Income Tax Appellate Tribunal - Jodhpur
Shri Rama Gameti , Udaipur vs Department Of Income Tax on 4 April, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
JODHPUR BENCH, JODHPUR
BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND
SHRI N. K. SAINI, ACCOUNTANT MEMBER
I.T.A. No.465/JODH/2013
Assessment Year: 2008-09
PAN No. ATYPG 0907 F
The Income Tax Officer, Vs. Shri Rama Gameti
Ward- 2(2), Udaipur. S/o- Shri Moti Lal Bheel,
V&P Iswal, district- Udaipur.
(Appellant) (Respondent)
Department by : Shri N.A. Joshi, D.R.
Respondent by : Shri Rajendra Jain, A.R.
Date of hearing : 04/04/2014
Date of pronouncement : 13/05 /2014
ORDER
PER N. K. SAINI:
This is an appeal by the department against the order dated 31/7/2013 of Ld. CIT(Appeals)-Udaipur. Following grounds have been raised in this appeal.
" On the facts and in the present circumstances of the case, the Ld. CIT(A) has erred in-
1. directing the Assessing Officer to assess the income from sale of land on substantive basis without appreciating the fact that the assessee was a man of no means and was a domestic servant of Shri Manmohan Raj Singhvi getting only Rs. 50/- per day and all the activities related to conversion of land etc. were undertaken by Shri Manmohan Raj Singhvi, where substantive addition was made.
2. Directing the Assessing Officer to assess the income from sale of land under the head 'profit and gains from business' instead of 2 'capital gain' in the hands of the assessee despite the fact that the assessee Shri Rama Gameti was a domestic servant of Shri Manmohan Raj Singhvi and thus not at all engaged in business of purchase and sale of property and despite the fact that the said transaction of sale of land that too to one concern namely S.S. Education Trust controlled by Shri Manmohan Raj Singhvi was the only isolated and the single transaction."
2. From the above grounds, it is gathered that the grievance of the department in this appeal relates to the direction of the ld. CIT(A) to the Assessing Officer to assess the income in the hands of the assessee from sale of land on substantive basis and treat the said income under the head profit and gains from business instead of capital gain.
3. Facts of the case in brief are that the assessee filed the return of income declaring an income of Rs. 1,09,590/- on 22/10/2010. Subsequently, the Assessing Officer issued a notice u/s 148 of the I.T. Act, 1961 (hereinafter referred as the Act) by recording the reasons. In response to the said notice, the assessee stated that the return already filed on 22/10/2010, may be treated as having been filed in response to the notice issued u/s 148 of the Act. however, the Assessing Officer while framing the assessment u/s 143(3) read with Section 148 of the Act, held as under:-
"(a) the assessee was a benamidar of Shri Manmohan Raj Singhvi,
(b) the purchase and sale of land by the assessee and profit therefrom in reality belonged to Shri Manmohan Raj Singhvi,
(c) the profit from purchase and sale of land represented capital gains and not business income,
(d) applied Section. 50C of the Income-tax Act, 1961, 3
(e) made addition on account of capital gain of Rs. 1,08,47,912/-
(wrongly mentioned as Rs. 1,08,47,192) on protective basis in the assessee's case and on substantive basis in the case of Shri Manmohan Raj Singhvi."
4. Being aggrieved, the assessee carried the matter to the Ld. CIT(A) and the following submissions as incorporated in paras 3 to 3.19 of the impugned order, were made:-
3.0 The assessee is engaged in purchase and sale of land. For this purpose, he is borrowing money, purchasing land and selling it in a short span to earn profit. His sole intention is to earn profit by trading in land. The details of land purchased and sold during the year are as follows :
Sr. Date of Cost Sale Value
Date of Area in
No. Purchas consideration u/s.50C
e sale Sq. ft.
(a) Financial 15.07.2007 22,80,800 4,65,000 23,20,000 58,000.00
Year
(b) 2006-07 15.07.2007 4,65,000 23,19,840 57,996.00
(c) 15.07.2007 4,65,000 23,19,840 57,996.00
(d) 13.09.2007 9,92,000 62,75,232 1,56,880.80
Total 22,80,800 23,87,000 1,32,34,912 3,30,870.80
3.1 The impugned land was purchased by the assessee in the year 2007 from
various scheduled tribe persons out of borrowing through his employer. These loans were repaid immediately on sale of land.
3.2 In the assessment of the assessee's employer, Shri Manmohan Raj Singhvi, it was held that the assessee was benamidar of Shri Manmohan Raj Singhvi.4
Accordingly, while the capital gains of Rs. 1,08,47,912/- arising on sale of the impugned land was brought to tax in the case of Shri Manmohan Raj Singhvi as undisclosed capital gains on substantive basis, the same was brought to tax as undisclosed capital gains on protective basis in the assessee's case.
REASONING GIVEN BY THE ASSESSING OFFICER (PARA NO.8.1 TO 8.17. PAGE NOs.3 TO 14 OF THE ASSESSMENT ORDER):
3.3 The reasoning given by the learned assessing officer in making the above addition of Rs. 1,08,47,912/- is as follows:
8.1 During the course of survey action at business premises at Balji Raj Ka Kund, various incriminating documents pertaining to land transaction were found. Similarly, during the course of search action at the business premises of Shri Babu Lai Motawat, various documents were found pertaining to land transaction of Shri Manmohan Raj Singhvi, such as page No. 101 to 121 and page No. 125 to 129 of Annexure A-49. Page No. 101 to 121 of Anx-A-46 contains the copy of three sale deeds, all of them dated 15.07.2005 executed between Sh. Rama Bhil (seller) and S.S. Education Trust (purchaser). In all these three deeds the sale consideration has been declared at Rs.465000/-
each, however the Sub Registrar has taken the value of these lands at Rs.2320000/-, 2319840/- and Rs.2319840/-, totaling to Rs.6959680/-, as against declared total sale consideration of Rs.1395000/-. So there is difference of Rs.5564680/-, taxable under section 50C of the IT Act.
8.1 Page No. 125 to 129 is a copy of sale deed dated 13.09.07 executed between Sh. Rama Bhil (seller) and S.S. Education Trust (purchaser). The sale consideration has been declared at Rs.992000/-, against sale of 156880.8 sq. ft. of residential land. However, this copy of sale deed does not contain the copy of backside of the page bearing the stamp of valuation adopted by the Sub Registrar. But considering the above three sale deeds it evidences that DLC rate in this area is Rs.40 per Sq. ft. Therefore, the DLC price of this land must be around Rs.6275232/- as against 5 declared sale consideration of Rs. 9,92,000/-. Thus going by above calculation, there is difference of Rs. 52,83,232/-, taxable under section 50C of the IT Act.
