I.T. As. Nos. 1109/LB of 2004, 2655/LB, 2656/LB and 7106/LB of 2005; decided on 7th November, 2006. VS I.T. As. Nos. 1109/LB of 2004, 2655/LB, 2656/LB and 7106/LB of 2005; decided on 7th November, 2006., 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1986 (2006)

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

----S.27---Capital gain---Adventure in the nature of trade---Assessee deriving income from running a textile mill---Factory land was acquired on lease from Provincial Government---Sale of such laud after development by permission of Government to pay off loans obtained from bank---Sale proceeds were directly deposited into a joint account of the assessee and the creditor's committee and loans were paid off according to the ratio of liability---Assessee claimed exemption on gain accrued on disposal of such land being capital receipts---Assessing Officer while framing assessment observed that gain on sale of land could not be termed as `capital gain'---Sale proceed was treated as adventure in the nature of trade 'and taxed the same accordingly---Validity---Transaction was to be seen in the light of fact that at no point of time the assessee acted as a land speculator or land developer---Improvement in capital asset was made to discharge financial liability---Primary factor which could have determined the nature of the transaction, that whether it was a venture in the nature of trade or not was the intention of the party at the time when the land was originally acquired on lease by the assessee---When the assessee got laud on lease it had no intention to sell it for earning profits or income by getting enhanced price, rather assessee was bound by agreement with Provincial Government to use the land for running a textile mill---Assessee never included in such-like activities other than one the selling of land in question---Land was never acquired for earning profits and the same was utilized as factory laird for the period spanning over 45 years---Sale of factory land in peculiar circumstances, could not be treated as business venture. by any stretch of imagination---Proceeds of sale were deposited directly in the-joint account held by the assessee as well as the creditors, and loans were repaid directly to the banks under the supervision of the creditor's committee---Such mode of sale as well as the payment showed that if the seller/vendor of the property could not utilize the sale proceeds as pet its tree-will at best this could be termed a business arrangement for a particular purpose but not a venture in the nature of trade for the purposes of business activity---Order of First Appellate Authority was vacated by the Appellate Tribunal being contravention of ratio laid down by the superior Courts as well as the other judicial fora---Treating the gain on sale of immovable property as business income by the Assessing Officer was held to be against the law by the Appellate Tribunal and taxation of gain on sale of such land was deleted.

Naseer A. Sheikh and 4 others v. CIT 1992 PTD 621; CIT v. Habib Bank Executors and Trustee Co. 1985 SCMR 284; Edulji Dinshaw Ltd. v. ITO 1990 PTD 155; Messrs Pakistan Industrial Credit and Investment Corporation v. CIT 1980 PTD 322; 2006 PTD (Trib.) 447; 1990 PTD (Trib.) 671; 1984 PTD (Trib.) 127; Shymala Pictures (P.) Ltd. v. CIT (1985) 142 ITR 115 (Mad.); 1989 PTD 460 (Trib.); 1969 PTD 317; 1988 PTD (Trib.) 354; 2006 PTD 1422; S.N.H. Industries (Pvt.) Ltd. v. Income Tax Department 2004 PTD 330; Michael A. Kallivapalil v. CIT Kiraly (1976) 102 ITR 202 (Ker.) and C.LT., Madras v. Kasturi Estates (Pvt.) Ltd. (1966) 62 ITR 578 (Mad.) rel.

(b) Income-tax---

----Capital gain---Summary of facts of the case.

Dr. Ikram ul Haq for Appellant.

Ghazanfar Hussain; D.R. for Respondent.

