Year of Taxability of Capital gain if payment of entire consideration received earlier and possession handed over later

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Year of Taxability of Capital gain if payment of entire consideration received earlier and possession handed over later

Short Overview : The ‘year of taxation’ was the year of transfer of possession of land by the transferee from the custody of the transferor hence, the capital gain was therefore, chargeable to tax in the year 2011-12 and not 2008-09 as held by AO.

There was a search and seizure action under section 132 on the assessee on 8-9-2010 (Assessment Year 2011-12). Search action resulted in the seizure of incriminating documents. The assessment was completed under section 143(3) read with section 153A. One of the additions made by the AO in the assessment, relates to the taxability of the profits on account of sale of land at Gevrai. The background facts relating to the above-said addition on account of ‘Gevrai’ land include that the assessee along with his wife purchased about 80 Acres 3 Guntha of land at Village Gevrai Taluka, Dist. Aurangabad. As per the assessee, the possession of land was not given by the assessee in the assessment year 2008-09.  As per the assessee, the land was sold on 23-4-2010 and the capital gain was offered to tax in the relevant assessment year 2011-12. According to the assessee, the asset so purchased on 27-1-2006 was eventually sold only on 23-4-2010, although, the agreement was entered on 2-6-2007. Otherwise, the assessee received the consideration to the extent more than 97.88% by the end of the assessment year 2008-09 itself. It was the view of the AO that gains/profits were taxable in the assessment year 2008-09 due to the fact that 97.88% of the consideration was received in the assessment year 2008-09 only. CIT(A) allowed assessee’s appeal.

It held that  It was the view of the AO that gains/profits were taxable in the assessment year 2008-09 due to the fact that 97.88% of the consideration was received in the assessment year 2008-09. The “year of taxation” was the year of transfer of possession of land by the transferee from the custody of the transferor. The year of possession of land, payment of entire consideration and the compliance to the conditions stated in the agreement were the relevant factors that decides the year of taxation. In the present case, these events happened only in the assessment year 2011-12 and not in the current assessment year 2008-09. Year of taxation of gains/profits would be in the assessment year 2011-12 as offered by the assessee and not assessment year 2008-09 as considered by the AO in the assessment.

Decision: In assessee’s favour.

Relied:CIT v. Talwalkars Fitness Club (2018) 409 ITR 37 (Bom) : 2018 TaxPub(DT) 7909 (Bom-HC), CIT v. Cochin Stock Exchange Ltd. (2014) 363 ITR 382 (Ker) : 2014 TaxPub(DT) 1705 (Ker-HC), Ratna Trayi Reality Services (P.) Ltd. v. ITO (2013) 356 ITR 493 (Guj) : 2013 TaxPub(DT) 1659 (Guj-HC), CIT v. Delhi Apartments (P.) Ltd. (2013) 352 ITR 322 (Del) : 2013 TaxPub(DT) 1060 (Del-HC),  Avtar Singh v. ITO (2004) 270 ITR 92 (MP) : 2004 TaxPub(DT) 662 (MP-HC)  and CIT v. Umiya Investments (2013) 33 Taxmann.com 266 (Guj) : 2013 TaxPub(DT) 2025 (Guj-HC).

IN THE ITAT, PUNE BENCH

  1. KARUNAKARA RAO, AM. & VIKAS AWASTHY, J.M.

DCIT v. Shivaji Bhagwanrao Jadhav

ITA No.680/PUN/2015

A.Y. 2008-09

19 September, 2019

Revenue by: N. Ashok Babu

Assessee by: Kishor Phadke

ORDER

  1. Karunakara Rao, A.M.

This appeal is filed by the revenue against the order of Commissioner (Appeals)-12, Pune dated 27-2-2015 for the assessment year 2008-09.

  1. The grounds raised by the revenue are as under :–

“1. On the facts and circumstances of the case, the learned Commissioner (Appeals) was not justified in deleting the addition made by the assessing officer on account of business profits on sale of land in assessment year  2008-09 by holding the same as long-term capital gain to be taxed in assessment year  2011-12 without appreciating the fact that the sale transaction was actually an adventure in the nature of trade as against the capital gain declared by the applicant in the later year.

