1. This appeal has been filed by the assessee for the asst. yr.
2001-02.
2. First ground of appeal is regarding the treatment of Rs. 2,31,026 as business income instead of capital gains as claimed by the assessee.
3. While framing the assessment under Section 143(3), it was noticed by the AO that the assessee had purchased 63 kathas of land by sale deed dt. 26th Sept., 1988. Again, 94 kathas of land were purchased in the financial year 1989-90. The purchase of the lands was disclosed under the VDIS, 1997. The assessee sold the lands by making plots in the financial years 1997-98 to 2000-01. About 22 kathas of land were sold at Rs. 2,47,500. The assessee claimed capital gains in respect of profit arising out of transfer of the land. However, the AO did not accept the contention of the assessee and held that the transaction is adventure in the nature of trade. Therefore, the profit was treated as business income. The following reasons were recorded by the AO in his order: "(i) Initially, the purchases of land were made from the black money in the name of Rajesh Maheshwari instead of Rajesh Kabra. It indicates that the land was purchased with the motive of selling it at a profit. The land was later on disclosed under VDIS, 1997 and immediately thereafter from financial year 1997-98, the assessee started selling the land.
(iii) Plotting and sub-plotting were done and some plots were left for common road, etc.
(iv) Negotiations for sale of land were made with a large number of persons and was sold to buyers in small quantities." 4. On appeal, the CIT(A) upheld the finding of the AO. The learned counsel for the assessee placed reliance on different decisions in support of the proposition that the transaction cannot be treated as adventure in the nature of trade but it is a capital gain. A detailed written submission was filed with the relevant case law. On the other hand, the learned Departmental Representative also filed written submission and further placed reliance on the decisions of the different High Courts.
5. Having heard both the sides, I find that the fact of the case is not in dispute that the assessee had purchased land in the financial year 1988-89. According to the assessee, land was purchased for the agricultural purposes. However, no agricultural operation was done by the assessee. Thereafter, the assessee divided the land in small plots and sold the same to different parties during the financial years 1997-98 to 2000-01. From the above I find that after purchase of the land the assessee sold the plots after about 9 to 12 years. It. is not a case that immediately after the purchase, the assessee sold the land.
The AO, for the purpose of holding that it is a business income placed reliance on the decision of the Supreme Court in the case of G.Venkataswami Naidu & Co. v. CIT (1959) 35 ITR 594 (SC). Copy of the decision has been filed at p. 5 of the paper book. In the case of Raja Bahadm Kamakhya Narain Singh v. CIT (1970) 77 ITR 253 (SC), the Hon'ble Supreme Court has held that if the transaction is in the line of the business, there would be hardly any difficulty in concluding that it was a trading transaction. In the case of Harbans Singh v. CIT (1981) 132 ITR 77 (P&H), the Punjab & Haryana High Court held that the assessee acquired agricultural lands but those were sold after developing the said lands. This decision has been relied upon by the learned Departmental Representative. In that case I find that the assessee purchased agricultural land in the financial year 1962-63.
Soon after purchases, he developed the said land into plots and started selling in the year 1964. In that case it was held that the intention of the assessee at the time of acquiring the land was to earn profit.
Therefore, the transaction was treated as business income. Another case relied upon by the learned Departmental Representative in the case of Sawan Das Devram v. CIT (1984) 150 ITR 576 (MP). In that case also I find that shortly after purchase of the land, the" assessee proceeded to enter into agreement for sale by making plots of the land. Hence, it was held that it was a business income of the assessee. While deciding the said case the Hon'ble MP High Court placed reliance on the another decision of the same High Court in Badrilal Bholaram v. CIT (1982) 135 ITR 216 (MP). The relevant portion is quoted below : "Normally, when a person purchases land, the purchase represents investment of money in land. Ordinarily, purchase of land and sale thereof with profit cannot be assumed to be an adventure in the nature of trade. But, when the purchase is 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, there is a strong presumption that the transaction is an adventure in the nature of trade. On the facts found, the Tribunal, in our opinion, rightly concluded that the transaction was an adventure in the nature of trade. The assessee in preceding two years had indulged in purchase and sale of properties.
He is not an agriculturist. Soon after the purchase of the land, he entered into agreements for disposing of the land in small portions.
All this indicates that his real intention in acquiring the land was not to retain it for himself but to resell it at profit and the adventure was in the nature of a trade." 6. Now, let us see the fact involved in the case of G. Venkataswami Naidu & Co. (supra) which was relied upon by the AO. In that case the assessee was the managing agent of the mill. The assessee purchased land adjoining to the mill with an intention and plan to sell the land to the mill at a profit. The assessee had influence over the mill, therefore, on the very beginning, his plan was to purchase land adjoining the mill and to sell the land to the mill at a profit. On the basis of these facts the Hon'ble Supreme Court has held that it is a business activity.
7. In the present case, I find that the assessee was engaged in business of cloth and purchased the lands in two instalments in the financial year 1988-89. The lands were agricultural in nature and according to the assessee the lands were purchased for the purpose of agricultural operation. It is a fact that no agricultural activities were done upon the said lands. The lands were divided into plots in different sizes. After about 10 years of acquisition of the lands, the assessee sold a small portion of the land to different customers. It is true that although the intention of the assessee was to carry agricultural activities but that could not be materialised. In my opinion, only this ground is not sufficient to hold that the assessee had intention to make profit when the land was purchased. As we have noticed above in the case of Madhya Pradesh High, Court (supra) that normally a person purchases land for the purpose of investment of money in the land, but when the purchases were made wholly and exclusively with the intention to resell at a profit and the purchaser had no intention of holding the property, in that event it can be presumed that the transaction is of business. In all the decisions discussed above, I find that immediately after purchase of the lands, the purchasers developed the land and started selling with a motive of profit, whereas in this case after purchasing the lands the assessee held the same for about 10 years and thereafter he sold about 44 kathas of land in the financial years 1997-98 to 2000-01. Had the assessee any intention to make profit out of the said land while the land was purchased by him, he should not have waited for long 10 years. Any investment made in the land may fetch some profit if it is sold subsequently. However, only because some profit was earned the transaction cannot be treated as a business. Looking to the circumstances above and facts of the case, in my opinion, the authorities below are not justified in holding that the transaction was an adventure in the nature of trade. Accordingly, I direct the AO to assess the income as long-term capital gains in accordance with law.
Further, I find that during the earlier years for similar transactions, the AO accepted the claim of the assessee as capital gains.
8. Next ground of appeal is regarding the addition of Rs. 8,000 made by the AO on account of telephone expenses which were restricted to Rs. 4,303 by the learned CIT(A). Having heard both the sides, I find that the use of the telephone for personal use cannot ruled out altogether.
Therefore, the disallowance confirmed by the learned CIT(A) is justified. This ground is rejected.
9. Next ground is regarding addition of Rs. 20,000 in respect of low withdrawals. After hearing both the sides and looking to the circumstances of the case, I do not find any infirmity in the finding recorded by the learned CIT(A). Accordingly, this ground is rejected.