COMMISSIONER OF INCOME TAX, ZONE-C, KARACHI VS A. R. HUSSAIN
2006 P T D 1422
[Karachi High Court]
Before Muhammad Mujeebullah Siddiqui and Khilji Arif Hussain, JJ
COMMISSIONER OF INCOME TAX, ZONE-C, KARACHI
Versus
A. R. HUSSAIN
I.T.R. No.101 of 1987, decided on 17/01/2006.
Income Tax Act (XI of 1922)---
----S.34---Concealment of income---Non-declaration of exempt income in the column of income tax return form---Agricultural land was converted into small plots and was sold---Assessee did not declare income from the sale of such plots. in his income tax return but declared the same in wealth tax---Income Tax Appellate Tribunal found that such income of assessee was in the nature of sale proceeds of plot of land in the nature of gain and no income was concealed---Validity---Income Tax Appellate Tribunal had rightly found that profit/gain after development of agricultural land was not liable to income tax and that the income so earned was not required to be disclosed in the return of income---Tribunal was also right in holding that the entire facts were disclosed in wealth statement and non-disclosure of income/gain in the relevant column of the return of income would not amount to concealment or suppression of particulars of income/gain---Findings given by Income Tax Appellate Tribunal were in consonance with the law and were not open to any exception---Questions referred by the Tribunal were answered in -affirmative---Reference was disposed of accordingly.
Syed Akhtar Ali v. Commissioner of Income Tax, Hyderabad, 1994 PTD 675 ref.
Edulji Dinshaw Limited v. Income Tax Officer (1990) 61 Tax 105 rel.
Nasrullah Awan for Applicant.
Rehan Hasan Naqvi for Respondent.
Date of hearing: 31st August, 2005.
JUDGMENT
MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---Through this Reference, the learned Income Tax Appellate Tribunal, Karachi, has referred the following questions of law for our consideration:---
"(1) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified to hold that the surplus or gain arising to the assessee from the sale of plots after development of agricultural land was not liable to income tax?
(2) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified to hold that the income alleged to have been concealed or suppressed was not chargeable to income tax and accordingly clause (b) of subsection (1A) of section 34 of the repealed Income Tax Act, 1922 was not applicable?
(3) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that the action taken by the Income Tax Officer under clause (b) of subsection (IA) or section 34 of the repealed Income Tax Act, 1922 was barred by limitation?
(4) Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that the non-disclosures in the statutorily prescribed return of income the relevant columns of the surplus or gain earned by the assessee, in contravention of the law would not amount to concealment or suppression of the particulars of income/gain?"
2. The facts giving rise to the above questions as contained in the statement of facts prepared by the I.T.A.T. are that the respondent an-individual purchased a piece of agricultural land admeasuring 134 acres and 32 ghuntas, vide Sale Deed, dated 17-6-1961 for a sale consideration of Rs.80,850. Some times afterwards the respondent entered into an agreement with a private limited company viz. Agricultural Development Corporation Limited for the development of land. It was agreed between the aforesaid corporation and the respondent that the development charges will be charged by the aforesaid corporation, whereas the price of land would go to the respondent as recovered from the constituent. The aforesaid plot of land was divided into 52 plots of different sizes and the first plot was sold on 2-3-1968, whereas all of them were sold by 28-9-1974. The price of land thus recovered by the assessee/ respondent was shown in his respective wealth statement but it was not declared in the return of income, which contains a separate column for claiming exempt income. The original assessment order was finalized on 28-11-1974.
3. After expiry of two years of the date of relevant assessment bun within six years from the aforesaid date of assessment, the Income Tax Officer issued notice to the respondent under section 34 of the repealed Income Tax Act, for reopening the assessments made for the charge years 1973-74 and 1974-75. The respondent was required to produce all agreements of sale and purchase as also the details of the purchase of land along with the sale price of each and every plot. The details of development charges paid by various parties to the Agricultural Development Corporation Limited were also made available to the Income Tax Officer. It was urged by the respondent that he disposed of pieces of agricultural land and hence income tax was not attracted. The Income Tax Officer was, however, of the opinion that development and demarcation of plot could not be termed as agricultural proceeds and any income derived from these operations could not be considered as exempt from income tax and hence the difference between the cost price and the sale price of the plot was considered to be taxable income and was accordingly subjected to tax in both the years.
