Atma Ram Gupta , Jaipur vs Department Of Income Tax

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 529/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2008-09

The A.C.I.T. cuke Atma Ram Gupta Circle-3, Jaipur. Vs. F-56, Major Shaitan Singh Colony, Shastri Nagar, Jaipur.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ADSPG 7611 C vihykFkhZ@Appellant izR;FkhZ@Respondent

jktLo dh vksj ls@ Revenue by : Mrs. Neena Jeph (JCIT) fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (CA)

lquokbZ dh rkjh[k@ Date of Hearing : 12/05/2015 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 29/05/2015

vkns'k@ ORDER

PER: T.R. MEENA, A.M.

This is an appeal filed by the Revenue against the order dated

23.03.2012 passed by the Ld. CIT(A)-I, Jaipur for A.Y. 2008-09. The

respective grounds of appeal are as under:-

2 ITA 529/JP/2012_ ACIT Vs. Atma Ram Gupta

"Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) is justified in:-

i) deleting the addition of Rs. 1,20,52,755/- on account of business profit from sale of land, even though the assessee was engaged in the business of real estate development.

ii) Holding that no capital gain was chargeable as the asset referred was agricultural land, ignoring the facts that the assessee was not performing any agricultural activities and no agricultural income was shown in the return."

2. Both the grounds of revenue's appeal are against deleting the

addition of Rs. 1,20,52,755/- on account of business profit from sale of

land and no capital gain was chargeable as the asset referred was

agricultural land. The ld Assessing Officer observed that the assessee

filed his return on 24/11/2009 declaring total income of Rs. 70,68,740/-.

The case was scrutinized U/s 143(3) of the Income Tax Act, 1961 (in

short the Act). The assessee is a Chartered Accountant and is partner in

M/s A.R. Gupta & Company. He is also a working director in the

following companies:-

i) M/s A.R.G. Developers Pvt. Ltd. ii) M/s Grass Field Farms and Resorts Pvt. Ltd.

iii) M/s Grass Field Fire Capital Developers Pvt. Ltd.

During the year the assessee purchased following lands:-

3 ITA 529/JP/2012_ ACIT Vs. Atma Ram Gupta

S. Name of the seller Date of Amount Description of land No. registration of purchased purchase deed 1 Shri Ramu S/o Shri 20/04/2007 (as Rs. Khasra No. 519 Mangu Reswident of per registered 23,11,450/- measuring 7 Bigha 5 Bukni, Tehsil Phagi, purchased deed) Biswa dist. Jaipur 2 Shri Sita Ram Meena, 10/05/2007 (As Rs. Khasara No. 825/4 S/o Shri Banna Ram per registered 1,05,00,000/- measuring 6 Bigha 5 Meena, village purchased deed) Biswa, Khasra No. Hingonia, Tehsil Phagi, 825/1/13 measuring dist.- Jaipur. 3 Bigha, khasra No. 825/2 measuring 15 Bigha.

The above lands were sold by the assessee as under:-

S. Name of the Date of Amount Description of land No. purchaser registration of sold sale deed 1 M/s Grass Field Fire 28/01/2008 Rs. Khasra No. 519 Capital Developers (Through 1,35,93,750/- measuring 7 Bigha 5 Pvt. Ltd. registered sale Biswa deed) 2 M/s Grass Field Fire 01/06/2007 Rs. Khasara No. 825/4 Capital Developers (through 2,14,39,685/- measuring 6 Bigha 5 Pvt. Ltd. registered sale Biswa, Khasra No. deed) 825/1/13 measuring 3 Bigha, khasra No. 825/2 measuring 15 Bigha.

The Assessing Officer further observed that during the assessment

proceedings, the AR of the assessee submitted that the sales as

discussed in table No. 2 have been made by the assessee on behalf of

and under instructions from M/s Grass Field Farms & Resorts Pvt. Ltd. in

which the assessee is a working director. However, the assessee has 4 ITA 529/JP/2012_ ACIT Vs. Atma Ram Gupta

sold the lands as enumerated in table No. 1 to M/s Grass Field Farms &

Resorts Pvt. Ltd. in his individual capacity as under:-

Khasra No. Purchased Amount Sold to & Amount Profit/Gain from & date date of sale of purchase Khasra No. Shri Ramu Rs. M/s Grass Rs. Rs. 519 S/o- Shri 23,11,450/- Field Farms 77,12,456/- 54,01,006/-

