Income-Tax Officer vs Smt. Saraswatibai Jaiswal (Smt. … on 26 November, 1997

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Income Tax Appellate Tribunal – Jabalpur
Income-Tax Officer vs Smt. Saraswatibai Jaiswal (Smt. … on 26 November, 1997
Equivalent citations: (1998) 60 TTJ Jab 189


ORDER

G. D. AGRAWAL, A.M. :

The appeal by the Revenue and the cross objection by the assessee are directed against the order of CIT(A), Jabalpur.

2. The only ground raised by the Revenue in this appeal reads as under :

“On the facts and in the circumstances of the case, the learned CIT(A) erred in directing the AO to compute the income under the head capital gains as against computed by the AO as “Income from adventure in the nature of trade and business”.”

3. The facts of the case are that the assessee had received agricultural land measuring 6,447 hectare from her mother in 1976, who had bequeathed the property to her. The Government of Madhya Pradesh vide Notification dt. 29th April, 1983 acquired the said land along with other adjoining land for development and construction of residential colony by Jabalpur Development Authority (JDA). The assessee entered into an agreement with JDA, dt. 25th February, 1984 and the assessee opted for developed plots in her favour or in favour of her nominees in lieu of cash compensation. It was agreed that the JDA will give on lease plot area equal to 20 per cent. of the total area of the assessees land acquired. In furtherance of the above agreement, the JDA allotted 58 plots of different sizes. The assessee thereafter started selling the developed plots so received from JDA. During the accounting year relevant to assessment year under consideration, the assessee sold 15 plots. She offered the sale consideration of Rs. 3,06,000 for the purpose of capital gains tax. The AO opined that the activity of the assessee was adventure in the nature of trade and instead of capital gains, he taxed the sale proceeds from the sale of plots as profit arising on adventure in the nature of trade. He also estimated the sale consideration of plot at Rs. 3,42,300 as against Rs. 3,06,000 shown by the assessee. On appeal, the CIT(A) accepted the assessees contention that the transaction was not adventure is the nature of the trade. However, the estimated sale consideration determined by the AO was not altered by the CIT(A). The Revenue is in appeal against the direction of the CIT(A) to compute the income under the head “capital gains”, while the assessee is in cross objection against the upholding of the sale price of plot.

4. At the time of hearing before us, the learned Departmental Representative argued at length. He submitted that the land, which was received by the assessee from her mother was a land very near to the city. It was included in the master plan for the development of the city of Jabalpur. The assessee was aware of such development and, therefore, she preferred to acquire the plots as against the cash compensation. He also submitted that the land under consideration was never the agricultural land and a finding should be recorded that the land, which was acquired by the JDA was not agricultural land. He further submitted that the transaction under consideration was an adventure in the nature of trade. The assessee had acquired the land with a view to sell it later on and, therefore, it was an activity carried on with the intention of earning profit. All the 58 plots allotted to the assessee were sold by her from time to time. He submitted that she did not keep even a single plot for her own use. This action of the assessee is clearly indicative of the fact that the assessee ventured into an act of trade from the very beginning with full intention to earn profit. He further submitted that even the assessee did not got the plot allotted by JDA registered in her name, but she directly got the plot registered in the name of her nominees. The plots were allotted to the nominees for cash consideration received by the assessee. The totality of these circumstances clearly proved that the assessee had never any intention to keep the plots for her personal enjoyment, but she took the plots from JDA to sell them at profit. Therefore, the above activity was clearly an adventure in the nature of trade. In support of his contention, he relied upon the following decisions :

(i) G. Venkat Swamy Naidu & Co. vs. CIT (1959) 35 ITR 594 (SC)

(ii) Aclat Construction (P) Ltd. vs. CIT (1988) 172 ITR 84 (Pat)

(iii) Kanwarlal Manoharlal vs. CIT (1977) 101 ITR 439 (Mad)

(iv) CIT vs. Bhikamchand Jankilal (1981) 131 ITR 554 (MP)

5. The learned counsel for the assessee supported the order of the CIT(A) on this point. He submitted that the assessee has not purchased the land under consideration, but the land was bequeathed to her by her mother. The land was compulsorily acquired by the JDA, Government of Madhya Pradesh. The assessee was offered the cash compensation or the compensation by way of 20 per cent. of the developed land. The assessee with a view to get proper realisation of her land compulsorily acquired preferred second option and accepted the 20 per cent. of the developed plots. The sale proceeds of the plot was in effect the amount of compensation, which the assessee ought to have received from the JDA. Thus, in this case, the assessee did not enter into any transaction, which may be termed as an adventure in the nature of trade. In support of his submission, he relied upon the following decisions :

