Income Tax Appellate Tribunal - Panji
Smt. Heenaben B. Mehta,, Bhuj vs The Income Tax Officer, Ward-2,, Bhuj on 6 December, 2017
आयकर अपील य अ
धकरण, राजकोट यायपीठ, राजकोट ।
IN THE INCOME TAX APPELLATE TRIBUNAL
RAJKOT BENCH, RAJKOT
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA Nos. 259 /RJT/2014
AND
ITA No.99/RJT/2016
नधा रण वष /Assessment Years: 2009-10
Smt. Heenaben B. Mehta ITO,
Katira Super City Vs Ward - 1,
R.T.O., Relocation Site Bhuj.
Bhuj - Kutch.
अपीलाथ / (Appellant) यथ / (Respondent)
Assessee by : Shri D.M. Rindani, AR
Revenue by : Shri C.S. Anjaria, DR
सन
ु वाई क तार ख/Date of Hearing : 08/11/2017
घोषणा क तार ख /Date of Pronouncement : 06/12/2017
PER RAJPAL YADAV, JUDICIAL MEMBER:
These are two appeals by the assessee; one is against quantum addition made under section 143(3) and other for imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961. Both these two appeals are disposed of by this consolidated order. First we take up quantum appeal i.e. ITA No.259/Ahd/2014.
2. Sole common issue involved in this quantum appeal of the assessee relates to determination of nature of income derived by the assessee on sale of land, i.e. whether the profit on sale of land is to be assessed as business income or under the head capital gain.
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3. The brief facts of the case are that assessee has filed her return of income on 2.10.2009 declaring total income at Rs.1,53,440/-. Her case was selected for scrutiny assessment and notices u/s. 143(2) and 142(1) were issued and served upon the assessee. On scrutiny of accounts it revealed to the Assessing Officer that assessee has shown a profit of Rs.68,18,800/- from sale of land at Survey No.539/1 at village : Padhar, Taluka-District, Bhuj admeasuring 4.01 hectors. The same was claimed by the assessee as exempt as agriculture land and falls outside purview of section 2(14) of the Act. According to the assessee, the said land was purchased by the assessee's father for Rs.54,000/- and gifted to her. The ld.AO did not accept contentions of the assessee and treated her as a trader in the land. He assessed the alleged profit and sale of land as business income. On appeal, the ld.CIT(A) has confirmed action of the AO by treating the assessee as trader in land and assessed the profit as business income. In this way, assessee is challenging order of the ld.CIT(A). Thus, the issue before us is, whether total amount of Rs.68,18,800/- earned by the assessee as profit from sale of land is to be assessed as business income or it is to be assessed as a capital gain, which is exempt from tax under section 2(14) r.w.s. 45 of the Act.
4. With the assistance of ld. Representative, we have gone through the record. The issue, whether gain from sale of agricultural land is to be assessed as a business income or short term capital gain/long term capital gain, is a highly debatable issue. It always puzzled the adjudicator even after availability of large numbers of authoritative pronouncements by the Hon'ble Supreme Court/Hon'ble High Court.
ITA Nos. 259 /Rjt/2014 ITA No.99/Ahd/2016 -3- The reason for the puzzle is, one has to gather the intention of an assessee while he entered into the transaction. The expression "intention" as defined in Meriam Webster Dictionary means, what one intends to accomplish or attain, it implies little more than what one has in mind to do or bring out. It suggests clear formulation or deliberation. Thus, it is always difficult to enter into the recess of the mind of an assessee to find out the operative forces exhibiting the intention for entering into the transaction. This would give rise a debate. Nevertheless, we have to look into the curious features of this case which will goad us on just conclusion.
5. Before we embark upon an inquiry on the facts of present case so as to find out, whether assessee is to be termed as involving in the trading of land or to be treated as a simplicitor agriculturist. We would like to refer the three basic questions formulated by ld. first appellate authority for adjudicating the controversy. These questions are as under:-
i. Is the sold land 'agricultural land' ?
ii. Whether the transaction carried out by the appellant was
'adventure in the nature of trade' and the profits thus required to be taxed as business income ?
iii. Is the transaction a sham transaction and can it be labeled as a colourable device ?
6. Ld. first appellate authority has made a lucid enunciation of law and facts under each question. She did not accept that the land sold by the assessee was agricultural land. She accepted that the transaction was not sham or colourable transaction.