measuring 7 Mangu & Resorts Bigha 5 Resident of Pvt. Ltd. Biswa Bukni, Dated Tehsil 23/09/07 Phagi, Dist.- (Through Jaipur unregistered Dated sale deed) 20/04/07 Khasara No. Shri Sita Rs. M/s Grass Rs. Rs. 825/4 Ram Meena, 1,05,00,000/- Field Farms 1,71,51,749/- 66,51,749/- measuring 6 S/o Shri & Resorts Bigha 5 Banna Ram Pvt. Ltd. Biswa, Meena, Dated Khasra No. village 25/10/06 825/1/13 Hingonia, (Through measuring 3 Tehsil unregistered Bigha, Phagi, dist.- sale deed) khasra No. Jaipur 825/2 Dated measuring 05/09/06 15 Bigha. (Un-register purchase deed)

The assessee had earned net profit on sale of above two lands to M/s

Grass Field Farms & Resorts Pvt. Ltd. at Rs. 1,20,52,755/- and had

claimed exempt from income tax U/s 2(14)(iii) of the Act. The profit

earned on sale of these lands further to M/s Grass Filed Fire Capital

Developers Pvt. Ltd for and on behalf of M/s Grass Filed Farms &

Resorts Pvt. Ltd. at Rs. 1,01,69,231/- had been disclosed in the hands

5 ITA 529/JP/2012_ ACIT Vs. Atma Ram Gupta

of the company and had been included in the taxable income. As the

profit/gain earned on sale of land to M/s Grass Filed Farms & Resorts

Pvt. Ltd. amounting to Rs. 1,20,52,755/- has been claimed exempt and

not disclosed in the return of income. The assessee was given

reasonable opportunity of being heard on this issue, which was replied

vide letter dated 29/09/2010, 07/10/2010 and 27/12/2010. After

considering the assessee's reply, the ld Assessing Officer observed that

the assessee had purchased the above land in his own name and in

individual capacity. He sold these lands to the company by executing

separate registered sale deed on high price as is evident from the

sale/purchase amount as stated above. Further the assessee was

carrying the business of real estate. In sale deed dated 01/6/2007 at

page No. 2, the assessee's name of business has been stated that

"whereas the seller is in the business of real estate trade and

development and other real estate activities and the seller own and

possesses large chunks of lands in village Khatwad, Khatwad, Tehsil

Mujamabad, dist. Jaipur." Thus, as per the Assessing Officer, the said

land was his stock in trade was sold by him within very short time after

purchase of the same. Therefore, the surplus/profits earned by him at 6 ITA 529/JP/2012_ ACIT Vs. Atma Ram Gupta

Rs. 1,20,52,755/- is treated his business income and the same is added

in his taxable income.

3. Being aggrieved by the order of the AO, the assessee carried the

matter before the Ld. CIT(A), who had allowed the appeal by observing

that the assessee is a Chartered Accountant by profession. He gets

remuneration from the firm M/s A.R. Gupta and Company alonwith

interest income, consultancy income and income from salary from the

companies in which he is director. He does not maintain a personal

capital account or balance sheet. The assessee is consistently investing

in land from F.Y. 1989-90 and retained a portfolio of land of Rs.

3,92,49,208/- as on 31/3/2008. There was a survey U/s 133A of the Act

at the business premises of M/s Grass Filed Farms & Resorts Pvt. Ltd.

(GFFR) from 26/2/2008 to 28/02/2008. During the course of survey

incriminating documents were found on which the assessee company

had declared additional income and paid the tax on it. Agricultural land

at village Khatwad was purchased on 05/09/2006 through sale

agreement for Rs. 1,05,00,000/-. On the date of signing of the

agreement the assessee paid Rs. 42,000/- to the seller. The assessee

sold the land to GFFR on 25/10/2006 vide an agreement of sale and 7 ITA 529/JP/2012_ ACIT Vs. Atma Ram Gupta

received a sum of Rs. 20 lakhs at the time of the sale. GFFR got the use

of land converted from agricultural to residential U/s 90A of the

Rajasthan Land Revenue Act, 1956 vide order dated 30/12/2006 and

29/12/2007. The conversion expenses were paid for by the company.