4. The respondent went in appeal before the learned Appellate Assistant Commissioner, who held that the assessee had sold the agricultural land in the shape of plots of different sizes, after developing it through the agency of Agricultural Development Corporation Limited. It was urged before him that the transaction was not an adventure in the nature of-trade and the money received by him was a capital gains. It was also submitted before the Appellate Assistant Commissioner, that the respondent did not conceal any income and lastly the period of limitation available to the Income Tax Officer was only two years. The Income Tax Officer, however, reopened the assessment after expiry of two years but within the limitation period of six years time as provided under clause (b) of subsection (1A) of section 34 of the repealed Income Tax Act. The learned Appellate Assistant Commissioner upheld all the submissions of the respondent and allowed the appeal.
5. The department came in appeal before the Appellate Tribunal against the order of the learned Tribunal against the order of the learned Appellate Assistant Commissioner, who held that the money received by the respondent as sale proceeds of the plot of land was in the nature of capital gain. On this point, the Appellate Tribunal confirmed the order of the Appellate Assistant Commissioner by making the following observations: --
"To start with the assessment order it appears that the whole proceeding, under section 34 read with section 23(3) of repealed Act, were started "because the assessee was disposing of the plots and the money received by him was not shown in his account books". However, from the perusal of the letter of Assessing Officer, dated 13-6-1979, the position appears to have been completely changed. As we have reproduced above the concluding passage of the assessment order it appears from its perusal that the emphasis was shifted from omission of the amount realized from sale proceeds having been shown in the account books to the income derived from development of the plots which according to the Assessing Officer, could not be termed agriculture proceeds. It further appears from the above quoted passage that half of the cost price was added in the re-assessment in case of both the respondents as they failed to substantiate their version satisfactorily. This apparent contradiction in the whole approach of the Assessing Officer makes confusion worse confounded. We are totally at a loss to appreciate as to whether he re-opened the assessment of the respondents because they failed to disclose their income in their returns of the relevant assessment years realized from sale of the plots of land or as to whether the entire proceedings were initiated because the money spent on development of the plots was not an agricultural process. From perusal of the orders of Income Tax Officer, it appears that every detail demanded by him was furnished by the respondent. As such, he should not have been confused at all.
The department has repeated the same error before us as they have challenged that the income derived from the development and demarcation of plots cannot be deemed as an income from agricultural process. We are unable to understand as to why this ground has been taken. We have already reproduced reason on which the order of the learned Appellate Assistant Commissioner is based. We do not find any reason to this effect. The argument of Mr. Asghar Abbas is not supported by his memo. of appeal. Hence, we are not inclined to look into its merit. Consequently, relying upon the case-laws cited at Bar by Mr. Ali Athar, the learned counsel for the respondents, we affirm the finding of the learned Appellate Assistant Commissioner that the money received by the respondents as sale proceeds of the plots of land was in the nature of capital gain and hold that the assessments in dispute were rightly cancelled by her."
6. In regard to the respondent's failure to show the income in the prescribed column of the income tax return and the issue regarding the period of limitation, the Appellate Tribunal upheld the findings of the learned Appellate Assistant Commissioner by making the following observations: ---
"We have given our careful consideration to the submissions of the learned representatives of the parties on this point as well. In our view the particulars of income as contemplated by clause (b) of subsection (IA) of section 34 of the repealed Act mean and imply the income, profit or gain which is chargeable to income tax. The reason for this finding is that income, profit or gain which has been made subject-matter of escaping assessment under subsection (1) is also that income or gain which is chargeable to income tax. We do not think that by the words "particulars of his income" the legislature meant or implied an income, which was not chargeable to income tax. In our view an income which is chargeable to income tax, if concealed in any year would provide a period of limitation of six years to the Income Tax Officer. However, in the instant case, the income which is alleged to have been concealed is not chargeable to income tax being in the nature of capital gain. If it is not shown in the income tax return, it would not amount to concealment. Here the case of respondents is further strengthened by the fact that they dutifully disclosed, the amount of capital gain in their wealth statement. To conclude we hold that the contention of Mr. Ali Athar the learned counsel for the respondents is well-founded. The finding of the learned Appellate Assistant Commissioner is, therefore, upheld on this point as well."