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7. The assessee is not disputing conclusions of CIT(A) qua last question. Thus, the controversy between assessee and revenue boils down to question no.1 and 2 formulated by the ld.CIT(A). The Ld. first appellate authority has treated the assessee as indulged in adventure in the nature of trade and thus the profit resulted to her has been assessed as a business income.
8. While appreciating the controversy, ld. First appellate authority took into consideration. The broad principles laid down by the Hon'ble Jurisdictional High Court in the case of CIT vs. Siddharth J. Desai [1983] 139 ITR Page 628/10. Alongwith the test propounded by Hon'ble jurisdictional High Court, ld. first appellate authority has considered the reply given by the assessee as to how his transactions do not fall within the ambit of an adventure in the nature of trade. We deemed it appropriate to take note of those tests as well as the reply given by the assessee, which has been reproduced by the ld.CIT(A) in the impugned order on Page 13. They read as under:-
'a. whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time:
In the appellant's case, the land was actually used for agricultural purpose at the time of purchase. However, it has been sold to SPGIL where the intention was to use the land for other than agricultural purpose.
b. whether such user of the land was for a long period or whether it was of a temporary character or by way of stop-gap arrangement:
ITA Nos. 259 /Rjt/2014 ITA No.99/Ahd/2016 -5- In the appellant's case, the land was held only for 7 months. It can thus he said with certainty that this appears to be a stop gap arrangement and there does not appear to be any intention of holding this, as agricultural land.
c. whether the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land'.
The appellant has not shown any agricultural income in her return of income. The appellant has only submitted one sale bill of GUAR to the tune of Rs.61,674/-. However, there is no evidence that any agricultural operations were carried out by the appellant on this land and this GUAR is the produce from this land only.
d. whether the permission under section 65 of the Bombay Land Revenue code. was obtained for the non-agricultural use of the lands: if so, when and by whom: whether such permission was in respect of the whole or a portion of the land: if the permission was in respect of a portion of the land and if it was obtained in past, what was the nature of the user of the said portion of the land on the material dale:
In the appellant's ease, the land was sold to SPGIL. Mumbai which had clear intention of using the land for non-agricultural purposes, for which necessary permission u/s.89A of Bombay Tenancy Act was given by the District Collector. Kutch.
e. whether the land, on the relevant date, had ceased to be put to the agricultural use: if so, whether, it was put to an alternative use: whether, such a alternative user was of a permanent or temporary nature.
In the appellant's case, it is not clear whether the land was being used for agricultural purpose or was lying vacant and unused. No evidence to that effect is available or submitted.
g. whether the land, though entered in revenue record, had never been actually used for agriculture: whether the owner meant or intended to use it for agricultural purposes:
ITA Nos. 259 /Rjt/2014 ITA No.99/Ahd/2016 -6- In the appellant's case, it is not clear whether the land was being used for agricultural purpose or was lying vacant and unused. No evidence to that effect is available or submitted.
h whether the land was situate in a developed area\ whether its physical characteristics, surrounding situation and use of the lands in the adjoining area were such as would indicate that the land was agricultural;
In the appellant's case, the land was at the time of sale was in a area which it had very heavy potential of getting developed that is why the company from Mumbai had purchased this at such huge price.
i. whether the land itself was developed by plotting and providing roads and other facilities;
No plotting or developing was done on this land at the time of sale. j. whether there were any previous sales of portions of the land for non-agricultural use:
In the appellant's case, this is not applicable.
k. whether permission under section 63 of the Bombay Tenancy and Agricultural Lands Act, was obtained because the sale or intended sale was in favour of a non-agriculturist: if so. whether the sale or intended sale to such non-agriculturist was for non- agricultural or agricultural user:
In the appellant's case, the land was sold to SPOIL for non- agricultural purpose only."
9. It is pertinent to observe that ITAT Lucknow Bench in the case of Sarnath Infrastructure (P) Ltd. v. ACIT (2009) 120 TTJ 216 has also considered issue, whether an assessee deserves to be treated as a "trader" or "investor". Though the issue involved in that case relates to ITA Nos. 259 /Rjt/2014 ITA No.99/Ahd/2016 -7- investment/trading in shares, but broad principle carved out by the ITAT is applicable on all sorts of transactions, where adjudicator is required to find out whether transaction was entered into by the assessee with a pre-dominant intention of trading or investment. The following tests are worth to note:
"13. After considering above rulings we cull out following principles, which can be applied on the facts of a case to find out whether transaction(s) in question are in the nature of trade or are merely for investment purposes:
(1) What is the intention of the assessee at the time of purchase of the shares (or any other item). This can be found out from the treatment it gives to such purchase in its books of account. Whether it is treated stock-in-trade or investment. Whether shown in opening/closing stock or shown separately as investment or non-trading asset.
