Shri Vitta Kristappa Vs. the Income-tax Officer - Court Judgment

Excerpt:
1. on account of difference between the learned members of the itat, hyderabad bench 'a', this matter has been referred to me under section 255(4) of the income-tax act, 1961. the controversy as per the learned members is reflected in the following referred question: "whether on the facts and in the circumstances of the case if could be held that the purchase of a piece of land in 1984 and converting the same into plots in 1986 and the sale of 7 out of 25 plots amounts to adventure in the nature of trade and consequentially the profits are liable to be taxed as income from business?" 2. the facts of the case briefly stated are that the assesses is an individual. he is also karta of two hufs known as 'vitta kristappa' (smaller huf) and 'vitta kristappa' (bigger huf). the bigger huf held 21/2 acres of land within the municipal limits of adoni having acquired the same in the year 1971. the said land was sold to the assessee in april 1985 through book entries and for a consideration of rs. 68,370/-. between april and august 1984, the assessee applied to the municipality for approval of lay out plan to convert this land into 25 plots. he paid conversion charges of rs. 2500/- on 25-8-1984 and license fee of rs. 200/- on the same date. the municipal corporation approved the layout plan. the assessee further incurred expenses on leveling and demarcation in the accounting year 1986-87 and sold 7 out of 25 plots for total consideration of rs. 2,76,500/-. the capital gain accruing on sale of above plots was shown by the assessee in his return for the assessment year 1989-90. the assessment of capital gains was made by the assessing officer on protective basis as per order dated 30-7-1991.3. the learned commissioner of income-tax (cit) called for and examined the record of above assessment and was of the view that the assessment of capital gain made was erroneous and insofar as prejudicial to the interests of revenue. he was of the view that the assessee, in acquiring and selling property in question, carried on an adventure in the nature of trade and, accordingly, gain made in the transaction was liable to be assessed under the head 'business'. the learned cit, accordingly, issued notice under section 263 to the assessee as to why order of the assessing officer should not be revised and why sale proceeds minus cost of land disclosed of rs. 2,46,630/- be not brought to tax as business in place of amount already assessed as capital gains.3(a). in reply to above show cause notice, the assessee contended that gain made by the assessee on sale of land could not be assessed as an adventure in the nature of trade. the assessee purchased land from huf to set up an industry as he had good experience in business of manufacture of edible and non-edible oil, oil cakes etc, as partner of two firms namely sri maruthi industries and sri maruti oils & fertilizers for a period of more than 10 years. he retired from the above firms on 31-3-1984 and purchased land from huf in april 1984.after purchase of the said land, the assessee came to know that this land was not suitable for starting an industry for the reason that the municipality did not permit setting up industry in this area as per the master plan of the municipality. in fact, he became partner of a firm m/s. v.k. industries, which had set up an oil mil in some other area in january 1985.3(b) the assessee further emphasized that if his intention was to earn profit from the transaction of purchase of land, he would have immediately completed the formalities of conversion of land. however, the formalities for getting land converted went on till 22-2-1991 when the assessee gifted portion of property in favour of municipality as per the condition of approved layout plan. only 7 out of 25 plots were got converted and sold. the remaining sites were not sold. he accordingly held that the assessment be not revised on the ground that the assessee carried on an adventure in the nature of trade.3(c). the learned cit held the assessment as erroneous and prejudicial to the interests of revenue with the following observations: "13) from the above, it may be noticed that the assessee took steps for conversion of the land and got the layout approved as early as august, 1984. the contention that the land was converted into non-agricultural use and the layout was got approved only when it became evident that; it could not be utilized for industrial purposes is not borne out by an evidence. actually, the assessee did not apply at all to the municipal council for permission to start the industry in question. the assessee has been associated with oil mills for more than a decade and it is incredible that he did not know that the site in question was outside the industrial zone if that really was the position. it may be observed that the assessee was owning the land in question even before this purchase though in a different capacity, that is, as kartha of the huf. so, he knew everything of the land in question and the contention that he did not know that it was outside the industrial zone is incredible. further, there was no correspondence on the matter of starting the industry with the municipal council. so, it has to be held that the assessee was from the beginning aware of the potential of the land in question for being sold as house sites and; it is with the intention of making profit on the sale of the land as house sites that he bought the land from the huf of which he is the kartha. there is no intention on his part to keep the land as investment because, immediately after the purchase, he applied for conversion and approval of the layout. the approval was obtained vide the order of the council dt.31-10-86 which reads as follows: sub: layouts - adoni municipality - layout for r.s.no. 25/1 and 25/3 of vengalapuram village l.p.no. 515/85 in favour of sri vitta kristappa - approved - orders - issued. 2) letter no. 24029/84/d5, dt.14-8-85 of the director of town and country planning ap hyderabad 4) letter no.d.dis. no. 6360/86, dt.19-9-86 of adoni district collector, kurnool the layout for the land in r.s.no. 25/1 and 25/3 of vengalapuram village l.p.no. 515/85 adoni is approved in council resolution no. 401 dated 28-11-1985 as suggested by the director of town and country planning, a.p. hyderabad in l.p.no. 515/85. the layout plan no. 575/85 is approved and granted subject to the conditions imposed in the agreement dated 8-10-1985 of sri vittal kristappa, adoni. a copy of approved layout plan and copy of the conditions are communicated for compliance and report. the layout owner (i.e. sri vitta kristappa) has to fulfil the layout conditions within one year from the date of receipt of this proceedings and handover the roads and reserved open spaces to the municipality through gift deed. 14) it may be observed from the above order that the relevant resolution was passed as early as 28-11-1985. the contention that the assessee registered the gift deed in respect of the land to be used as roads in favour of the municipality only on 22-2-1991 does not have much substance. the council approved the layout as early as 1985 and the subsequent delay is only procedural and partly attributable to the fulfilment of the conditions by the assessee himself. even otherwise, the assessee was fully aware that in the inflationary situation, prices would be going up and he must have been waiting for suitable opportunity to sell the plots. finally, he sold seven plots in the year of account relevant for the asst.year 89-90. this attempt is entirely an adventure in the nature of trade and the gains have to be brought to tax under the head 'business' and not under the head 'capital gains'. 