I.T.As. Nos.1549/KB to 1552/KB of 2003, decided on 20th March, 2004. VS I.T.As. Nos.1549/KB to 1552/KB of 2003, decided on 20th March, 2004., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 447 (2004)

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 65---Additional assessment---Definite information---Capital gain---Adventure in the nature of trade---Assessee declared gain on sale of plot---Assessing Officer accepted the declared capital gain after taking into consideration all the aspects of addition while passing assessment order---Addition was made by invoking S.65 of the Income Tax Ordinance, 1979 on the ground that such gain was taxable income as the assessee as allegedly involved in the business of sale/purchase of properties and this was, in the opinion of Assessing Officer, adventure in the nature of trade---First Appellate Authority confirmed the order---Assessee contended that addition invoking S.65 of the Income Tax Ordinance, 1979, after treating it "exempt receipts" in terms of "capital gain" while passing the assessment order, was an afterthought reflecting difference of opinion---Additional assessment under S.65 of the Income Tax Ordinance, 1979 was suffering in law for want of escaped assessment, under-assessment or assessment at a low rate, definite information and discovery of a new fact which could be treated as "definite information"---Validity---Assessee disclosed all material facts without concealment, and assessment had been consciously completed by the Assessing Officer accepting the declared capital gain after taking into consideration all the aspects of addition---Observation of First Appellate Authority that action of the Assessing Officer was not mere change of opinion and assessee had been rightly taxed taking into consideration the disposal of the plot in the preceding years; had no merit as the re-assessment invoking S. 65 of the Income Tax Ordinance, 1979, subsequently for the reason that "in subsequent years, receipts of the same nature had been earned by the assessee, hence the present receipts had rightly been treated as adventure in the nature of trade" was in fact presumptive appreciation of law---Receipts could be treated as adventure in the nature of trade keeping in view the same nature of trade to be carried in the same period or before this but on the basis of subsequent receipts of similar nature, there remain no possibility to treat the receipts as revenue receipts---Where the receipt had been accepted as capital in nature, consideration of certain material formally declared by the assessee, re-examination of same material thereafter would amount to change of opinion and re-assessment would be without jurisdiction beyond mandate of S.65 of the Income Tax Ordinance, 1979---Re opening of the assessment was not justified and the proceedings were not warranted by law.

2001 PTD 633 (Trib.) rel.

ITAT, Karachi's case 1984 PTD (Trib.) 127; (1959) 37 ITR 242; (1967) 45 ITR 37; 1984 MLD 262 and (1976) 33 Tax 12 (Lahore) ref.

(b) Income-tax---

----Capital gain---Revenue receipts---Line which separates the two classes of cases is the sum of gain that had been made, mere enhancement of value or a gain made in operation of business in carrying out a scheme for profit making and in the absence of any evidence of trading activity in cases of purchase and resale, profit arising from resale, would be revenue only if a transaction is in the assessee's ordinary line of business.

(c) Income-tax---

----Capital gain---Assessee's line of business---Admittedly transaction was outside the assessee's line of business---For want of evidence in respect of trading activity for last 20 years, there remained no alternate except to accept the profit arising from resale to be an accretion of capital--In absence of any trading activity for last 20 years, in cases of purchase and resale of land and building, it is reasonable to hold the profit from the resale to be an accretion of capital.

Eduljee Dinshaw's case 1990 PTD 155 and (1976) 102 ITR 2002 rel.

(d) Income-tax---

----Capital gain---Sale of property after 20 years---Twenty years period between purchase and sale was itself sufficient to hold that the transaction was without intention of resale at a profit and a resale under changed circumstances, would amount to be a realization of capital and would not stamp the transaction with a business character.

(e) Income-tax---

----Adventure in the nature of trade---Onus---Property business---Sale of properties in the previous years and subsequent years---Assessing Officer, keeping in view the properties sold in the previous years and subsequent years, observed that the assessee was involved in property business---Validity---Such was not the real test; it was not essential to constitute trade that there should be series of transactions, both of purchase and sale---No doubt that even a single transaction of purchase and sale outside the assessee's line of business, may constitute an adventure in the nature of trade, however, onus of proving that an isolated transaction constituted an adventure in the nature of trade, was on the Department.

