ORDER
B.M. Kothari, A.M.
1. This appeal by the assessee is directed against the order of the CIT(A) dt. 2nd September, 1996, for asst. yr. 1993-94.
2. The assessee has raised various grounds in this appeal but all those grounds relate to the confirmation by the learned CIT(A) of the order passed by the AO holding that the income earned by the assessee on the sale of his property was assessable as business income and not as capital gains declared by the assessee.
3. The appellant is a senior citizen aged about 70 years and is engaged in social work and journalistic activities. The appellant filed return of income declaring taxable capital gain of Rs. 22,49,750 on the sale of property No. 15/1, Sarva Priya Vihar, New Delhi. The appellant booked a plot admeasuring 388.77 sq. yds. in Sarva Priya Vihar Co-operative Housing Society Ltd. in the year 1962 and made aggregate payment of Rs. 40,820.85 on various dates during the year 1962 to 1982 on the following dates :
Rs. P.
14th November, 1962 2,700.00
9th November, 1966 900.00
1st August, 1968 2,400.00
31st December, 1968 1,200.00
15th January, 1971 2,000.00
15th January, 1971 25.00
9th December, 1978 3,500.00
21st Dec., 1978 10,639.50
4th May, 1982 1,000.00
4th May, 1982 9,000.00
1st June, 1982 7,456.35
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Total : 40,820.85
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3.1 The possession of the said plot was received in the year 1982. The assessee thereafter started construction of a residential house on the said plot and incurred a cost of Rs. 3,05,000 during the year 1982 to 1985. The assessee claimed cost of acquisition of the aforesaid property as well as the index cost as per details mentioned below :
F.Y. Cost Index Cost
1981-82 Plot 41,000 91,430
1981-82 Construction 1,25,000 2,78,750
1982-83 Construction 90,000 1,84,128
1983-84 Construction 75,000 1,44,181
1984-85 Construction 15,000 26,760
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3,46,000 7,25,249
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3.2 Since the construction of the house could not be completed, the assessee entered into an agreement with a builder, namely, B. K. Uppal vide agreement dt. 30th October, 1991. According to the said agreement, the appellant became entitled to receive a sum of Rs. 13 lakhs from the said builder as per cl. 8 of the said agreement in the following manner :
Non-Refundable
(i) 2,00,000 at the time of signing of this agreement.
(ii) 11,00,000 Within 30 days on receipt of clearance
through Form 37-I and on taking over
possession of the existing premises by
the builder.
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Total : 13,00,000
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3.3 Apart from the aforesaid sale consideration of Rs. 13 lakhs, the appellant was also entitled to share in the building to be reconstructed by the builder as per cl. 6 of the said agreement. Clause 6 of the said agreement provides that builder shall construct the property on the aforesaid land and the share in the constructed building allotable to the owner and the builder was defined as under :
Owner’s share
Basement
Ground Floor
Terrace (rear half)
Builder’s share
First Floor
Second Floor
Terrace (front half)
3.4 After the building was constructed, the assessee sold the constructed portion allotted to him as per details mentioned below :
Rs. (Lakhs)
Basement 6
Ground Floor (front portion) 7
Ground Floor (rear portion) 6
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19
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3.5 The assessee thus received a total sum of Rs. 32 lakhs by way of sale proceeds of the said property. Out of the aforesaid sale consideration, the assessee deducted Index Cost of acquisition at Rs. 7,25,250. Thus total capital gains of Rs. 24,74,750 was disclosed by him. Out of the said amount, the assessee utilised a sum of Rs. 2,25,000 for purchase of a residential flat No. C-I-T, Delhi Police Apartments, Mayur Vihar, Phase-I, New Delhi-110 091, in December, 1991. The net taxable capital gain was thus declared at Rs. 22,49,750. The assessee did not purchase or sell any other property during his entire lifetime.
4. The AO observed that the assessee had undertaken an exhaustive exercise of looking for a collaborator, then getting the flats constructed and thereafter selling the same. Such activities constitute an adventure in the nature of trade. Hence, the income is assessable as business income. He, therefore, treated the sale proceeds of Rs. 32 lakhs as a business receipt. After deducting the cost of plot and construction amounting to Rs. 3,46,000, the balance amount of Rs. 28,54,000 was taxed as income from business.
