1990 PLP (Trib (PTD)

SIKANDAR HAYAT KHAN (ACCOUNTANT MEMBER)‑‑ Brief facts giving rise to these appeals are that in this case, assessment already made was set aside, vide Appeal No. 707, dated 4‑5‑1986. In consequence thereof, reassessment was made under section 62 read with section 132 of the Income‑tax Ordinance, 1979 (hereinafter called the Ordinance), on net income of Rs 6,41,288, vide order, dated 30‑6‑1987. Income, as assessed heretofore, was contested in appeal before learned CIT (Appeals); who, by virtue of Appeal No. 1858, dated 13‑4‑1987, set aside assessment to be made de novo on the ground that since a notice under section 65 of the Ordinance for the charge year 1979‑80, had already been issued and as its legality was highly doubtful, it was only reasonable and proper that assessment for the charge year 1981‑82 may also be set aside to be made de novo in the light of decision taken in respect of the charge year 1979‑

80. This finding having been objected to by the assessee and the department, was made the subject of cross‑appeals before the Tribunal; which, after hearing, have been disposed of today and our decision on them follows in the paras hereafter.

2. Mr. Nasim Zafar, learned counsel for the assessee, has first drawn our attention to an agreement reached between the department and the assessee on 22‑5‑1985, according to which profit from the sale of shops was not to be taxed, He has submitted that in view of this agreement, profit from the sale of shops for the charge year 1981‑82, was equally exempt from the purview of taxation. On looking into the assessment record, we have noted that an agreement was struck by a committee headed by the IAC, Range‑I, Rawalpindi, according to which, it was decided not to tax profit from the sale of shops for the charge years 1977‑78. 1978‑79 and 1979‑

80. Despite this agreement, however, subsequently, permission was sought from the IAC to re‑assess profit from the sale of shops; which, according to the Income‑tax Officer, had escaped assessment. The IAC, Range III, Rawalpindi, vide Order No.J‑12/86‑87/19, dated 6‑7‑1986, permitted the Income‑tax Officer to re‑open assessments already made with the object of charging to tax profit from the sale of shops; which, according to the authorities below, had escaped assessment. This conclusion, however, was misconceived as there is no evidence on record to support re‑opening of assessment already made in pursuance of an agreement struck on 22‑5‑1985. On account of this reason, learned CIT (Appeals), by placing reliance on a case reported as 1982 P T D 112, deleted profit from the sale of shops, vide Appeals Nos.574 to 577, dated 1‑2? 1989. When facts of assessment relating to the charge year 1981‑82, are examined in the back‑drop of facts in respect of the charge years 1977‑78, 1978‑79 and 1979 80, it does appear to us that the Income‑tax Officer committed an error in charging to tax profit from the sale of shops for the charge year 1981‑82; as on the same facts, profit from the sale of shops for the charge years 1977‑78, 1978‑79 and 1979‑80, was deleted by learned CIT (Appeals), vide Appeals Nos. 574 to 577, dated 1‑2‑1989. This finding on facts, which could have been recorded for the charge year 1981‑82, was not recorded by learned CIT (Appeals), as appeal for the said year was disposed of, vide Appeal No. 1858, dated 13‑4‑1987; which, in the time series, was a date well ahead of 1‑2‑89, when a decision in respect of the charge years 1977‑78, 1978‑79, 1979‑80 and 1984‑85, was handed down by learned CIT (Appeals). Subject to this observation, we now proceed to record our reasons for not charging to tax profit on the sale of shops for the charge year 1981‑82.

3. The admitted facts are that profit on the sale of shops was held to be not liable to tax firstly, on the basis of an agreement arrived at between a committee headed by the IAC, Range‑I, Rawalpindi, and the assessee. There was, thus, no justification nor, for that matter, there is any material available on record so as to justify reopening of assessments already made in pursuance of an agreement, dated 22‑5‑1985. Despite this agreement, assessments already made were reopened; but, subsequently, profit on the sale of shops was deleted by learned CIT (Appeals), vide Appeals No. 574 to 577, dated 1‑2‑1989, and rightly so, as in our opinion, assessment proceedings must assume finality at some stage despite the principle of res judicata and estoppel which, in a strict sense, do not apply to proceedings before the Income‑tax Authorities. Therefore, in order to avoid uncertainty and free the minds of the assessees from the fear of the sword of Democles hanging over their heads, it does appear desirable to extend some degree of finality to the decision of the Income‑tax Authorities so as to prohibit them to change their decision once taken by them after due consideration of material evidence. In reaching this conclusion, we have relied on a case reported as P L D 1983 Kar. 269.

4. In respect of the case before us, profit earned by the assessee from the sale of shops was held to be not liable to tax, and, accordingly, a second appeal was not proposed by the department for the charge years 1977‑78, 1978‑79, 1979?80 and 1984‑85, before the Tribunal. Therefore, on the same facts, profit for the charge year 1981‑82, was not liable to tax. In stating so, we have relied on the fact that there is no fresh evidence available on record so as to deviate from the finding already reached by learned CIT (Appeals) in Appeals Nos. 574 to 577, dated 1‑2‑1989, in favour of the assessee. In support of this finding, we have drawn support from two cases reported as (1966) 14 Tax 161 (H.C. Karachi) and 1982 P T D

314. Before proceeding further, it appears desirable to refer briefly to the finding recorded in the last decision, which is of the Indian jurisdiction:‑‑ "Tough the principle of res judicata has no application to proceedings under the Income‑tax Act and the findings reached for one particular assessment year cannot be held to be binding in the assessment proceedings for subsequent years, yet this general rule is subject to the qualification that a finding reached in the assessment proceedings for an earlier year, after due enquiry, would not be reopened in a subsequent year if it is not arbitrary or perverse, and if no fresh facts are found in the subsequent assessment year. This is on the principle that there should be a finality and certainty in all litigations including litigations arising out of the Income‑tax Act."