(f) Income-tax---

----Question whether a transaction of purchase amounted to carrying on business or not---Determination---Principles.

(1976) 102 ITR 2002 rel.

(g) Income-tax---

----Adventure in the nature of trade---Reasons and causes for which the profit earned did not fall in the category of income arising from adventure in the nature of trade.

(h) Income Tax Ordinance (XXXI of 1979)---

----S. 13---Unexplained investment etc., deemed to be income---While invoking S.13 of the Income Tax Ordinance, 1979, the Assessing Officer had neither moved .for approval of the Inspecting Additional Commissioner nor confronted the assessee whereby conditions mandatory in nature for invoking S.13 of the Income Ordinance, 1979, had not been fulfilled.

(I) Income Tax Ordinance (XXXI of 1979)---

----S. 65---Additional assessment---Order confirming the treatment meted out invoking S.65 of the Income Tax Ordinance, 1979 warrants interference having no basis whereby annulled.

(j) Income-tax---

----Capital gain---Intention---Transaction within one year---If it is presumed that property had been sold within a year, the gain earned was not enough to conclude that there was any intention to achieve gain.

S. Nayyar Raza Zaidi, A.R. for Appellant.

Agha Hidayatullah, D.R. for Respondent.

Date of hearing: 13th February, 2004.

ORDER

By this order, we would prefer to decide four appeals arising from separate orders of learned CIT(A), pertaining to assessment years 1995-96 to 1998-99 each, dated 3-6-2003, although all the orders are identical, containing common words and paragraphs.

2. The assessee engaged in the business of imports of carpets, furnished statement under section 8000 of the Income Tax Ordinance, 1979, the Assessing Officer on perusal of the record, noted assessee's involvement in the business of sale and purchase of properties, therefore, confronted him invoking section 65 of the Ordinance.

3. The assessee was further called upon to explain as to why action under section 65 of the Income Tax Ordinance, 1979 should not be initiated for assessment years 1995-96 to 1998-99 as chart which finds place in the assessment order, implies that the assessee is involved in the business of sale and purchase of the properties, therefore, the profit earned, is an adventure in the nature of trade, as such taxable. Since the assessee failed to attend after seeking adjournment till 4-1-2001, the permission was sought from IAC of Income Tax vide letter, dated 10-1-2001 which was granted on 12-1-2001. Consequently fresh notice under section 65 was issued to the assessee on 19-1-2001 for compliance. However in response to notice under section 116 of the Income Tax Ordinance, 1979 issued along with notice under section 61, the assessee's A.R. replied as under:--

" Please refer to your Letter No.AC/E-06/ZE/2000-2001/49, dated 17-12-2000 on the subject captioned above. Perusal of case papers reveal the following facts:

For 20 years, the documents may prove that this property was not purchased with the intention of sale. No doubt it was sold out after 20 years. Therefore the same does not attract nor does it fall under business and should in fairness not be taken under the head business. It is, therefore, requested to exclude the same from the list of purchase and sales list of properties. The above request may please be given due consideration looking into the facts and account in the light of legal decisions of higher Courts as well as the intention of law."

4. The assessee's A.R. also furnished a letter, dated 3-3-2001 separately. In reply thereof, the Assessing Officer served a notice under section 62 of the Income Tax Ordinance, 1979, which is reproduced hereunder:--

Assessment Year 1995-96

"Refer to your AR's letters, dated 3-1-2001 and 3-3-2001 received in this office on 6-2-2001. During Assessment year 1995-96, you have sold plot No.102, Khayaban-e-Iqbal, Karachi, yielding gain of Rs.1,27,250. The same was taxable income as you are engaged in the business of sale/purchase of properties and this is adventure in the nature of trade, as already confronted to you. The same has been held by the worthy ITAT vide its order Nos.8025/KB of 1992-93 and 8024/KB of 1992-93. Therefore, the undersigned intends to assess your total income (apart from your income covered under section 80C(80CC) for Assessment year 1995-96 at Rs.1,27,250. Any explanation/clarification etc. should reach this office by 14-2-2001."