5. The CIT(A) confirmed the view taken by the AO and dismissed the assessee’s appeal.
6. The learned counsel for the assessee submitted that this was an isolated transaction carried out by the assessee during his entire lifetime. The assessee is a journalist. He never carried on any business. The sale of property cannot be regarded as a business activity on the facts and circumstances of the assessee’s case. He submitted that the crucial test for determining as to whether a transaction amounts to an adventure in the nature of trade, will depend on the intention with which the plot was acquired by the assessee. The assessee did not own any residential house. He, therefore, booked a plot in the year 1962. The purchase price of the plot was paid in instalments over a period of 10 years from 1962 to 1982. There is no material to show that the plot was purchased by the assessee with a view to carry on business of purchase and sale of land/buildings. The assessee started construction of the residential house property, which continued during the year 1982 to 1985. Since the assessee could not complete the construction of the residential house property, he decided to sell the said property. The agreement with the builder was executed with a view to fetch a maximum sale value, so that the assessee could purchase a small residential flat and could save the surplus amount for meeting his parental and social obligations.
6.1 The learned lawyer further submitted that various decisions relied upon by the learned AO in the assessment order are clearly distinguishable from the facts of the present case. In all those cases, the persons concerned had acquired the property with a view to make profit by dealing in the said plot/building. The intention at the time of purchase was to deal in those properties and make profit. In the present case, such an intention was apparently absent at the time of purchase. The assessee has not carried out any other dealings by way of purchase and sale of any other property during his entire lifetime. He submitted that on such facts and circumstances, the capital gain derived by the assessee on sale of the aforesaid property by no stretch of imagination be treated as income business. He placed reliance on the following judgments :
G. Venkataswamy Naidu & Co. vs. CIT (1959) 35 ITR 594 (SC);
Raja Bahadur Kamakhya Narayan Singh vs. CIT (1970) 77 ITR 253 (SC);
Deep Chandra & Co. vs. CIT (1977) 107 ITR 716 (All);
Indian Hume Pipe Co. Ltd. vs. CIT (1992) 195 ITR 386 (Bom);
Associated Techno Plastic (P) Ltd. vs. Dy. CIT (1997) 62 ITD 212 (Del); and
Pydah Suryanarayana Murthy vs. ITO (1996) 58 ITD 225 (Hyd).
He strongly urged that the order of the CIT(A) as well as of the AO may be set aside and the AO may be directed to tax the declared income as capital gains, as shown by the assessee.
7. The learned Senior Departmental Representative strongly supported the order of the CIT(A). He also relied upon the reasons mentioned in the assessment order. He drew our attention towards judgment of the Hon’ble Supreme Court in the case of Smt. Indramani Bai vs. CIT (1993) 200 ITR 594 (SC). The learned Senior Departmental Representative submitted that in that case the two ladies purchased a piece of land for a consideration of Rs. 10,620 and shortly after purchase, they carved it into four plots and sold them individually. On these facts, the Hon’ble Supreme Court held that the income derived by the said ladies was assessable as business income. He submitted that in the present case, the assessee entered into an agreement with the builder, got three flats constructed and those three flats were sold individually vide three separate sale deeds. The facts are almost similar to the facts of the aforesaid judgment. He submitted that intention to make profit by selling the property after developing it in joint venture with a builder clearly amounts to a business activity. He submitted that a careful reading of the agreement executed by the builders indicates that profit on the sale of aforesaid property was derived by the assessee as a business activity. He strongly supported the order of the CIT(A).
8. We have carefully considered the submissions made by the learned representatives of the parties and have perused the order of the learned Departmental authorities as well as all other documents submitted in the compilation to which our attention was drawn during the course of hearing. We have also gone into various judgments cited by the learned representatives of both sides.
8.1 The Hon’ble Supreme Court in the case of G. Venkataswami Naidu & Co. vs. CIT (supra) has, inter alia, held as under :
“In cases where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchase has no intention of holding the property for himself or otherwise enjoying or using it, the presence of such an intention is a relevant factor and unless it is offset by the presence of other factors it would raise a strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive and it is conceivable that, on considering all the facts and circumstances in the case, the Court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. The presumption may be rebutted.”
8.2 It may also be worthwhile to reproduce the head-note of the judgment of the Hon’ble Delhi High Court in the case of CIT vs. Raunaq Singh Swaran Singh (1972) 85 ITR 220 (Del) :
“The assessee an HUF, resided in a part of a building owned by it and had let out the remaining portion to tenants. In January, 1959, it purchased two plots of land for the sum of Rs. 9,463 and Rs. 9,259, respectively. For this purpose the assessee had taken loan from a firm constituted exclusively of members of the family. The assessee sold the two plots for Rs. 27,000 each in April and June, 1961, respectively. The question was whether the profit amounting to Rs. 35,319 was assessable to tax as income from an adventure in the nature of trade. The Tribunal found : (i) that the assessee had purchased in February, 1959, another plot in an industrial area on which it had constructed a building which had been let out; (ii) that it had also purchased prior to 1957 a plot of land which it still retained; (iii) that the assessee family was making tremendous progress in business and wanted to acquire status and stability by making permanent investments in immovable property and by building up a permanent source of property income; (iv) that investment in land was not the line of business of the assessee-family and the investments in purchasing two plots were relatively very small; and (v) that the occasion for the sale of the two plots arose because the assessee was, at the relevant time, committed to acquire shares worth Rs. 25 lakhs in a company and it was this pressing necessity which forced it to drop the original idea of constructing buildings over these two plots and sell them.