From the above, it is found that S. S. Education trust has purchased a total land of 3,30,872.8 sq.ft. (converted area) from Sh. Rama Gameti. This land was purchased by Sh. Rama Gameti from various land holders at the instance Shri Manmohan Raj Singhvi and funds provided by him, as he neither has any interest nor financial capacity to carry out such purchase. After purchase this agricultural land was converted into residential by Sh. Rama Gameti again at the instance and control of Shri Manmohan Raj Singhvi. After conversion this land was transferred to S.S. Education Trust by Sh. Rama Gameti as below:
Date of Sq. Ft. Sale Value adopted Difference
sale Deed consideration as by Sub u/s.SOC
per sale deed Registrar
15.07.07 58000 4,65,000/- 23,20,000/- 18,55,000/-
15.07.07 57996 4,65,000/- 23,19,840/- 18,54,840/-
15.07.07 57996 4,65,000/- 23,19,840/- 18,54,840/-
13.09.07 156880.8 9,92,000/- 62,75,232/- 52,83,232/-
Total 330872.8 23,87,000/- 1,32,34,912/- 1,08,47,912/-
8.3 It deserves a mention here that the whole story is crystal clear in so
far as Shri Manmohan Raj Singhvi is the actual seller and Shri Rama Gameti and Smt. Laxmi Bai Bhil who are the domestic servants of the assessee are merely name lenders for the transaction. Hence, the provisions of section 50C in respect of capital gains are to be invoked in the case of the assessee as it is more than clear that Shri Rama Gameti and Smt. Laxmi Bai are persons of petty means having no financial capacity to purchase the said land in question lest sale the same. Accordingly, in view of above, the assessee vide this office letter dated 4.10.2010 was required to give his comments/explanation on the above issue. He was also required to explain 6 as to why difference u/s.50C at Rs. 10847912/- should not be taxed in his hands and also explain as to why he should not be treated as funds provider of above transactions?
8.4 In response, the assessee has filed written submission on 25.10.2010. Gist of which is as under :-
a. Shri Rama Gameti is an old and trusted employee of the assessee.
b. This being his first business venture, he was guided by his employer i.e. the assessee.
c. Shri Rama Gameti has no sufficient funds for financing the cost of land, therefore, he obtained unsecured loans from various .sources including loans from the assessee's family.
d. The intention of the assessee was to help his trusted employee in his business venture because of his faithful services and enable him to earn additional income from this business venture.
8.5 The submission of the assessee was considered carefully but no merit is found. Shri Manmohan Raj Singhvi has established an Engineering College in the name of S.S.Engineering College under the aegis of S.S.Education Trust which is a registered society and also registered u/s. 12A(a) of the Income-tax Act. The registered address of the trust is 222/17, Saheli Marg, Udaipur that is the residence of Shri Mammohan Raj Singhvi. This college was at the verge of completion of constructions at the time of search.
8.6 On analysis of seized material it is found that Shri Manmohan Raj Singhvi has used the name of two of his domestic servants namely Shri Rama Gameti and Smt. Laxmi Bai Bhil to purchase the land belonging to Schedule 7 tribes and converted the same to residential nature from agriculture nature.
During the search some pay in slips in the name of Laxmi Bai and copy of purchase/sale deeds in the name of Shri Rama Gameti were found and seized from the premises of Shri Manmohan Raj Singhvi and Motawat family. During the post search proceedings both these persons were summoned and their statements were recorded u/s. 131 of the I. T.Act. From the same it is revealed that Shri Rama Gameti and Laxmi Bai Bhil are domestic servants of Shri Manmohan Raj Singhvi receiving a monthly salary of Rs. 2000/- and Rs.600/-
respectively besides food. They deposed on oath that they do not have any idea about the transaction done in their name.
8.7 As a part of post search inquiry bank statements of these persons were called for from the Bank. The Bank statement revealed that these accounts were opened just to purchase the land for S.S.Engineering College in year 2007 and the introducer of both these accounts is Singhvi family. The accounts reflect the money credited by Singhvi Family and withdrawn for purchase of land for S. S. Engineering College.
8.8 From the above it is to be inferred that Shri Manmohan Raj Singhvi has used his domestic servants as a medium for purchase and conversion of land for construction of Engineering College. This was necessary to purchase/transfer lands belonging to scheduled tribes.
8.9 On perusal of seized material, it is gathered that S.S.Education Trust has purchased a total land of 3,30,872.8 sq.ft. (converted area) from Sh.Rama Gameti. This land was purchased by Sh.Rama Gameti from various 8 scheduled tribe land holders at the instance and funds provided by Shri Manmohan Raj Singhvi, as he neither has any interest nor financial capacity to carry out such purchase. After purchase this agricultural land was converted into a residential one by Shri Rama Gameti again at the instance and control of Shri Manmohan Raj Singhvi. As placed adjective conversion this land was transferred to S.S.Education Trust by Shri Rama Gameti as below:
Date of Sq. Ft. Sale Value adopted Difference sale consideration as by Sub u/s.50C Deed per sale deed Registrar 15.07.07 58000 4,65,000/- 23,20,000/- 18,55,000/- 15.07.07 57996 4,65,000/- 23,19,840/- 18,54,840/- 15.07.07 57996 4,65,000/- 23,19,840/- 18,54,840/- 13.09.07 156880.8 9,92,000/- 62,75,232/- 52,83,232/- Total 330872.8 23,87,000/- 1,32,34,912/- 1,08,47,912/-
8.10 To verify the correctness of the facts, summon to Shri Rama Gameti was issued by this office on 22.10.2010. Statement of Shri Rama Gameti was recorded on 25.10.2010.
8.11 From the above statements, it is gathered that Shri Rama Gameti was not aware about the consideration of land purchase and sale transaction except the transaction of sale and purchase made in his name by his employer Shri Manmohan Raj Singhvi, it is also gathered that Shri Rama Gameti's source of income is only salary received from assessee Shri Manmohan Raj Singhvi and besides it, he has no other income and not indulged in business of properties. Further, the assessee claimed that he has given unsecured loans to Shri Rama Gameti for these property transactions. But in his statement, Shri Rama Gameti has categorically 9 denied to have any business transaction with the assessee, his family members and their business concerns. He also denied taking any unsecured loan from any of the persons in last 5 to 6 years. He also admitted that the bank account opened by his employer was not maintained by him and his employer only took his signature on some pages from time to time. On being asked, he also replied that he was not aware about transaction made in his bank account. Shri Rama Gameti also admitted that he has no objection with statement recorded during the course of post search on 13.10.2008 in which he had categorically stated the above facts. The above facts clearly established that Shri Rama Gameti is the person having no means and actual fund provider is Shri Manmohan Raj Singhvi. It is worth mentioning here that in the Village Umarda, agriculture lands are in the names of Tribal. As per policy prevailing in 2007- 2008, only Tribal can purchase the Tribal land. Therefore, it can be said that to complete the project of SS Education Trust, the assessee Shri Manmohan Raj Singhvi has purchased land in the name of his employee Shri Rama Gameti (who has no financial capacity to purchase this land as he was getting only salary of Rs. 600/-p.m. at the time of transactions). This fact was admitted by Shri Rama Gameti as stated above. Thereafter, the land was converted by Shri Manmohan Raj Singhvi in residential status and then, the land was transferred to his trust namely S.S.Education Trust. From the above, it is crystal clear that for these transactions, Shri Manmohan Raj Singhvi is the key person who provided his funds for this transaction in the name of his employee Shri Rama Gameti.