Assessment year 1996-97

"Refer to your AR's letters, dated 3-1-2001 and 3-3-2001, received in this office on 6-2-2001. During Assessment year 1996-97, you have sold Al-Imran Centre (37.5% share), Abdullah Maroon Road, Karachi, yielding gain of Rs.78,88,000 and sold another plot, whose details/documents have not been provided by you, yielding gain of Rs.85,000. Total gain comes to Rs.79,73,000. Your AR has contended that the property: Al-Imran Centre, was purchased in Assessment year 1975-76 and given on. rent and was sold in Assessment year 1995-96 (As per fact, the said property was sold in Assessment year 1996-97) and was not purchased with the intention of sale. This contention is not tenable, as your share in the said property has been increasing over the years, which implies value addition for the purpose of gain on sale, and your record reveals that you kept on purchasing and selling properties, which proves that you are in the business of sale/purchase of properties. Moreover, no documentary evidence has been submitted by you/your AR in support of your claim. Thus the same was taxable income as you are engaged in the business of sale/purchase of properties and this is adventure in the nature of trade, as already confronted to you. The same' has been held by the worthy ITAT vide its order No. 8025/KB of 1992-93 and 8024/KB of 1992-93. Therefore, the undersigned intends to assess your total income (apart from your income covered under section 80C(80CC) for Assessment year 1996-97 at Rs.79,73,000. Any explanation/clarification etc. should reach this office by 14-2-2001."

Assessment year 1997-98

"Refer to your AR's letters, dated 3-1-2001 and 3-3-2001 received in this office on 6-2-2001. During Assessment year 1997-98, you have sold Plots Nos.33/1 and 33/2 Phase VIII, DHA, Karachi, yielding gain of Rs.2,90,000. The same was taxable income as you are engaged in the business of sale/purchase of properties and this is adventure in the nature of trade, as already confronted to you. The same has been held by the worthy ITAT vide its order Nos.8025/KB of 1992-93 and 8024/KB of 1992-93. Therefore, the undersigned intends to assess your total income (apart from your income covered under section 80C(80CC) for Assessment year 1997-98 at Rs.2,90,000. Any explanation/ clarification etc. should reach this office by 14-2-2001."

Assessment year 1998-99

"Refer to your AR's letters, dated 3-1-2001 and 3-3-2001 received in this office on 6-2-2001. During Assessment year 1997-98, you have sold Plot Nos.33/1 and 33/2 Phase VIII, DHA, Karachi, yielding gain of Rs.2,90,000. The same was taxable income as you are engaged in the business of sale/purchase of properties and this is adventure in the nature of trade, as already confronted to you. The same has been held by the worthy ITAT vide its order Nos.8025/KB of 1992-93 and 8024/KB of 1992-93. Therefore, the undersigned intends to assess your total income (apart from your income covered under section 80C(80CC) for Assessment year 1997-98 at Rs.2,90,000. Any explanation/clarification etc. should reach this office by 14-2-2001."

Note: The properties in the notice pertaining to assessment year 1997-98, have been repeated in the notice for the year 1998-99.

5. In response to notice under section 62 for all the four years, the assessee replied vide letter, dated 14-2-2001, which stood as under:--

" .Replies to your observations/queries are as under:--

Decisions of Higher Courts.---Several decisions have been made by learned/Honourable High Courts diverging one from another depending upon the following primary, basic factors and circumstances, "intention, retention, period, treatment of income and circumstances of sale/disposal."

"As such, each and every item is required to be examined in its true perspective so that reasonable and correct decision may be arrived at in consonance to decisions of Higher Authorities/Courts. In this context your attention is invited to the following Higher Courts decisions:--

(1) The ITAT Karachi in a case reported vide 1984 PTD (Trib.) 127.

(2) (1959) 37 IT-R 242

(3) (1959) 37 ITR 242 (S.C. of India)

(4) (1967) 45 ITR 37 (Madras H.C.)

(5) (1984) MLD 262 (Kar. H.C.)

(6) (1976) 33 Tax 12 (Lahore)"

Notwithstanding above, the transactions of first two years i.e. Assessment years 1995-96 and 1996-97 are briefly discussed bellows:--

Assessment year 1995-96.---Plot No. 102, Khayaban-e-Iqbal, Phase-VIII, DHA, Karachi. It is the 1st instance in this case of sale of property hereto the date of purchase and other facts here to be examined prior to giving a decision in this regard.

