Income Tax Appellate Tribunal - Rajkot
Gokalbhai Somabhai Sitapara,, ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
RAJKOT BENCH, RAJKOT
Before Shri A.L. Gehlot (AM) and Shri D.T. Garasia (JM)
I.T.A. No. 1032/Rjt/2009
(Assessment year 2004-05)
Shri Gokalbhai Somabhai Sitapara vs The Dy.CIT, Cir.1
Chamunda Niwas Rajkot
Popat Para Main Road
Rajkot
PAN : AXCPS5617A
(Appellant) (Respondent)
Appellant by : Shri DM Rindani
Respondent by: Shri Jai Raj Kumar
ORDER
A.L. Gehlot : This is an appeal filed by the assessee and is directed against the order of the CIT(A)-I, Rajkot dated 16-07-2009 for the assessment year 2004-05. The following are the effective grounds of appeal taken by the revenue:
"1. The Learned C.I.T. (Appeals)-I, Rajkot erred in upholding the treatment of the sale proceeds of ancestral land as business income and in confirming the addition of Rs.25,18,748/-.
2. Without prejudice to the above ground, the Learned C.I.T. (Appeals)-I, Rajkot erred in rejecting the alternative plea of the appellant of applicability of Section 45(2).
3. The Learned C.I.T. (Appeals)-I, Rajkot erred in confirming the cost of acquisition of the land sold at Rs.Nil."
2. Brief facts of the case are that during the assessment year the assessee sold several plots of land for a total sale consideration of Rs.26,18,748.. The balance-sheet of the assessee reflected some plots of land as his assets. He did not engage in any other business in this year. He treated the said amount of Rs.26,18,748 as capital gain, which was adjusted against a capital loss from sale of land. He worked out the indexed cost at Rs.24,63,345. With that indexed sum, 2 ITA No.1032/Rjt/2009 cost of renovation was added making the cost of land at Rs.28,45,407. The assessing officer observed that the above inde4xation was not correct, because once the assessee declared the profit from sale of land under the head 'Business', the cost of the same land (Rs.578250) as per valuation report filed by the assessee could not be allowed the indexation for the purpose of long term capital gain. The assessing officer did not accept the assessee's submission that the land sold was inherited from father of the assessee. The assessing officer was of the view that even though the land might be inherited by the assessee, the subsequent action of the assessee to convert agricultural land into non agricultural land and making plots and sub plots of this land and to put them in open market for sale tantamount to sale / business in purchase and sale of land. The assessee had sold 100 plots of 50 to 100 sq.mtrs during the year under consideration to various parties and he has some more plots with him for sale. The assessing officer treated the sale proceeds as income from business and did not allow indexation benefit and other benefits available to computation of capital gain. The CIT(A) confirmed the order of assessing officer. The CIT(A) has also rejected the alternative contention of the assessee invoking provisions of section 45(2) observing that there is no question of applying section 45(2) observing that there is no question of applying section 45(2) as the same is related to computation of capital gain whereas in the case of the assessee it has been held that the profit arose out fo the plotting and selling fo the land as a business income.
3. The ld.AR made his submission on the basis of brief synopsis submitted, which are as follows:
"Some relevant dates:
Year 1955 : Received Land by way of inheritance
1955 till 2003 : Agricultural operations
October 2002 Advance against sales received
August 2003 : Conversion to non-agricultural land
3 ITA No.1032/Rjt/2009
September, 2003 : Land sold
1. Only reason why the A.O. disallowed claim for capital gains is that in the statement of income filed with the return, title of business income was given.
2. However, in the return of income, statutory head of capital gains is shown and in the statement of income also, sub-head capital gains is shown.
3. Accounts are not mandatory for the assessee but only for personal record capital account and balance sheet were prepared by tax practitioner.
4. Other than impugned land, no land transactions are carried out. Land is not treated or converted by the assessee as his stock-in-trade.
5. Appellant has been an agriculturist all along by occupation; no returns of income in past or in future are filed, as he had no other income.
6. He decided to sell agricultural land itself and such was the intention, which is clear from the fact that sale deal was finalized prior to conversion of land to N/A land, as buyers could not hold agricultural land or large land holding of 17,061 Sq.Yds.
7. Sale proceeds are not invested in business but are used for distribution amongst family and for personal use.
8. Occupation continues to be agricultural even presently.
9. Although different small plots are sold, common sale deeds are made for multiple plots to same set of buyers which further goes to show that intention is not to carry out trading of plots to piecemeal buyers on retail basis.