8.12 Further, the assessee vide this office letter dated 25.11.2010 was required to furnish his explanation on the statements of Shri Rama Gameti dated 25.11.2010, in this regard, the statement of Shri Rama Gameti has also been provided to the assessee. The assessee has been also required to explain as to why it should not be treated that all the transactions pertaining to this land were made by you exclusively in the name of Shri 10 Rama Gameti and necessary additions u/s.50C should not be made in his hands. In response, the assessee has filed submission which were considered but found not convincing at all. The assessee has not filed evidence which suggests that Shri Rama Gameti has financial capacity for such transactions. Further, he failed to rebutt the contents of statement of Shri Rama Gameti in which he admitted to have not made any expenditure for such transaction.
8.13 It is pertinent to mention here that a copy of valuation report dated 07.11.2007 was found and seized from the business premises of the assessee as per page No. 44 to 45 ofAnx-AS-10. Another copy of valuation report dated 07.11.2007 was found and seized from the business premises of the assessee as per page No. 46 to 49 of Anx-As-10. Copy of Valuation report dated 7.11.2007 given by Sh.B.LMantri, Registered Valuer of the property owned by S.S.Education Trust at Village Umarda, stating the total value of land at Rs.293.40 lacs (24.45 Bigha @ Rs.12 lacs per Bigha). Another copy of valuation report dated 7.11.2007 given by Sh.B.LMantri, Registered Valuer of the property own by S.S.Education Trust at village Umarda, stating the total value of land at Rs.296.25 lacs (23.7 Bigha @ Rs. 12.50 lacs per Bigha). The valuation report of the land purchased by S.S.Education Trust from Sh.Rama Bhil vide three sale deeds discussed in page No. 101 to 121 ofAnnexure AS-46 found and seized at the office of Sh.Babu Lai Motawat at 1, Town Hall Link Road, Udaipur. As per this report the valuation of the land purchased by the S.S.Education Trust for a consideration of Rs.13,95,000/- has been done at 293.40 Lacs. This fact further strengthens the issue for taxing the above transaction u/s 50C.
8.14 Similarly, a reference for valuation of property was made by this office to DVO, Jaipur and DVO, Jaipur vide his valuation report 19.11.2010 has also valued the cost of land at Rs.1,32,34,912/-. This fact is supported to 11 determine the value of land made by the Sub-Registrar as against consideration made by the assessee.
8.15 It is held by the Hon'ble Supreme Court in the case of C.I. T.vs.Durga Prasad More in 82ITR 540 that Whether a question of law arises from the rejection of the claim that property purchased by the assessee was property of trust and rejection of the recitals in the deed ? No question of law arises out of the Tribunal's order. Tribunal was correct in holding that the property was not a trust property. Whether the principle of res judicata or the rule of estoppel would be applicable ? Neither of these principles was applicable to assessment proceedings, but the fact that the assessee included the income of the premises in his returns for several years after objecting to its inclusion in earlier year was a circumstance which the revenue was entitled to consider in the absence of any satisfactory explanation. Whether Income-tax authorities are entitled to look into the surrounding circumstances to find out the reality ? Yes, the department is entitled to do so.
.........It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents.................
12............Science has not yet invented any instrument to test the reliability of the evidence placed before a court or tribunal. Therefore, the courts and Tribunals have to judge the evidence before them by applying the test of human probabilities. Human minds may differ as to the reliability of a piece of evidence. But in that sphere the decision of the final fact finding authority is made conclusive by law..........
It is held by the Hon'ble Supreme Court in the case of Sumati Dayal vs. C.I. T. in 214 ITR 801 that In such a case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut it the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably. .........This, in our opinion, is a superficial approach to the problem. The matter has to be considered in the light of human probabilities. The Chairman of the Settlement Commission has emphasized that the appellant did possess the winning ticket which was surrendered to the Race Club and in return a crossed cheque was obtained. It is, in our view, a neutral circumstance; because if the appellant had purchased the winning ticket after the event she would be having the winning ticket with her which she could surrender to the Race Club. The observation by the Chairman of the Settlement Commission that "fraudulent sale of winning tickets is not an usual practice but is very much of an unusual practice"
ignores the prevalent malpractice that was noticed by the Direct Taxes Enquiry Committee and the recommendation made by the said Committee which led to the amendment of the Act by the Finance Act of 1972, whereby the exemption from tax that was available in respect of winnings from lotteries, crossword, puzzles, races, etc., was withdrawn. Similarly, the observation by Chairman that if it is alleged that these tickets were obtained through fraudulent means, it is upon the alleged to prove that it is so, ignores the reality. The transaction about purchase 13 of winning ticket takes place in secret and direct evidence about such purchase would be rarely available. An inference about such a purchase has to be drawn on the basis of the circumstance available on the record. Having regard to the conduct of the appellant as disclosed in her sworn statement as well as other material on the record an inference could reasonably be drawn that the winning tickets were purchased by the appellant after the event. We are, therefore, unable to agree with the view of the Chairman in his dissenting opinion. In our opinion, the majority opinion after considering the surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winnings from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amounts has been rejected unreasonably and that the finding that the said amounts are income of the appellant from other sources is not based on evidence."
8.16 The circumstances of the above two are similar the instant case. In the instant case, it has been established that Shri Rama Gameti, servant of the assessee, has no financial capacity to entre in this huge transactions. While recording statement during the course of post search proceedings as well as assessment proceedings, he repeatedly told that all the money were provided by his employer i.e. assessee Shri Manmohan Raj Singhvi. Further, in the Village Umarda, agriculture lands are in the names of Tirbal. As per policy prevailing in 2007-2008, only Tribal can purchase the Tribal land. Therefore, it can be said that to complete the project of SS Education Trust, the assesses Shri Manmohan Raj Singhvi has purchased land in the name of his employee Shri Rama Gameti (who has no financial capacity to purchase this land as he was getting only salary of Rs.600/- p.m. at the time of transactions). Therefore, from the circumstances, it is apparent that all the transactions allegedly made in the name of Shri Rama Gameti were executed by Shri Man Mohan Singhvi i.e. the actual money holder. Hence the provisions of section 50C in 14 respect of capital gain are liable to invoke in the case of the assessee as it is more than clear that Shri Rama Gameti and Smt. Laxmi Bai are persons of petty means having no financial capacity to purchase the said land in question lest sale the same.
8.17 From the above, it is established fact that there is a capital gains of Rs. 1,08,47,912/-accruing to Shri Rama Gameti (Bhil) on the said transfer of Residential land to S.S.Education Trust which is taxable u/s.50C of the I.T.Act. It is worthwhile to mention here that the aforesaid land was got valued by the S.S.Education Trust by a Registered Valuer, who valued it at Rs.296.25 lacs (Page No.46 to 49 of Annexure AS-10 from office at Bai Ji Ram Ka Kund, Inside Delhi Gate, Udaipur). As discussed above, Sh. Rama Gameti is a man of no means and is a domestic servant of Sh. Manmohan Raj Singhvi. All these transactions were in reality carried out by Sh. Manmohan Raj Singhvi to bypass the Land Transfer Laws and to avoid the tax liability. In these circumstances, the aforesaid capital gain amounting to Rs.1,08,47,912/- is liable to be taxed in the hands of Sh. Manmohan Raj Singhvi. Although, in papers the capital gains accrues to Sh. Rama Gameti but, in reality Sh. Manmohan Raj Singhvi is the real beneficiary. Therefore, the capital gains amounting to Rs.10847912/- is brought to tax in the hands of Shri Manmohan Raj Singhvi for A. Y.2008-09 on substantive basis as his undisclosed investment from undisclosed sources and protective addition is being made in the hands of Shri Rama Gameti for A. Y. 2008-09."