Assessment year 1996-97.---Al-Imran Centre, Abdullah Haroon Road, Karachi. As already given in our previous letter, dated 3-2-2001. It consists of two parts, one part of S.B./5il was purchased on 28-8-1975 whereas the other part viz. SB-5/1-B, Abdullah Haroon Road, was purchased on 1-3-1981. The property in question remained in possession of our client for about 20 years and sold out in assessment year 1996-97. The apparent reasons are:---

(a) Immovable properties value decreasing day by day.

(b) Situation of Law and Order becoming bad to worse.

(c) Fear of further ,loss forced our client to decide disposal of the same.

Under these circumstances the gain is causal/from immovable property and the disposal is forced by circumstances, whereas the period of retention without any intention of sale remains about 20 years and income therefrom subjected to tax. Therefore it cannot be treated as purchase and sale transaction attributing normal gain instead of casual gain on immovable property, nor does the orders of ITAT quoted above by you can legally justify applies to this property.

Plot No.29, Zulfiqar Street, DHA, Karachi (PH-VIII).---Respective facts and circumstances may please be examined prior to deciding anything in this regard. Copies of sale/ purchase documents are presented for your kind perusal.

Assessment year 1995:96

6. The notice, invoking section 65 in respect of Plot No.102, Khayaban-e-Iqbal, DHA, Karachi, said to be sold to yield gain of Rs.1,27,250, reveals that gain of Rs.1,27,250 is taxable income as the assessee is allegedly involved in the business of sale/purchase of properties and this is in the opinion of the Assessing Officer adventure in the nature of trade. The learned CIT(A) confirmed the order.

7. It is worth-mentioning that during the year, 1995-96, the assessee declared capital gain at Rs.1,27,250 on sale of plot, (for which fresh action has been taken under section 65 of the Income Tax Ordinance, 1979) and Assessing Officer was pleased to accept the declared capital gain after taking into consideration all the aspects of addition in this context while passing the assessment order. In the circumstances, it is vehemently argued that the addition invoking section 65 after treating it "exempt receipts" in terms of "capital gain" while passing the assessment order, is afterthought reflecting difference of opinion. Besides, additional assessment under section 65 is suffering in law for want of escaped assessment, under-assessment or assessment at a low rate, definite information and discovery of a new fact which could be treated as "definite information".

8. The learned AR further argued that the learned CIT(A) confirmed the addition in this context observing that, "perusal of assessment order for the assessment year 1995-96 clearly shows that the `exempt receipts' were accepted with the remarks that the assessee has not sold any plot in preceding 3 years so gain of sale of plot was taken as causal receipts on sale of immovable property" whereas it is an admitted fact that in the preceding years up to last 20 years no plot has been sold, hence the order of the learned CIT(A), finds no merit.

9. Perused the record: The assessee disclosed all the material facts without concealment, and the assessment has been consciously completed by the ITO accepting the declared capital gain after taking into consideration all the aspects of addition in this context while passing the assessment order, hence the observation of the learned CIT(A) that action of the taxation officer is not mere change of opinion and assessee has been rightly taxed taking into consideration the disposal of the plot in the preceding years. In our opinion finds no merit as the reassessment invoking section 65, subsequently for the reason that "in subsequent years, receipts of same nature have been earned by the assessee, hence the present receipts have rightly been treated as adventure in the nature of trade" is in fact presumptive appreciation of law. Receipts can be treated as adventure in the nature of trade keeping in view the same nature of trade to be carried in the same period or before this but on the basis of subsequent receipts of similar nature, there remains no possibility to treat the receipts as revenue receipts. In case where the receipt has been accepted as capital in nature, consideration of certain material formally declared by the assessee, re-examination of same material thereafter would amount to change of opinion and re-assessment thereof in the circumstances would be without jurisdiction beyond mandate of section 65. Reliance in this context is placed on case-law reported as 2001 PTD (Trib.) 633. The ratio of the judgment stood as under:--

