Income Tax Appellate Tribunal - Pune
Qamar A.B. Mujawar,, Pune vs Assessee on 14 October, 2015
आयकर अपील
य अ धकरण "ए" यायपीठ पण
ु े म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, PUNE
ी आर. के. पांडा, लेखा सद य, एवं ी "वकास अव थी, या$यक सद य के सम% ।
BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM
आयकर अपील सं. / ITA No. 1280/PN/2010
$नधा'रण वष' / Assessment Year : 2006-07
Qamar Ahmed Bashir Mujawar,
R. No. 12, Konark Enclave,
Bund Garden Road,
Pune - 411001
PAN : AGLPM4560G
.......अपीलाथ / Appellant
बनाम / V/s.
The Income Tax Officer,
Ward - 2(2), Pune
......
यथ / Respondent
Assessee by : Shri C.H. Naniwadekar
Revenue by : Shri Rajesh Damor
सन
ु वाई क तार ख / Date of Hearing : 18-08-2015
घोषणा क तार ख / Date of Pronouncement : 14-10-2015
आदे श / ORDER
PER VIKAS AWASTHY, JM :
The appeal has been filed by the assessee against the order of Commissioner of Income Tax (Appeals)-II, Pune dated 29-07-2010 for the assessment year 2006-07. The solitary issue raised in the appeal is with respect to the treatment of income from sale of land. The assessee has treated the profit from sale of land as long term capital gain. Whereas, the Department is of the view that the same has to be 2 ITA No. 1280/PN/2010, A.Y. 2006-07 assessed under the head "Profits and Gains of Business and Profession."
2. The brief facts of the case are : The assessee is a Civil Engineer. In the return of income filed for the assessment year 2006-07, the assessee declared income from house property, business income and capital gains. During the period relevant to the assessment year under consideration, the assessee had sold land comprising in S. No. 42/2/1 at Kharadi, Pune for a consideration of Rs.30,00,000/-. The assessee had acquired the said land vide agreement dated 19-09-1995 from Shri Irshad Nabi Saheb Mulla for a consideration of Rs.45,000/-. The assessee paid Rs.5,000/- as the time of execution of agreement and the remaining amount of Rs.40,000/- was to be paid within six months from the compliance of certain conditions by the owner. The balance amount of Rs.40,000/- was paid by the assessee through a supplementary agreement dated 31-05-2005. Since, there was substantial delay in the payment of balance consideration the assessee paid an additional sum of Rs.1,00,000/- to compensate the delay. The assessee also paid stamp duty of Rs.32,800/- and registration charges Rs.30,000/-. Thus, the total amount paid by the assessee for acquiring the aforesaid land was Rs.2,07,800/-. The assessee offered Rs.1,38,695/- as long term capital gain from sale of land after investing Rs.28,00,000/- in accordance with the provisions of section 54EC of the Income Tax Act, 1961 (hereinafter referred to as "the Act").
During the course of scrutiny assessment, the Assessing Officer held that the income from sale of land is a business income. The Assessing Officer held that the assessee is a developer and builder and is engaged in the activity of buying and selling plots/lands on regular basis. The Assessing Officer further observed that a perusal of the agreement vide which the assessee had acquired land shows, that the 3 ITA No. 1280/PN/2010, A.Y. 2006-07 land in question was acquired by the assessee for the purpose of development and not as an investment. The Assessing Officer vide order dated 30-12-2008 assessed the income from sale of land as business income of the assessee.
Aggrieved by the assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) vide impugned order upheld the findings of the Assessing Officer and dismissed the appeal of the assessee. Now, the assessee has come in second appeal before the Tribunal assailing the findings of Commissioner of Income Tax (Appeals).
