Bombay High Court
Commissioner Of Income-Tax vs Jolly Brothers Pvt. Ltd. on 23 March, 1987
Equivalent citations: [1988]169ITR72(BOM)
JUDGMENT Sugla, J.
1. The question of law referred to this court for opinion in this reference made at the instance of the Revenue under section 256(1) of the Income-tax Act, 1961, is :
"Whether, on the facts and in the circumstances of the case, the excess amounts realised by the assessee-company were its income chargeable under the head 'Income from business ?"
2. On March 5, 1957, the assessee, a company, entered into an agreement with one Sir Mohemad Yusuf, himself a sub-lessee, by which the assessee-company were to take on further sub-lease 80 acres of khari land on payment of a premium at Rs. 1,250 per acre of land and lease rent at Rs. 10 per acre per year. For some reason with which we are not concerned in this reference, the sub-lease deed was not registered, though the assessee-company was put in possession.
3. On May 7, 1963, the assessee-company entered into an agreement with one of its sister concerns, Particle Boards Indian Ltd., for giving on sub-lease 19,444 square yards of land out of the said 80 acres of khari land. In consideration, Particle Boards India Ltd. were to pay to the assessee-company a premium at the rate of Rs. 12 per square yard and ground rent of Rs. 10 per acre per annum. It was also agreed between the parties that the assessee would undertake to lay out the adjoining roads and fill in and level the land to the road level without any extra charges. Another agreement on the same lines as above was entered into between the assessee-company and its other sister concern, Anil Hardboards Ltd., in the year 1967. These sub-lease deeds were also not registered.
4. Consequent upon these agreements, the assessee-company received a sum of Rs. 2,33,328 by way of premium from Particle Boards India Ltd. in the year 1963 relevant for the assessment year 1964-65 and a sum of Rs. 1,37,883 from Anil Hardboards Ltd. in the year 1967 relevant for the assessment year 1968-69. However, the assessee-company claimed that it had to incur an expenditure of Rs. 1,84,769 on filling and levelling of the land, etc., in the current and the next year and that the surplus realised from the transaction, amounting to Rs. 48,559, was offered for taxation as long-term capital gains in the assessment year 1965-66. The surplus realised in the transaction with Anil Hardboards Ltd. amounting to Rs. 1,22,676 was offered for taxation as capital gains for the assessment year 1968-69.
5. According to the Income-tax Officer, the transactions herein amounted to an adventure in the nature of trade and the surplus arising from the transactions was taxable as business income. He also held that on the surplus arising from the sub-lease granted to Particle Boards Indian Ltd., the assessee was liable to pay tax in the assessment year 1964-65 on a different amount computed by him in the order of assessment. The Appellate Assistant Commissioner confirmed the orders of the Income-tax Officer. The Income-tax Appellate Tribunal, on the other hand, accepted the assessee's claim that the assessee-company was not a dealer in lands and the two transactions sub-leasing did not also amount to an adventure in the nature of trade. It was held that the surplus arising from the two transactions was not taxable as the assessee's business income.
6. It is pertinent to mention that the Tribunal also observed in paragraph 17 of its order that the surplus arising from the two transactions was not taxable even as capital gains. It is, however, evident from the orders of the Income-tax Officer and the Appellate Assistant Commissioner that the assessee had itself offered the surplus arising from the two transactions as its income under the head "Capital gains" and the ground that the surplus was not even taxable as "Capital gains" was not and could not be before the Tribunal in this regard will have to be ignored, being of no consequence. In case this court comes to the conclusion that the surplus arising to the assessee in these two transactions is not taxable as profit from business, the Tribunal will have to look into all other aspects such as computation of surplus and their years of assessability while giving effect to the other of this court.
7. As regards the Tribunal's conclusion that the assessee was not carrying on a regular business of dealing in lands and that the two transactions did not even amount to an adventure in the nature of trade, it is seen that even the contention of the Revenue before the Tribunal was that the business of the assessee-company is of builders and engineers. However it had purchased once a piece of land at Malabar Hill and constructed flats thereon. The flats were sold among with the land the profit from such sales was declared as income from business. According to Mr. Jetly, the two transactions considered in this background clearly indicate that the transactions amounted to an adventure in the nature of trade. In support, reliance was placed on the Andhra Pradesh High Court decision in CIT v. M. Krishna Rao [1979] 120 ITR 101.
8. The Andhra Pradesh High Court decision relied on by Shri Jetly is not applicable in this case. In that case, the assessee had, after purchasing the land, applied for permission of the Grampanchayat to convert the land into building sites. On getting the necessary permission, the assessee converted the major part of the land into building sites. The facts of the present case are materially different.
9. The Tribunal found that the assessee-company's business was not to buy and sell land. One of its business activities was to promote companies. The assessee-company acquired certain rights over 80 acres of land in terms of the agreement dated March 5, 1957, for this purpose. The sub-lease deed was not executed and registered. Certain portions out of this land were given on further sub-lease by the assessee-company to its sister concerns. No doubt, the assessee-company incurred considerable expenditure in laying the adjoining roads and in filling and levelling the land up to the road level. However, keeping in view the facts found such as that the assessee is not a dealer in lands, the nature of the rights it acquired and the fact that portions out of the land were sub-leased to its sister concerns only, it is difficult to find fault with the finding of the Tribunal that the transactions did not amount to an adventure in the nature of trade. Accordingly, the question of law referred to us is answered in the negative and against the Revenue.
10. No order as to costs.