15) the assessing officer was not correct in holding that the title did not pass from the said huf to the assessee on the ground that there was no registered deed. the land was; registered in the name of the assessee himself even when it was bought by the huf. in other words, there was no need for further registration of the deed in favour of the assessee. at any rate, the assessee has never contended that the land did not belong to him or that the title did not pass from the huf. so, the action of the assessing officer in bringing to tax the gains only protectively in the hands of the assessee is not correct. 16) in the light of the above, i have to hold that the assessment is erroneous to the extent if is prejudicial to the interests of revenue. firstly, the assessing officer should have brought the gains to tax in the hands of the assessee on a substantive basis and not on a protective basis. secondly, he should have brought the gains to tax, for the reasons recorded above, under the head 'business' and not under the head 'capital gains'. in the circumstances, the assessment is set aside with the direction to re-do the assessment bringing to tax the gains on the sale of the land in question under the head 'business'. the extent of the business profits made in this adventure may be quantified. further, the gains may be brought to tax substantively and not protectively. with these directions, the assessment is set aside." 4. the assessee impugned the order of the learned cit under section 263 in appeal before the appellate tribunal. after hearing the appeal, the learned members of the bench differed on the order to be passed.5. the learned jm, after recording the facts of the case, i.e. show cause notice and reply of the assessee under section 263, held that the assessee has acquired property from the huf in april 1984 with an intention to set up an old industry. after purchasing the land, when the assessee came to know that this land was not suitable for industry for the reason that municipality did not permit setting up an industry in this area as per the master plan of the municipality, the assessee set up v.k. industries in january 1985. (the learned jm described the assessee as proprietor of m/s. v.k. industries, whereas the learned cit held the assessee to be partner of the same). the learned jm further accepted that the assessee did not intend to make money by selling plots. if it was so, the assessee would have taken steps for completion of conversion of land into plots and sold them immediately but such formalities were completed as late as on 31-10-1986. thereafter, 7 plots were sold. he, accordingly, held that the activity of the assessee was not an adventure in the nature of trade. the assessee sold 7 plots as late as in 1988. the above facts clearly show that the transaction was not an adventure in the nature of trade. if the transaction was business or adventure in the nature of trade, the normal natural course would have been to complete the transaction as early as possible and make profit. as this was not done, the learned jm held that the transaction involved was not an adventure in the nature of trade. for the above reasons, learned jm relied upon the decision of the jurisdiction high court in the case of p.j. udani v. cit (63 itr 766). he distinguished the case of hemachand hirachand shan v. cit (206 itr 55)(guj) as also the decision of the hon'ble supreme court in the case of smt. indramani bai and anr. v. cit (200 itr 594). these cases were held to be given on its own facts and there was no universal formula to be applied in every case. two other cases relied upon by the revenue were held to be not applicable to the facts and circumstances of the case. with the aforesaid observations, in the proposed order, the learned jm cancelled the order under section 263 of the it act.6. the learned am did not agree with the view expressed by the learned jm in the proposed order. he noted that the assessee had purchased land from huf on 2-4-1984 and contended before the learned cit that the same was purchased to set up an industry viz., oil mill since he had long experience of more than 10 years in the above line of business.however, after purchase, the assessee came to know that the land was not suitable for starting industry as the area was not meant as an industrial belt as per the master plan. therefore, the assessee became partner in m/s. v.k. industries, which was an oil mill set up in january 1985.6(a). in para.11 of the proposed order, the learned am observed that the assessee had paid layout fee and conversion charges of rs. 200 and rs. 2500 respectively during august 1984 and applied on 5-12-1984 to the municipal council, adoni for approval of the layout plan. thus, within four months of purchase of land, the assessee initiated steps for conversion of land and approval of layout scheme. the learned am was not inclined to believe that the assessee who was associated for long with manufacture of edible and non-edible oil and having rich experience, was not aware of legal hurdles in the proposed setting up of an industry on the land purchased from the huf. according to the learned am, the assessee as kartha of the huf, was fully aware of nature and suitability of land when he purchased the same. he did not believe that only within four months of purchase the assessee became aware of the policies of the municipal corporation. the version of the assessee, in the view of the learned am, was simply unbelievable. the learned am further did not accept the contention that there was no need for the assessee to purchase land from the huf. it was possible that the assessee was not interested in the welfare of the huf or that he was interested to make gain for himself but these were not clinching factors, according to the learned am.6(b). the learned am further observed that the claim of the assessee that he did not hasten to fulfil the conditions for approval by the municipal corporation of layout scheme and had no intention to make profit was rightly rejected by the learned cit. the learned am held that the learned cit rightly found that approval for layout was granted by the municipal council as early as 31-10-1986 and the subsequent delay was procedural and partly attributable to the fulfillment of conditions by the assessee himself. in fact, the resolution of the municipal council relating to approval of plan was passed as early as 28-11-1985. the assessee might be slow in fulfilling the conditions to get the benefit of inflationary trends as the prices of plots were rising. once the assessee took steps for conversion of land into house-sites and by making payment of fees and conversion charges, he can be said to have embarked upon an adventure in the nature of trade.he agreed with the learned cit that the assessee had purchased land from huf with a view to make profit by converting it into housing sites and not with the intention to keep it as an investment. this was evident from the fact that after purchase he initiated steps for conversion and approval of layout scheme by paying necessary fee. the learned am specifically pointed out in his proposed order that the assessee never applied for establishing industry on the plots in question.6(c). the learned am took into account the following test laid down by the hon'ble bombay high court in the case of indian hume pipe co. ltd. v. cit (195 itr 386): "(i) was the purchase a trade and were the purchase of the commodity and its resale allied to the assessee's usual trade or business or incidental to it? (ii) what is the nature of the commodity purchased and resold and in what quantity was if purchased and resold? (iii) did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby make it more readily resaleable? (iv) what were the incidents associated with the purchase and resale? (iv) were they similar to the operations usually associated with trade or business? (vi) in regard to the purchase of the commodity and its subsequent possession by the purchaser, does the element of pride came into the picture?" (vii) whether the finance required for the purchase of the commodity has been found from the surplus funds with the assessee or whether they represent borrowed money?" 