(2) Whether assessee has borrowed money to purchase and paid interest thereon? Normally, money is borrowed to purchase goods for the purpose of trade and not for investing in an asset for retaining.
(3) What is the frequency of such purchase and disposal in that particular item? If purchase and sale are frequent, or there are substantial transaction in that item, if would indicate trade. Habitual dealing in that particular item is indicative of intention of trade.
Similarly, ratio between the purchases and sales and the holdings may show whether the assessee is trading or investing (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment).
(4) Whether purchase and sale is for realizing profit or purchases are made for retention and appreciation its value? Former will indicate intention of trades and latter, an investment. In the case of shares whether intention was to enjoy dividend and not merely earn profit on sale and purchase of shares. A commercial motive is an essential ingredient of trade.
(5) How the value of the items has been taken in the balance sheet? If the items in question are valued at cost, it would indicate that they are investments or where they are valued at cost or market value or net ITA Nos. 259 /Rjt/2014 ITA No.99/Ahd/2016 -8- realizable value (whichever is less), it will indicate that items in question are treated as stock-in-trade.
(6) How the company (assessee) is authorized in memorandum of association/articles of association? Whether for trade or for investment? If authorized only for trade, then whether there are separate resolutions of the board of directors to carry out investments in that commodity? And vice verse.
7. It is for the assessee to adduce evidence to show that his holding is for investment or for trading and what distinction he has kept in the records or otherwise, between two types of holdings. If the assessee is able to discharge the primary onus and could prima facie show that particular item is held as investment (or say, stock-in-trade) then onus would shift to Revenue to prove that apparent is not real.
8. The mere fact of credit of sale proceeds of shares ( or for that matter any other item in question) in a particular account or not so much frequency of sale and purchase will alone will not be sufficient to say that assessee was holding the shares (or the items in question) for investment.
9. One has to find out what are the legal requisites for dealing as a trader in the items in question and whether the assessee is complying with them. Whether it is the argument of the assessee that it is violating those legal requirements, if it is claimed that it is dealing as a trader in that item? Whether it had such an intention (to carry on illegal business in that item) since beginning or when purchases were made?
10. It is permissible as per CBDT's Circular No. 4 of 2007 of 15th June, 2007 that an assessee can have both portfolios, one for trading and other for investment provided it is maintaining separate account for each type, there are distinctive features for both and there is no intermingling of holdings in the two portfolios.
11. Not one or two factors out of above alone will be sufficient to come to a definite conclusion but the cumulative effect of several factors has to be seen."
10. The Hon'ble Gujarat High Court had also an occasion to consider this issue in the case of Commissioner of Income Tax vs. Riva Sharkar A Kothari reported in 283 ITR 338. Hon'ble court has made reference to the test laid by it in its earlier decision rendered in the case of Pari ITA Nos. 259 /Rjt/2014 ITA No.99/Ahd/2016 -9- Mangaldas Girdhardas vs. CIT reported in 1977 CTR 647. These tests read as under:
"After analyzing various decisions of the apex court, this court has formulated certain tests to determine as to whether an assessee can be said to be carrying on business.
(a) The first test is whether the initial acquisition of the subject-matter of transaction was with the intention of dealing in the item, or with a view to finding an investment. If the transaction, since the inception, appears to be impressed with the character of a commercial transaction entered into with a view to earn profit, it would furnish a valuable guideline.
(b) The second test that is often applied is as to why and how and for what purpose the sale was effected subsequently.
(c) The third test, which is frequently applied, is as to how the assessee dealt with the subject-matter of transaction during the time the asset was the assessee. Has it been treated as stock-in-trade, or has it been shown in the books of account and balance sheet as an investment. This inquiry, though relevant, is not conclusive.
(d) The fourth test is as to how the assessee himself has returned the income from such activities and how the Department has dealt with the same in the course of preceding and succeeding assessments. This factor, though not conclusive, can afford good and cogent evidence to judge the nature of the transaction and would be a relevant circumstance to be considered in the absence of any satisfactory explanation.
(e) The fifth test, normally applied in case of partnership firms and companies, is whether the deed of partnership or the memorandum of association, as the case may be, authorizes such an activity.