  1. On the facts and circumstances of the case, the learned Commissioner (Appeals) was not justified in deleting the addition made by the assessing officer on account of income from let out properties without appreciating that municipal value does not represent the fair rent which a property can fetch if let out. It is computed very mechanically by the corporation and is not revised periodically.
  2. The order of learned Commissioner (Appeals) may be vacated and that of the assessing officer be restored.
  3. The appellant crave leave to add, alter, amend, and modify any of the above grounds of appeal.”
  4. During the proceedings before us, the revenue filed the additional grounds and the same are extracted as follows:–

“1. On the facts and the circumstances of the case, the learned Commissioner (Appeals) was not justified in allowing the appeal of the assessee by ignoring the Explanation 2 of section 2(47) of the Income Tax Act, 1961 wherein it was held that transfer includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily by way of any agreement.

  1. On the facts and the circumstances of the case, the learned Commissioner (Appeals) was not justified in holding that the transaction of capital gain as declared by the assessee be accepted despite the fact that 97% of the total sale consideration was received in the assessment year  2008-09 and therefore the tax incidence would be in the assessment year  2008-09 by virtue of provision of section 2(47) and section 45 of the Income Tax Act, 1961.”
  2. Further, the revenue raised another additional ground, which is as under :–

“On facts & circumstances of the case, without prejudice to the earlier grounds raised, the assessee should pay capital gains tax for assessment year  2008-09 as 97% of the total sale consideration was received by assessee in assessment year  2008-09 and as per Explanation 2 of section 2(47) of the Income Tax Act, 1961 wherein it was held that transfer includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily by way of any agreement.”