6(d). after applying the above tests to the facts of the case, the learned am held that the assessee carried on transaction in the nature of trade. he summarized that the assessee purchased large extent of land, converted land into house sites of smaller sizes, carried on improvement to the land like making provision for roads, street etc., and thus made the sites ready for sale. these incidents, within few months of purchase cannot be carried with pride in the possession of land. these activities were to advance interest in the trade. the learned am relied upon certain other decisions and in the ultimate analysis, upheld the order of the learned cit. the appeal was dismissed as per the proposed order.7. the two members having differed, the matter has been referred to me under section 255(4) of the it act.8. at the outset, both the parties pointed out that the tax effect in the appeal was quite nominal. yet, they would leave no stone unturned to assist me in coming to a right conclusion. the learned representatives carried on their obligations faithfully for which i place my thanks on record.9. the learned counsel for assessee shri s. ravi submitted that the land was with the huf of the assessee since 1971 and therefore if the assessee had intention to make profit, there was no need to transfer the land from the huf account to the assessee. no hurry was shown in getting layout plan approved from the corporation and so there was no hurry to make profit. in fact, the above course viz., to have a layout scheme, was adopted by the assessee when he found that oil industry could not be set up in the land on account of master plan of the municipality. when oil industry was set up under the name and style of m/s. v.k. industries in january 1985, the assessee thought that land purchased from huf be converted into plots and sold. thus, capital was realised by the assessee through sale of plots. the fact of making profit by sale of land by itself cannot be regarded as transaction amounting to an adventure in the nature of trade. in this connection, he drew my attention to observations of the learned jm at page 6 of his proposed order wherein the intention of the assessee to set up oil mill has been accepted. the observations of the learned am at page 13 (para.11) were argued to be based upon surmises, speculation and assumptions. there was nothing on record to show that the version put forward by the assessee was wrong and that there was no intention to set up industry when land was acquired from the huf. even otherwise, it has to be kept in mind that the land in question was held for long with the huf. the learned counsel for assessee relied upon the decision of the hon'ble madras high court in the case of sri gajalakshmi ginning factory ltd. v. cit (22 itr 502), the decision of bombay high court in the case of gopal c. sharma v. cit (209 itr 947). two other decisions ashok kumar jalan v. cit (187 itr 316) (bom) and hemachand hirachand shah v. cit (206 itr 55)(guj) were relied upon to support his contention. the learned counsel for assessee, accordingly, submitted that the proposed order of the learned jm be approved.10. shri k.v. choudary, learned dr, on the other hand, relied upon and supported the impugned order of the learned am as also the learned cit.he submitted that there was no material to show that the assessee at any time intended to set up an oil industry in the property purchased by the assessee. on the other hand, the revenue has brought sufficient material on record to show that immediately after purchase of property from huf in april 1984, the assessee took steps to convert the said land into small plots by submitting layout scheme with the municipality and after completing formalities, started selling plots. 7 out of 25 plots were sold in 1987-88. these circumstances clearly point out that the assessee carried an adventure in the nature of trade. the learned dr relied upon the following decisions:khan bhahadur ahmed alladin & sons v. cit the learned dr accordingly supported the proposed order of the learned am.11. thus, i have two versions before me, one that land from huf was acquired by the assessee for setting up an oil industry in which the assessee had rich experience of more than 10 years. in support of the above, the assessee had relied upon the fact that oil mill in the name of v.k. industries was actually set up in january 1985 by the assessee as a partner (or proprietor). however, when the assessee found that oil industry could not be set up in the land purchased, he thought of realizing his capital by selling that property, the profit thus made by selling land cannot be said to be adventure in the nature of trade. the above version on facts, is not acceptable. the reason being that the assessee did not place any material on record to show that any attempt to set up oil industry in the land in question was made. even the learned cit, during the course of proceedings provided the assessee specific opportunity to place evidence on record in support of the claim made before him. no site plan or date on which action was initiated to set up industry in the plot in question or similar particulars relating to v.k. industries were placed on record. without material, explanation offered cannot be accepted on its face value. i am inclined to agree with the other version found in the observation of the learned cit and the learned am. an experienced man like the assessee could not be believed not to know that the land, as per the master plan, could not be used for setting an oil mill and this fact came to be known to the assessee only after land was purchased. there is more likelihood of assessee knowing the fact much before april 1984.i am inclined to accept that land was acquired by the assessee from huf with a view to make profit by dividing the big area of land into small plots for profitable gains. if sequences of events are kept in view, it becomes abundantly clear that the property was purchased and sold under a well-thought scheme to make profit. it is a clear case of adventure in the nature of trade. therefore, the action of the learned cit was required to be upheld. in fact, the case in hand is quite similar to the one decided by the hon'ble supreme court in the case of smt.indramani bai and anr. v. cit (supra) as also khan bhahadir ahmed alladin (supra). i, therefore, agree with the view taken by the learned am.12. the matter should now be placed before the regular bench for disposal of the case in accordance with law.