"----S. 65---Definite information---Re-opening of assessment---Scope---Change of opinion of Income Tax Officer---Where assessee had disclosed all the material facts without concealment and the assessment had been consciously completed by the Income Tax Officer, in absence of discovery of any new fact, which could be treated as "definite information", there could not be any scope for re-opening of the assessment under section 65 of the Income Tax Ordinance, 1979, on the grounds referred to in S.65(1)(a)(b) of the Income Tax Ordinance would warrant pressing into service the provisions of section 65(1) of the Income Tax Ordinance, 1979, nor Circular from Board of Revenue would authorize the Income Tax Officer to reopen the assessment."

In the circumstances supra, we are of the considered view that reopening of the assessment was not justified, therefore, proceedings so C far as this year is concerned, is not warranted by law.

Assessment year 1996-97

10. The Assessing Officer confronted the assessee through notice under section 65 of the Income Tax Ordinance, 1979 that during this year the assessee sold, (1) Al-Imran Centre (37.5%. share) Abdullah Haroon Road, Karachi, yielding gain of Rs.78,88,000 and (2) another plot whose details/documents have not been provided, showing gain of Rs.85,000 (Total: 79,73,000). In reply thereof referred above to, the assessee contended that half portion of the property in question bearing No.S. B-5/1 was purchased on 28-8-1975 whereas remaining half portion viz. S.B-5/1B was later on purchased on 1-3-1981, hence entire property wherein assessees possess 37.5% share remained in physical possession of the assessee for about 20 years thereafter sold in year, 1996-97 for the following reasons:--

(a) value of immovable properties decreasing day by day;

(b) law and order situation becoming bad to worst where the property is situated;

(c) fear of further loss forced the assessee to decide the disposal of the same; and

(d) The assessee was not in position to retain 37.5% share after the sale of remaining undivided property by the members of the AOP.

11. It is argued that the gain in the circumstances is casual, it cannot be treated as sale and purchase transaction attributing revenue gain instead of normal gain on sale of immovable property.

12. Heard the learned representatives of the two parties on this account as well on other grounds and' also perused the record. When profit accrues from the sale of any asset, the question arises, whether it is `business income' or `capital gain'?, whether property sold is a capital investment? In the circumstances, accretion of capital for the proceeds of sale representing capital, cannot be ruled out, hence the Assessing Officer was under legal obligation to make out a case that the sale is in course of business and the profit is of revenue account. The line which separates the two classes of cases is the sum of gain that has been made, mere enhancement of value or a gain made in operation of business in carrying out a scheme for profit making and in the absence of any evidence of trading activity in cases of purchase and resale, profit arising from the resale, would be revenue only if a transaction is in the assessee's ordinary line of business. Admittedly the transaction is outside the assessee's line of business, hence for want of evidence in respect of trading activity for last 20 years, there remains no alternate except to accept the profit arising from resale to be an assertion of capital. In the circumstances supra, in the absence of any trading activity for last 20 years, in cases of purchase and resale of land and building, we find it reasonable to hold the profit from the resale to be an accretion of capital.

13. It is worth-mentioning that 20 years' period between purchase and sale is itself sufficient to hold that the transaction is without intention of resale at a profit and as discussed above, a rescale under changed circumstances, would amount to be a realization of capital and would not stamp the transaction with a business character.

14. The Assessing Officer keeping in view the properties sold in the previous years and subsequent years, observed that the assessee is involved in property business. However, in our opinion, this is not the real test. It is not essential to constitute trade that there should be series of transactions, both of purchase and of sale. No doubt that even a single transaction of purchase and sale outside the assessee's line of business, may constitute an adventure in the nature of trade, however, onus of proving that an isolated transaction constitutes an adventure in the nature of trade is on the Department, but in the present case, no case is made out reflecting intention of resale, besides in the present case, property has been sold out without the intention of resale at a profit in the changed circumstances as discussed above, hence there appears no reason to confirm the orders of the two officers below.

