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1996 Supreme(MP) 233
D. M. DHARMADHIKARI, J. :
Commissioner Of Income Tax
vs
Dhananjay Rao Jadhav.
DECIDED ON : 24 February, 1996
The sale of agricultural land in parcels through brokers does not constitute an adventure in the nature of trade.
Headnote:
CAPITAL GAINS - SALE OF AGRICULTURAL LAND - WHETHER INCOME FROM SALE OF AGRICULTURAL LAND IN PARCELS THROUGH BROKERS CONSTITUTES ADVENTURE IN THE NATURE OF TRADE - NO - IT IS CONVERSION OF CAPITAL ASSET - INCOME TAX ACT, 1961, SS. 2(14), 28, 45, 47.
Fact of the Case:
Assessee received 6 bighas of agricultural land in a family partition. He sold the land in parcels through brokers to 44 persons. The ITO treated the income from the sale as business income. The AAC and the Tribunal held that the income was taxable as capital gains.
Finding of the Court:
The court held that the sale of agricultural land in parcels through brokers did not constitute an adventure in the nature of trade. The income from the sale was taxable as capital gains.
Issues: Whether the sale of agricultural land in parcels through brokers constituted an adventure in the nature of trade.
Ratio Decidendi: The court held that the sale of agricultural land in parcels through brokers did not constitute an adventure in the nature of trade. The court relied on the following factors: * The assessee was not a dealer in lands. * The assessee had acquired the land as his share in a family partition. * The assessee had sold only portions of the land. * The assessee had incurred considerable expenditure in laying roads and filling and leveling the land.
Final Decision: The court answered the reference in the affirmative in favor of the assessee.
D. M. DHARMADHIKARI, J. :
A question of law has been referred for answer by this Court under s. 256(1) of the IT Act, 1961, at the instance of the IT Department.
2. Before quoting the question and dealing with the same, the factual backgrounds be given as under :
In a family partition, the assessee was allotted amongst others 6 bighas of agricultural land, situate at Bahodapur, district Gwalior. The land is within the municipal limits. By various sale-deeds, executed in favour of 44 persons between April, 1980 to December, 1980, different parcels of lands were sold through two commission agents.
3. On these facts, for the asst. yr. 1981-82, the ITO came to a finding that the sales in question constitute an adventure in the nature of trade and treated the income earned as business income for the purpose of tax.
4. In appeal by the assessee, the AAC after examining the fact came to the conclusion that merely because the sales were through a broker with a view to get best possible price of the property, the transaction of sale cannot be held to be an adventure of the assessee in the nature of trade. The AAC referred to the assessment case of another co-parcener of the same family to hold that the profit earned can only be taxed as the capital gains and not as profit from any adventure or business.
5. The learned members of the Tribunal upheld the decision of the AAC. It was observed by the Tribunal that the land was sold by the assessee as agricultural land, although in parcels and without developing them for non-agricultural purpose. Merely because help of property broker was taken to sell the land, no inference can be drawn that the assessee had engaged himself in any business adventure and had, thus, converted his capital asset into stock-in-trade. According to the Tribunal, every one is entitled to convert capital asset in a manner as will yield profit to him. Merely because the profit enures in a transaction, it cannot be said that the transaction is one of business. It can well be one of converting ones capital asset and, if thereby any income is derived, that can only be taxed under the head Capital gains. On the above facts, the following question of law has been referred to this Court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the excess profit accruing on the sale of 44 plots constituted assessees income assessable under the head Capital gains and not as income arising out of an adventure in the nature of trade for asst. yr. 1981-82 ?"
6. Shri R. D. Jain, learned counsel appearing for the Department, placed reliance on Sarifabibi Mohmed Ibrahim & Ors. vs. CIT (1993) 204 ITR 631 (SC) and CWT vs. Officer-in-charge, Court of Wards, Paigah (1976) 105 ITR 133 (SC). On behalf of the Department, much emphasis has been laid on the facts and circumstances that long after partition, the land was divided into several plots and sold to 44 persons through brokers indicating that a sort of business adventure was undertaken by the assessee to earn profit. It is not a case of isolated transaction to hold that it was only conversion of capital asset into any other asset. Learned counsel referred to the definition of Capital asset and provisions contained in ss. 28, 45 and 47 of the IT Act, to elucidate his argument.
7. Shri K. K. Lahoti, counsel appearing for the assessee, in reply contended that the AAC and the Tribunal took all relevant facts into consideration for holding that merely because agricultural lands in different parcels were sold to 44 persons through broker for earning best available market price, is no ground to hold that the assessee had gained any profit in any adventure or business. It is submitted that the assessee was not engaged in any property dealing business. The property came to him as his share in partition of the ancestral property. He was entitled to wait and to sell them without its development or conversion to non-agricultural use and take the help o