5. Since facts regarding making of profit on the sale of shops for the charge year under appeal were identical with the earlier years and for which years, a decision had already been recorded in favour of the assessee, there was no justification to charge to tax profit arising from the sale of shops for the subsequent year; which, in the present case, is 1981‑82.

6. Learned counsel for the assessee, arguing further, has taken the position that even if it were to be conceded that profit from the sale of shops was taxable, it was required to be computed between the difference, if any, in the sale price of shops and their market price on the date when these were actually sold. In support of this contention, he has placed reliance on a case reported as (1962) 46 ITR 86 (S.C. India) and (1973) 89 ITR

258. To clinch the issue, opinion of the majority, with which A.K. Sarkar, J. dissented, is set out below:‑‑ Held that assessee's assessable profits on the sale of the shares was the difference between the sale price of the shares and the market price of'' the shares prevailing on the date when the shares were converted into stock in trade of the business in shares, and not the difference between the sale price and the price at which the shares were originally purchased by the assessee."

7. Mr. Nasim Zafar, ITP, has submitted that if computation of profit on the sale of shops were to be carried out on the basis set out above, there will be no profit which could be subjected to tax. Since this line of reasoning, with which we are in full agreement, has not been controverted by learned DR on behalf of the Department, we have been left with no other alternative but to accept it.

8. We have next taken up the issue of intention on which reliance has been placed by learned DR in support of the fact that profit from the sale of shops was rightly charged to tax by the Income‑tax Officer. This plea appears too late in the day, even though he has relied on a case reported as (1961) 42 ITR

179. One basic reason for this is that the assessee set up a re‑rolling mill a few decades ago and, for this purpose, it purchased a piece of land in Rawalpindi. Thereafter, it decided to shift its new premises in Islamabad, and was, consequently, obliged to sell a plot of land by parcelling and making shops on it as the plot, as a whole, was not saleable or perhaps a single businessman could not be found to purchase it. Therefore, there was never any intention on the part of the assessee to involve itself in the purchase and sale of land and the fact that it did sell its land after a few decades, was merely a co‑incidence or perhaps the result of change of circumstances. On account of this reason, profit from the sale of shops was not liable to tax as the land was never purchased with the intention of holding it as a stock in trade. In support of this finding, we have relied on a case reported as (1976) ITR 102, Page 202, the relevant part of which is given below:‑‑ "The fact that a person had the intention to sell on profit is never conclusive. In fact, no person who makes an investment does so with the expectation that when he realized that investment he will realise less or only what he paid. On the other hand, every person who invests does so with the idea that if it became necessary either to change the investment or to realise it he will realise more than what he paid. We would go further and say t‑hat even if a person bought with the intention that he should sell in due time and make a profit that would not amount to an adventure in the nature of trade."

9. The above principle was reiterated in a case of the English jurisdiction reported as 34 T.C. 389, wherein it was held "that the fact that the property was purchased with a view to resale did not of itself establish that the transaction was an adventure in the nature of trade, and that the Commissioners were justified in treating the profit in question as not assessable to Income‑tax"

10. In the present case, land was not even purchased for the purpose of selling it; but, in fact, it was purchased with a view to setting up a rerolling mill oft it. Therefore, the mere fact that on account of change of circumstances, land was subsequently sold by parcelling and making construction of shops on it, did not imply that land was purchased with the object of making a profit on it, at some remote and unforeseeable date in the future. Considered from this criterion also, profit earned by the assessee on the sale of shops was not liable to tax.

11. We have also examined the question whether land is a commercial commodity or not? In our considered view, land is not a commercial commodity and in isolation from other factors is not a trade in itself. We say so as the purchase of land represents investment of money in land. A transaction of purchase of land cannot be assumed without more to be a venture in the nature of trade. Since something more is missing in respect of the case before us for the charge year 1981‑82, profit on the sale of shops was not liable to tax as was held in a case reported as (1977) Volume 107, ITR 716. 12.? Finally, we have to emphasise the fact that to establish that profit earned in a transaction is of a revenue character and not capital gain, rests with the Income‑tax Department. This view was taken by the Supreme Court of India in a case cited as (1959) 37 ITR

242. Since this burden was not discharged by the Authorities of the Income‑tax Department, we must, in the circumstances of the case, uphold submissions made by learned counsel for the assessee.

13. On our suggestion, learned counsel for the assessee has not pressed S. No. 3 of the grounds of appeal because limitation undoubtedly starts from a date by which assessment could be validly made and not from a date on which a copy of assessment order is served on the assessee. Subject to this observation, while appeal of the assessee succeeds, that of the department stands rejected. M.B.A./692/T????????????????????????????????????????????????????????????????????????????????????? Order accordingly.