Income Tax Appellate Tribunal - Pune
Shubhakamana Builders Pvt.Ltd.,, ... vs Assessee on 30 August, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
Pune Bench B, Pune
Before Shri Shailendra Kumar Yadav, Judicial Member
and Shri D. Karunakara Rao, Accountant Member
I.T.A. No. 515/PN/2006 : A.Y. 2001-02
M/s. Shubhakamana Builders pvt. Ltd.,
7 Thakkars, near Nehru Garden, Nasik
PAN AAACL 2769 E Respondent
Vs.
Asstt. CIT (Cent) Cir. 3 Nasik Appellant
Appellant by: Shri Sunil Pathak
Respondent by : Shri K.K. Ozha
Date of hearing: 30-8-2011
Date of pronouncement: 30-8-2011
ORDER
PER SHAILENDRA KUMAR YADAV, JM
This appeal has been filed by the assessee against the order of the CIT(A) on the issue of business income versus capital gain with regards to profit on sale of plots of land at Survey No. 589/3 of Nasik.
2. The assessee is a builder and developer as evident from the Articles of Association and Memorandum of Association of the company. In the year under consideration, the assessee has shown profit on sale of plot at Rs. 11,68,381/-. The assessee has purchased one agricultural plot of land at Survey No. 589/1/9 from Shri Pandurang Mahadu Gaikwad and Shri Dattu Mahadu Gaikwad by purchase deed dated 13-6-1990 for a 2 ITA No. 515/PN/2006 Shubhakamana Builders A.Y. 2001-02 consideration of Rs. 1,86,430/- inclusive of stamp duty charges. The said plot was thereafter sub-divided in plot 'A' and plot 'B' admeasuring 740.36 sq. mtrs and 769.17 sq. mtrs respectively. Thereafter, certain rights were created on the said plots in favour of Thacker Developers Ltd. (a sister concern) which was declared as the 'consenting party' which is evident from the sale deed executed by the assessee.
3. Plot 'A' admeasuring 740.36 sq. mtrs was sold to Shri Narendra Sugandhlal Chhajed by way of a tri-party development agreement dated 19-3-2001 between the assessee (owner), M/s. Thakkar Developers Pvt. Ltd. (consenting party) and Shri S.N. Chhajed (Developer). As per the terms of the said development agreement, the price of the property was fixed at Rs. 9,00,000/- out of which a sum of Rs. 7,00,000/- was payable as the land price to the assessee and the balance of Rs. 2,00,000/- was payable to M/s. Thakkar Developers Ltd (consenting party) for relinquishment of its right over the said property. Thereafter, it was also found that the assessee had converted the said agricultural land into non-agricultural land vide order of Tehsildar, Nasik dated 29-5-1997. The said plot of non-agricultural land was thereafter transferred to the developer vide the development agreement dated 19-3-2001 which provided that the assessee would give consent and signatures for building plan to Nasik Municipal Corporation as also the consent and signatures for raising finance from HDFC and HUDCO for construction of building on such plot.
4. The plot 'B' admeasuring 769.17 sq. mtrs was sold to Ms K.P. Shukla by way of a tri-party agreement dated 3 ITA No. 515/PN/2006 Shubhakamana Builders A.Y. 2001-02 1-2-2001 between the assessee (owner), M/s. Thakkar Developers Pvt. Ltd (consenting party) and Ms. K.P. Shukla (purchaser). As per the terms of the said agreement, the price of the property was fixed at Rs. 11,10,262/- out of which a sum of Rs. 7,00,000/- was payable as the land price to the assessee and the balance of Rs. 4,10,262/- was payable to M/s. Thakkar Developers Ltd. (consenting party) as remuneration on account of relinquishment of certain rights held by them. It was also observed that from the time of purchase of the said plot to its sale, the assessee had carried out following activities on the said plot namely;
i) The appellant obtained a plan of property approved by Nasik Municipal Corpn. Vide its order dated 10-7-1996 (para 3 of the purchase deed) dated 1-4-2001;
ii) The NA order was obtained from the Collector, Nasik vide order dated 29-5-1997
iii) The property was subject to restriction u/s 43 of the Bombay Tenancy Act since it was occupied by certain tenants. This property was cleared from the restriction u/s 43 by Division Officer.
iv) Necessary permission was obtained from Dy. Collector for retention of such property under the ULC vide order dated 30-12-2000."