  1. On noting that the assessing officer’s case is to tax the entire gains earned on sale of lands as “business income”, before us, learned DR for the revenue fairly submitted that the aforesaid additional grounds, that proposes to tax the gains as capital gains as already offered by the assessee in the return of income, are not pressed. Further, learned DR submitted the appeal should be decided on the basis of regular/original grounds only. Accordingly, we proceed to dismiss all the additional grounds as not pressed/withdrawn and proceed to restrict our adjudication with regular grounds of appeal only.
  2. Facts relating to regular grounds: Briefly stated the relevant facts relating to proper ‘head of income’ and taxation of the gains in the assessment year 2008-09, include that the assessee is an individual and a core person of Shraddha Group of cases. There was a search and seizure action under section 132 of the Act on the assessee on 8-9-2010 (Assessment Year 2011-12). The said action resulted into the discovery and surrender of undisclosed income of Rs. 10.99 crores. The same was subsequently retracted. Otherwise, the search action resulted in the seizure of incriminating documents. The assessment was completed under section 143(3) read with section 153A of the Act. One of the additions made by the assessing officer in the assessment, relates to the taxability of the profits on account of sale of land at Gevrai. The assessing officer made addition of Rs. 5,43,85,990 on account of the said Gevrai land. Further, the assessing officer made another addition on account of deemed income from let out properties at Rs. 5,35,641 . Thus, the assessment was completed and the assessed income of Rs. 5,75,08,361 against the returned income of Rs. 25,86,730.
  3. The background facts relating to the above-said addition on account of ‘Gevrai’ land include that the assessee along with his wife purchased about 80 Acres 3 Guntha of land at Village Gevrai Taluka, Dist. Aurangabad. Out of that, the assessee purchased 32.15 Acres of land in the name his sons Shri Amit Jadhav and Shri Ajay Jadhav for a sum of Rs. 36,14,010. There is “Visar Pavati” (VP) found during search action in support of the sale. The relevant stamp paper was purchased on 01.02.2007. Bundle No.4, at pages 70 to 74 of the Paper Book contains the relevant Visar Pavati. The search resulted discovery of another agreement dated 02.06.2007 vide Bundle No.14 at pages 177 to 181 of the Paper Book. These agreements were registered between Shri Ajay Shivajirao Jadhav, Shri Amit Shivajirao Jadhav, and Smt. Meera Shivajirao Jadhav on one side and Shri Sanjeevkumar Harkchand Kankariyaon on the other side. Further, these parties sold the said land to Mr. Abbdul Kalik Abdul Karim Barudgar, Mr. Rafik Makbul Kureshi for an agreed price of Rs. 9,49,57,325. As per the assessee, the possession of land is not given by the assessee in the assessment year 2008-09. In fact, on the request of Shri Sanjay Kankariya, rest of land was sold to Mr. Abbdul Kalik Abdul Karim Barudgar and Mr. Rafik Makbul Kureshi on 23-4-2010 for said sum of Rs. 9,49,57,325. The “long term capital gain” on the said sale of land was offered to tax in the returns of the assessee as well as his wife. Thus, as per the assessee, the land was sold on 23-4-2010 and the capital gain was offered to tax in the relevant assessment year 2011-12. The transaction involved is not a business transaction as held by the assessing officer in the assessment. According to the assessee, the asset so purchased on 27-1-2006 was eventually sold only on 23-4-2010, although, the agreement was entered on 2-6-2007. Otherwise, the assessee received the consideration to the extent more than 97.88% by the end of the assessment year 2008-09 itself.
  4. Before the assessing officer: In the assessment, the assessing officer mentioned that (i) considering the facts that the assessee received major part of the consideration (97.88%) in the year under consideration; (ii) considering the business motive of the assessee; (iii) considering the assessee’smala-fide plan to reduce the payment of taxes by way of ‘long term capital gains’; and, (iv) considering the land business background of the assessee, the present transaction of sale of land should be only considered as an “adventure in nature of trade”. Further, it is the view of the assessing officer that gains/profits are taxable in the assessment year 2008-09 due to the fact that 97.88% of the consideration was received in the assessment year 2008-09 only. Thus, the assessing officer rejected the assessee’s decision to offer gains on (i) capital gains and (ii) offer of the same in the assessment year 2011-12 on the basis of date of registration of the land. Therefore, the head of income as well as the year of taxation are the issues raised by the assessing officer in the assessment.
  5. Before the Commissioner (Appeals): During the first appellate proceedings, the assessee made elaborate discussions and justified the assessee’s offer of gains to taxation under the head of “capital gains”. Further, assessee submitted that the balance amount was received in the year of registration i.e. assessment year 2011-12. The contents of para 2.8.1 to 2.8.8 are relevant in this regard.
  6. In these paragraphs, the Commissioner (Appeals) extracted the observation of the assessing officer as well as the written submissions of the assessee. The assessee defended that the transactions with regard to the sale of land that Gevrai is a capital gain transaction only and not the business transaction. Further, the assessee also submitted that the sale of transaction of the same is completed in the relevant year 2011-12. In para 2.8.3 of the Commissioner (Appeals)’s order, the assessee narrated that he never offered any business income on account of sale of land in the past year or in the future. Therefore, as per the assessee, treating the transaction of sale of land as the adventure in the nature of trade, should not arise. Referring to Gevrai land in particular and the book entries thereof, assessee submitted that the said asset was originally shown in the books from the assessment year 2006-07 onwards as an item of “fixed assets” in the balance sheet. In support, the assessee furnished the ‘balance sheet’ for the assessment years 2006-07, 2007-08 etc. The assessee relied on the ‘principle of consistency’ as laid down by the Jurisdictional High Court in the case ofCIT v. Gopal Purohit (2010) 336 ITR 287 (sc) : 2010 TaxPub(DT) 1272 (Bom-HC) as approved by the Apex Court submitted that the claim of investment in land (fixed asset) was accepted by the assessee over the assessment years is the past. Further, referring to the assessing officer’s mis-reading of the date relating to the purchase of the land, the assessee pointed out that the assessing officer considered 01.02.2007 as purchase date of the said land. Referring to the document, assessee stated that the date of purchase of the land is 27-1-2006. Thus, difference of 13 months has to be added in the period of holding on the capital assets. Relying on the Visar Pavati, the fact that the possession of land was not given to Mr. Kankariya was also demonstrated. Mentioning that the assessee held the land for the period more than 3 years i.e. from 27-1-2006 to 23-4-2010, the assessee argued that the asset involved in the “long term capital assets” and eventually sold in the assessment year 2011-12 after holding period of more than 3 years. Against the assessing officer’s decision of treating the transaction of sale of land as an ‘adventure in the nature of trade’, the assessee relied on the various other judgements including that of the Hon’ble Supreme Court judgment in the case of G. Venkataswami Naidu v. CIT (1959) 35 ITR 594 (SC) : 1959 TaxPub(DT) 0121 (SC). The contents of para 2.8.1 to 2.8.8 of the order of the Commissioner (Appeals) are relevant in this regard. In these paragraphs, the Commissioner (Appeals) held that the property in question was consistently figuring in the Balance Sheet as a fixed asset. Further, Commissioner (Appeals) appreciated the contention of the assessee that (i) assessee never traded the lands; (ii) erroneous assumption of facts on holding period of the asset more than 3 years; (iii) the land possession was not passed to Mr. Kankaria as per the ‘Visar Pavati’ of assessee; and, (iv) mala-fide arrangement for paying the lessor taxes under the head capital gains. Thus, the claim of the assessee was accepted. Therefore, the principle of consistency was upheld by the Commissioner (Appeals). The contents of para 2.8.7 and 2.8.8 of the order of the Commissioner (Appeals) are extracted hereunder :–