Held, on the facts found by the Tribunal, that the sale by the assessee was not an adventure in the nature of trade and the excess realised by the sale of the two plots did not constitute income from business.
Profit-making would normally not be an irrelevant consideration for every honest and prudent purchaser but will not in every case make the purchase a venture in the nature of trade. To bring a transaction within this category it has to be shown that the sole intention at the time of purchase was to sell the property purchased later on at a profit.
The burden is upon the Department to show that a transaction effected by the assessee is an adventure in the nature of trade.”
8.3 The aforesaid judgments of the Hon’ble Supreme Court and Hon’ble Delhi High Court clearly indicate that the intention at the time of purchase of the property is an important and relevant factor for deciding the point in issue. It is true that various other factors may also be relevant for arriving at a conclusion as to whether a particular activity amounts to an adventure in the nature of trade. The facts of the present case clearly indicate that the assessee had booked the said plot in the year 1962. At the time of the purchase of the said plot, the assessee had every intention to hold the property for himself and to use the same for construction of a residential house. There is no material on record to indicate that the assessee had purchased the said plot with an intention to resell the same. The intention of the assessee to use the said plot for constructing a residential house is further proved by the fact that the assessee did not transfer his interest in the said flat after booking the same in year 1962 for a period of more than 10-12 years. He also started the construction of the residential house on the said plot and incurred a cost about 3 lakhs during the period from 1982 to 1985. The property was sold by the assessee after he found that it is beyond his means to complete construction of the house property. The mere fact that he had sold the property by executing the aforesaid agreement with the builder with a view to realise the best possible price would not lead to the conclusion that the assessee carried on a business dealing in land/flat. It is also a significant factor that the assessee did not carry on any other transaction of purchase/sale of land or buildings during his life-time. The aforesaid judgments of the Hon’ble Supreme Court and Delhi High Court clearly support the assessee’s contention.
8.4 Let us now examine the facts of the judgment of Hon’ble Supreme Court in the case of Smt. Indramani Bai vs. CIT, (supra). In that case the wives of two brothers, who were partners in a firm, purchased a piece of land for a consideration of Rs. 10,620 in the month of December, 1963. Shortly, after purchase, they carved it into four plots and sold them individually in the year 1964. The Hon’ble High Court held that the fact that soon after the purchase of land, the assessee carved it into plots and sold them within a few months, coupled with the other facts of the case, establishes that the intention of the assessees even when they purchased the land, was to resell the same and not to make an investment. The Hon’ble Supreme Court affirmed the view taken by the High Court and further held as under :
“The fact that soon after the purchase, the assessee carved out the land into plots and sold them within a few months, coupled with the other circumstances of the case, is consistent more with the theory of adventure in the nature of trade than with the other theory accepted by the Tribunal.”
8.5 It is clear from the aforesaid judgment that the Hon’ble Supreme Court had confirmed the view of the Hon’ble High Court in the aforesaid judgment by holding that the assessee in those cases had the intention to resell the said plots at the time when the plots were purchased. Such an intention was apparent from the fact that soon after the purchase, the assessee carved out the land into plots and sold them within a few months thereafter.
8.6 The facts of the present case are clearly distinguishable from the facts of the aforesaid judgment. In the present case, the assessee booked a plot in the year 1962. The purchase price of the said plot was paid over a period of 10 years during the year 1962 to 1982. The assessee had a genuine desire and honest intention to construct a residential house thereon. The plot was held by the assessee for a period more than 10 years after booking the same in the year 1962. Such an intention to hold the said plot as an investment and for using the same for construction of a residential house, is further supported by the fact that the assessee had started construction thereon during the years 1982 to 1985. Thereafter the assessee sold the property by executing an agreement with the builder. Such a sale of property by executing an agreement with the builder was considered by the assessee as the most beneficial mode of realisation of investment in the property. On the facts and circumstances of the present case, such an activity cannot be considered to be an adventure in the nature of trade.
9. On a careful consideration of the entire relevant facts and circumstances of the present case, we are of the considered opinion that the income declared by the assessee is assessable as long-term capital gain and not as business income, as erroneously held by the AO and the CIT(A). The AO is, therefore, directed to accept the income declared by the assessee as a capital gain, as shown by the appellant.
10. In the result, the appeal is allowed.