(a) CIT vs. Shashi Kumar Agrawal (1992) 195 ITR 767 (All)

(b) Michael A. Kallivaylal vs. CIT (1977) 102 ITR 202 (Ker)

(c) ITO vs. Hatnesh Kumari (1980) 123 ITR 343 (All)

(d) Asstt. CIT vs. Administrator of the Estate of Late Shri E. F. Dinshaw (1993) 47 ITD 232 (Bom)

(e) ITO vs. Remi Perfumes (P) Ltd. (1990) 33 ITD 398 (Mad)

6. We have carefully considered the arguments of both the sides and have perused the material placed before us. When a transaction is entered into with the primary or the sole intention of making profit, it would amount to adventure in the nature of trade. To ascertain the intention of the party, one has to look into the facts and the surrounding circumstances. If, on the consideration of all the facts, it appears that the sole intention of the party in purchasing the particular land and selling thereof, was to make profit, it may be termed as adventure in the nature of trade. However, in this case, we find that the assessee had not purchased the land, but it was received by her as per the will of her late mother. Moreover, she did not sell this land, but it was compulsorily acquired by the Jabalpur Development Authority by way of Notification dt. 29th April, 1983. Thus, the assessee had neither purchased the land under consideration nor sold the same on her own volition. However, when her land was compulsorily acquired by the Government, she did try to maximise the compensation by way of opting to accept the developed plots as against cash compensation. It is only the realisation of the value of the land and it cannot be said to be an activity carried on for profit, so as to term it as adventure in the nature of trade. For any adventure or the trade, purchase and sale are two necessary ingredients. Since in the case under consideration before us, the first ingredient, that is, purchase of the land is missing, it cannot be said that the transaction under consideration is adventure in the nature of trade. The decision of Honble Allahabad High Court in the case of Shashi Kumar Agarwal (supra) is directly on the point and their Lordships have held as under :

“that the Tribunal had found that the land in question was not purchased by the assessee but was received by him from his father under a deed of gift. Since the assessee was staying in a different place in connection with his official duties and was not in a position to carry on agricultural operations, he sold the land. The Tribunal found that he had sold the land after plotting it out in order to secure a better price and that he had not embarked on an adventure in the nature of trade. This was essentially a question of fact. The gain arising on sale of land was not, therefore, assessable as income from business”.

The ratio of the above decision would be squarely applicable in the case under consideration before us. The various decisions relied upon by the learned Departmental Representative are on different facts and, therefore, will not be applicable. In view of totality of the above facts and the legal position, we entirely agree with the CIT(A) that the profit arising from the sale of plot has to be taxed as capital gains and not as profit arising from the adventure in the nature of trade.

7. In the cross objection, the assessee has disputed the enhancement in the sale proceeds of plot. The AO has found that the assessee has sold the plot No. 354 at an average rate of Rs. 13 per sq. ft., while he has shown the sale price of plot No. 351 at Rs. 4.25 and plot No. 350 @ Rs. 10.62 per Sq. ft. The AO has pointed out that the size of the plot No. 350, 351 & 354 and their situation was absolutely identical and, therefore, there was no justification for showing the sale proceeds of two plots at abnormally low than the sale proceeds of plot No. 354. He, therefore, estimated the sale consideration of the plot No. 350 and 351 @ Rs. 15 per sq. ft., which resulted in the enhancement of the sale proceeds of the plot by Rs. 36,300.

8. We have carefully considered the arguments and have perused the material placed before us. The assessee could not give any plausible explanation either before the lower authorities or before us for showing abnormally less sale consideration of plot Nos. 350 and 351 as compared to plot no. 354. He could not controvert the finding of the AO that the size and situation of plot Nos. 350, 351 and 354, were identical. The AO has also pointed out that the value of the plot being sold by the JDA was also Rs. 12.09 per sq. ft. since 1985. We find that the plot No. 354 was sold by the assessee @ Rs. 13 per sq. ft., which was considered as reasonable by the AO himself. However, the AO while estimating the sale price of plot Nos. 350 and 351 has adopted Rs. 15 per sq. ft. In view of the above, we deem it proper to direct the AO to estimate the sale price of plots Nos. 350 and 351 @ Rs. 13 per sq. ft. and accordingly work out the sale value of the plots.

9. In the result, the Revenues appeal is dismissed while the assessees cross objection is partly allowed.

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