ASSESSEE'S CONTENTIONS:
3.4 It is submitted that the assessee purchased agriculture land admeasuring 3,30,872.80 sq.ft. at village Umarda as a business venture. For this business venture, he borrowed funds partly from the family members of Shri Manmohan Raj Singhvi and partly from other unsecured loan creditors. The said agriculture land was registered in the name of the assessee and the entire purchase consideration was paid 15 out of his bank account. Immediately after acquiring, the impugned agriculture land was converted into non-agricultural (N.A.) land by him.
All the formalities and requirements were completed by him at his own cost. Shri Manmohan Raj Singhvi merely guided him for such conversion and provided him financial help as and when required. The intention of Shri Manmohan Raj Singhvi was merely to help economic upliftment of one of his trusted employee. After conversion into non-agriculture land, the assessee sold the same to M/s. S. S. Education Trust, a public charitable organisation in which Shri Manmohan Raj Singhvi is one of the member. Shri Manmohan Raj Singhvi was not the owner of M/s. S.S. Education Trust and hence, there was no personal benefit to him on transfer of land to it. Further, out of the sale proceeds, the assessee repaid the unsecured loans and earned handsome profits. There is no finding that the either the loan repaid or profit from sale of land were received in cash by Shri Manmohan Raj Singhvi. All the above facts, irrespective of statement of the assessee recorded during search as well as assessment proceedings, clearly established that the entire transaction of purchase and sale of land was of the assessee and not of Shri Manmohan Raj Singhvi. On the basis of documentary evidence placed on record, it is quite manifest that the assessee could not be called as benamidar of Shri Manmohan Raj Singhvi. 3.5 It is submitted that the honourable Jodhpur Bench of Income-tax Appellate Tribunal held in the case of Shri Manmohan Raj Singhvi [I.T.A.No. 236/Jodh/2013 dt.07.06.2013] that Shri Rama Gameti was not a benamidar of Shri Manmohan Raj Singhvi and it deleted the entire addition on account of capital gains made on substantive basis in his case. The copy of the order is enclosed herewith for your kind perusal. Annexure ". The relevant para of the judgement is reproduced as under:
3.15 We have considered the submissions of both the parties and gone through the materials available on record. In the present case, it is noticed that that Shri Rama Gameti, an employee of the assessee raised the loans amounting to Rs. 22.85 lacs from the following persons.16
S.N. Name of the party Amount (Rs.) Remark 1. ShriH.S. Ametha 18,000 Cash 2. Smt. Kamla Mehta 18,000 Cash 3. Shri Sunil Mehta 18,000 Cash 4. ShriP.R. Bhandari 18,000 Cash 5. Shri Veni Ram 18,000 Cash 6. Shri Mohan Lai 10,000 Cash 7. Shri Shantial Saruparia 6,50,000 Cheque 8. M/s Abhay Singhvi (HUF) 12,40,000 Cheque 9. Smt. Sushi la Singhvi 1,60,000 Cheque 10. Smt. Urvashi Singhvi 1,35,000 Cheque
The aforesaid loans were utilised by Shri Rama Gameti for purchase of agriculture land admeasuring 3,30,872.8 sq ft. The genuineness of the loan was not doubted by the Assessing Officer. The said land purchased by Shri Rama Gameti was sold to M/s. S. S. Education Trust for a consideration of Rs. 23.87 lacs and after that the loans raised for purchase of the land were repaid by Shri Rama Gameti. The Assessing Officer was of the view that the assesses used the name of his domestic servant namely Shri Rama Gameti and Smt. Laxmi Bai to purchase the land belonging to Schedule Tribe and converted the same to the residential nature from agriculture nature. On the other hand, the land in question was purchased by Shri Rama Gameti and the purchased deed was not doubted. The conversion of land for non-agriculture purpose was got done by Shri Rama Gameti who sold this land to M/s. S.S. Education Trust which is a separate entity registered with Assistant Commisioner, Devasansthan Vibhag, Udaipur. The said trust also enjoy the benefit of registration u/s 12AA and 80G of the Act and is a separate entity from the assessee. So it cannot be said that the assessee got any benefit by purchasing the land in the name of M/s. S.S. Education Trust, a public charitable organisation. In the instant case, the Assessing Officer although mentioned that Shri Rama Gameti was a benamidar of the assessee and had it been so then the transaction of the land which should have been purchased by a Schedule Tribe only, could easily be cancelled by the administrative authorities but no such action has been taken. Therefore, the Assessing Officer only presumed that Shri Rama Gameti was a benamidar of the assessee and the land purchased was actually benami 17 property of the assessee. On the contrary, the Assessing Officer did not doubt the loans raised by the assessee for purchasing the agriculture land. Shri Rama Gameti deposited the amounts received by raising the loan in his bank account and by withdrawing the amounts from the bank account, he purchased the land which was sold on profit to M/s. S.S. Education Trust after converting it into non-agriculture land and the assessee did not get any benefit from the land sold to M/s. S.S. Education Trust, a public charitable organisation. We therefore, are of the view that the Assessing Officer was not justified in holding that the land in question was a benami asset of the assessee and capital gain., if any, was to be assessed in the hands of the assessee. In the present case, when it has been held that the land in question was not related to the assessee at all, we do not consider it necessary to discuss as to whether the profit on sale of land should be treated as business profit in the hands of the assessee or provisions of Section 50C were applicable because the said facts are to be considered in the hands of the original owner of the land i.e. Shri Rama Gameti who purchased the land by raising the loans and sold the land to M/s. S.S. Education Trust and earned profit. We therefore, by considering the totality of the facts of the case as discussed hereinabove delete the impugned addition made in the hands of the assessee by the Assessing Officer and sustained by the Id. CIT(A).
3.6 As regards the apex court cases viz. CIT Vs. Durga Prasad More in 82 ITR 540 and Sumati Dayal Vs CIT in 214 ITR 801 relied upon by the assessing officer, it is submitted that the ratio of these judgements was not applicable to the facts of the assessee's case because in the assessee's case, the entire transaction of purchase of land, its conversion into non-agriculture and its sale to M/s.S.S.Education Trust was evidenced by proper documents and the entire transaction had taken place by the assessee under his signature and his bank account. It was held by honourable Supreme Court in the case of C.W.T. Vs. Arvind Narottam (173 ITR 479) that where the true effect on the construction of deeds is clear, the appeal to discourage tax avoidance is not a relevant 18 consideration. But the question which many ordinary taxpayers very often in a country of shortages with ostentatious consumption and deprivation for the large masses ask, is does he with taxes buy civilization or does he facilitate the wastes and ostentatiousness of the few. Unless wastes and ostentatiousness in the Government's spendings are avoided or eschewed, no amount of moral sermons would change people's attitude to tax avoidance. Moreover, the honourable Jodhpur Bench of Income-tax Appellate Tribunal categorically held that the assessee was not benamidar of Shri Man Mohan Raj Singhve (supra).