Judgment:
1. On account of difference between the Learned Members of the ITAT, Hyderabad Bench 'A', this matter has been referred to me Under Section 255(4) of the Income-tax Act, 1961. The controversy as per the learned Members is reflected in the following referred question: "Whether on the facts and in the circumstances of the case if could be held that the purchase of a piece of land in 1984 and converting the same into plots in 1986 and the sale of 7 out of 25 plots amounts to adventure in the nature of trade and consequentially the profits are liable to be taxed as income from business?" 2. The facts of the case briefly stated are that the assesses is an individual. He is also karta of two HUFs known as 'Vitta Kristappa' (smaller HUF) and 'Vitta Kristappa' (bigger HUF). The bigger HUF held 21/2 acres of land within the municipal limits of Adoni having acquired the same in the year 1971. The said land was sold to the assessee in April 1985 through book entries and for a consideration of Rs. 68,370/-. Between April and August 1984, the assessee applied to the Municipality for approval of lay out plan to convert this land into 25 plots. He paid conversion charges of Rs. 2500/- on 25-8-1984 and license fee of Rs. 200/- on the same date. The Municipal Corporation approved the layout plan. The assessee further incurred expenses on leveling and demarcation in the accounting year 1986-87 and sold 7 out of 25 plots for total consideration of Rs. 2,76,500/-. The capital gain accruing on sale of above plots was shown by the assessee in his return for the assessment year 1989-90. The assessment of capital gains was made by the Assessing Officer on protective basis as per order dated 30-7-1991.