ORDER

SYED NADEEM SAQLAIN (JUDICIAL MEMBER).---The assessee/appellant is in appeal for the assessment year 2000-2001 calling in question the impugned order, dated 1-11-2003 passed by the learned CIT(A) Zone-III, Lahore. For the assessment years 1998-99, 1999-2000 and 2001-2002, the Revenue has assailed the three separate impugned orders, dated 31-4-2005 and 6-4-2005 respectively. For all the three assessment years, the grievance of the Revenue is that the learned CIT(A) was not justified to delete the tax levied on sale proceeds of land treating it gain on sale of land. While the assesses is in appeal for the assessment year 2000-2001 contesting the findings given by the learned CIT(A), whereby he observed that the gain on sale of land was venture in the nature of trade, hence taxable. Since facts and the issues involved in all the appeals are common, we intend to dispose of the same through this consolidated order,

2. The facts succinctly relevant for the disposal of present appeals are that the assessee is a public limited company deriving income from composite unit running a textile mill. It acquired laud on lease from the Government of Punjab vide Lease agreement, dated 30-4-1951 for setting up a textile mill. As per terms and conditions given in para. 2 of lease agreement the assessse/company was bound to use the land for installation of mill for textile. Later on, in March, 1986, sale-deed was executed between the Government of Punjab and the assesses-company for sale of said piece of land. In the above mentioned sale-deed, the condition was incorporated that said land would be used for industrial purpose. Besides, the company was also bound down to seek prior permission of the Government of Punjab in case it intended to dispose of` the land purchased from the Government. It is pertinent to mention hers that the laud .purchased by the assessee-company was used as factory premises from the day it was acquired on lease since 1951 as per the conditions laid down in the lease deed executed between the Government of Punjab, and the assessee. In 1995, the assessse-company sought permission from the Punjab Government to sell the part of the land to pay outstanding loans, since the company was facing financial crises and was about to default. The Government of Punjab after satisfying itself that company is in dire need of paying debts granted permission vide a letter No. 1567-96/2816/CS-III, dated 2-10-1996.

3. After having the relevant permission from the Government of Punjab, the company in order to maximize the gain on assets, developed a part of its land and sold the divided lots through conventional method. The sale proceeds arising out of the sale of land were not received by the assesses-company directly since the permissions for selling of land was given solely for, the reason that company wanted to pay of its loans obtained from the banks, the sale proceeds were directly deposited into a joint account of the company and the creditor's committee constituted for that, particular purpose and thus, loans were paid off by the said committee according to the ratio of liability.

4. In the returns filed by the assessse-company, the taxpayer claimed exemption on gain accrued on disposal of land bring capital receipts on immovable assets. However, the said plea of the assessee did not find favour with the Assessing Officer while framing assessment. He observed that gain on sale of land cannot be termed as capital gain, hence treated the sale as an adventure in the nature of trade and proceeded to tax the Banns accordingly.

5. Feeling dissatisfied with the assessments' framed by the Assessing Officer, the assesses approached the learned First Appellate Authority who accepted the contentions raised by the assessse that it was a gain on capital assets and not an adventure in the nature of trade as observed by the Assessing Officer, vide a combined order, dated 6-4-2005 pertaining to the assessment years 1999-2000, 2001-2002 and 1998-99 deleted the impugned additions. However, while deciding the assessse's appeal for the assessment year 2000-2001, the learned CIT(A) treated the proceeds of sale of land as an adventure in the nature of trade and thus confirmed the treatment accorded to the assesses whereby the Assessing Officer refused the exemption claimed and the profit earned on the sale of land was held to be taxable. Hence the instant appeals by both the parties, the assessee as well as the Revenue.