Whether Profit on sale of land is profit from adventure in the nature of trade or business venture or capital gains :
3.7 The crucial issue in this case is - whether purchase of land out borrowed funds, its conversion into non-agriculture (N.A.) land and its sale immediately after conversion constituted an adventure in the nature of trade or an investment activity?
3.8 The term 'adventure in the nature of trade' has been explained in the commentary' Law on Income tax by Sampat lyenger at page 958 volume 5th, edition 2'. It reads as under :
"The collocation of the words ' adventure in the nature of trade' implies that an adventure has the characteristics of trade, but not all of them, and that indeed is the distinguishing mark of an adventure, since if it possessed all the characteristics, it would be a full-blown trade straight away. The idea of the legislature by including an ' adventure' in the definition of trade is to rope in receipts from adventure to tax, even as receipts from trade proper. To define 'adventure' is a difficult task. The business characteristics appertaining to trade are diverse. The content of these in an adventure may vary both in quality and quantity. The business characteristics or the business elements which exist in one adventure may not exist in another, and the characteristics which are in fact present might vary from one adventure to another. So, courts have observed that it is difficult to frame a formula which would be applicable to whatever state 19 of facts, so as to determine whether a given activity is or is not an 'adventure in the nature of trade'. Each case would have to be examined on its own facts".
3.9 The honourable Supreme Court held in the case of Janki Ram Bahadur Ram vs. C.I.T. (57 ITR 21) "It is for the Revenue to establish that the profit earned in a transaction is within the taxing provision and is on that account liable to be taxed as income. The nature of the transaction must be determined on a consideration of all the facts and circumstances which are brought on the record of the IT authorities. It has consistently been held by this Court that the question whether profit in a transaction has arisen out of an adventure in the nature of trade is a mixed question of law and fact.' It was further observed:
'........the question whether a transaction is an adventure in the nature of trade must depend upon the collective effect of all the relevant materials brought on the record. But general criteria indicating that certain facts have dominant significance in the context of other facts have been adopted in the decided cases. If for instance, a transaction is related to the business which is normally carried on by the assessee, though not directly part of it, an intention to launch upon an adventure in the nature of trade may readily be inferred. A similar inference would arise where a commodity is purchased and sub- divided, altered, treated or repaired and sold, or is converted into a different commodity and then sold. Magnitude of the transaction of purchase, the nature of the commodity, subsequent dealings and the manner of disposal may be such that the transaction may be stamped with the character of a trading venture;.............But a transaction of purchase of land cannot be assumed without more to be a venture in the nature of trade..........a profit motive in entering into a transaction is not decisive, for, an accretion to capital does not become taxable income, merely because an asset was acquired in the expectation that it may be sold at profit."20
3.10 The Hon'ble Supreme Court held in the case of G. Venkataswami Naidu & Co. vs C.I.T. (35 ITR 594 ) that the dominant or even sole intention to resell is a relevant factor and raises a strong presumption, but by itself is not conclusive proof, of an adventure in the nature of trade. Justice Gajendragadkar speaking for the Hon'ble Supreme Court further observed :
"........... a matter of merely counting the number of facts and circumstances pro and con; what is important to consider is their distinctive character. In each case it is the total effect of all relevant factors and circumstances that determines the character of the transaction the decision about the character of a transaction in the context cannot be based solely on the application of any abstract rule, principle or test and must in every case depend upon all the relevant facts and circumstances."
" If a person invests money in land intending to hold it, enjoys its income for some time, and then sells it at a profit, it would be a clear case of capital accretion and not profits derived from an adventure in the nature of trade. Cases of realization of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventures in the nature of trade. In deciding the character of such transactions several factors are relevant, such as, e.g. whether the purchaser was a trader and the purchase of the commodity and its resale were allied to his usual trade or business or incidental to it; the nature and quantity of the commodity purchased and resold; any act subsequent to the purchase to improve the quality of the commodity purchased and thereby make it more readily resalable, any act prior to the purchase showing a design or purpose, the incidents associated with the purchase and resale; the similarity of the transaction to operations usually associated with trade or business; the repetition of the transaction; the element of pride possession. A person may purchase a piece of art, hold it for some time and if a profitable offer is received sell it. During the time that the purchaser had its possession he may be able to claim pride of possession and aesthetic satisfaction; and if such a claim is upheld that would be a 21 factor against the transaction being in the nature of trade. The presence of all these relevant factors may help the Court to draw an inference that a transaction is in the nature of trade, but it is not a matter of merely counting the number of facts and circumstances pro and con; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction."
3.11 The honourable Madras High Court held in the case of Mrs. D. M. Alexander Vs. C.I.T. (22 ITR 379) as under:
FACTS-I The assesses was a planter in South India. He acquired estates where rubber, tea, coffee and cardomom were raised. The assessee purchased the 'S' estate in Travancore State in 1929; he sold that in August, 1942. That estate was managed by the agents all through. Though the assessee was originally a planter himself, for a period of about 12 years, i.e., between 1930, and January, 1942, he was employed in a company. When the assessee sold the S estate in August 1942, he realised a sum of Rs. 4,46,000. Thereafter, in September, 1942, the assessee started negotiations for the purchase of four estates.
The assessee paid the purchase price of Rs. 2,50,000 for all the four estates and took possession of them on 11-11-1942. Within about three months after his purchase of the C group of estates forRs. 2,50,000, the assessee entered into an agreement to sell the estates for Rs. 5,50,000, and within a month thereafter, he received in full that Rs. 5,50,000. The ITO treated the difference between the purchase price and the sale price in the hands of the assessee as income that accrued to the assessee during the year of account. The assessee contended that he intended to keep the property as a source of income, that it was an investment and that the excess of Rs. 3,00,000 of the sale price over the purchase price was a capital accretion.22
That contention was rejected by the ITO and also on appeal by the AAC. A further appeal preferred by the assessee to the Tribunal also failed.
On reference:
HELD-I It is well-established that if a person is engaged in the buying and selling of lands, he can be assessed to tax upon any surplus only if he is shown to have carried on a business of buying and selling lands. Business has been defined by section 2(4). "Business" includes any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture". Even a single venture may amount to business, and the profits of such a single venture may be taxable as income arising from business. An isolated transaction of purchase and sale of land, even if it is not business as it is normally understood, may be business within the scope of the definition, an adventure in the nature of trade. An isolated transaction of purchase and sale of land may be a speculation. Every speculation is an adventure; but unless it is an adventure in the nature of trade, the profits therefrom will not be income assessable to tax.
Where, the purchase and resale of landed property constituted an isolated transaction, it is a matter of extreme difficulty to determine whether this was an adventure in the nature of trade.
Though a dominant or even a sole intention to resell is not by itself conclusive proof, it is certainly a relevant factor in deciding whether the transaction of purchase and resale was an adventure in the nature of trade, and in conjunction with other circumstances including the conduct of the assessee, such an intention might well establish beyond doubt that the adventure was in the nature of trade. Courts have never treated such a question as one capable of easy solution by the taxing authorities.