(f) The last but not the least, rather the most important test, is as to the volume, frequency, continuity and regularity of transaction of purchase and sale of the goods concerned. In a case where there is repetition and continuity, coupled with the magnitude of the transaction, bearing reasonable proposition to the strength of holding then an inference can readily be drawn that the activity is in the nature of business."
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11. In the light of the above, let us examine order of the ld.CIT(A). A perusal of the impugned order would indicate that the ld.CIT(A) has devoted much energy towards highlighting position of law laid down in various judgment viz. G. Venkataswami Naidu & Co. Vs. CIT, 35 ITR 594 (SC) and P.M. Mohammed Meerakhan Vs. CIT (73 ITR 735). Conclusions briefly drawn by the CIT(A) are on page no.24 of the impugned order. It reads as under:
"1. Though the appellant had received the land by way of gift, it is quite obvious that he did not intend it to enjoy it as agricultural land. This is evident from the absence of agricultural income shown in the return of income.
2. The appellant has been shown to be an agriculturist in the purchase deed. This may be true as per Government records. However, if the profile of the appellant is carefully scrutinized, by no iota of imagination can he be described to be an agriculturist. The appellant is getting income mainly from house property and other sources. Getting herself classified as an agriculturist is very, similar to the famous case in Maharashtra of Shri Amitabh Bachchan declaring Himself to be an agriculturist.
3. The appellant has sold the land after a short period of 7 months. There has been a massive increase of about 800% in the price of the land within a very short span of lime. There are two possibilities. Either the purchase price has bi-cr. doctored or there are some exceptional circumstances leading to such an abnormal increase in price. The first possibility cannot be commented upon as no efforts have been done by the A.O. in this regard. As regards the second probability of there being a big change in the environment and the location of the land is considered, there is a large element of truth in it. This is evidenced h\ the very fact that in the same area and same vicinity the appellant himself has purchased lands at phenomenal prices as compared to last year. The area of Kuteh has seen rapid strides in development especially after the functioning of the Kandla & Mundra Port Trusts, setting up of Ultra Mega Power Plants (UMPPs) and overall growth in industry. The ITA Nos. 259 /Rjt/2014 ITA No.99/Ahd/2016
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appellant has very clearly understood the business potential and the possible gains and has therefore invested in other lands in the same area.
4. The land has been sold to a non-agriculturist with the clear intention of it being used for non-agricultural purposes.
5.19 It is clear from the above discussions that the appellant has utilized her knowledge of the market, the actual growth and the growth potential in that area and the correct entry and exit points so as to earn maximum profits. Coupled with the absence of agricultural income, the inescapable conclusion that is arrived at is that this transaction is nothing but an adventure in the nature of trade. The action of the A.O. in treating this transaction as adventure in nature of trade is hereby confirmed. The grounds of appeal are dismissed.
5.20 The third point required to be considered is whether this is a sham transaction or not. The AO has taken recourse to famous McDowell decision (154 ITR 148). The applicability of McDowell decision is brought about by the Hon'ble Supreme Court in the recent decision of Vodafone Vs. Union of India (2012) 34 ITR 1 (SC) has said as under:
....
....
5.21This issue has also been dealt with by the Hon'ble Gujarat High Court in the case of Banyan & Berry (222 ITR 831 ) has held as under:
....
5.22 In the appellant's case, the veracity of all the transactions is never doubled. There are no indications anywhere to show that the transaction is artificial or can be said to be a colourable device. Because there was a substantial uain in a relatively short period and the gain was shown to be exempt from taxation due to the asset sold being outside the purview of S.45, it cannot be said that this is a sham transaction. There are no attributes to label it as a colourable device or a sham transaction. The contention of the A.O. is therefore not held to be correct.
5.23 In light of the above discussion, the following conclusions emerge:-
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1. The land sold is NOT agricultural land as defined in S.2(14). The gain on sale of this land is NOT beyond the purview of capital gains.
2. Alternatively and without prejudice to the above finding, in case it is held that the land is agricultural land by the higher appellate forums and thus beyond the purview of capital gains, this sale is an adventure in the nature of trade and the profits from the same are held to be business profits.
