If not a continuous activity, sale of land can not be treated as business income

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If not a continuous activity, sale of land can not be treated as business income

An interesting case by P & H High court on above subject. An important part of the judgement reads as under: 
It is true that even a single venture could be regarded as a trade or business but there have to be circumstances which should give rise to such a conclusion. There are no such circumstances existing in the present case. What is necessary is to find out the intention of the assessee at the time of the purchase of land.
Punjab-Haryana High Court
Commissioner Of Income-Tax vs Sushila Devi Jain on 12 November, 2002
Equivalent citations: (2004) 191 CTR P H 175, 2003 259 ITR 671 P H
Author: N Sodhi
Bench: N Sodhi, V Singh

JUDGMENT N.K. Sodhi, J.

1. This appeal by the Revenue is directed against the order dated March 14, 2001, passed by the Income-tax Appellate Tribunal whereby the appeal filed by the Department was partly allowed. Two issues were raised before the Tribunal. The first issue relates to the computation of profit on the sale of plot which had been assessed by the assessing authority as adventure in the nature of trade whereas the Commissioner of Income-tax (Appeals) directed the same to be taxed under the head “Capital gains”. The assessee inherited a piece of agricultural land on the basis of a will dated October 30, 1990, made by her the late husband Bimal Prasad Jain. During the relevant year in question the assessee sold a part of this land for a consideration of Rs. 40 lakhs on February 18, 1993. She worked out the indexed cost of acquisition and disclosed income to the tune of Rs. 17,70,177 under the head “Long-term capital gains”. The Assessing Officer did not accept her plea and observed that the assessee had sold some parcels of land to different concerns on February 5, 1991, and February 13, 1991, and, therefore, she had a profit motive in acquiring the land and selling the same. He taxed the entire income of Rs. 40 lakhs as income arising from trade. Feeling aggrieved by this order the assessee filed an appeal before the Commissioner of Income-tax (Appeals) who allowed the same by his order dated November 8, 1994, holding that the land had not been purchased by the assessee but the same was acquired by virtue of a will from her late husband. It was further held that the land had been sold in parts because the area was huge and could not be sold in one go. In this view of the matter, the Commissioner of Income-tax (Appeals) held that the income earned by the assessee was taxable under the head “Capital gains”. Since the land was held by the assessee for more than three years the profit was taxable under the head “Long-term capital gains”. He allowed the indexed cost of acquisition. Not satisfied with the order of the Commissioner of Income-tax (Appeals) the Department filed an appeal before the Tribunal. It was reiterated before the Tribunal that the assessee had a profit motive in selling the land in different parcels and, therefore, the income derived therefrom was from an adventure in the nature of trade. This argument was rejected. The Tribunal referred to the definition of “business” in Section 2(13) of the Income-tax Act, 1961 (for short “the Act”), and observed that a particular activity can constitute business only if it is continuous. Since there was no continuous activity in regard to the sale the Tribunal held that it was not business income and that the income derived from the sale of land could be taxed only under the head “Capital gains”. Hence, the present appeal.

2. We have heard the learned senior counsel for the Department and find no ground to entertain the appeal. The Tribunal and the Commissioner of Income-tax (Appeals) have both rightly held that the sale of land by the assessee was not in the nature of business because there is no continuous activity. It is true that even a single venture could be regarded as a trade or business but there have to be circumstances which should give rise to such a conclusion. There are no such circumstances existing in the present case. What is necessary is to find out the intention of the assessee at the time of the purchase of land. In the case before us, the land was never purchased by her. She acquired the same on the basis of a will on the death of her husband. She sold the same in parcels because the huge area could not be sold in one go. Such an activity, in our opinion, cannot amount to trade or business within the meaning of the Act. Both the Commissioner and the Tribunal have followed the correct principles of law and no factual or legal error could be pointed out by the Department. In this view of the matter, we are of the opinion that no substantial question of law arises from the order of the Tribunal so as to warrant the entertainment of this appeal.

3. The other issue raised before the Tribunal was in regard to the levy of interest under Section 234B of the Act. The Commissioner of Income-tax (Appeals) directed the Assessing Officer to charge interest under Section 234B of the Act up to the date of determination of income under Section 143(1)(a) of the Act. It is settled law that interest is levied under Section 234B on the basis of returned income and not on the basis of the assessed income. The Tribunal was right in setting aside the finding of the Commissioner of Income-tax (Appeals) in this regard and remanding the case back to the assessing authority for this purpose. The order of remand does not give rise to any substantial question of law and the Assessing Officer will decide the issue in accordance with law.

4. In the result, the appeal fails and the same stands dismissed.

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