“2.8.7 The learned assessing officer has not examined the fact, which would indicate the Appellant’s intention at the time of purchase, whether he further developed the land, relevant factors affecting decision to sell. As against it, the Appellant has held the property in his balance sheet for a year and this is the Appellant’s only transaction of the land trading.

2.8.8 In view of the above discussion, I do not find any material brought out by the learned assessing officer to justify to hold that the transaction is ‘adventure in nature of trade’. I hold that the transaction of capital gain be accepted as declared by the Appellant.”

  1. Regarding the other addition on account of deemed income from let out properties of Rs. 5,35,641 , relevant facts include that the assessing officer noticed that the assessee lives in a row house 43/44, Himali Society, Erandwane, Pune. The assessing officer invoked the provisions relating to the Self Occupied Property and the ALV for other vacant properties and estimated ALV of the same at Rs. 5,62,892. Rejecting the assessee’s offer of Rs. 27,251 against the ALV, the assessing officer added the balance amount of Rs. 5,35,641.
  2. In the first appellate proceedings, the Commissioner (Appeals) confirmed the addition made by the assessing officer as per the discussion given in para 2.5.1 to 2.5.5 read with para 2.9.1 of the order of the Commissioner (Appeals). For the sake of completeness, the contents of para 2.5.5 are extracted hereunder :–

“2.5.5 However, the municipal valuation should be of the assessment year  concerned, in absence of the municipal ARV of the relevant assessment year , the learned assessing officer’s action would be justified. Accordingly, I confirm the addition with respect to the property, if the ARV of the particular property is not of the assessment year concerned and delete the addition made by the learned assessing officer, if the ARV is of the relevant assessment year.”

Arguments on the two Issues – Year of Taxation & Head of Income

  1. “Year of taxation” and proper “head of income” for taxing the gains are the two issues for adjudication by us. Regarding the issue of year of taxation, the assessee made the following written submission :–

“Respondent assessee contends that the correct year of taxation of Capital Gain of GEORAI Land is assessment year 2011-12 and not assessment year 2008-09 as held by the learned assessing officer, on following points:

(a) Sale Deed was executed on 23-4-2010 i.e. in assessment year 2011-12.

(b) Possession of Land was handed over to Purchasers only on execution of Sale Deed.

(c) Sale Deed was executed in the favour of Mr. Abdul Barudgar and Mr. Rafiq Qureshi and not in favour of Mr. Sanjeev kumar Kankariya with whom VISARPAVATI was executed.

(d) Transaction in the hands of Mrs. Meerabai Jadhav (wife of respondent assessee, who was also the joint seller of GEORAI Land) has been accepted by the I-T Authorities in assessment year 2011-12. Copy of return of income and computation of income is attached herewith as Annexure-2.

Respondent assessee in this regard is placing reliance on following judicial pronouncement wherein it has been held that transfer takes place only after possession is given:

(i)CIT v. Talwalkars Fitness Club (2018) 409 ITR 37 (Bom) : 2018 TaxPub(DT) 7909 (Bom-HC)

(ii) CIT v. Cochin Stock Exchange Ltd.  (2014) 363 ITR 382 (Ker) : 2014 TaxPub(DT) 1705 (Ker-HC)

(iii)Ratna Trayi Reality Services (P.) Ltd. v. ITO (2013) 356 ITR 493 (Guj) : 2013 TaxPub(DT) 1659 (Guj-HC)

(iv)CIT v. Delhi Apartments (P.) Ltd. (2013) 352 ITR 322 (Del) : 2013 TaxPub(DT) 1060 (Del-HC)

(v)Avtar Singh v. ITO – (2004) 270 ITR 92 (MP) : 2004 TaxPub(DT) 0662 (MP-HC)

(vi) CIT v. Umiya Investments – (2013) 33 taxmann.com 266 (Guj) : 2013 TaxPub(DT) 2025 (Guj-HC)

Copies of above referred cases are attached herewith as Annexure-3.”