In the instant case despite the steps taken by the assessee, to improve the C group of estates, there was certainly sufficient material on record to justify the 23 finding of the Tribunal, that the purchase was with a view to resell the estate at a profit.
In the instant case, there was certainly sufficient evidence for the Tribunal to conclude that the transaction of the purchase and sale of the C group of estates was an adventure in the nature of trade and that the profits of that transaction in the hands of the assessee, constituted assessable income.
3.12 The honourable Kerala High Court held in the case of Mohd.
Meerakhan Vs. C.I.T. (63 ITR 729) (affirmed By S.C. in 73 ITR 735).
Facts :
There was an agreement dated the 18th May, 1956, by which the Mundakayam Valley Rubber Company Ltd. agreed to sell to one A. V. George a rubber estate called the Kuttikal Estate measuring 477.71 acres. A. V. George entered into that agreement on behalf of the Kailas Rubber Company Ltd.
On the 15th August, 1955, the assessee entered into an agreement with A. V. George to purchase the Kuttikal Estate for Rs.6 lakhs and paid an advance of Rs. 11,000. The agreement provided that on payment of the balance of Rs. 5,89,000, A. V. George will execute the sale deed himself or cause it to be executed by the Mundakayam Valley Rubber Company Ltd. in favour of the assessee or his nominees and that the stamp duty and registration charges will be borne by the assessee.
The assessee divided the 477.71 acres into 23 plots and found purchasers for 22 of those plots. The total extent of the 22 plots for which he found purchasers was 373.59 acres and the total price paid by the 22 purchasers was Rs.
5,18,500.
The sale deed was executed by the Mundakayam Valley Rubber Company Ltd. on the 31st March, 1956. It covered all the 23 plots. The 22 plots for which the assessee found purchasers were conveyed to the respective purchasers and 24 the 23rd plot to the assessee himself. A. V. George and the Kailas Rubber Company Ltd, were also parties to the document.
The plot that the assessee obtained for himself was 104.12 acres in extent. Its value as estimated by the department--the estimate is not disputed by the assessee--was Rs.2,08,000/-.
The amount spent by the assessee for obtaining the 104.12 acres worth Rs.2,08,000/- was Rs.81,500/- inclusive of the advance of Rs.11,000/- paid by him. In other words, the assessee had a financial benefit to the extent of Rs, 1,26,500/-.
The department and the Tribunal have taken the view that the amount of Rs. 1,26,500 mentioned above--rounded off to Rs. 1,25,000--represents the profit of the assessee from an adventure in the nature of trade and is hence assessable to income-tax under the Indian Income-tax Act, 1922. The sole question for determination is whether that view is justified on the facts and circumstances of the case.
Question referred:
"Whether, on the facts and in the circumstances of the case, the transactions constituted a venture in the nature of trade and the surplus of Rs. 1,25,000 was assessable to tax"?
Judgement Section 6 of the Indian Income-tax Act, 1922, specifies the heads of income chargeable to income-tax. Profits and gains of business come under the fourth of the six heads specified in that section. The expression "business" is defined in section 2(4) of the Act. According to that definition it includes "any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture".
................
25In the case before us, the adventure commenced when the assessee entered into the agreement with A. V. George to purchase the Kuttikal Estate for a sum ofRs.6 lakhs and paid an advance of Rs. 11,000. It terminated with the execution of the sale deed by the Mundakayam Valley Rubber Company Ltd. in favour of the assessee and the 22 purchasers he had found for 22 out of the 23 plots into which he had in the meanwhile divided the estate. In our view it is not possible to consider this adventure as anything other than an adventure in the nature of trade and the profit obtained by the assessee of Rs. 1,25,000 by securing 104.12 acres worth Rs. 2,08,000 for Rs.81,500 as the profit of that adventure.
The assessee apparently realised the difficulty of avoiding income-tax in respect of the profit that he had obtained. He was examined by the Income-tax Officer. His deposition was nothing less than an adventure in the nature of perjury. His statement was that there was an agreement between himself and A. V. George, that he did not pay any advance to him, and that he had nothing to do with the finding of purchasers for the 22 plots. A reading of the sale deed--quite apart from the other evidence available--is sufficient to demonstrate the falsity of the assessee's statement. The fact that the assessee did not have the resources to buy even an estate worth a lakh of rupees when he entered into the agreement for the purchase of the Kuttikal Estate for Rs. 6 lakhs is of equal importance.
In the light of what is stated above, we must answer the question referred in the affirmative, that is, against the assessee and in favour of the department.
3.13 The honourable Madhya Pradesh High Court held in the case of Sawandas Devram Vs. C.I.T. (150 ITR 576) that The assessee, who was not an agriculturist, purchased certain agricultural land from two persons, who also were not agriculturists. Soon after the purchase of land, the assessee entered into agreements for disposing of the land in small portions and ultimately sold a major portion of the land in six transactions. In 26 the preceding two years, the assessee carried on purchase and sale of properties. The Tribunal held that the sale of land was an adventure in the nature of trade liable to tax and not merely sale of agricultural lands. It further upheld the computation of the profit on the sale of land by deducting the actual cost from the sale proceeds.
Held Normally when a purchaser purchases land, the purchase represents investment of money in land, and the subsequent sale thereof with profit cannot be assumed to be an adventure in the nature of trade, But when the purchase is made solely and exclusively with the intention to resell at a profit and the purchaser had no intention of holding the property for himself or otherwise enjoying or using it. there is a strong presumption that the transaction is an adventure in the nature of trade. Having regard to the facts and the circumstances of the case, it was apparent that the real intention of the assessee in acquiring the land was not to retain it for himself but to resell it at profit and as such the transaction was an adventure in the nature of trade.
The conclusion of the Tribunal was, therefore, correct.
3.14 The honorable Karnataka High Court held in the case of C.I.T. Addl Vs. Chikka Veerayya Lingaiah (164 ITR 41) that In a number of cases the Karnataka High Court has held that if an assessee purchased land, converted the same into house sites and sold the same for attractive prices, then his transaction may be stamped with the character of a trade in nature. The present case appeared to be no exception to this rule. There was no need to delve deep into the matter to find out the real intention of the assessee at the time of acquiring the leasehold rights of the land. The assessee himself had revealed his case and made his intention clear in his affidavit filed in the writ petition which was filed against the Municipal Corporation challenging the validity of the levy of property tax on the vacant lands under 27 consideration. Though it was true that any admission made by the assessee in any proceedings could be properly explained, the assessee could not get away with the clear cut admission made by him by merely stating that those admissions were made only to get rid of the property tax. It was not his case that he was misled or forced to make such statements by the circumstances then prevailing. He was challenging the validity of the levy of property tax imposed by the corporation and he wanted to avoid that tax by stating that he acquired the leasehold rights for the purpose of converting the land into plots with the specific object and purpose of selling them as building sites. These admissions could not be brushed aside lightly.