GFFR sold the land vide sale deed dated 01/6/2007 to M/s Grass Field

Fire Capital Developers Pvt. Ltd. vide registered sale deed for Rs.

2,14,39,685/-. 50% of the payment was made though allotment of

shares as disclosed in the returns of both the companies. The appellant

purchased agricultural land at village Bukini vide sale deed dated

20/04/2007 from Shri Ramu Jat for Rs. 21,50,000/-. The payment for

this land was made through his personal bank account with UCO bank.

The appellant purchased the land through registered sale deed and the

expenses of Rs. 1,61,450/- for registration were incurred by the

assessee. The appellant sold this land to GFFR on 23/09/2007 for Rs.

77,12,456/-. GFFR got the use of land converted from agricultural to

residential and subsequently sold the land to M/s Grass Filed Fire

Capital Developers Pvt. Ltd. on 28/01/2008 in lieu of which it was

granted shares by the company. The land transacted during this

assessment year was beyond 8 kms of the municipal limits. Land was

not converted into stock in trade by the appellant in his books of 8 ITA 529/JP/2012_ ACIT Vs. Atma Ram Gupta

accounts. The ld CIT(A) held that the land at village Khatwad do not

pertain to this year. In fact even the Assessing Officer in his order on

page 2, table-3 has mentioned the date of sale of land by the appellant

to GFFR to be 25/10/2006, which clearly the gain of Rs. 66,51,749/- on

the transaction of land at Khatwad does not pertain to this assessment

year and cannot be added to the income of the assessee in this

assessment year. Therefore, she deleted the addition of Rs.66,51,749/-.

She further held that whether the transaction in land under taken by

the appellant during the year was business transaction or adventure in

the nature of trade or capital accretion is a vexed question that is

required to be decided on the facts and law applicable to these facts. It

is not possible to evolve any legal test or formula which can be applied

in determining whether a transaction is an adventure in nature of trade

or business or not. The answer to the question must necessarily depend

in each case on the total impression and effect of all the relevant

factors and circumstances, which determine the character of the

transaction and the legal principles that have evolved over a period of

time through the judicial pronouncements made by the various High

Courts and the Hon'ble Supreme Court on this issue. "Business" as

defined in section 2(13), "includes any trade commerce or manufacture 9 ITA 529/JP/2012_ ACIT Vs. Atma Ram Gupta

or any adventure or concern in the nature of trade, commerce or

manufacture." After considering the definition of business and legal

position on this issue, she inferred as under:-

1. 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 nature of trade may readily be inferred.

2. A similar inference would arise where a commodity is purchased and sub divided, altered, treated or repaired and sold, or is converted into different commodity and then sold.

3. Magnitude of the transaction of purchase, the nature of commodity, subsequent dealings and the manner of disposal may be such that the transaction may be stamped with the character of trading venture.

4. It was enunciated that transactions of purchaser of land cannot be assumed without more to be a venture in the nature of trade since by its very nature land is not a commercial commodity. The Hon'ble Supreme Court referred to the findings to the judicial pronouncements in the following cases:

* Commissioner of Inland Revenue Vs Reinhold (1953) 34 TC 389 (C Sess) * Saroj Kumar Mazumdar Vs. CIT (1959) 37 ITR 242 (SC)

10 ITA 529/JP/2012_ ACIT Vs. Atma Ram Gupta

* Leeming Vs. Jones (1930) 15 Tax Cas. 333 (HL).

It was observed that these are cases in which the commodity purchased and sold was land which was not ordinarily commercial and the manner of dealing with the commodity did not stamp the transaction as a trading venture.

5. Profit motive in entering into a transaction is not decisive, for an accretion to capital does not become taxable income merely because as asset was acquired in the expectation that it may be sold at profit.