5. In view of above, it was observed by the CIT(A) that from the transaction of purchase and sale carried out by the assessee, it was clear that the intention and the conduct of the assessee clearly constituted an adventure in the nature of trade and therefore, the profits earned from the sale of two plots was to be treated as income from business. Some of the indicia for testing whether the transaction is in the nature of investment or of an 4 ITA No. 515/PN/2006 Shubhakamana Builders A.Y. 2001-02 adventure in the nature of trade have been highlighted by the Hon'ble Bombay High Court in the case of Indian Hume Pipe Company Ltd (195 ITR 386). The CIT(A) applied the tests laid down by the Bombay High Court to the case of the assessee to determine the nature of the transaction for the purpose of its taxability under the head business income. The facts emerging in the case of assessee on application of the tests laid down by the Bombay High Court in the case of Indian Hume Pipe Co. Ltd (supra) are highlighted as under:
i) Was the purchase of the commodity and its resale allied to his usual trade or business or incidental to it? - In the appellant's case, the purchase of land and its development has been its regular business as evident from the Memorandum and Article of Association of the company;
ii) What is the nature of the commodity purchased and resold and in what quantity was it purchased and resold? - It is a land within the limits of Nasik Municipal Corporation which was transferred to vendee by way of tri-party agreement.
iii) Did the purchaser, by any act subsequent to the purchase, improve the quality of the commodity purchased and thereby make it more readily resaleable? - There is a clear evidence of marked improvement/transaction of the property either held and then sold by the appellant which has been described in detail at para no. 2.6 and 2.7 of this order."
iv) What were the incidents associated with the purchase and resale? - the appellant had carried out many action and steps from the time of acquisition of the property to its sale which have been highlighted in para 2.6 and 2.7 of this order.5 ITA No. 515/PN/2006
Shubhakamana Builders A.Y. 2001-02
v) Were they similar to the operations usually associated with trade or business? The appellant was engaged in the business of Developer and Builder and, therefore, such transaction of tri-parti agreement is commonly associated in the business of real estate.
6. In view of above, the CIT(A) observed that the intention and conduct of the assessee was in the nature of an adventure in the nature of trade which stands established by the above discussed tests as laid down by the jurisdictional High Court. It was also found that the assessee has been purchasing agricultural/non- agricultural plots from the time of its commencement of business of real estate and the said plots were shown in the books of account under the head 'fixed business assets" and the profit on sale of such plots was suo-moto shown in the profit and loss account. Further, the assessee found to be contended that the plot on survey no. 589 was purchased with the intention of constructing hostel for working men and women also showed to prove that the intention of the assessee for purchasing the said plot was for the purpose of developing it as business venture and not capital investment. The agricultural land on survey no. 589 which has undergone so many tangible steps from conversion of agricultural to non agricultural land, ULC certificate, approval of construction plan etc. would surely constitute adventure in the nature of trade. Moreover, the assessee had purchased a tenanted property 6 ITA No. 515/PN/2006 Shubhakamana Builders A.Y. 2001-02 which was cleared of such restriction and thereafter certain rights over this property were given to its sister concern Ms. Thakkar Developers Ltd., who had received certain compensation from sale executed by the assessee. This typical transaction has ingredients/elements of business transaction and, therefore, cannot be treated as a case of capital gain. Same has been opposed by the assessee before us.
