2003 PLP (Trib (PTD)

(2) That the land was ancestral agricultural land of the assessee and it was in 1957‑58 that the assessee converted this ancestral agricultural land into non‑agricultural land and subdivided the land into plots which he started gradually selling to different persons. The very fact that he repurchased the plots was a factor which went to show that the assessee was not dealer in the past and was only disposing of his capital asset in the land and, apart from this solitary instance of purchase and sale, no other repurchase had been made by the assessee. The land was repurchased by the assessee because it was adjacent to the land in which the existing building of the assessee stood. (3) The revenue did not discharge the burden of establishing that the repurchase and sale of the two plots was an adventure in the nature of trade; it cannot be said, in view of the totalily of the circumstances of the case, that it was the sole intention of the assessee at the time when he repurchased the land in 1964 to sell the two plots at a profit. Therefore, the conclusion reached by the Tribunal that the amount of Rs.23,627 should be treated as capital gains and assessed as such and not as business profits was correct. While arriving at this conclusion, it was finally held by the Honourable High Court as under:‑‑‑ "Under these circumstances the conclusion reached by the Tribunal that the amount of Rs.23,627 should be treated as capital gains and assessed as such and not as business profits is correct. Under these circumstances, the question referred to us is answered in the affirmative, that is, in favour of the assessee and against the revenue. The Commissioner will pay the costs of this reference to the assessee."

9. In the another judgment of Indian jurisdiction reported as (1978) 37 Tax

236. High Court India, cited as Deep Chandra & Co. v. CIT Kanpoor of the Allahbad High Court. It was held by the Honourable High Court that:‑‑‑ "Indian Income‑tax Act, 1922 (XI of 1922), sections 2(4) and 66‑‑‑Income‑‑‑Adventure in the nature of trade‑‑‑Investment in land whether adventure in the nature of trade whether a mixed question of law and fact‑‑‑Held yes‑‑‑Burden of proof that profit earned in such transaction is revenue receipt‑‑‑Whether on the department‑‑‑Held yes‑‑‑Suit for specific performance or agreement for purchase of land partnership for financing the litigation‑‑‑Land ploted out and sold‑‑‑Profits, whether in the nature of trade‑Held no‑‑‑Whether Capital gains‑Held yes."

10. Now reverting to the Pakistan jurisdiction, in the case reported as Edulji Dinshaw Limited v. Income Tax Officer, decided by the Honourable Supreme Court of Pakistan, decided on 16‑5‑1988, as 1990 PTO 155 = PLD 1990 SC

399. The material part is re‑produced hereunder:‑‑‑ "On the facts and circumstances proved on record, we are clearly of the view that the sale proceeds of the properties and the compensation amounts received from the Government in respect of the compulsory acquisition of the properties were indeed capital gains, and were not income from business, for the appellant‑company was not a dealer or engaged in the business of buying and selling of the properties. All the transactions or sales of the properties and the compulsory acquisition of land by the Government were fully disclosed by the appellant‑company and after conscious consideration, the Income Tax Officer had finalised the assessment orders. It has not been shown that appellant had purchased any property from any outsider and sold or disposed of during the assessment years in question. There is also force in the argument advanced on behalf of the appellant that since the case of the appellant throughout is that the sale proceeds of the properties and the compensation amounts received in respect of the compulsory acquisition of the properties by the Government were capital gains and not income, appellant could not, and ought not to have disclosed these transactions under section `C'. Part‑I of the Income Tax Return. Once all the facts have been fully disclosed by the assessee and considered by the Income‑tax Authorities and the assessments have been consciously completed, and no new facts has been discovered there can be no scope for interference with these concluded transactions under the provision of section 65 of the Ordinance on the ground that the income chargeable to tax under the Ordinance has escaped assessment or has been under‑assessed, etc."

11. In the case reported as 1989 PTD (Trib.) 460, the following are the material part:‑‑ "Revenue receipts‑‑‑Assessee has purchased agricultural land in 1965‑‑‑Land remained under cultivation up to 1980‑‑‑Land came within the Municipal limits ‑‑‑Assessee sold land in the form of plots through registered sale‑deed‑‑‑Whether an adventure in the nature of trade‑‑‑Held no‑‑‑Profits earned by the assessee‑‑ Whether revenue receipts and liable to tax‑‑‑Held no."