3. The learned Commissioner of Income-tax (CIT) called for and examined the record of above assessment and was of the view that the assessment of capital gain made was erroneous and insofar as prejudicial to the interests of revenue. He was of the view that the assessee, in acquiring and selling property in question, carried on an adventure in the nature of trade and, accordingly, gain made in the transaction was liable to be assessed under the head 'business'. The learned CIT, accordingly, issued notice Under Section 263 to the assessee as to why order of the Assessing Officer should not be revised and why sale proceeds minus cost of land disclosed of Rs. 2,46,630/- be not brought to tax as business in place of amount already assessed as capital gains.

3(a). In reply to above show cause notice, the assessee contended that gain made by the assessee on sale of land could not be assessed as an adventure in the nature of trade. The assessee purchased land from HUF to set up an industry as he had good experience in business of manufacture of edible and non-edible oil, oil cakes etc, as partner of two firms namely Sri Maruthi Industries and Sri Maruti Oils & Fertilizers for a period of more than 10 years. He retired from the above firms on 31-3-1984 and purchased land from HUF in April 1984.

After purchase of the said land, the assessee came to know that this land was not suitable for starting an industry for the reason that the Municipality did not permit setting up industry in this area as per the Master plan of the Municipality. In fact, he became partner of a firm M/s. V.K. Industries, which had set up an oil mil in some other area in January 1985.

3(b) The assessee further emphasized that if his intention was to earn profit from the transaction of purchase of land, he would have immediately completed the formalities of conversion of land. However, the formalities for getting land converted went on till 22-2-1991 when the assessee gifted portion of property in favour of Municipality as per the condition of approved layout plan. Only 7 out of 25 plots were got converted and sold. The remaining sites were not sold. He accordingly held that the assessment be not revised on the ground that the assessee carried on an adventure in the nature of trade.

3(c). The learned CIT held the assessment as erroneous and prejudicial to the interests of Revenue with the following observations: "13) From the above, it may be noticed that the assessee took steps for conversion of the land and got the layout approved as early as August, 1984. The contention that the land was converted into non-agricultural use and the layout was got approved only when it became evident that; it could not be utilized for industrial purposes is not borne out by an evidence. Actually, the assessee did not apply at all to the Municipal Council for permission to start the industry in question. The assessee has been associated with oil mills for more than a decade and it is incredible that he did not know that the site in question was outside the industrial zone if that really was the position. It may be observed that the assessee was owning the land in question even before this purchase though in a different capacity, that is, as kartha of the HUF. So, he knew everything of the land in question and the contention that he did not know that it was outside the industrial zone is incredible.

Further, there was no correspondence on the matter of starting the industry with the Municipal council. So, it has to be held that the assessee was from the beginning aware of the potential of the land in question for being sold as house sites and; it is with the intention of making profit on the sale of the land as house sites that he bought the land from the HUF of which he is the kartha.

There is no intention on his part to keep the land as investment because, immediately after the purchase, he applied for conversion and approval of the layout. The approval was obtained vide the order of the Council dt.31-10-86 which reads as follows: Sub: LAYOUTS - Adoni Municipality - Layout for R.S.No. 25/1 and 25/3 of Vengalapuram village L.P.No. 515/85 in favour of Sri Vitta Kristappa - Approved - Orders - Issued.