After considering the legal position on purchase and sale of land, she

held that the appellant had purchased and sold land which is

inherently/ordinarily not a commercial commodity. The assessee derived

income from salary as a Director and partner of various companies and

firm respectively. Some of these companies and firms are engaged in

the business of development real estate but the assessee has not

engaged in the business of real estate development in his personal

capacity. She further held that land had not been sub-divided, cut into

plots or developed prior to sale. In fact, even the conversion charges

were paid subsequently by the company that is purchaser. The

frequency of transaction also less as there was no sale of land in

subsequent assessment year. During the year also there is only one 11 ITA 529/JP/2012_ ACIT Vs. Atma Ram Gupta

transaction. She further considered the business definition provided U/s

2(13) of the Act. The gains from these transactions were accepted by

the Assessing Officer in the hands of the company GFFR. Both the

entities are distinct the case of the assessee in his individual capacity

cannot be vitiated by his activities conducted in his capacity as Director

of the company. The assessee did not spend any money in developing

the land and assessee's activity was not systematic. She further relied

on the decision by the Hon'ble Allahabad High Court in the case of CIT

Vs. Mohakampur Ice and Cold Storage (2006) 281 ITR 354 (All.)

wherein it has been held that intention of purchase of land is to be

guiding factor to decide the nature of transaction. The ld Assessing

Officer had not given any findings regarding use of land i.e. whether it

was agricultural or not. However, the assessee had submitted that the

land was agricultural land in record of the land revenue. Thus, she

decided that land was agricultural in nature and was not a capital asset

as per Section 2(14)(iii) as it was situated beyond 8 km of municipal

limit. Therefore, the gain on transfer of agricultural land is not part of

taxable income U/s 45 of the Act. Accordingly, she deleted the addition

of Rs. 54,01,006/-.

12 ITA 529/JP/2012_ ACIT Vs. Atma Ram Gupta

5. Now the revenue is in appeal. The Ld. DR vehemently supported

the order of the AO and argued that there was no agricultural activity

on the said land and assessee is in the real estate business individually

or through companies. The main intention to purchase of the land was

to make good profit from this transaction. Therefore, it is an

adventurous in nature. Therefore, she prayed to confirm the order of

the ld A.O.

6. At the outset, the Ld. AR of the assessee submitted that the only

issue in the present case is whether the agriculture land sold by the

assessee to Grass Field Farms and Resorts Pvt. Ltd. is held by him as a

business asset or as a capital asset. Whether an asset is held as

investment or as stock in trade is a matter of intention of the buyer at

the time of purchase of assets. The A.O. has considered the agricultural

land sold by the assessee as stock in trade only on the basis of recital in

the ale deed dated 01/6/2007 executed in favour of M/s Grass Field Fire

Capital Developers Pvt. Ltd. for and on behalf of Gross Field Farms and

Resorts Pvt. Ltd. and for the reason that within a short period assessee

has sold the land at very high prices. This cannot be a reason to threat

an asset as business asset as explained here in after.

13 ITA 529/JP/2012_ ACIT Vs. Atma Ram Gupta

As explained in the facts of the case the assessee in this

individually capacity only invest in the immovable properties. As on

31/3/2008, he owned various immovable properties which includes flat

at Jaipur, farm house at Jaisinghpura and agricultural land at village

Basada which were acquired in the assessment year under

consideration. Therefore, two pieces of agricultural land at village

Khatwad and Village Bukni cannot be said to be purchased by the

assessee as business assets only because they were sold within a short

period. The agricultural land at village Khatwad was purchased through

sale agreement dated 05/09/2006 from Shri Sitaram Meena, which was

executed on 10/05/2007 and incurred expenditure on registration at Rs.

12,55,590/-. In sale agreement there is no recital that the assessee was

engaged in the business of real estate. The payment of registration

expenses indicates that the assessee's intention to purchase of land was

investment not to deal in business of land. The transfer of this land was

made through sale agreement dated 25/10/2006 U/s 2(47) of the Act,

which falls in A.Y. 2007-08 not in A.Y. 2008-09. Therefore, gain on sale

of this land is otherwise not taxable in the hands of assessee in the year

under consideration. Subsequent to sale deed dated 01/6/2007

executed by the assessee in favour of M/s Grass Field Fire Capital 14 ITA 529/JP/2012_ ACIT Vs. Atma Ram Gupta

Developers Pvt. Ltd. is for and on behalf of GFFR and not in the

individual capacity of the assessee. The assessee sold this land in

individual capacity to GFFR and thereafter for and on behalf of GFFR to

M/s Grass Field Fire Capital Developers Pvt. Ltd.. This land was beyond

8 kms from the municipal limits and therefore the capital gain was

exempted in the hands of the assessee. The agricultural land used was

changed on 30/12/2006 and 29/03/2007 and converted the land was

sold by GFFR to M/s Grass Field Fire Capital Developers Pvt. Ltd. vide

sale deed dated 01/6/2007. Therefore, in sale deed dated 01/6/2007,

the seller being engaged in the business of real estate trade has been

mentioned. The same was company not as individual assessee. The

company GFFR had disclosed business income at Rs. 42,87,937/- on

sale of land, this has been accepted by the Assessing Officer.