12. Another decision which is also pari‑materia reported as 1975 PTD (Trib.)

6. In which the Tribunal held that the surplus arising out of land are not adventure in the nature of trade.

13. In the case reported as (1990) 62 Tax 29 (Trib.), it is held that dealings in land are not venture in the nature of trade and it was also held that sales of plot does not come under the adventure in the nature of trade and in the said case the asses see‑company stating that clause (2) of the Memorandum of the Association of the Company provided dealings in land as one of the objects and such the transaction of sale of plot amounted to venture in the nature of trade and the profits earned therefrom were taxable as revenue receipts. The notice was duly replied by the assessee-company stating that it had neither any such intention nor was it the transaction in the course of trade. It was further stated that sale and purchase of land as one of the objects of the company as stated in the Memorandum of Association was not conclusive factor for determining the assessee's intention. It was suggested that it was mere a capital gain which was not taxable by virtue of Entry No. 50 in Fourth Schedule Part‑I appended to the Constitution of Pakistan which prohibits the making of any laws imposing the tax on capital gains on immovable property.

14. The upshot of the above discussion is that the impugned orders of both the officers are hereby vacated and we hold that the transactions in question undertaken by the assessee are not venture in the nature of trade and the receipts earned therefrom were not liable to tax as the business income or profits.

15. The appeals filed at the instance of the assessee succeeds accordingly in all the four years. SYED KABIRUL HASAN (JUDICIAL MEMBER).‑‑‑

16. With respect I do not agree with the finding of Mr. Abdul Ghafoor Junejo, the learned Accountant Member, for the reasons given below.

17. The brief facts have already been explained by the learned Accountant Member and it would be unnecessary to repeat them. However, the necessary facts are that the appellant has inherited agricultural land and later on this land was got sikny from Government and obtained No Objection Certificate from Hyderabad Development Authority (H.D.A.) for the selling of plots after commercialization of the sikny land. This fact has been mentioned in the draft order of the learned Accountant Member.

18. This fact has not been considered by the learned Accountant Member that the assessee converted agricultural land into sikny land and N.O.C. obtained from the H.D.A. Later on the land was converted into plots and was sold to the persons. These facts have also been explained in the assessment order and appellate order. The assessee has been declared builder or developer before the Government body as has been held by the learned CIT(A). "Similarly the assertion that the appellant is not registered in any Government body as a builder or developer is incorrect as the appellant declared itself as 'builder' in the return of income and was also granted 'Approval of layout Plan and Grant of N.O.C. for sale and Development of Plot for Housing Scheme titled as "Gulshan‑e‑Hamid Ali' on R. S. Nos.53(Part) 55, 56, 57, 58., 437, 438, 439, 475, 476 and 477 Deh Narejo Ward 'G' Tando Yousuf Road, Hyderabad by the H.D.A. vide Letter No. HDC/ (MP/PHS‑2071/1096, dated 20‑6‑1991 for the said project."

19. In my view, the theory of sole transaction would not apply in this case. This fact whether it was a sole transaction or adventure in the nature of trade is apparent from the case‑law reported as 1994 PTD 103 (Trib). Wherein, considering all the case‑laws cited by the learned Accountant Member it is held that:‑‑ "

26. From the criterion set out by the Superior Courts as discussed above the following principles on the issue emerge: (1) That no hard and fast rule can be adopted in such cases and therefore, each transaction will have to be judged on the basis of the own facts; (2) That mere frequency of a transaction may not by itself amount to venture in the nature of trade; (3) That in case of a solitary transaction heavy burden lies on the Revenue to establish that the impugned transaction in fact was a business and receipt out of it business receipts; (4) That intention to make profit may be an important element to be considered while judging the nature of a transaction but here again presence of such an intention per se will not make a transaction a 'business'. (5) That special care will have to be takers while considering sale or purchase of immovable properties where such property is evidently not a stock‑in‑trade. (6) That it is legal to examine such‑like transactions in the light of the charters or Memorandum of Association in cases of limited companies statutory corporations and other bodies corporate but mere permissibility of a transaction does not by itself mean carrying on the business of that kind, and (7) That the distinction between a fixed or capital asset and circulating capital or stock‑in‑trade; a 'business' and an 'investment' should always be in the focus of the Assessing Officer while dissecting a transaction of the kind."