7. We have heard Mr. Nasrullah Awan, learned counsel for the applicant and Mr. Rehan Hasan Naqvi, learned counsel for the respondent and have perused the orders passed by the learned forums below.
8. Mr. Nasruallh Awan has submitted that the respondent entered into an agreement for purchase of land in the year 1952, and actually purchased it by execution of sale-deed in the year, 1961 and sold it by dividing the land measuring 134 acres and 32 ghuntas into 52 plots of different sizes. The first plot was sold on 2-3-1968 and the remaining were sold in the year 1974. He has submitted that even a single transaction could amount to adventure in the nature of trade, if from very beginning an assessee has intention to sell the land. In support of his contention he has placed reliance on a D.B. judgment of this court in the case of Syed Akhtar Ali v. Commissioner of Income Tax, Hyderabad, 1994 PTD 675. He has further contended that mere dividing of land into plots amounts to adventure in the nature of trade. He has however, conceded that the questions Nos.1 and 2 are basically the questions of fact depending on the finding whether the dividing of agricultural land admeasuring about 135 acres into 52 plots of different sizes amounts to adventure in the nature of trade. Depending on this finding, the answer to question No.3 shall follow.
9. On the other hand, Mr. Rehan Hasan Naqvi, learned counsel for the respondent has submitted that the questions referred by the Tribunal are already covered by the judgment of Hon'ble Supreme Court in the ease of Edulji Dinshaw Limited v. Income Tax Officer, 1990 61 Tax 105.
10. We have carefully considered the contentions raised by the learned Advocates for the parties and have perused the assessment orders under sections 23(3)/34. A perusal of the assessment order shows that the Assessing Officer totally failed to rebut the contentions of the respondent/assessee that the land .purchased was originally agricultural land and even after dividing it into 52 plots for agricultural farms it still remained agricultural land. The ratio of this court's judgment in the case of Syed Akhtar Ali (supra) on which Mr. Awan has placed reliance are not attracted for the reason that in the cited case the agricultural land was converted into residential plots and were sold to a Co-operative Housing Society. The result was that the entire nature and status of the land was changed and therefore, in the peculiar facts and circumstances of the said case, it was held that the assessee had intended to develop the land to break into plots and dispose of the same, which was evident from the fact that a sale agreement was entered into with Co-operative Housing society and consequently it constituted an adventure in the nature of trade and the profit from sales was liable to be taxed as business income.
11. In the facts and circumstances of the present case, we are of the opinion that on perusal of facts, the learned I.T.A.T. held that the profit/gain after development of agricultural land was not liable to income tax and that the income so earned was not required to be disclosed in the return of income and further held that the entire facts were disclosed in the wealth statement and the non-disclosure of income/ gain in the relevant columns of the return of income would not amount to concealment or suppression of the particulars of income/gain.
12. We are persuaded to agree with the contention of Mr. Rehan Hasan Naqvi, learned counsel for the respondent that the questions raised in this reference are covered by the judgment of Hon'ble Supreme Court in the case of Edulji Dinshaw Limited v. Income Tax Officer, (Supra).
13. The findings given by the learned Tribunal are in consonance with the law and are not open to any exception. All the four questions referred by the Tribunal are therefore, answered in affirmative.
14. The Reference stands disposed of accordingly.
M.H./C-7/K???????????????????????????????????????????????????????????????????????????????????????? Reference affirmed.