Delhi H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was no adventure in the nature of trade and thereby deleting business income of Rs. 11,87,387 from the income of the assessee ?

High Court Of Delhi

CIT vs. Smt. Radha Bai

Sections 2(13), 28(i)

B.C. Patel, C.J. & Badar Durrez Ahmed, J.

IT Ref. No. 186 of 1992

14th October, 2004

Counsel Appeared

R.D. Jolly with S.C. Sharma, for the Applicant : C.S. Aggarwal with Prakash Kumar, for the Respondent

JUDGMENT

B.C. Patel, C.J. :

At the instance of the Revenue, this Court vide order dt. 23rd Aug., 1991, directed the Tribunal to state the case and to refer the following question :

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was no adventure in the nature of trade and thereby deleting business income of Rs. 11,87,387 from the income of the assessee ?”

The Revenue had earlier moved the Tribunal under s. 256(1) of the IT Act, 1961 (hereinafter referred to as ‘the Act’), and the said application was rejected. Hence, the Revenue approached this Court and in view of the order made by this Court, the present reference is placed before the Court.

The assessee is an individual and was deriving income at the relevant time from moneylending business. The accounting year ended in question on 31st March, 1983. The assessee vide sale deed dt. 25th July, 1958 for Rs. 21,021 had acquired a plot of land admeasuring 2,130.459 sq. mtrs. or 2,548 sq. yds. bearing No. C-1/2, Model Town, New Delhi-110009, formerly known as village Malakpur Chhaoni, within the limits of Delhi Municipal Corporation. It may be noted that the Urban Land (Ceiling and Regulation) Act, 1976, came into force and, therefore, under the provisions contained in the said Act, she could not have held more than 500 sq. mtrs of land and, therefore, she approached the Lieutenant Governor under s. 21(1)(b) of the said Act, to enable her to hold excess vacant land. However, the said application was rejected on 18th May, 1979. Thereafter, on another application, inter alia, stating that she is interested to construct group housing on the said plot, keeping in view the guidelines issued by the Delhi Administration vide order No. 36 (3)/8/L&B/ULCR, dt. 16th Oct., 1978, on the basis of the provisions contained in the Act as well as the notifications, exemption was granted by the Delhi Administration vide order dt. 15th Jan., 1982, for the purpose of construction of group housing scheme on the plot in question, subject to the conditions specified therein. After exemption, granted as aforesaid, the assessee entered into an agreement on 15th Jan., 1982 with M/s Bhasin Properties, H3/12 Model Town, Delhi, through its partner, Shri Om Prakash Bhasin. Clause 3 of the agreement being relevant is required to be reproduced hereunder : “(3) The assessee was to be paid by the builder and promoters Rs. 20 lakhs for the said plot of land in the manner detailed below : (i) Rs. 3 lakhs as advance money on the execution and signing of this agreement; (ii) Rs. 12 lakhs within an agreed period of 200 days from the date of execution of the agreement and as a security measure the assessee was to retain 1,000 sq. yds. (836.13 sq. mtrs.) area in her possession which was to be released and handed over to the builder and promoter on payment of the above sum of Rs. 12 lakhs. The remaining area in her possession was to be released by the assessee to the builder and promoter for development and construction; (iii) The balance of Rs. 5 lakhs was to be paid by the builder and promoter to the assessee within a period of 24 months or on the completion of the construction and on the date of registration of the sale deeds of the flats in favour of prospective buyers. (Clause 3).” Initially, the amount of Rs. 3 lakhs as advance money was paid on 15th Jan., 1982. However, the assessee was not taxed on that. The second instalment of Rs. 12 lakhs was paid during the asst. yr. 1983-84 on two different dates, i.e., Rs. 10 lakhs on 14th April, 1982 and Rs. 2 lakhs on 25th Nov., 1982. The AO held that—”the assessee is still the owner of this plot of land and by virtue of alleged agreement she has thrown this land to her business asset. It has also come to light that the assessee has received an amount of Rs. 3 lakhs on 15th Jan., 1982 and in the year 1982-83 in all a sum of Rs. 12 lakhs was received”. It is in view of this that it was held that these receipts were from joint business venture with M/s Bhasin Properties and taxable in the hands of the assessee as business income. While the CIT(A) held that “therefore, even if it is stated that the initial intention was not to sell the plot, the subsequent events do show that the assessee entered into a transaction in the nature of a trade” and confirmed the assessment order insofar as the issue of adventure in the nature of business was concerned.

On behalf of the Revenue, reliance was placed on paras (11) and (12) (which pertain to clauses of the agreement) at p. 56 of the paper book, and which read as under : “(11) The sale deeds in favour of the prospective buyers were to be executed jointly by the assessee and the builder and promoter. In addition to the ownership rights in a particular flat, the purchasers were also to have undivided indivisible and impartible ownership rights in the plot in question in the ratio which covered area of the old flats bore to the total covered area of all the flats taken together (Clause 12). (12) If during the construction of the group housing flats, any penalty, composition fee or fine were to be imposed by a competent authority, the same was to be borne and paid by the builder and promoter who was to keep the assessee harmless and indemnified against all action, claims, demands and losses. (Clause 15).”