Moreover, though it was true that the assessee was an agriculturist, he did not use the said land for agricultural operations. He obtained the leasehold rights in the year 1947 and kept the land vacant and uncultivated for over a decade. He was trying to get permission for conversion of the land into non-agricultural purposes within a couple of years of acquiring the leasehold rights. The fact, therefore, that the assessee did not cultivate the land for a decade clearly indicated that he wanted to preserve the land for the specific object and purpose of selling it as building sites.
Furthermore, the said land was so located that it had special adptability for building sites. Therefore, quite naturally, regard being had to the nature and location of the land, the assessee wanted to convert it into building sites for the purpose of making profit and his dealings with the said land must have, therefore, been construed as carrying on business and making profit.
Accordingly, the Tribunal was in error in holding to the contrary.
3.15 In the case of Smt. Neerja Birla Vs. A.C.I.T. [66 ITD 148], the honourable tribunal followed the judgement in the case of C.I.T. Vs. Sutlej Cotton Mills Supply Agency Ltd. [100 ITR 706(SC)] and held on the facts that the assessee 28 carried an adventure in the nature of trade and profit arising from sale of shares was assessable as business income and not capital gains. In this case, the shares were purchased with borrowed funds. The tribunal also referred to the judgement of Ashok Kumar Jalan Vs. C.I.T. [187 ITR 316 (Bom)] wherein it was held that acquisition of large block of shares when the assessee had no ostensible means to pay for it constituted trading transaction.
3.16 To decide the controversy of business income vs. capital gains in the case of the assessee, the following factors are relevant:
(a) He purchased agriculture land out of borrowed funds,
(b) He got the agriculture land converted into non-agriculture land and
(c) He sold the impugned non-agriculture land immediately after its conversion.
On consideration of the above factors and conduct of the assessee, it clearly emerged that the intention of the assessee at the time of purchase of land was not holding it as a matter of pride of possession and enjoy its return but to sell it and earn profit. It was clearly an adventure in the nature of trade or business venture of the assessee and profit arising therefrom constituted his business income.
Applicability of Sec.50C :
3.17 It is submitted that Sec.SOC is applicable for computing capital gains on transfer of capital asset. Where an asset is held to be a business asset, Sec.SOC cannot be applied while computing business income on transfer of such business asset. In support of the above contention, we rely upon the following judgements:
(a) C.I.T. vs. Thiruvengadam Investments (P) Ltd [320 ITR 345(Mad)] 29 Facts:
In this case, the assessee was engaged in the business of property development and investment in shares. Its activities were held to be business activities. In its Return of Income, the assessee claimed capital loss on sale of property. While the consideration as per sale deed was Rs. 5 crores, the value as per sub- registrar was Rs. 6.94 crores, on which stamp duty and registration charges were levied. While completing the assessment, the Assessing Officer ignored the consideration of Rs.5 crores as per agreement, applied market value of Rs.6.94 crores as per Sec.SOC and computed the profit on sale of property accordingly.
The Tribunal held that invocation of section 50C was not warranted as the property was never held by the assessee as capital asset and as per the accounts also, the amount given to the owner of the property had been shown as loans and advances thereby the property had been treated as business asset and not as capital asset.
Judgement:
On the aforesaid facts, the honourable Madras High Court held that, invocation of section 50C can be made in order to find out the true value of the capital asset. Since in the instant case, the property in the hands of the assessee was treated as business asset and not as capital asset, there was no question of invoking the provisions of section 50C.
(b) C.I.T. vs. Kan Construction and Colonizers (Pvt.) Ltd. [208 Taxmann 478 (All.)] In the present case, the assessee is a builder. Construction of buildings is its business. The assessee has sold number of buildings referred to above with regard to which there is no dispute. The dispute is with regard to the sale of plots.
Investment in purchase and sale of plots by a builder who is indulged in selling buildings is ancillary and incidental to his business activity. It is a matter of record 30 that the assessee has treated the land as stock-in-trade which finds corroboration from its balance sheet. Stock-in-trade has been excluded from the definition of 'capital asset.' According to the Webster's New International Dictionary, the 'stock-in-trade' is the 'goods kept for sale by a shopkeeper'; the fittings and appliances of a workman'. In other words, the stock-in-trade includes all such chattels as are required for the purposes of being sold or let to hire on a person's trade. According to Stroud's judicial dictionary, stock-in-trade comprises of all such chattels as are required for the purposes of being sold, or let to hire on a person's trade. [Para 13].
The Commissioner (Appeals) and the Tribunal on analysis of the facts of the case have reached to the conclusion that section 50C has no application as it was a case of transfer of plots which was stock-in-trade. An income earned from such transaction is liable to be taxed as income from business activity. Section 50C also uses the words 'capital asset'. For applicability of section 50C, the essential requirement is that an asset should be capital asset. Alternatively, the finding recorded by the Tribunal which is last fact-finding authorities, in this regard is essentially a finding of fact or at the most is a mixed question of fact, but it is not a substantial question of law to warrant the interference under section 260A.
The view taken by the Tribunal is on terra-firma. The inference drawn by the Tribunal is based on relevant consideration. There is no merit in the appeal.
(c) Inderlok Hotels (P.) Ltd. vs. I.T.O. 122 TTJ 145 (MUM) As per the legislative history, section 50C was inserted in the Act by the Finance Act, 2002 with effect from 1-4-2003 and it is in the nature of special provision which is introduced in determining the full value of the consideration in case of transfer of land or building or both. The value determined or assessed by any authority of the State Government for purpose of payment of stamp duty in respect of such registration of conveyance deed would be deemed to be full value of the consideration received or accruing as a result of such transfer. On 31 analysing the language used by the Legislature in section 50C, it becomes apparent that the said section specifically deals with the transfer of the 'capital asset', being land or building or both and it provides for replacing the value adopted or assessed for the purpose of stamp duty, more particularly under section 48 in place of value or sale consideration shown by the assessee. It is to take note that the expression 'capital asset' has specific relevance with section 45 which provides for bringing to tax gain on transfer of 'capital asset' as capital gain. [Para 8] It is well-settled principle of interpretation that the function of the Court is only to explain and not to legislate any provision of statute. The judicial function is confined to finding out the true intention of the Legislature behind provision brought on statute book. When the words of any statutory provision are clear and unambiguous, in that case to find out intention of the Legislature needs no further investigation by resorting to process of interpretation; then the words used by the Legislature should be the base to interpret a particular provision. On many occasions the provisions are drafted in such a way that they may create confusion when the same are being tried to apply and in such a situation there is no option but to go with process of interpretation. What is the correct meaning of those words when the law or particular provision was enacted ? Normal rule of interpretation is that, if the language is very clear, then the provision is to be interpreted in its ordinary, popular and natural meaning. It is also well-settled principle that, when the language of the statute is plain and explicit and does not admit of any doubtful interpretation, the Court cannot expand the meaning of the words used by the Legislature. So far as section 50C is concerned the language of the said section is so clear in respect of its intention that it is brought on the statute book by way of deeming provision in the nature of the Explanation to section 48. [Para 9.2] Moreover, it is abundantly clear from the explanation given in the CBDT Circular No. 8 of 2002, dated 27-8-2002 that the basic intention to insert section 50C was for the purpose of determining full value of sale consideration for the 32 purpose of computation of capital gains under section 48. It is well-settled rule of interpretation that meaning ascribed by the authority, issuing notification of circular, is good guide of contemporaneous exposition of the position of the law and this rule is popularly known as 'contemporanea expositio'. There should not be any cloud of doubt that section 50C has application only to the extent of determining sale consideration for computation of capital gain under Chapter IV-E of the Act and it cannot be applied for determining the income under other heads. [Para 11] Therefore, when, admittedly, in the instant case the sale of the flats was treated as the business income and not as a capital gain, the provision of section 50C was not applicable. Consequently, the addition made by the Assessing Officer was to be deleted. [Para 12].