  1. Regarding the head of income, the assessee made the following written submission :-

“Respondent assessee contends that the income from GEORAI Land should be taxed under the head ‘Capital Gains’ and not under the head ‘Profits and Gains from Business or Profession on following points:

(a) GEORAI Land is held as Fixed Assets in the Books of Accounts. The audited accounts of various years are already placed on record, wherein, GEORAI land appears as Fixed Asset (and not as any stock-in-trade / Current asset).

(b) Real estate transactions executed in past and future years has been disclosed as Capital Gain by respondent assessee and the same is accepted by the I-T Authorities. (Details already submitted as Annexure-1 of Synopsis-1).

(c) Transaction by Mrs. Meerabai Jadhav (wife of respondent assessee, who was also the joint seller of GEORAI Land) has been disclosed as Capital Gain and the same has been accepted by the I-T Authorities. Copy of return of income and computation of income is attached herewith as Annexure-2.

Respondent assessee in this regard is placing reliance on following judicial pronouncement (apart from one referred in earlier Synopsis) wherein it has been held that principal of consistency should be followed:

(i)CIT v. Quest Investment Advisors (P.) Ltd.  (2018) 409 ITR 545 (Bom) : 2018 TaxPub(DT) 4218 (Bom-HC)

Copy of above referred case is attached herewith as Annexure-4.”

  1. Regarding the rejoinder to contentions of the learned DR, the learned Counsel furnished the following written submission :–

“During the hearing on 19-7-2017, the learned DR supported the order of the learned assessing officer on following points and the rejoinder to the same is as follows:

Point of the learned DR Rejoinder
Around 97% of the consideration was received Though around 97% of the consideration wasreceived, respondent assessee has not handed over possession. For the above proposition respondent assessee is relying on submission made at Point No. 1 above.
Respondent assessee was having business motive The learned assessing officer has not brought anything on record to establish that respondent assessee was having motive. On the contrary, respondent assessee has established that the intention of respondent assessee was always to held the GEORAI Land as Capital Asset. For the above proposition respondent assessee is relying on submission made at Point No. 2 above.
Respondent assessee has arranged the transaction to take benefit of Long term Capital Gain Had there been any such intention, respondent assessee would have executed the sale deed immediately on lapse of three years from date of purchase i.e. on 27-1-2009, instead of actual executed date of 23-4-2010.

Arguments for the Second Issue – Income from let out property

  1. Arguments relating to the second issue of addition of Rs. 5,35,641 , relating to taxation of deemed income as properties. In this regard learned AR for assessee made the following written submission :–

“The issue has been decided in favour of respondent assessee by the Honorable Bench in assessment year  2009-10 bearing Appeal No. 681/PUN/2015. The findings of the Honorable Bench is at Para 18 of the said order.

Respondent assessee is placing reliance of the order of the Honorable Bench for assessment year  2009-10 in this regard.”

However, the learned DR for the revenue read out the contents of para 2.9.1 read with para 2.5.1 to 2.5.5 of the Commissioner (Appeals)’s order.

