Shri Gokalbhai Somabhai Sitapara,, RAJKOT-GUJARAT v. The Deputy Commissioner of Income Tax, Circle-1,, RAJKOT-GUJARAT

ITA 1032/RJT/2009 | 2004-2005
Pronouncement Date: 10-12-2010 | Result: Allowed

Appeal Details

RSA Number 103224914 RSA 2009
Assessee PAN AXCPS5617A
Bench Rajkot
Appeal Number ITA 1032/RJT/2009
Duration Of Justice 1 year(s) 1 month(s) 25 day(s)
Appellant Shri Gokalbhai Somabhai Sitapara,, RAJKOT-GUJARAT
Respondent The Deputy Commissioner of Income Tax, Circle-1,, RAJKOT-GUJARAT
Appeal Type Income Tax Appeal
Pronouncement Date 10-12-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 10-12-2010
Assessment Year 2004-2005
Appeal Filed On 16-10-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI D.T. GARASIA (JM) I.T.A. NO. 1032/RJT/2009 (ASSESSMENT YEAR 2004-05) SHRI GOKALBHAI SOMABHAI SITAPARA VS THE DY.CIT CIR .1 CHAMUNDA NIWAS RAJKOT POPAT PARA MAIN ROAD RAJKOT PAN : AXCPS5617A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DM RINDANI RESPONDENT BY: SHRI JAI RAJ KUMAR O R D E R A.L. GEHLOT : THIS IS AN APPEAL FILED BY THE ASSESS EE AND IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-I RAJKOT DATED 16-07-2009 FOR THE ASSESSMENT YEAR 2004-05. THE FOLLOWING ARE THE EFFECTIVE GROUNDS OF APPEAL T AKEN BY THE REVENUE: 1. THE LEARNED C.I.T. (APPEALS)-I RAJKOT ERRED IN UPHOLDING THE TREATMENT OF THE SALE PROCEEDS OF ANCESTRAL LAND AS BUSINESS INCOME AND IN CONFIRMING THE ADDITION OF RS.25 18 7 48/-. 2. WITHOUT PREJUDICE TO THE ABOVE GROUND THE LEARN ED C.I.T. (APPEALS)-I RAJKOT ERRED IN REJECTING THE ALTERNAT IVE PLEA OF THE APPELLANT OF APPLICABILITY OF SECTION 45(2). 3. THE LEARNED C.I.T. (APPEALS)-I RAJKOT ERRED IN CONFIRMING THE COST OF ACQUISITION OF THE LAND SOLD AT RS.NIL. 2. BRIEF FACTS OF THE CASE ARE THAT DURING THE ASSE SSMENT YEAR THE ASSESSEE SOLD SEVERAL PLOTS OF LAND FOR A TOTAL SALE CONSIDE RATION OF RS.26 18 748.. THE BALANCE-SHEET OF THE ASSESSEE REFLECTED SOME PLOTS OF LAND AS HIS ASSETS. HE DID NOT ENGAGE IN ANY OTHER BUSINESS IN THIS YEAR. HE TREATED THE SAID AMOUNT OF RS.26 18 748 AS CAPITAL GAIN WHICH WAS ADJUSTED AG AINST A CAPITAL LOSS FROM SALE OF LAND. HE WORKED OUT THE INDEXED COST AT RS.24 63 345. WITH THAT INDEXED SUM ITA NO.1032/RJT/2009 2 COST OF RENOVATION WAS ADDED MAKING THE COST OF LAN D AT RS.28 45 407. THE ASSESSING OFFICER OBSERVED THAT THE ABOVE INDE4XATI ON WAS NOT CORRECT BECAUSE ONCE THE ASSESSEE DECLARED THE PROFIT FROM SALE OF LAND UNDER THE HEAD BUSINESS THE COST OF THE SAME LAND (RS.578250) A S PER VALUATION REPORT FILED BY THE ASSESSEE COULD NOT BE ALLOWED THE INDEXATION FO R THE PURPOSE OF LONG TERM CAPITAL GAIN. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES SUBMISSION THAT THE LAND SOLD WAS INHERITED FROM FATHER OF THE ASSE SSEE. THE ASSESSING OFFICER WAS OF THE VIEW THAT EVEN THOUGH THE LAND MIGHT BE INHERITED BY THE ASSESSEE THE SUBSEQUENT ACTION OF THE ASSESSEE TO CONVERT AG RICULTURAL LAND INTO NON AGRICULTURAL LAND AND MAKING PLOTS AND SUB PLOTS OF THIS LAND AND TO PUT THEM IN OPEN MARKET FOR SALE TANTAMOUNT TO SALE / BUSINESS IN PURCHASE AND SALE OF LAND. THE ASSESSEE HAD SOLD 100 PLOTS OF 50 TO 100 SQ.MTR S DURING THE YEAR UNDER CONSIDERATION TO VARIOUS PARTIES AND HE HAS SOME MO RE PLOTS WITH HIM FOR SALE. THE ASSESSING OFFICER TREATED THE SALE PROCEEDS AS INCOME FROM BUSINESS AND DID NOT ALLOW INDEXATION BENEFIT AND OTHER BENEFITS AVA ILABLE TO COMPUTATION OF CAPITAL GAIN. THE CIT(A) CONFIRMED THE ORDER OF ASSESSING OFFICER. THE CIT(A) HAS ALSO REJECTED THE ALTERNATIVE CONTENTION OF THE ASSESSEE INVOKING PROVISIONS OF SECTION 45(2) OBSERVING THAT THERE IS NO QUESTION OF APPLYI NG SECTION 45(2) OBSERVING THAT THERE IS NO QUESTION OF APPLYING SECTION 45(2) AS T HE SAME IS RELATED TO COMPUTATION OF CAPITAL GAIN WHEREAS IN THE CASE OF THE ASSESSEE IT HAS BEEN HELD THAT THE PROFIT AROSE OUT FO THE PLOTTING AND SELLI NG FO THE LAND AS A BUSINESS INCOME. 3. THE LD.AR MADE HIS SUBMISSION ON THE BASIS OF BR IEF SYNOPSIS SUBMITTED WHICH ARE AS FOLLOWS: SOME RELEVANT DATES: YEAR 1955 : RECEIVED LAND BY WAY OF INHERITANCE 1955 TILL 2003 : AGRICULTURAL OPERATIONS OCTOBER 2002 ADVANCE AGAINST SALES RECEIVED AUGUST 2003 : CONVERSION TO NON-AGRICULTURAL LAN D ITA NO.1032/RJT/2009 3 SEPTEMBER 2003 : LAND SOLD 1. ONLY REASON WHY THE A.O. DISALLOWED CLAIM FOR CA PITAL GAINS IS THAT IN THE STATEMENT OF INCOME FILED WITH THE RETURN TITLE OF BUSINESS INCOME WAS GIVEN. 2. HOWEVER IN THE RETURN OF INCOME STATUTORY HEAD OF CAPITAL GAINS IS SHOWN AND IN THE STATEMENT OF INCOME ALSO SUB-HEAD CAPIT AL GAINS IS SHOWN. 3. ACCOUNTS ARE NOT MANDATORY FOR THE ASSESSEE BUT ONLY FOR PERSONAL RECORD CAPITAL ACCOUNT AND BALANCE SHEET WERE PREPARED BY TAX PRACTITIONER. 4. OTHER THAN IMPUGNED LAND NO LAND TRANSACTIONS A RE CARRIED OUT. LAND IS NOT TREATED OR CONVERTED BY THE ASSESSEE AS HIS STO CK-IN-TRADE. 5. APPELLANT HAS BEEN AN AGRICULTURIST ALL ALONG BY OCCUPATION; NO RETURNS OF INCOME IN PAST OR IN FUTURE ARE FILED AS HE HAD NO OTHER INCOME. 