10. Holding period of the land is nearly 48 years.
11. The land is not purchased but inherited and no borrowings are used.
12. NO brokerage or other selling expenses are incurred or claimed.
13. Mere presentation error and that too not in the statutory format, does not alter the true character of the receipts.
14. Merely because large chunk of agricultural and is converted to N/A land, does not always lead to adventure in the nature of trade.4 ITA No.1032/Rjt/2009
15. List of Authorities relied upon:
1. Circular No.4 of CBDT dt 15.06.2007
2. CIT vs Premji Gopalbhai 113 ITR 785 (Guj)
3. D.S. Virani vs CIT 90 ITR 255 (Guj)
4. CIT Vs Rewashanker A Kothari 283 ITR 338 (Guj)
5. CIT vs Rajamannar (2010) 40 DTR 282 (Kar)
6. CIT vs Raja Malvindersinh (2010) 40 DTR 273 (P&H)
7. CIT vs DN Krishnappa (2009) 21 DTR 11 (Bang)
16. Alternative Plea:
If the A.O. and the C.I.T. treated the sale as business income, they should have applied provisions of Sec.45(2) and hence difference between FMV as on date of conversion in the year 2003 and the FMV as on 01.04.1981 would in any case qualify as Long Term Capital Gains."
4. The learned departmental representative, on the other hand, relied upon the order of CIT(A) and submitted that there is no proof that the assessee has sold agricultural land. The ld.DR while referring to page 4 of the assessee's paper book submitted that the claim of the assessee that Rs.2 lakhs was incurred only on account of statutory expenditure whereas in reply to the assessing officer the assessee stated that the expenses were relating to leveling, fencing, etc. The ld.DR further submitted that the assessee did not furnish any land revenue record in support of the claim. He further submitted that the advance stated to be received by the assessee is on account of converted plots. The ld. DR relied upon page 6 of CIT(A)'s order and submitted that the assessee was doing systematic activities in dividing agricultural land into plots, conversion, etc. Therefore, the assessee's income is assessable as business income. It is also the submission of the ld. DR that the assessee himself has shown it as business income.
5. In the rejoinder, the ld. AR submitted that the expenses pointed out by the ld. DR are not in respect of this land. He further submitted that while filing the return of income, though in the computation of total income it has been wrongly mentioned as business income, as per profit & loss account, it is in fact shown as capital gain and the assessee has shown accordingly long term capital gain in 5 ITA No.1032/Rjt/2009 the return filed in 'Form 2D-Sral'. A photo copy of the said form has been placed at page 1 of the assessee's paper book.
6. We have heard the ld. Representatives of the parties and record perused. The admitted facts of the case are that the impugned capital gains was on account of ancestral land sold after dividing it in plots and converting the same into residential. Whether it is an accretion to capital or capital profit, it depends on particular facts and circumstances. The transaction itself should be looked at to see if it is essentially of a commercial character. A purchase and sale of land may be of that character but not necessarily so. If a person is systematically engaged in a series of transactions of purchase and sale of lands with a view to make profit out of them that may indicate that he is occupied in a trading activity. But it is well settled that ownership of land by itself is not a trade. And so a person may purchase property, hold and enjoy it, derive income from it and, when there is appreciation in its value, sell it at an enhanced price. That will not be a trade or an adventure in the nature of trade. In such a case, while buying land, there date, at a profit. But that could hardly make any difference. Sale of land, in those circumstances is no more than a realization of capital or conversion of one form of it into another. What is necessary is to examine the intrinsic nature and character of the transaction itself in the light, of course, of the objects and the surrounding circumstances and facts. There is no evidence that the assessee has purchased the agriculture land at any rate which bears any comparison to its vast assets. Nor is there any evidence that the assessee has engaged in a series of sales of land or other property belonging to it. When the property was originally acquired in the form of ancestral and there was no intention to resale it at a profit. Sales of land have not been frequent feature of the assessee. If a land owner develop his land, expanded money on it, laid roads, converted the land in to house site with the view to get better prize for the land, eventually sold the plots for consideration yielding a surplus, it could be hardly said that the transaction is anything more than a realization of a capital investment of conversion of one form of assets in to another. Obviously, the 6 ITA No.1032/Rjt/2009 surplus in such case will not be trading or business profit because the transaction is one of realization 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. Having regard to the nature of property, length of its ownership and holding, actual conduct of the assessee or all other facts including absence of evidence of any trading activity, the surplus from sale of land did not result from any trade or business in land carried on by assessee or from any transaction which may properly be described as an adventure in the nature of trade. If we apply the above discussions to the facts of the case we find that it is inherited ancestral agriculture land in the hand of the assessee. It was neither purchased nor acquired with the intention or for the purpose of any business or adventure in nature of trade. We therefore of the considered view that such ancestral agriculture land can not be held as business assets and its income is not liable to tax under the head income from business, same is liable to be assessable under the head "income from capital gains".
6.1 In the light of above discussion and in the light of direct judgment of the jurisdictional High Court in the case of CIT vs Premji Gopalbhai 113 ITR 785 (Guj) where it has been held that ancestral land converted into non agricultural land divided into several plots and sold as and when purchasers was available. Profit is assessable as capital gain and not as a business income.
Order pronounced in the open court on 10-12-2010 .
Sd/- sd/-
(D.T. Garasia) (A.L. Gehlot)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Rajkot, Dt : 12th December, 2010
Pk/-
7 ITA No.1032/Rjt/2009
copy to:
1. the appellant
2. the respondent
3. the CIT(A)-I, Rajkot
4. the CIT-I, Rajkot
5. the DR
(True copy) By order
Asstt.Registrar, ITAT, Rajkot