  1. Having discussed the facts and the arguments of the counsels on all the issues, now we proceed to adjudicate the issues as under :–
  2. Year of Taxation
  3. The case of the revenue on this issue is that, with receipt of Rs. 5.8 crore out of the total considering of Rs. 5,92,53,200 , the payment received in the year under consideration works out 97.88% of the total consideration. As per the revenue, the amount stands accrued for taxation in the year under consideration. Therefore, relevant year for taxation of gains is assessment year  2008-09 and not the assessment year  2011-12 as admitted by the assessee. In the process, the assessing officer rejected the assessee’s claim and the facts mentioned in the Visar Pavati that possession of land is not given to the buyer, the date of registration falls in the assessment year 2011-12 and the balance amount of Rs. 12,53,250 was received in the assessment year 2011-12.
  4. On the other hand, the case of the assessee is that ‘Visar Pavati’ clearly indicates that the possession of the land is with the assesseetransferor only. The date of registration is 23.04.2010 and it falls within the assessment year 2011-12. It is undisputed fact that the balance of Rs. 12,53,250 is received by the assessee in the said assessment year only. The possession of the land is transferred to the transferee in that year after registration is done.
  5. As per assessee, so long as the possession of the lands is with the assessee and not passed on to the buyer under ‘Visar Pavati’, the payment of 97.88% will not decide the year of taxation of the gains. With these divergent stands of the parties in the litigation, we are of the opinion that the Visar Pavati, with the condition specified in it in writing, does not authenticate the assessee to transfer the land to the transferor. Further, it is undisputed fact that the registration before the stamp duty authorities, is completed only in the assessment year 2011-12. With these facts, in our view, the receipt of major part of the consideration i.e. Rs. 5.8 crores out of Rs. 5,92,53,200 , cannot decide the year of taxation of the gains i.e. in the assessment year 2008-09. To that extent, the arguments of the assessee as given in para 2.8.8 of the order of the Commissioner (Appeals) is fair and reasonable. For the said of completeness, the said para 2.8.8 is extracted hereunder :–

“2.8.8 In view of the above discussion, I do not find any material brought out by the learned assessing officer to justify to hold that the transaction is ‘adventure in nature of trade’. I hold that the transaction of capital gain be accepted as declared by the Appellant.”

  1. Further, on the year of taxation, the assessee further relied on the various jurisdictional High Court’s judgment and other High Court’s judgment extracted in para 11 of this order. They are relevant for the legal proposition that the “year of taxation” is the year of transfer of possession of land by the transferee from the custody of the transferor. The said decision is relevant for the ratio that the transfer is not complete and the gains are not taxable in that assessment year 2011-12 when the possession of the land is with the transferor till the entire consideration is paid, which happened in the assessment year 2012-13 in this case. Thus, the year of possession of land, payment of entire consideration and the compliance to the conditions stated in the agreement are the relevant factors that decides the year of taxation. In the present case, these events happened only in the assessment year 2011-12 and not in the current assessment year 2008-09.
  2. Accordingly, we are of the opinion that the year of taxation in the assessment year 2011-12 offered by the assessee and not assessment year 2008-09 as considered by the assessing officer in the assessment. Therefore, the relevant issue is decided in favour of the assessee in respect of year of taxation.
  3. Proper Head of Income – Capital Gains are Business Income
  4. The assessee offered the gains under the head capital gains in the assessment year 2011-12 and paid the taxes as relevant to the said year. However, the assessing officer disturbed the year of taxation as well as the head of income. Stating that the assessee is a land trader, the assessing officer proceeded to treat these transactions on sale of land as an ‘adventure in the nature of trade’.
  5. Per contra, the case of the assessee is that the said land was consistently reflected in the books of account as fixed assets right from the assessment year 2006-07. The said claim of the assessee was undisturbed by the assessing officer over the years. As made out in para 2.8.3 of the Commissioner (Appeals)’s order (extracted above), the assessee did not have the past history of trading in land. The assessing officer was also the wrong impression that holding period on the asset is only around 2 years and not above the 3 years. The principle of consistency was also relied upon by the assessee when it came to the taxation of the gains in the proper head of income. Thus, it is the claim of the assessee that the gains are taxable under the head capital gains only.
  6. On hearing both the sides and examining the facts and the contents of para 2.8.6 of the order of the Commissioner (Appeals), we find it is undisputed fact that the assessee never offered any business income on trading of land either in the past or in future assessment years. It is also born out of the records that the said asset has been consistently shown as “fixed asset” and not as stock-in-trade. Regarding the assessing officer’s claim that the said transaction constitutes an “adventure in nature of the trade”, we are of the opinion, test laid down by the Hon’ble Supreme Court in the case ofG. Venkataswami Naidu (supra) in matters of dispute relating to the adventure in the nature of trade, we find the Commissioner (Appeals) analyzed the said judgment and gave a finding that the said test laid down is not applicable to the facts of the present case. Therefore, in our view, the transaction in question does not constitute adventure in the nature of trade. We proceed to extract the said para 2.8.6 to 2.8.8 of the order of the Commissioner (Appeals) as under :–

“2.8.6 The Appellant with the copy of the relevant deed has stated that the actual date of the purchase is of 27-1-2006 as against 1-2-2007 considered by the learned assessing officer Therefore, period of holding is not as short as considered by the learned assessing officer Further, I find that the learned assessing officer has not examined any other factors affecting the decision as to whether the transaction is in the ‘nature in trade or not’. In this connection, it might be worthwhile to peruse the decision of the honorable Supreme Court in the case of G. Venkataswami Naidu v CIT (1959) 35 ITR 594 (SC) : 1959 TaxPub(DT) 0121 (SC). The relevant part of the decision is as under:

“it is impossible to evolve any formula which can be applied in determining the character of isolated transactions which come before the courts in tax proceedings. It would besides be inexpedient to make any attempt to evolve such a rule or formula. Generally speaking, it would not be difficult to decide whether a given transaction is an adventure in the nature of trade or not. It is the cases on the border line that cause difficulty. If a person invests money in land intending to hold it, enjoys its income for some time, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. Cases of realisation of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventures in the nature of trade. In deciding the character of such transactions several factors are treated as relevant. Was the purchaser a trader and were the purchase of the commodity and its resale allied to his usual trade or business or incidental to it ? Affirmative answers to these questions may furnish relevant data for determining the character of the transaction. What is the nature of the commodity purchased and resold and in what quantity was it purchased and resold ? If the commodity purchased is generally the subject matter of trade, and if it is purchased in very large quantities, it would tend to eliminate the possibility of investment for personal use, possession or enjoyment. Did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby made it more readily resaleable ? What were the incidents associated with the purchase and resale ? Were they similar to the operations usually associated with trade or business? Are the transactions of purchase and sale repeated ? In regard to the purchase of the commodity and its subsequent possession by the purchaser, does the element of pride of possession come into the picture ? A person may purchase a piece of art, hold it for some time and if a profitable offer is received may sell it. During the time that the purchaser had its possession he may be able to claim pride of possession and aesthetic satisfaction ; and if such a claim is upheld that would be a factor against the contention that the transaction is in the nature of trade. These and other considerations are set out and discussed in judicial decisions which deal with the character of transactions alleged to be in the nature of trade. In considering these decisions it would be necessary to remember that they do not purport to lay down any general or universal test. The presence of all the relevant circumstances mentioned in any of them may help the court to draw a similar inference ; but it is not a matter of merely counting the number of facts and circumstances pro and con ; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction ; and so, though we may attempt to derive some assistance from decisions bearing on this point, we cannot seek to deduce any rule from them and mechanically apply it to the facts before us. In this connection it would be relevant to refer to another test which is sometimes applied in determining the character of the transaction. Was the purchase made with the intention to resell it at a profit ? It is often said that a transaction of purchase followed by resale can either be an investment or an adventure in the nature of trade. There is no middle course and no half way house. This statement may be broadly true ; and so some judicial decisions apply the test of the initial intention to resell in distinguishing adventures in the nature of trade from transactions of investment. Even in the application of this test distinction will have to be made between initial intention to resell at a profit which is present but not dominant or sole ; in other words cases do often arise where the purchaser may be willing and may intend to sell the property purchased at profit, but he would also intend and be willing to hold and enjoy it if a really high price is not offered. The intention to resell may in such cases be coupled with the intention to hold the property. Cases may, however, arise where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it. The presence of such an intention is no doubt a relevant factor and unless it is off set by the presence of other factors it would raise a strong presumption that the transaction is an adventure in the nature of trade.

Even so, the presumption is not conclusive ; and it is conceivable that, on considering all the facts and circumstances in the case, the court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. We thus come back to the same position and that is that the decision about the character of a transaction in the context cannot be based solely on the application of any abstract rule, principle or test and must in every case depend upon all the relevant facts and circumstances.”

“2.8.7 The learned assessing officer has not examined the fact, which would indicate the Appellant’s intention at the time of purchase, whether he further developed the land, relevant factors affecting decision to sell. As against it, the Appellant has held the property in his balance sheet for a year and this is the Appellant’s only transaction of the land trading.

“2.8.8 In view of the above discussion, I do not find any material brought out by the learned assessing officer to justify to hold that the transaction is ‘adventure in nature of trade’. I hold that the transaction of capital gain be accepted as declared by the Appellant.”