Agricultural land at village Bukni was purchased through sale

deed dated 20/04/2007 from Shri Ramu Jat on which registration

expenses of Rs. 1,61,450/- was incurred. In sale deed also, there is no

mention that the assessee was engaged in the business of land trading.

The facts of this sale transaction are similar as first this land was sold to

GFFR on 23/09/2007 and on 28/01/2008 this land was again for or on 15 ITA 529/JP/2012_ ACIT Vs. Atma Ram Gupta

behalf of the company i.e. GFFR transferred to M/s Grass Field Fire

Capital Developers Pvt. Ltd. in capacity of Director. The land is also

beyond 8 kms from the municipal limit. N.A. was got done by the

company on 07/12/2007. GFFR has shown business income on sale of

this land at Rs. 58,81,294, which has also been accepted by the

Assessing Officer. It is further submitted that there is no dispute as to

the fact that land purchased by the assessee as above were agricultural

land. The assessee has also sold these lands as agricultural land to

GFFR. These land were beyond 8 km of the municipal limit and the

population of these villages is also less than ten thousands. The land

sold were shown in the revenue records as agricultural lands and no

permission was taken by the assessee for conversion of the land use

prior to its sale by the assessee to GFFR. The permission for change in

the land use was obtained subsequently and expenditure in relation

thereto was born by GFFR to whom the assessee sold these agricultural

lands. Hence the amount received by the assessee from GFFR is a

capital receipt not liable for tax. He has placed reliance on the following

case laws:-

(i) Hindustan Industrial Resources Ltd. Vs. ACIT (2011) 335 ITR 77 (Delhi).

16 ITA 529/JP/2012_ ACIT Vs. Atma Ram Gupta

(ii) CIT Vs. Smt. Debbje Aleno (2011) 331 ITR 59 (Bom).

He, therefore, prayed to confirm the order of the ld CIT(A).

7. We have heard the rival contention of both the parties and

perused the material on record. It is a fact that the assessee purchased

a land in individual capacity from Shri Sitaram Meena and Shri Ramu Jat

as agricultural land on agreement to sale. Thereafter the assessee had

sold this land to GFFR on agreement to sale as per Section 2(47) of the

Act. The NA was got done by GFFR in both the cases. Thereafter land

was transferred to M/s Grass Field Fire Capital Developers Pvt. Ltd. The

land was beyond 8 kms from the municipal limit which has not been

controverted by the ld DR as well as by the ld Assessing Officer. The ld

CIT(A) had given detailed findings on it. The assessee claimed this gain

on transfer of these lands as exempted. As the use as per land revenue

record was agricultural land. Thereafter GFFR has disclosed the income

on transfer of this land to M/s Grass Field Fire Capital Developers Pvt.

Ltd.. The assessee had purchased these lands for investment not for

trading. The frequency of transactions showed that the assessee was

not in trading of land. The land transaction of village Khatwad was not 17 ITA 529/JP/2012_ ACIT Vs. Atma Ram Gupta

even pertained to year under consideration. Therefore, we confirm the

order of the ld CIT(A).

8. In the result, the appeal of the revenue is dismissed.

Order pronounced in the open court on 29/05/2015.

Sd/- Sd/- ¼vkj-ih-rksykuh½ ¼Vh-vkj-ehuk½ (R.P.Tolani) (T.R. Meena) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Tk;iqj@Jaipur fnukad@Dated:- 29th May, 2015

*Ranjan

vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- The A.C.I.T., Circle-3, Jaipur

2. izR;FkhZ@ The Respondent- Shri Atma Ram Gupta, Jaipur.

3. vk;dj vk;qDr@ CIT

4. vk;dj vk;qDr¼vihy½@The CIT(A)

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 529/JP/2012)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar