Pune i.e. period of holding as no business man would hold the land for the periods of 5 to 10 years. Quick profit contemplates quick earnings of income which is not the case here. Law is well settled that the intention of the party is also important factor determining whether a particular asset was purchased by the assessee as a "investment" or as stock in trade. Another important fact in this case is that no development what-so-ever was made to those lands to make it commercially salable. Moreover even the assessee is in real estate business but those lands were never converted for non-agriculture use.
After giving our anxious consideration to the reasons recorded by the Ld.CIT(A), in our opinion, he has right hold that the sale consideration is to be assessed under the head 'Capital Gain' and not as a 'business income'. We do not find any reason to interfere with the order of the Ld.CIT(A) in all the 3 years and those are confirmed.
9. In the result, all the appeals of the revenue are dismissed.
Order pronounced in the open Court on 22nd March, 2013 Sd/- Sd/-
(G.S. PANNU) (R.S. PADVEKAR)
ACCOUNTANT MEMBER JUDICIAL MEMBER
RK/PS
Pune, Dated: 22nd March, 2013
Copy to
1 The Assessee
2 The Department
3 The CIT(A)-I, Pune
4 The CIT-I, Pune
5 The DR, ITAT'A' Bench, Pune.
6 Guard file.
// True Copy //
By Order
Private Secretary,
Income Tax Appellate Tribunal, Pune