2) Letter No. 24029/84/D5, dt.14-8-85 of the Director of Town and Country Planning AP Hyderabad 4) Letter No.D.Dis. No. 6360/86, dt.19-9-86 of Adoni District Collector, KURNOOL The layout for the land in R.S.No. 25/1 and 25/3 of Vengalapuram Village L.P.No. 515/85 Adoni is approved in Council Resolution No. 401 dated 28-11-1985 as suggested by the Director of Town and Country Planning, A.P. Hyderabad in L.P.No. 515/85.

The layout plan No. 575/85 is approved and granted subject to the conditions imposed in the agreement dated 8-10-1985 of Sri Vittal Kristappa, Adoni. A copy of approved layout plan and copy of the conditions are communicated for compliance and report.

The layout owner (i.e. Sri Vitta Kristappa) has to fulfil the layout conditions within one year from the date of receipt of this proceedings and handover the roads and reserved open spaces to the Municipality through Gift Deed.

14) It may be observed from the above order that the relevant resolution was passed as early as 28-11-1985. The contention that the assessee registered the gift deed in respect of the land to be used as roads in favour of the Municipality only on 22-2-1991 does not have much substance. The Council approved the layout as early as 1985 and the subsequent delay is only procedural and partly attributable to the fulfilment of the conditions by the assessee himself. Even otherwise, the assessee was fully aware that in the inflationary situation, prices would be going up and he must have been waiting for suitable opportunity to sell the plots. Finally, he sold seven plots in the year of account relevant for the asst.year 89-90. This attempt is entirely an adventure in the nature of trade and the gains have to be brought to tax under the head 'business' and not under the head 'capital gains'.

15) The Assessing Officer was not correct in holding that the title did not pass from the said HUF to the assessee on the ground that there was no registered deed. The land was; registered in the name of the assessee himself even when it was bought by the HUF. In other words, there was no need for further registration of the deed in favour of the assessee. At any rate, the assessee has never contended that the land did not belong to him or that the title did not pass from the HUF. So, the action of the Assessing Officer in bringing to tax the gains only protectively in the hands of the assessee is not correct.

16) In the light of the above, I have to hold that the assessment is erroneous to the extent if is prejudicial to the interests of revenue. Firstly, the Assessing Officer should have brought the gains to tax in the hands of the assessee on a substantive basis and not on a protective basis. Secondly, he should have brought the gains to tax, for the reasons recorded above, under the head 'business' and not under the head 'capital gains'. In the circumstances, the assessment is set aside with the direction to re-do the assessment bringing to tax the gains on the sale of the land in question under the head 'business'. The extent of the business profits made in this adventure may be quantified. Further, the gains may be brought to tax substantively and not protectively.

With these directions, the assessment is set aside." 4. The assessee impugned the order of the learned CIT Under Section 263 in appeal before the Appellate Tribunal. After hearing the appeal, the learned Members of the Bench differed on the order to be passed.

5. The learned JM, after recording the facts of the case, i.e. show cause notice and reply of the assessee Under Section 263, held that the assessee has acquired property from the HUF in April 1984 with an intention to set up an old industry. After purchasing the land, when the assessee came to know that this land was not suitable for industry for the reason that Municipality did not permit setting up an industry in this area as per the master plan of the Municipality, the assessee set up V.K. Industries in January 1985. (The learned JM described the assessee as proprietor of M/s. V.K. Industries, whereas the learned CIT held the assessee to be partner of the same). The learned JM further accepted that the assessee did not intend to make money by selling plots. If it was so, the assessee would have taken steps for completion of conversion of land into plots and sold them immediately but such formalities were completed as late as on 31-10-1986. Thereafter, 7 plots were sold. He, accordingly, held that the activity of the assessee was not an adventure in the nature of trade. The assessee sold 7 plots as late as in 1988. The above facts clearly show that the transaction was not an adventure in the nature of trade. If the transaction was business or adventure in the nature of trade, the normal natural course would have been to complete the transaction as early as possible and make profit. As this was not done, the learned JM held that the transaction involved was not an adventure in the nature of trade. For the above reasons, learned JM relied upon the decision of the jurisdiction High Court in the case of P.J. Udani v. CIT (63 ITR 766). He distinguished the case of Hemachand Hirachand Shan v. CIT (206 ITR 55)(Guj) as also the decision of the Hon'ble Supreme Court in the case of Smt. Indramani Bai and Anr. v. CIT (200 ITR 594). These cases were held to be given on its own facts and there was no universal formula to be applied in every case. Two other cases relied upon by the Revenue were held to be not applicable to the facts and circumstances of the case. With the aforesaid observations, in the proposed order, the learned JM cancelled the order Under Section 263 of the IT Act.

6. The learned AM did not agree with the view expressed by the learned JM in the proposed order. He noted that the assessee had purchased land from HUF on 2-4-1984 and contended before the learned CIT that the same was purchased to set up an industry viz., oil mill since he had long experience of more than 10 years in the above line of business.

However, after purchase, the assessee came to know that the land was not suitable for starting industry as the area was not meant as an industrial belt as per the master plan. Therefore, the assessee became partner in M/s. V.K. Industries, which was an oil mill set up in January 1985.

6(a). In para.11 of the proposed order, the learned AM observed that the assessee had paid layout fee and conversion charges of Rs. 200 and Rs. 2500 respectively during August 1984 and applied on 5-12-1984 to the Municipal Council, Adoni for approval of the layout plan. Thus, within four months of purchase of land, the assessee initiated steps for conversion of land and approval of layout scheme. The Learned AM was not inclined to believe that the assessee who was associated for long with manufacture of edible and non-edible oil and having rich experience, was not aware of legal hurdles in the proposed setting up of an industry on the land purchased from the HUF. According to the learned AM, the assessee as kartha of the HUF, was fully aware of nature and suitability of land when he purchased the same. He did not believe that only within four months of purchase the assessee became aware of the policies of the Municipal Corporation. The version of the assessee, in the view of the learned AM, was simply unbelievable. The learned AM further did not accept the contention that there was no need for the assessee to purchase land from the HUF. It was possible that the assessee was not interested in the welfare of the HUF or that he was interested to make gain for himself but these were not clinching factors, according to the learned AM.6(b). The learned AM further observed that the claim of the assessee that he did not hasten to fulfil the conditions for approval by the Municipal Corporation of layout scheme and had no intention to make profit was rightly rejected by the learned CIT. The learned AM held that the learned CIT rightly found that approval for layout was granted by the Municipal Council as early as 31-10-1986 and the subsequent delay was procedural and partly attributable to the fulfillment of conditions by the assessee himself. In fact, the Resolution of the Municipal Council relating to approval of plan was passed as early as 28-11-1985. The assessee might be slow in fulfilling the conditions to get the benefit of inflationary trends as the prices of plots were rising. Once the assessee took steps for conversion of land into house-sites and by making payment of fees and conversion charges, he can be said to have embarked upon an adventure in the nature of trade.

He agreed with the learned CIT that the assessee had purchased land from HUF with a view to make profit by converting it into housing sites and not with the intention to keep it as an investment. This was evident from the fact that after purchase he initiated steps for conversion and approval of layout scheme by paying necessary fee. The learned AM specifically pointed out in his proposed order that the assessee never applied for establishing industry on the plots in question.

6(c). The learned AM took into account the following test laid down by the Hon'ble Bombay High Court in the case of Indian Hume Pipe Co. Ltd. v. CIT (195 ITR 386): "(i) Was the purchase a trade and were the purchase of the commodity and its resale allied to the assessee's usual trade or business or incidental to it? (ii) What is the nature of the commodity purchased and resold and in what quantity was if purchased and resold? (iii) Did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby make it more readily resaleable? (iv) What were the incidents associated with the purchase and resale? (iv) Were they similar to the operations usually associated with trade or business? (vi) In regard to the purchase of the commodity and its subsequent possession by the purchaser, does the element of pride came into the picture?" (vii) Whether the finance required for the purchase of the commodity has been found from the surplus funds with the assessee or whether they represent borrowed money?" 6(d). After applying the above tests to the facts of the case, the learned AM held that the assessee carried on transaction in the nature of trade. He summarized that the assessee purchased large extent of land, converted land into house sites of smaller sizes, carried on improvement to the land like making provision for roads, street etc., and thus made the sites ready for sale. These incidents, within few months of purchase cannot be carried with pride in the possession of land. These activities were to advance interest in the trade. The learned AM relied upon certain other decisions and in the ultimate analysis, upheld the order of the learned CIT. The appeal was dismissed as per the proposed order.

7. The Two Members having differed, the matter has been referred to me Under Section 255(4) of the IT Act.

8. At the outset, both the parties pointed out that the tax effect in the appeal was quite nominal. Yet, they would leave no stone unturned to assist me in coming to a right conclusion. The learned representatives carried on their obligations faithfully for which I place my thanks on record.