  1. Considering the above, we are of the considered opinion, the consolidated transaction on sale of land together with his wife constitute an adventure in the nature of trade. It is also submission of the assessee that the similar claim in his wife’s case, co-owner of the property, was accepted by the concerned assessing officer taxing the gain under the head income from capital gains. Therefore, we are of the opinion that change in the head of income is unsustainable and not in tune with the relevant judgment in the case of G. Venkataswami Naidu (supra). Accordingly, the relevant grounds raised by the revenue are dismissed.
  2. Income from properties
  3. Ground No. 2 relates to the taxation of income from let out properties. On this issue, it is the case of the assessee that the issue now stands covered by the order of the Tribunal in assessee’s own case videITA No.681/PUN/2015 for assessment year 2009-10 dated 25-4-2018. The contents of para 16 to 18 of the said order of the Tribunal (supra) are relevant and the same are extracted hereunder :–

“16. The core ground raised by the revenue in its appeal reads as under :–

“1. On the facts and circumstances of the case, the Ld.CIT(a) was not justified in deleting the addition made by the assessing officer on account of income from let out properties without appreciating that municipal value does not represent the fair rent which a property can fetch if let out. It is computed very mechanically by the corporation and is not revised periodically.”

  1. Relevant facts include that the assessing officer in the course of assessment proceedings that in the preceding assessment year  2007-08, the annual let out value of vacant house properties were determined @7% of the investment value. Relying on the judgment ofCIT v. Radhika Devi Dalmiya (1980) 125 ITR 134 (All) : 1980 TaxPub(DT) 1017 (All-HC)the assessing officer estimated the annual let out value of the property at Rs. 6,26,235. During the First Appellate Proceedings, the Commissioner (Appeals) allowed the claim of the assessee and commented upon the judgment of CIT v. Radhika Devi Dalmiya that it is specific on its own facts and not applicable to the case of the assessee.
  2. On hearing both the parties and perusing the order of Commissioner (Appeals), we find it relevant to extract the findings given by the Commissioner (Appeals) at para Nos. 2.5.3 to 2.5.5 and the same reads as under :

“Findings:

2.5.3 I have considered the facts and arguments of the Appellant. I find that the Appellant has total 9 properties. He has declared one property as self-occupied, two let out and six properties vacant. The Appellant has declared loss in the income from house property. The Appellant has adopted the municipal valuation as the NAV, however, the learned assessing officer stated that according to the law, as amended by the Finance Act, 2002, the Appellant’s case falls under section 23(1)(a) according to which, ALV should be the sum for which, the property might reasonable be expected to let from year to year.

2.5.4 Although I agree with the learned assessing officer, however, I find that in Pune Municipal Area, property is levied under section 127(1)A of the Maharashtra Municipal Corporation Act. The amount of the property tax payable is based on the Municipal Valuation Municipal valuation determines the Annual Rebatable Value (ARV) of the property on the basis of the locality of the property, its sq.ft. area, its nature of use (residential or commercial etc.) and type of construction (RCC, temporary etc.). Rateable Value broadly represents the annual rent that the property could have been let for on the open market. Therefore, when Municipal valuation represents the annual rental value of the property, I do not find any justification to resort to other method of determining ALV, such as % of return on the investment made in the property. According to me, the learned assessing officer’s reliance on the case of Radhika devi Dalmia misplaced.

2.5.5. However, the municipal valuation should be of the assessment year concerned, in absence of the municipal ARV of the relevant assessment year, the learned assessing officer’s action would be justified. Accordingly, I confirm the addition with respect to the property, if the ARV of the particular property is not of the assessment year concerned and delete the addition made by the learned assessing officer, if the ARV is of the relevant assessment year.”

It is settled legal proposition that so long as Municipal values are available the same becomes bindings and therefore, the decision of the assessing officer in calculating the rental value based on any other method is unsustainable in law. Therefore, the above conclusion drawn by the Commissioner (Appeals) on this issue is fair and reasonable and it does not call for any interference. Accordingly, the grounds raised by the revenue are dismissed.

  1. In the result, appeal of the revenue is dismissed.”
  2. Considering the above, the assessing officer is directed to apply the said principle. Accordingly, the ground No. 2 raised by the revenue is dismissed.
  3. In the result, the appeal of the revenue is dismissed.

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