15. Before parting with the order so far as the assessment year 1996-97 is concerned, we would prefer to refer the decision of the Hon'ble Supreme Court of Pakistan in case of Eduljee Dinshaw reported as 1990 PTD 155. The case-law reported above lays down the basic principles for deciding as to whether the transactions of sales and purchase of land amounted to an adventure in the nature of trade. The principles framed for determination of the issue, whether a transaction of purchase amounts to carrying on business or not? are outcome of the orders reported as (1976) 102 ITR 2002, the ratio of the order laying down the principles is reproduced hereunder:---

"The following principles have to be borne in mind in deciding whether a transaction of purchase and sale amounts to an adventure in the nature of trade. (1) The commodity purchased plays an important role in deciding whether a person was indulging in an adventure in the nature of trade or was making an investment. (2) Whether the transaction was an isolate one or formed part of a series of transaction showing a tendency in trade is another important factor. (3) The fact that the property bought was sold within a short time does not by itself indicate the transaction was in the nature of trade. (4) If land has been purchased or a commodity which normally is not treated as stock-in-trade has been purchased the presumption is that the intention was to make an investment and not trade. (5) If the property purchased was capable of yielding income then against the inference is that an investment was intended and not an adventure. It is not a matter of circumstances pro and con. What is important is to consider their distinctive character. In each case it is the total effect of all relevant factors and circumstances that determines the character of the transaction. The onus of proof in cases of transaction of this kind to establish that they were in the nature of trade is entirely on the department and that onus cannot be satisfied by merely surmises."

Considering all the above facts and case-law, we are of the considered view that the profit earned did not fall in the category of income arising from adventure in nature of trade. For the above reasons and because:---

(i) There is no evidence that assessee is a property dealer nor the property sold was its stock-in-trade.

(ii) The assessee has no intention to make a profit out of it at the time of purchase or even at the subsequent stage when the property has been sold.

(iii) There was no transaction of sale in between the years 1975-76 and 1995-96, the present property has been sold after 20 years, that too due to circumstances recorded above.

(iv) Profit earned after 20 years' retaining the property is not an adventure in the nature of trade or the profit chargeable as a revenue income.

(v) The intention to purchase property for resale purpose, is not proved.

16. It is also very important in the circumstances of the case to point out that the Assessing Officer while concluding the receipts as adventure in the nature of trade taxed the receipts taking benefit of subsection (e) of section 30, which provides that income to which section 13 applies, is chargeable under the head income from other sources. Unfortunately while invoking section 13, the Assessing Officer has neither moved for approval of the IAC nor confronted the assessee whereby conditions mandatory in nature for invoking section 13 of the Ordinance, have not been fulfilled.

17. For the reasons recorded above, we find that the order confirming the treatment meted out invoking section 65 warrants K interference having no basis whereby annulled.

18. The appeal in the circumstances, for the year under consideration stands allowed.

Assessment year 1997-98

19. It is alleged in the notice that during the year assessee sold plot Nos.33/1 and 33/2, Phase-VIII, DHA, Karachi yielding a gain of Rs.2,90,000. The gain is, therefore, taxable income 'as assessee being engaged in the business of sale and purchase of the properties and this is adventure in the nature of trade as already confronted.

20. The facts reveal that the, plots in question were purchased in the year, 1996-97 and have been sold in the year, 1997-98 at a gain of Rs.2,90,000. The proceedings are silent regarding the purchase and sale price, exact difference of time between purchase and sale and whether the duty paid in purchase of plot is inclusive or exclusive. Even if it is presumed that it has been sold within a year, the gain earned is not L enough to conclude that there was any intention to achieve gain. As discussed above, in discussion for the assessment year 1996-97, the present alienation of plot does not fall within the ambit of adventure in the nature of business. Keeping in view the finding in the preceding year, appeal preferred by the assessee stands allowed.

Assessment year 1998-99

21. Unfortunately in the notice for the assessment year 1998-99, the property mentioned in the notice for 1997-98 has been repeated. Since the assessee has not been confronted on the property related to present assessment year and notice issued in the preceding year has been repeated in this year with complete particulars of previous year without any change, hence we find that addition in this year, for the property sold and assessed in the previous year and had been subject-matter of preceding year, is liable to be deleted.

22. The appeals are disposed of to the extent and in the manner indicated above.

C.M.A./444/Tax (Trib.)Order accordingly.