6. HE DECIDED TO SELL AGRICULTURAL LAND ITSELF AND SUCH WAS THE INTENTION WHICH IS CLEAR FROM THE FACT THAT SALE DEAL WAS FINALIZED PRIOR TO CONVERSION OF LAND TO N/A LAND AS BUYERS COULD NOT HOLD AGRICULT URAL LAND OR LARGE LAND HOLDING OF 17 061 SQ.YDS. 7. SALE PROCEEDS ARE NOT INVESTED IN BUSINESS BUT A RE USED FOR DISTRIBUTION AMONGST FAMILY AND FOR PERSONAL USE. 8. OCCUPATION CONTINUES TO BE AGRICULTURAL EVEN PRE SENTLY. 9. ALTHOUGH DIFFERENT SMALL PLOTS ARE SOLD COMMON SALE DEEDS ARE MADE FOR MULTIPLE PLOTS TO SAME SET OF BUYERS WHICH FURTHER GOES TO SHOW THAT INTENTION IS NOT TO CARRY OUT TRADING OF PLOTS TO P IECEMEAL BUYERS ON RETAIL BASIS. 10. HOLDING PERIOD OF THE LAND IS NEARLY 48 YEARS. 11. THE LAND IS NOT PURCHASED BUT INHERITED AND NO BORROWINGS ARE USED. 12. NO BROKERAGE OR OTHER SELLING EXPENSES ARE INCU RRED OR CLAIMED. 13. MERE PRESENTATION ERROR AND THAT TOO NOT IN THE STATUTORY FORMAT DOES NOT ALTER THE TRUE CHARACTER OF THE RECEIPTS. 14. MERELY BECAUSE LARGE CHUNK OF AGRICULTURAL AND IS CONVERTED TO N/A LAND DOES NOT ALWAYS LEAD TO ADVENTURE IN THE NATURE OF TRADE. ITA NO.1032/RJT/2009 4 15. LIST OF AUTHORITIES RELIED UPON: 1. CIRCULAR NO.4 OF CBDT DT 15.06.2007 2. CIT VS PREMJI GOPALBHAI 113 ITR 785 (GUJ) 3. D.S. VIRANI VS CIT 90 ITR 255 (GUJ) 4. CIT VS REWASHANKER A KOTHARI 283 ITR 338 (GUJ) 5. CIT VS RAJAMANNAR (2010) 40 DTR 282 (KAR) 6. CIT VS RAJA MALVINDERSINH (2010) 40 DTR 273 (P&H ) 7. CIT VS DN KRISHNAPPA (2009) 21 DTR 11 (BANG) 16. ALTERNATIVE PLEA: IF THE A.O. AND THE C.I.T. TREATED THE SALE AS BUSI NESS INCOME THEY SHOULD HAVE APPLIED PROVISIONS OF SEC.45(2) AND HENCE DIFFERENC E BETWEEN FMV AS ON DATE OF CONVERSION IN THE YEAR 2003 AND THE FMV AS ON 01.0 4.1981 WOULD IN ANY CASE QUALIFY AS LONG TERM CAPITAL GAINS. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND RELIED UPON THE ORDER OF CIT(A) AND SUBMITTED THAT THERE IS NO PROOF THAT THE ASSESSEE HAS SOLD AGRICULTURAL LAND. THE LD.DR WHILE REFERRING TO PAGE 4 OF THE ASSESSEES PAPER BOOK SUBMITTED THAT THE CLAIM OF THE ASSESSEE THAT RS.2 LAKHS WAS INCURRED ONLY ON ACCOUNT OF STATUTORY EXPENDITURE WHEREAS IN REPLY TO THE ASSESSING OFFICER THE ASSESSEE STATED THAT THE EXPENSES WERE RELATING TO LEVELING FENCING ETC. THE LD.DR FURTHER SUBMITTED THAT THE ASSESSEE DID N OT FURNISH ANY LAND REVENUE RECORD IN SUPPORT OF THE CLAIM. HE FURTHER SUBMITT ED THAT THE ADVANCE STATED TO BE RECEIVED BY THE ASSESSEE IS ON ACCOUNT OF CONVERTED PLOTS. THE LD. DR RELIED UPON PAGE 6 OF CIT(A)S ORDER AND SUBMITTED THAT TH E ASSESSEE WAS DOING SYSTEMATIC ACTIVITIES IN DIVIDING AGRICULTURAL LAND INTO PLOTS CONVERSION ETC. THEREFORE THE ASSESSEES INCOME IS ASSESSABLE AS B USINESS INCOME. IT IS ALSO THE SUBMISSION OF THE LD. DR THAT THE ASSESSEE HIMS ELF HAS SHOWN IT AS BUSINESS INCOME. 