7. It was submitted on behalf of the assessee that the CIT(A) was not justified in upholding the profits on sale of plots of land at survey No. 589/3 of Nasik, as business income of the assessee instead of capital gains. It was further submitted that the CIT(A) erred in holding that though the land at Survey No. 589/3 was purchase with an intention of constructing hostel for working men and women, it constituted stock in trade for the assessee. It was also submitted that the CIT(A) erred in holding that because no separate books of accounts for business purpose and personal investments were maintained, the investment in land at Survey No. 589/3 constituted stock in trade and not a capital asset and therefore, failed to hold that the land at survey no. 589/3 constituted the capital asset of the assessee. On the other hand, the learned DR supported the orders of the authorities below. 7 ITA No. 515/PN/2006
Shubhakamana Builders A.Y. 2001-02
8. After hearing the rival submissions and perusing the material on record, we are not inclined to interfere with the finding of the CIT(A). As stated above, the assessee is engaged in the business of builder and developer. The property in question was purchased on 13-6-1990. Thereafter, same was divided in plot 'A' and plot 'B' for different sizes as indicated above. The Plot 'A' was sold to Shri Narendra Sugandhlal Chhajed by way of tri-party development agreement dated 19-3-2001 as indicated above. As per the terms of said development agreement, the price of the property was fixed at Rs. 9,00,000/- out of which a sum of Rs. 7,00,000/- was payable as the land price to the assessee and the balance of Rs. 2,00,000/- was payable to M/s. Thakkar Developers Ltd. (consenting party) for relinquishment of its right over the said property. It is pertinent to mention here that the assessee has converted the said agricultural land into non-agricultural land vide order of Tehsildar Nasik dated 29-5-1997 and the same was transferred to the developer vide the development agreement dated 19-3-2001 which provided that the assessee would give consent and signatures for building plan to Nasik Municipal Corporation as also the consent and signatures for raising finance from HDFC and HUDCO for construction of building on such plot. 8 ITA No. 515/PN/2006
Shubhakamana Builders A.Y. 2001-02
9. With regards to plot 'B' admeasuring 769.17 sq. mtrs was sold to Ms K.P. Shukla by way of a tri party agreement dated 1-2-2001 between the assessee (owner), Thakkar Developers Pvt. Ltd. (consenting party) and Ms K.P. Shukla (purchaser). As per the terms of said agreement, the price of the property was fixed at Rs. 11,10,262/- out of which a sum of Rs. 4,10,262/- was payable to M/s. Thakkar Developers Ltd. (consenting party) as remuneration on account of relinquishment of certain rights held by them. It is pertinent to mention here that the assessee has conducted the following activities with regards to the said plot.
(a) The assessee obtained a plan of property approved by Nasik Municipal Corporation vide its order dated 10-7-1996;
(b) The NA order was obtained from the Collector, Nasik vide order dated 29-5-1997 for converting the above said agricultural land to non-agricultural land.
(c) The property was subject to restriction u/s 43 of the Bombay Tenancy Act which was occupied by tenants. The property was cleared from the restriction u/s 43 by Divisional Officer.
9 ITA No. 515/PN/2006
Shubhakamana Builders A.Y. 2001-02
(d) Necessary permission was obtained from Dy. Collector for retention of such property under the ULC vide order dated 30-12-2000.
10 In view of the above, it is clear that the transaction of purchase and sale carried out by the assessee constituted an adventure in nature of trade and therefore, profit earned from sale of two plots was rightly treated as income from business by lower authorities. In view of above, the CIT(A) was justified in upholding the order of the Assessing Officer wherein it has been held that the profit on sale of plot of land at Survey No. 589/3 was business income instead of capital gain. The same is upheld.
11. In the result, the appeal of the assessee is dismissed.
Decision is already pronounced in the open court on 30th August 2011.
Sd/- Sd/-
(D. KARUNAKARA RAO) SHAILENDRA KUMAR YADAV
Accountant Member Judicial Member
Pune dated the 30th August 2011
Ankam
Copy of the order is forwarded to :
1. The Appellant
2. The Respondent
3. The CIT(A)- I Nasik
4. The CIT - I Nasik
5. The D.R, ITAT Pune Bench, Pune
6. Guard File
By order
Assistant Registrar
10 ITA No. 515/PN/2006
Shubhakamana Builders
A.Y. 2001-02
Income Tax Appellate Tribunal
Pune Benches, Pune.