Income from even an isolated transaction of sale of land can be considered as business income of an assessee though not carrying on real estate business
Jan 26, 2010 Income Tax Case Laws
If attendant circumstances of the case, the process of purchase of land, conversion thereof and sale, compel to come to the conclusion that the * purchase of land, in itself, was with an intention to sell at a profit in the form of an ‘adventure in the nature of trade’ and hence though it is an isolated’ transaction the income thereon can still be considered as business income.
CASE LAW DETAILS
Decided by: ITAT, VISAKHAPATNAM BENCH, VISAKHAPATNAM, In The case of: Cherukuri Ramesh v. ACIT, Appeal No.: ITA No. 491/Vizag/2008, Decided on: January 23, 2009
RELEVANT PARAGRAPH
4.4 Learned Counsel appearing on behalf of the assessee submitted that the decision in the case of M. Krishna Rao (supra) is distinguishable on facts inasmuch as in the said case agricultural land was initially purchased in 1964 and 1967 and immediately thereafter it was converted into housing plots in 1968 after obtaining due permission. Under the circumstances, the intention of the purchase of the land was essentially with a view to carry on real-estate business. However, in the instant case, the assessee purchased the land in 1997, whereas it was sold only in the financial year 2004-05. In other words, there was a gap of eight years between the date of purchase and the date of sale and thus the intention was to hold the land as investment only and the purpose of selling the land in small bits of housing plots is merely to secure better price and not with an intention to carry on business of real estate.
4.6(viii). A careful perusal of the observations of the Apex Court would show that it would be impossible to formulate a single criterion to arrive at a conclusion as to whether the profits on sale of land gives raise to ‘capital gains’ or ‘adventure in the nature of trade’. Whether the intention at the time of purchase of land was to hold it as an investment or stock-in-trade is only one test, out of a number of circumstances prescribed by the Court, to draw a presumption and as pointed out by their Lordships, the cumulative effect of all the circumstances have to be taken into account to draw a proper inference as to whether it falls in the category of an adventure in the nature of trade or not.
4.6(ix). In the case of the assessee, the joint owners of the assessee had no record of carrying on agricultural operations. The size of the land also suggests that it was not intended to carry on agricultural operations. Two out of the three joint owners are engaged in automobile spare parts activity and Ch. Ran (HUF) appears to have purchased a site, in the past, in the name of “Indira Ramesh Real Estate” (pg. 105 of paper book) which throws light on the intention of the parties. Layout plan No.C5/49/97, dt.27.2.2001 (see para 3.2. of CIT(A)’s order) provides a clue that the application for sanction of layout is made in the year 1997, i.e., soon after purchase of land; the figure “97″ in the layout plan number is suggestive of the year of application and the former figures suggest the serial number of the application and area code. Even if date of sanction of another layout plan number mentioned thereafter (i.e., L.P No. 1/2001/VGTMUDA) is taken into consideration to assume that the conversion Kd materialized in 2001 only, still in the absence of any evidence to show that the impugned land was used for other purpose prior to seeking layout plan approval, the intention of purchase of land cannot be automatically inferred as an investment. There is no evidence on record to suggest that the said purchase of land was to enjoy the ‘pride of possession’, which are some of the factors enumerated by the Apex Court to facilitate a judicial body to analyse the nature of transaction of sale. At any rate, as against the contention of the assessee that the property was retained for ten years, the fact remains that if not immediately after purchase, the parties have prepared the layout plan within four years and waited for another three years to get a better price, leaving aside the time taken in conversion of land/surrender of a portion of land etc., as per sanction order.
4.6(x). Thus, the attendant circumstances of the case, the process of purchase of land, conversion thereof and sale, compel us to come to the conclusion that the * purchase of land, in itself, was with an intention to sell at a profit in the form of an ‘adventure in the nature of trade’ and hence though it is an isolated’ transaction the income thereon can still be considered as business income. In our view, the facts are akin to the facts and circumstances considered by the Apex Court in the case of Smt Indramani Bai(supra), and by the A.P. High Court in the case of M. Krishna Rao (supra).
4.6(xi). Since the view taken by the tax authorities on this aspect is based upon cogent reasons and in the absence of any evidence furnished by the assessee to reverse the conclusions drawn thereon, we do not find any infirmity in the order of the learned CIT (A).
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