5. IN THE REJOINDER THE LD. AR SUBMITTED THAT THE EXPENSES POINTED OUT BY THE LD. DR ARE NOT IN RESPECT OF THIS LAND. HE FURTHE R SUBMITTED THAT WHILE FILING THE RETURN OF INCOME THOUGH IN THE COMPUTATION OF TOTA L INCOME IT HAS BEEN WRONGLY MENTIONED AS BUSINESS INCOME AS PER PROFIT & LOSS ACCOUNT IT IS IN FACT SHOWN AS CAPITAL GAIN AND THE ASSESSEE HAS SHOWN ACCORDINGLY LONG TERM CAPITAL GAIN IN ITA NO.1032/RJT/2009 5 THE RETURN FILED IN FORM 2D-SRAL. A PHOTO COPY O F THE SAID FORM HAS BEEN PLACED AT PAGE 1 OF THE ASSESSEES PAPER BOOK. 6. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PAR TIES AND RECORD PERUSED. THE ADMITTED FACTS OF THE CASE ARE THAT T HE IMPUGNED CAPITAL GAINS WAS ON ACCOUNT OF ANCESTRAL LAND SOLD AFTER DIVIDING IT IN PLOTS AND CONVERTING THE SAME INTO RESIDENTIAL. WHETHER IT IS AN ACCRETION T O CAPITAL OR CAPITAL PROFIT IT DEPENDS ON PARTICULAR FACTS AND CIRCUMSTANCES. THE TRANSACTION ITSELF SHOULD BE LOOKED AT TO SEE IF IT IS ESSENTIALLY OF A COMMERCI AL CHARACTER. A PURCHASE AND SALE OF LAND MAY BE OF THAT CHARACTER BUT NOT NECES SARILY SO. IF A PERSON IS SYSTEMATICALLY ENGAGED IN A SERIES OF TRANSACTIONS OF PURCHASE AND SALE OF LANDS WITH A VIEW TO MAKE PROFIT OUT OF THEM THAT MAY IND ICATE THAT HE IS OCCUPIED IN A TRADING ACTIVITY. BUT IT IS WELL SETTLED THAT OWNER SHIP OF LAND BY ITSELF IS NOT A TRADE. AND SO A PERSON MAY PURCHASE PROPERTY HOLD AND ENJ OY IT DERIVE INCOME FROM IT AND WHEN THERE IS APPRECIATION IN ITS VALUE SELL IT AT AN ENHANCED PRICE. THAT WILL NOT BE A TRADE OR AN ADVENTURE IN THE NATURE OF TRA DE. IN SUCH A CASE WHILE BUYING LAND THERE DATE AT A PROFIT. BUT THAT COUL D HARDLY MAKE ANY DIFFERENCE. SALE OF LAND IN THOSE CIRCUMSTANCES IS NO MORE THA N A REALIZATION OF CAPITAL OR CONVERSION OF ONE FORM OF IT INTO ANOTHER. WHAT IS NECESSARY IS TO EXAMINE THE INTRINSIC NATURE AND CHARACTER OF THE TRANSACTION I TSELF IN THE LIGHT OF COURSE OF THE OBJECTS AND THE SURROUNDING CIRCUMSTANCES AND FACTS . THERE IS NO EVIDENCE THAT THE ASSESSEE HAS PURCHASED THE AGRICULTURE LAND AT ANY RATE WHICH BEARS ANY COMPARISON TO ITS VAST ASSETS. NOR IS THERE ANY EVI DENCE THAT THE ASSESSEE HAS ENGAGED IN A SERIES OF