6. Reliance was also placed on behalf of the Revenue on the decision of the Supreme Court in the case of G. Venkataswami Naidu & Co. vs. CIT (1959) 35 ITR 594 (SC). The headnote at p. 597, on which reliance is placed, reads as under : “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 relevant, such as e.g., whether the purchaser was a trader and the purchase of the commodity and its resale were allied to his usual trade or business or incidental to it; the nature and quantity of the commodity purchased and resold; any act subsequent to the purchase to improve the quality of the commodity purchased and thereby make it more readily resalable; any act prior to the purchase showing a design or purpose, the incidents associated with the purchase and resale, the similarity of the transaction to operations usually associated with trade or business; the repetition of the transaction; the element of pride of possession. A person may purchase a piece of art, hold it for some time and if a profitable offer is received, 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 transaction being in the nature of trade. The presence of all these relevant factors may help the Court to draw an inference that a transaction is in the nature of trade; 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.

In cases 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 a relevant factor and, unless it is offset 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. The presumption may be rebutted.”

7. Reliance was also placed on the decision of the Allahabad High Court in the case of ITO vs. Rani Ratnesh Kumari (1980) 123 ITR 343 (All), wherein the case was remanded to the Tribunal for adjudication. In that case, the Court pointed out as under : “In order to find out whether a transaction of purchase and subsequent resale amounts to an adventure in the nature of trade, the initial intention of the purchaser is a very important relevant factor, but it is not conclusive. The subsequent events and the conduct of the assessee are also important factors and the question is to be decided on a consideration of the totality of the facts and circumstances. The relevant facts to be seen in this behalf are : first, as to whether the transaction was in the line of business of the assessee and, secondly, whether it was an isolated or a single instance of the business or there was a series of similar transactions. Where a transaction is not in the line of business of the assessee but is an isolated or a single transaction, the onus is on the Department to prove that the transaction is an adventure in the nature of trade. It cannot, however, be laid down as a matter of absolute proposition that the onus is on the Department to prove that the initial intention of the purchaser was to resell the property.”

8. In this case, no one can raise a dispute about the principles laid down in these decisions. However, in both the decisions, we find altogether different facts so as to arrive at a conclusion or to reach at a different conclusion than what the assessee was contending in both the cases. In the case of ITO vs. Rani Ratnesh Kumari (supra), the plot of land admeasuring 20,000 sq. yds was purchased and later on it was divided into sub-plots wherein improvements were made and by way of six sale deeds executed between the asst. yrs. 1961-62 and 1972-73, the property was transferred. In the case of G. Venkataswami Naidu & Co. vs. CIT (supra), four plots of land were the subject-matter. One was purchased in October, 1941, in the name of benamidar, the second in November, 1941, the third in November, 1942 and the fourth one in November 1941, and thereafter, the plots were transferred.

9. In the instant case, a plot was purchased in the year 1958 and after the operation of law, namely, the Urban Land (Ceiling and Regulation) Act, 1976, it was not possible for the assessee to retain the land. She obtained the permission and entered into an agreement with a developer (the builder). It was emphasised by the counsel for the Revenue that the agreement was executed by the owner as well as the flat purchaser and in view of this, it can be said that the property was thrown into a business and the property was held for adventure in the nature of business.

10. We are unable to agree with the submissions because from the documents, it is very clear that on the assessee’s part there is only an intention to transfer the land and not the portion that may be constructed by the builder on a future date. Clause 3 merely provides the mode of payment. The Tribunal, in the facts and in the circumstances of the case, arrived at a finding as under : “It will be seen that the assessee continued to remain the owner of the land in question and though she had given the power of attorney in favour of the builder and promoter to start the booking of various flats and to receive sale price, etc., she was to remain responsible for the payments of all rates, taxes, duties, charges, etc. upto the date of registration of the flats in favour of the prospective buyers and the sale deed in favour of the prospective buyers were to be executed jointly by the assessee and the builder and promoter. There was no adventure in the nature of trade so far as the assessee is concerned, she had to get a fixed amount of Rs. 20 lakhs according to the passed agreement referred to in cl. 3 of the salient features of the said agreement. Thus it could not be said that the assessee had thrown the land in question into any business as her stock-in-trade. The details of the dates of the payments aggregating to Rs. 15 lakhs showed that Rs. 3 lakhs were received in the preceding assessment year and two amounts of Rs. 10 lakhs and Rs. 2 lakhs were received in the assessment year in question.”

11. In view of what is stated hereinabove, we see no reason to differ from the views expressed by the Tribunal and, therefore, the answer is required to be given against the Revenue and in favour of the assessee. The reference is accordingly disposed of.

[Citation : 272 ITR 264]

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