3. Shri C.H. Naniwadekar appearing on behalf of the assessee submitted, that the assessee had purchased agricultural land admeasuring 4,000 sq. mtrs. at Kharadi vide agreement dated 19-09-1995. The land purchased by the assessee had serious limitations and constraints. The land was located in an inhospitable terrain, outside Municipal limits of Pune. There was restriction on construction, as the land was within 900 mtrs. from the Defence Air Force boundary. Therefore, no development work could have been carried on the said land except agriculture activity. The assessee had purchased land purely for investment purpose and not for developing or for commercial exploitation. Subsequently, Kharadi was merged within the residential limits of Pune Municipal Corporation. The assessee decided to dispose of the land on 'as is where is basis'. The assessee sold the land on 11-07-2005 and invested the amount of capital gains in accordance with the provisions of section 54EC of the Act. The ld. AR further submitted that the land purchased by the assessee was subject to the provisions of Urban Land Ceiling Act, 1976 and section 84C of the Bombay Tenancy and Agricultural Act. Therefore, sale deed 4 ITA No. 1280/PN/2010, A.Y. 2006-07 was not executed at the time of purchase of land in the year 1995. The assessee has not carried out any activity what so ever, for the development of land till the date of its sale. The assessee had purchased the land as agricultural land and till the time of sale the assessee had not applied for the change of land use in respect of the said land. No business activity viz. dividing the land into plots, sanction of building plans ect., has ever been undertaken by the assessee. The ld. AR further submitted that the assessee had paid the consideration for purchase of land from his personal bank account and has shown the land in his personal balance sheet as an investment. Thus, by no stretch of imagination the profit from sale of land could be treated as business income of the assessee. Merely use of certain words in the agreement viz. development of land, sanction of plans authorizing the purchaser to sell the property after layout of plots, etc. will not change the nature of investment made by the assessee. In support of his submissions, the ld. AR placed reliance on the decision of Co-ordinate Bench of the Tribunal in the case of ITO Vs. Shri Subhash B. Sanas in ITA No. 61/PN/2007 for the assessment year 2003-04 decided on 31-12-2014. The ld. AR prayed for setting aside the impugned order.
4. Shri Rajesh Damor representing the Department, on the other hand vehemently supported the findings of Commissioner of Income Tax (Appeals). The ld. DR submitted that the intention of the assessee at the time of purchase of land would determine the nature of investment. A perusal of the agreement vide which the assessee had acquired land would clearly show that the intention of the assessee was to develop the land and to sell the same after plotting. The ld. DR further contended that the Commissioner of Income Tax (Appeals) in his order has stated the instances wherein the assessee was engaged in 5 ITA No. 1280/PN/2010, A.Y. 2006-07 buying and selling of plots/land on regular basis. The ld. DR pointed out that the land in question has been shown by the assessee under the head 'business asset'. The ld. DR further contended that even if it is presumed that the present sale of land is a single instance of sale by the assessee, still profit generated from sale of the said land would amount to income under the head business and profession. The ld. DR submitted that the Hon'ble Supreme Court of India in the case of Raja J. Rameshwar Rao Vs. CIT reported as 42 ITR 179 (SC) has held that even a single instance of sale can be regarded as in the nature of trade or business. The ld. DR prayed for sustaining the impugned order and dismissing the appeal of the assessee.
5. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We have also considered the decisions on which the rival sides have placed reliance. The issue before us is; Whether the income from sale of land is to be assessed under the head 'Capital Gains' or under the head "Income of Business and Profession"? The income from sale of land whether to be assessed as capital gains or as business income, has to be decided in the facts and circumstances of each case. It is a mixed question of law and facts. There is no straight jacket formula that can be applied to determine the nature of income in such like transactions.
6. In the present case, the assessee has acquired land measuring 4,000 sq. mtrs. comprising in S. No. 42 at Kharadi, Pune vide agreement dated 19-09-1995. A perusal of the agreement shows that at some places it has been mentioned that the property has been given for sale/development. It has been further mentioned in the agreement that the owner has given the land to the purchaser to construct the building as per the sanctioned plan, the owner has authorized the 6 ITA No. 1280/PN/2010, A.Y. 2006-07 purchaser to sale the said property or to prepare the layout and sale the plots after development. In the agreement it has also been categorically stated that the assessee is a purchaser. In some of the clauses although it has been stated that, the purchaser has a right to construct building as per sanction plan or sale the property after layout of plots but that would not change the nature of transaction. Once the land has been sold, it is the prerogative of purchaser to use the land in whatsoever manner he wishes. A perusal of the agreement shows that time and again the assessee has been referred to as 'the purchaser' and not developer in the agreement. The Co-ordinate Bench of the Tribunal in the case of ITO Vs. Shri Subhash B. Sanas (supra) has held :
"The mere nomenclature of the agreement for acquisition as a 'development agreement' by itself is not conclusive to say that the intention of the assessee was to treat the said purchase as a purchase of stock-in-trade. The factual matrix which has prevailed during the period of holding of land by the assessee for 7 years does not suggest that any development activity was carried out on this land."