9. The learned counsel for assessee Shri S. Ravi submitted that the land was with the HUF of the assessee since 1971 and therefore if the assessee had intention to make profit, there was no need to transfer the land from the HUF account to the assessee. No hurry was shown in getting layout plan approved from the Corporation and so there was no hurry to make profit. In fact, the above course viz., to have a layout scheme, was adopted by the assessee when he found that oil industry could not be set up in the land on account of master plan of the Municipality. When oil industry was set up under the name and style of M/s. V.K. Industries in January 1985, the assessee thought that land purchased from HUF be converted into plots and sold. Thus, capital was realised by the assessee through sale of plots. The fact of making profit by sale of land by itself cannot be regarded as transaction amounting to an adventure in the nature of trade. In this connection, he drew my attention to observations of the learned JM at page 6 of his proposed order wherein the intention of the assessee to set up oil mill has been accepted. The observations of the learned AM at page 13 (para.11) were argued to be based upon surmises, speculation and assumptions. There was nothing on record to show that the version put forward by the assessee was wrong and that there was no intention to set up industry when land was acquired from the HUF. Even otherwise, it has to be kept in mind that the land in question was held for long with the HUF. The learned counsel for assessee relied upon the decision of the Hon'ble Madras High Court in the case of Sri Gajalakshmi Ginning Factory Ltd. v. CIT (22 ITR 502), the decision of Bombay High Court in the case of Gopal C. Sharma v. CIT (209 ITR 947). Two other decisions Ashok Kumar Jalan v. CIT (187 ITR 316) (Bom) and Hemachand Hirachand Shah v. CIT (206 ITR 55)(Guj) were relied upon to support his contention. The learned counsel for assessee, accordingly, submitted that the proposed order of the learned JM be approved.

10. Shri K.V. Choudary, learned DR, on the other hand, relied upon and supported the impugned order of the learned AM as also the learned CIT.He submitted that there was no material to show that the assessee at any time intended to set up an oil industry in the property purchased by the assessee. On the other hand, the Revenue has brought sufficient material on record to show that immediately after purchase of property from HUF in April 1984, the assessee took steps to convert the said land into small plots by submitting layout scheme with the Municipality and after completing formalities, started selling plots. 7 out of 25 plots were sold in 1987-88. These circumstances clearly point out that the assessee carried an adventure in the nature of trade. The learned DR relied upon the following decisions:Khan Bhahadur Ahmed Alladin & Sons v. CIT The learned DR accordingly supported the proposed order of the learned AM.11. Thus, I have two versions before me, one that land from HUF was acquired by the assessee for setting up an oil industry in which the assessee had rich experience of more than 10 years. In support of the above, the assessee had relied upon the fact that oil mill in the name of V.K. Industries was actually set up in January 1985 by the assessee as a partner (or proprietor). However, when the assessee found that oil industry could not be set up in the land purchased, he thought of realizing his capital by selling that property, the profit thus made by selling land cannot be said to be adventure in the nature of trade. The above version on facts, is not acceptable. The reason being that the assessee did not place any material on record to show that any attempt to set up oil industry in the land in question was made. Even the learned CIT, during the course of proceedings provided the assessee specific opportunity to place evidence on record in support of the claim made before him. No site plan or date on which action was initiated to set up industry in the plot in question or similar particulars relating to V.K. Industries were placed on record. Without material, explanation offered cannot be accepted on its face value. I am inclined to agree with the other version found in the observation of the learned CIT and the learned AM. An experienced man like the assessee could not be believed not to know that the land, as per the master plan, could not be used for setting an oil mill and this fact came to be known to the assessee only after land was purchased. There is more likelihood of assessee knowing the fact much before April 1984.

I am inclined to accept that land was acquired by the assessee from HUF with a view to make profit by dividing the big area of land into small plots for profitable gains. If sequences of events are kept in view, it becomes abundantly clear that the property was purchased and sold under a well-thought scheme to make profit. It is a clear case of adventure in the nature of trade. Therefore, the action of the learned CIT was required to be upheld. In fact, the case in hand is quite similar to the one decided by the Hon'ble Supreme Court in the case of Smt.

Indramani Bai and Anr. v. CIT (supra) as also Khan Bhahadir Ahmed Alladin (supra). I, therefore, agree with the view taken by the learned AM.12. The matter should now be placed before the regular Bench for disposal of the case in accordance with law.