3.18 It is submitted that in the assessee's case, the purchase of agriculture land, its conversion into non-agriculture land and its sale immediately thereafter, constituted a business venture or an adventure in the nature of trade. It was purchase and sale of stock-in-trade and therefore, Sec.SOC of the Income-tax Act, 1961 is not applicable for computing profit from transfer of land.
3.19 In view of the above facts and legal position, we humbly request your honour to kindly assess the profit and gains from sale of land (a) under the head 'Profit and Gains from business' in the assessee's case on substantive basis and not under the head 'Capital Gains' and (b) not to apply the provisions of Sec.50C of the Income-tax Act, 1961."
5. The Ld. CIT(A) after considering the submissions of the assessee observed that the ITAT Jodhpur Bench, Jodhpur has held in the case of Shri Manmohan Raj Singhvi in I.T.A. No. 236/Jodh/2013 order dated 07/6/2013 that the assessee was not a benamidar of Shri Manmohan Raj Singhvi and deleted the entire addition on account of capital gains made on substantive 33 basis in his case. The Ld. CIT(A). reproduced the relevant para of the aforesaid decision at page Nos. 35 to 37 of the impugned order. For the cost of repetition, the same is not reproduced herein. Accordingly, the Ld. CIT(A) considered the issue relating to profit arising on the sale of the agricultural land in the hands of the assessee, on substantive basis.
6. As regards to the nature of profit from the sale of land, the Ld. CIT(A) observed that the assessee had borrowed the funds for the purchase of the property and no funds from any other savings had been deployed for purchases of such property. He further observed that the motive of purchase was profit earning and there was nothing on record to suggest that the property was purchased for a longer period. The Ld. CIT(A) accordingly held that the activities as carried out by the assessee were business activities and the assessee purchased the land out of borrowed funds, got it converted into non-agricultural, sold it immediately after non-agricultural conversion, realised the sale proceeds and repaid the loans which showed that he had no intention to hold the land as investment. Therefore, the provisions of capital gain could not apply. The Ld. CIT(A), accordingly, directed the Assessing Officer to assess the profit and gains from sale of land under the head profit from business on substantive basis. Now the department is in appeal.
7. The learned D.R. strongly supported the order of the Assessing Officer and further submitted that the assessee entered into a single transaction, therefore, the profit received on account of sale of the land was a capital gain and not income from business. Therefore, the Ld. CIT(A) was not justified in 34 directing the Assessing Officer to treat the income of the assessee from sale of the land as income from business. Reliance was placed in the case of Gaurav Kumar Sharma Vs. ACIT reported in (2014) 99 DTR (Jp) (Trib) 409.
8. In his rival submissions, the ld. counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee had shown the land as stock in trade for the assessment year 2007- 08, which was accepted by the department vide assessment order dated passed u/s 148/143(3) of the Act, therefore, the Ld. CIT(A) rightly directed the Assessing Officer to treat the income of the assessee as income from business and not as income from capital gain. It was further stated that this Bench of the ITAT while deciding the appeal of Shri Manmohan Raj Singhvi Vs. DCIT in I.T.A No. 236/Jodh/2013 vide order dated 07/6/2013 held that the original owner of the land was Shri Rama Gameti i.e. the assessee, who purchased the land by raising the loans and sold the land to M/s S.S. Education trust and earned the profit, therefore, the Ld. CIT(A) was fully justified in directing the Assessing Officer to assess the income as income from business & profession in the hands of the assessee on substantive basis.
The learned counsel for the assessee placed the reliance on the judgments of various courts mentioned in the submissions before the Ld. CIT(A) and also on the following case laws:-
1. Deep Chand Kothari Vs. CIT, 171 ITR 381 (Raj).
2. Income Tax Officer Vs. Bloosom Floriculture, 134 TTJ 51 (Luck).
3. ACIT Vs. Balbir Chand Maini, 111 TTJ 160 (Chd).35
4. DCIT Vs. Bulion Investment & Financial Services Pvt. Ltd., 123 ITD 568 (Bang).
5. DCIT Vs. Shri Bhupendra Shrimali in I.T.A. No. 271/JU/2010. Order dated 06/06/2013 of I.T.A.T., Jodhpur.
6. Shri Man Mohan Lal Singhvi Vs. DCIT, Central Circle-1, Udaipur in I.T.A. No. 236/JU/2013, order dated 07/06/2013 of I.T.A.T., Jodhpur.
9. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, the Assessing Officer made the addition in the hands of the assessee on protective basis. However, the Ld. CIT(A) directed the Assessing Officer to treat it in the hands of the assessee on substantive basis on the basis of the decision dated 17/6/2013 of this Bench of the Tribunal in I.T.A. No. 236/JU/2013, therefore, we are of the view that the Ld. CIT(A) rightly directed the Assessing Officer to treat the income in the hands of the assessee from the sale of land on substantive basis. Now he question remains as to whether the income earned by the assessee was a business income or capital gain. In the present case, the assessee was not having any funds and raised the loans for purchasing the land. The motive of purchase was to earn the profit. The property was also not purchased for a longer period. The assessee got the land converted into non-agricultural land and sold it immediately after conversion, therefore, the activity carried by the assessee was a business activity. On a similar issue, the Hon'ble M.P. High Court in the case of Sawandas Devram Vs. CIT, 150 ITR 576 (supra) has held as under:-
"Normally when a purchaser purchases land, the purchase represents investment of money in land, and the subsequent sale thereof with profit cannot be assumed to be an 36 adventure in the nature of trade, but when the purchase is made solely and exclusively with the intention of resell at a profit and the purchaser had no intention of holding the property for himself or otherwise enjoying or using it. There is a strong presumption that the transaction is an adventure in the nature of trade. Having regard to the facts and the circumstances of the case, it was apparent that the real intention of the assessee in acquiring the land was not to retain it for himself but to resell it at profit and as such the transaction was an adventure in the nature of trade."
Therefore, by keeping in view the ratio laid down in the above said referred to case and considering the totality of the facts of the present case, we are of the view that the impugned order passed by the Ld. CIT(A) on this issue does not require any interference on our part. Accordingly, we do not see any merit in the appeal of the Department.
10. In the result appeal of the department is dismissed.
(Order pronounced in the open court on 13th May, 2014).
Sd/- Sd/-
(HARI OM MARATHA) (N. K. SAINI)
Judicial Member Accountant Member
Dated: 13th May, 2014
*Ranjan
Copy forwarded to:
1. Appellant-
2. Respondent-
3. CIT(A)
4. CIT
5. D.R.
By order
Assistant Registrar
ITAT, Jodhpur.