In the present case, it is an undisputed fact that the assessee had acquired the land in the year 1995 and sold the same in the year 2005. During this period of 10 years, the assessee has not carried out any development activity. So much so, the assessee has not even applied for change of land use from agricultural to non-agricultural. It has not been rebutted by the Department that the land was purchased by the assessee from his personal bank account and has been shown in the personal balance sheet as an investment. A close scrutiny of the agreement shows that it is a case of outright sale of land and not transfer of development rights in the land.
7. The assessee has explained the reason for executing agreement instead of the sale deed and for using the word 'development' in the 7 ITA No. 1280/PN/2010, A.Y. 2006-07 Agreement. The land was subject to Urban Land Ceiling Act, 1976 and was also under embargo of section 84C of the Bombay Tenancy and Agricultural Act that prevented the assessee for execution of the sale deed. Further, it has been contended by the assessee that the land was situated within 900 mtrs. from the Defence Air Force boundary. There was restriction on construction on the said land. Therefore, no development or construction activity could have been carried out on the land in question. These facts have not been controverted by the Department.
8. One of the contentions of the ld. DR is, that there are instances where the assessee is engaged in the sale and purchase of land. Even if the contentions of the ld. DR are accepted, there is no bar on the assessee to purchase property for investment purpose apart from buying property for business purpose and hold it as stock-in-trade. However, in the facts and circumstances of the present case, we find that no development activity of whatsoever nature was carried out by the assessee on the property in question, so as to give it colour of business asset. Thus, this contention of the ld. DR is rejected.
9. The ld. DR has placed reliance on the decision of Hon'ble Supreme Court of India in the case of Raja J. Rameshwar Rao Vs. CIT (supra) to say that even a single instance may be regarded as trade or business. In the said case, the assessee had acquired land with a view to sell land after developing. The assessee divided the land into plots, developed the area to make it more attractive and sell the land after creating more facilities. The assessee was holding the land as stock-in- trade. In the backdrop of this fact, the Hon'ble Apex Court held that although it was a single venture; but even a single venture may be regarded as trade or business. We find that the facts in the present 8 ITA No. 1280/PN/2010, A.Y. 2006-07 case are at variance. Thus, the ratio laid down in the case of Raja J. Rameshwar Rao Vs. CIT (supra) will not be applicable in the facts and circumstances of the case in hand.
10. As a corollary to our detailed findings, we are of the considered opinion that the income arising from sale of land in the present case has to be assessed under the head capital gains. The authorities below have erred in holding the income/profits from sale of land in question as income from business.
11. In the result, the impugned order is set aside and the appeal of the assessee is allowed.
Order pronounced on Wednesday, the 14th day of October, 2015.
Sd/- Sd/-
(आर. के. पांडा / R.K. Panda) (!वकास अव"थी / Vikas Awasthy)
लेखा सद"य / ACCOUNTANT MEMBER $या%यक सद"य / JUDICIAL MEMBER
पुणे / Pune; &दनांक / Dated : 14th October, 2015
RK
आदे श क+ ,$त.ल"प अ/े"षत / Copy of the Order forwarded to :
1. अपीलाथ / The Appellant.
2. यथ / The Respondent.
3. आयकर आयु'त (अपील) / The CIT(A)-II, Pune
4. आयकर आयु'त / The CIT-II, Pune
5. !वभागीय %त%न,ध, आयकर अपील य अ,धकरण, "ए" ब0च, पण ु े / DR, ITAT, "A" Bench, Pune.
6. गाड2 फ़ाइल / Guard File.
//स या!पत %त // True Copy// आदे शानुसार / BY ORDER, %नजी स,चव / Private Secretary, आयकर अपील य अ,धकरण, पुणे / ITAT, Pune