5.24 In light of the above findings, the addition is hereby confirmed. This ground of appeal is thus dismissed."
12. Thus, an analysis of complete record would indicate that basic point which weigh with the ld.CIT(A) for treating the assessee partly as trader is the fact that the increase in sale price is 800%. In other words, volume of profit resulted to the assessee persuaded the ld.CIT(A) to habour a belief that the land purchased in the year of 2007 and sold after a short period of 7 months is to be treated as a trade asset. No doubt the profit on transfer of alleged agriculture land was quite high. But this is one of the corroborative evidences, amongst other, propounded in various case laws noticed by us. Merely if an assessee is getting a higher volume of sale consideration, then it could not be construed that transaction would take colour of a business transaction. The assessee is basically an agriculturist; purchases land at a distance of more than 20 kms. away from municipality and close to his native village. After sale of this land, she has again purchased agriculture land. She has not entered into any sale of land in earlier period of time or in subsequent period of time. She has purchased the land but ld.AO did not refer sale of land. She has not borrowed money for purchase of land and incurred interest expenditure. She got the land in gift from her father. There might be reasons for all of a sudden spurt in the price of land in the area.
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There could be change of policy at Government level; introduction of some project, but that type of change in the policy whether, was in the notice of the assessee ? No such factors have been brought on record by the AO. It is also pertinent to observe that whether the assessee could anticipate such substantial increase in the sale price of the land because of any policy introduced by the Government, no such factors have been brought on record. Facts are to be viewed keeping in view perspective the assessee, i.e. from where she belongs; whether she has ventured in any trading activities of similar nature; her educational background etc. Even the entire transaction is being looked into with that angle, then it would reveal that she has not been trading in the land, rather it was a simplicitor investment for agriculture operation, but on account of getting good price land has been sold. The ld.CIT(A) was of the view that once assessee came to know about rapid development after setting up of Ultra Megha Power Plants in the area of Kutch and functioning of Kandla and Mundra Ports she could have anticipated huge profit and might have purchased land. To our mind, it is a just probability expressed by the ld.CIT(A) after deal was finalized. The AO has neither recorded statement of any person from Ultra Megha Power Plants nor recorded when it has started its power plant; how it has expressed its desire to acquire further land for its residential colony. Whether a person of having background like the assessee could have chance to inter-act with Power Plant officials or concerned Government officials and only thereafter purchase land. All these factors are totally missing on record. Department has started inquiry only when huge claim was made by local persons of the area for exemption of capital gain. We ITA Nos. 259 /Rjt/2014 ITA No.99/Ahd/2016
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have come arose similar type of cases from nearby village particular. We can make reference to the case of Shri Shailesh Gangazram Ramani in ITA No.260 and 294/RJT/2014. Tribunal has earlier decided the case of Shri Dhaval Kantilal Acharya Vs. ACIT, ITA No.378/RJT/2013. The only reason adopted by the Revenue for treating all these persons as traders was that they have earned profit on sale of their land which is more than 800 times than ordinary profit in this year. In our opinion, it is one of the corroborative factors amongst other. This transaction might be boon because of their geographical location of the land near to power plant. It was not a case that they have anticipated many fold rise of agriculture land price, and therefore, ventured into trade. Apart from the above, the ld.CIT(A) has observed that land was not used for agriculture purpose. This observation was made without any foundation and by merely referring the case of Shri Amitabh Bachhan. It is pertinent to mention that in the land revenue record it was mentioned as agriculture land. The record is per se admissible in evidence. It can be rebutted but by producing evidence and not by general remarks that Shri Amitabh Bacchan was also stated to be farmer. There should be spot inquiry. Presumption of truth is in favour of the record maintained by State revenue official in their official function. Thus, land is to be treated as agriculture land. Therefore, we allow the appeal of the assessee. We direct the AO to treat the profit of Rs.68,18,800/- earned by the assessee on sale of agriculture land as exempt under section 2(14) of the Income Tax Act, 1961.
13. In the result, quantum appeal of the assessee is allowed.
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14. Now coming to appeal of the assessee against imposition of penalty under section 271(1)(c), the same deserves to be allowed for the reason that quantum on which penalty has been imposed, stands deleted by us for the reasons recorded in the assessee's appeal in ITA No.259/Ahd/2014 hereinabove. Therefore, we cancel the impugned penalty under section 271(1)(c) and allow appeal of the assessee.
15. In the result, both appeals of the assessee are allowed.
Pronounced in the Open Court on 6th December, 2017 Sd/- Sd/-
(N.K. BILLAIYA) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated, 06/12/2017 Priti Yadav, Sr.PS/VK