20. In view of whatever stated above, it is clear that no hard and fast rule can be adopted in cases of adventure in the nature of trade and each transaction will have to be judged on the basis of its own facts. Mere intention of doing anything is not necessary but something infurtherance to intention to be done to attract any' transaction to fall under the adventure in the nature of trade. Here in this, case, firstly the agricultural land was converted into sikny land from the Government. Later on, No Objection Certificate was obtained from Hydrabad Development Authority for the selling of plots to general public. The assessee was also declared builder or developer. Therefore, these facts made it very clear that the assessee was a builder or developer. The land which was agricultural was converted into sikny land and therefore, obtainment of N.O.C. was all series of the transaction which clearly spell out that intention of the assessee was to do the business of builder or developer and the scheme known as "Gulshan‑e‑Hamid Ali" was duly approved scheme by the Government. In view of this, this transaction was an adventure in the nature of Trade and its profits were taxable.

21. The order of the learned CIT(A) is, therefore, upheld. SYED KABIRUL HASAN (JUDICIAL MEMBER).‑‑‑

22. Since, difference of opinion has arisen between both the learned Accountant Member and Judicial Member, therefore, the learned Chairman is requested to refer the matter to any other Member for adjudication on following question of law:‑‑‑ "Whether under the facts and circumstances income earned from the sale of plot was adventure in the nature of trade and hence taxable?" (Sd.) (SYED KABIRUL HASAN), JUDICIAL MEMBER (Sd.) (ABDUL GHAFOOR JUNEJO), ACCOUNTANT MEMBER. S. HASAN IMAM (JUDICIAL MEMBER). ‑‑‑Since difference of opinion has arisen between both the learned Judicial Member and Accountant Member, therefore, the learned Chairman, has referred the matter to undersigned for adjudication or the question of law reproduced hereunder:‑‑‑ "Whether under the facts and circumstances, Income earned from the sale of plot was adventure in the nature of trade; hence taxable?"

2. Mr. Abdul Ghafoor Junejo, learned Accountant Member was pleased to hold that the transactions in question undertaken by the assessee are not venture in the nature of trade and the receipts earned there from were not liable to tax as the business income or profit. Contrary to the finding of the learned Accountant Member. Mr. S. Kabirul Hasan, learned Judicial Member, observed that the transaction was in the nature of trade and its profits were taxable.

3. I have heard the learned representatives of the two parties and have gone through the facts as well as the orders on record. Admittedly the assessee converted inherited agricultural land into sikny and also obtained No Objection Certificate from H.D.A. He thereafter bifurcated the land into number of plots and sold the same in the open market. The assessee got himself registered as builder developer and. also furnished return as a builder. On the contrary, layout plain was duly approved and permission for sale of plots as part of housing scheme titled as Gulshan -e‑Hamid Ali was also allowed by the H.D.A. vide Letter No.HDC/PHS/2071/1096, dated 20‑6‑1991. In the circumstances, I have no hesitation to hold that the sale of plots cannot be treated as sole transaction, as conversion of agriculture land into plots for disposal to public at large itself reflects an intention of the assessee to deviate from the theory of sole transaction.

4. The learned Judicial Member has considered all the facts and reported case laws taken into consideration by the learned Accountant Member, therefore, he has relied upon a reported case‑law cited as 1994 PTD (Trib.) 103, wherein all the case‑laws quoted by the learned Accountant Member have been discussed wherein it is categorically held that each transaction will have to be judged on the basis of the own facts, mere frequency of a transaction may not by itself amount to venture in the nature of trade, the intention to make profit is an important element to be considered while judging the nature of a transaction and special care is to be taken while considering sale or purchase of immovable properties where such property is evidently not a stock‑in‑trade. Apart from this, matter can be resolved referring Memorandum of Association and assessee has not been, able to rebut object of the company as stated in the Memorandum of Association. Besides the case‑laws reported as (1968) ITR Vol. 68 P. 573 (S.C. India), (1959) ITR Vol. IXXXV P. 594 (SC India) and (1980) ITR Vol. 121 P. 580 (H.C. Bombay), are not relevant, so far as facts are concerned, hence cannot be relied upon to favour or dis-favour the assessee.

5. As a result of above discussion, sufficient reason appears to disagree with the finding that "the transactions in question undertaken by the assessee are not venture in the nature of trade and the receipts earned there from were not liable to tax as the business income or profits". In the circumstances (supra), I find reasons to support the finding of the learned Judicial Member that "the transaction was an adventure in the nature of trade and its profits were taxable".

6. In view of the above position, the question referred is replied in affirmative. Consequently orders of the learned CIT(A) referred above to maintaining the order of the learned Assessing Officers are maintained.

7. The appeals accordingly stand dismissed. C.M.A./555/Tax(Trib.) Appeals dismissed.