SALES OF LAND OR OTHER PROPE RTY BELONGING TO IT. WHEN THE PROPERTY WAS ORIGINALLY ACQUIRED IN THE FORM OF ANC ESTRAL AND THERE WAS NO INTENTION TO RESALE IT AT A PROFIT. SALES OF LAND H AVE NOT BEEN FREQUENT FEATURE OF THE ASSESSEE. IF A LAND OWNER DEVELOP HIS LAND EXP ANDED MONEY ON IT LAID ROADS CONVERTED THE LAND IN TO HOUSE SITE WITH THE VIEW TO GET BETTER PRIZE FOR THE LAND EVENTUALLY SOLD THE PLOTS FOR CONSIDERATION Y IELDING A SURPLUS IT COULD BE HARDLY SAID THAT THE TRANSACTION IS ANYTHING MORE T HAN A REALIZATION OF A CAPITAL INVESTMENT OF CONVERSION OF ONE FORM OF ASSETS IN T O ANOTHER. OBVIOUSLY THE ITA NO.1032/RJT/2009 6 SURPLUS IN SUCH CASE WILL NOT BE TRADING OR BUSINES S PROFIT BECAUSE THE TRANSACTION IS ONE OF REALIZATION OF ASSETS IN INVESTMENT RATHE R THAN ONE IN THE COURSE OF TRADE CARRIED ON BY THE ASSESSEE OR AN ADVENTURE IN THE N ATURE OF TRADE. HAVING REGARD TO THE NATURE OF PROPERTY LENGTH OF ITS OWNERSHIP AND HOLDING ACTUAL CONDUCT OF THE ASSESSEE OR ALL OTHER FACTS INCLUDING ABSENCE O F EVIDENCE OF ANY TRADING ACTIVITY THE SURPLUS FROM SALE OF LAND DID NOT RES ULT FROM ANY TRADE OR BUSINESS IN LAND CARRIED ON BY ASSESSEE OR FROM ANY TRANSACTION WHICH MAY PROPERLY BE DESCRIBED AS AN ADVENTURE IN THE NATURE OF TRADE. I F WE APPLY THE ABOVE DISCUSSIONS TO THE FACTS OF THE CASE WE FIND THAT I T IS INHERITED ANCESTRAL AGRICULTURE LAND IN THE HAND OF THE ASSESSEE. IT WA S NEITHER PURCHASED NOR ACQUIRED WITH THE INTENTION OR FOR THE PURPOSE OF A NY BUSINESS OR ADVENTURE IN NATURE OF TRADE. WE THEREFORE OF THE CONSIDERED VIE W THAT SUCH ANCESTRAL AGRICULTURE LAND CAN NOT BE HELD AS BUSINESS ASSETS AND ITS INCOME IS NOT LIABLE TO TAX UNDER THE HEAD INCOME FROM BUSINESS SAME IS LI ABLE TO BE ASSESSABLE UNDER THE HEAD INCOME FROM CAPITAL GAINS. 6.1 IN THE LIGHT OF ABOVE DISCUSSION AND IN THE LIG HT OF DIRECT JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS PRE MJI GOPALBHAI 113 ITR 785 (GUJ) WHERE IT HAS BEEN HELD THAT ANCESTRAL LAND CO NVERTED INTO NON AGRICULTURAL LAND DIVIDED INTO SEVERAL PLOTS AND SOLD AS AND WHE N PURCHASERS WAS AVAILABLE. PROFIT IS ASSESSABLE AS CAPITAL GAIN AND NOT AS A B USINESS INCOME. ORDER PRONOUNCED IN THE OPEN COURT ON 10-12-2010 . SD/- SD/- (D.T. GARASIA) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT DT : 12 TH DECEMBER 2010 PK/- ITA NO.1032/RJT/2009 7 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-I RAJKOT 4. THE CIT-I RAJKOT 5. THE DR (TRUE COPY) BY ORDER ASSTT.REGISTRAR ITAT RAJKOT