6. The learned A.R, has vehemently argued the sass and contended that the learned First Appellate Authority erred in law while adjudicating the assessee's appeal for the assessment year 2000-2001. It was argued by the learned A.R, that the impugned order passed by the learned CIT(A) was contradictory in nature with the findings given by the learned First Appellate Authority with regard to the preceding assessment years as well as the succeeding year i.e. 1998-99, 1999-2000 and 2001-2002. It was argued that observation roads by the learned CIT(A) was incomprehensible when he stated that the plea of the appellant although sound and reasonable but in the sans breath proceeded to observe that it was not fully satisfactory. It was contended that the learned CIT,(A) did not take into consideration the history and the facts of the case but merely rejected the assessee's claim by saying that the fact that the land was sold after dividing it into plats which certainly meant for earning from it. It was also submitted that case-law cited by the assessee before the learned CIT(A) were not only absolutely ignored but the order passed was sketchy and summary in nature. While continuing to argue the learned A.R. pleaded that law laid down by the superior Courts through various judgments and the facts of the Cass are sufficient to show that it was not an adventure in the nature of trade. While elaborating, he submitted that property was obtained on lease in 1951 with the conditions that the assessse would establish textile mill which was complied with accordingly. It was further argued that in March, 1986, the said land was sold to the assessse by the Government of Punjab, again with the conditions that the land would only be used for industrial purposes and in the sass the assessee wanted to sell the land.

He would have to seek permission from the Punjab Government; The learned A.R. while dilating upon the issue stated that in 1995, the assessee faced financial crunch which forced the assessee-company to' sell a part of land to pay its liabilities which it owed to the banks. The learned A. R. informed the Bench that after having sought requisite permission, the said land was developed and sold through conventional methods in order to maximize the gain on sale. The learned A.R. emphasized that sale proceeds were deposited in the joint account held by the assessee and the creditors committee, and the same were only used to pay all the debts under the supervision of creditor's committee.

7. While proceeding with the arguments, the learned A.R, pleaded at the bar that sale of land after making improvements through plotting was meant to pay off loan of the financial institutions, therefore, it could not be considered as an adventure in the nature of trade. It was asserted by the learned A.R. that since land in question already stood pledged with these financial institutions, in case of non-payment, it would have been confiscated by these institutions. He elaborated that after confiscation, the only option which would have been left with these institutions was to sell the land in order to recover the loans but then the land could have been sold without improving the same, hence could not have fetched the maximum gains. Resultantly, liability would have remained unpaid to the larger extent leading to the liquidation of the assessee-company, hence closure of the mill. It was emphatically submitted that it was neither desire of the assessee-company nor helpful for the financial institutions whose loans were stuck up, therefore, with mutual consent, which was beneficial for both the assessee, as well as, the banks that laird was sold after making improvement to achieve maximum capital gain to pay the liabilities and keep the mill running. It was contended by the learned A.R. that all the higher judicial forums have consistent view that before such sale can be termed as adventure in the nature of trade, all the attending factors are to be taken into account especially, intention/object at the time of actual purchase of the property. The learned A.R. submitted that developing land into building site with a view to maximize gain on capital was nothing but realization of capital investment. In support of his contention the learned A.R, relied upon following judgments of the different legal forums:--

(a) Naseer A. Sheikh and 4 others v. CIT 1992 PTD 621.

(b) CIT v. Habib Bank Executors and Trustee Co. 1985 SCMR 284.

(c) Edulji Dinshaw Ltd. v. ITO 1990 PTD 155 (SC Pak.).

(d) Messrs Pakistan Industrial Credit and Investment Corporation v. CIT 1980 PTD 322.

(e) 2006 PTD (Trib.) 447.

(f) 1990 PTD (Trib.) 671.

(g) 1984 PTD (Trib.) 127.

(h) Edulji Dinshaw Ltd., v. ITO 1990 PTD 155 (S.C. Pak.).

8. The learned D.R. has opposed the arguments advanced by the learned A. R. Right at the outset, the learned D.R. was asked to make comments upon the observations made by the learned CIT(A) while passing order for the assessment year 2000-2001 that "the plea of the appellant although sound and reasonable but is not fully satisfactory". He responded that this was an inadvertent mistake due to poor drafting which is prevalent these days, therefore, this may be ignored/condoned. Even otherwise, we are of the considered view that the learned D.R. failed to rebut the assertions made by the learned A.R. Perusal of the impugned order shows that the only reason which weighed with the learned First Appellate Authority while adjudicating the first appeal was that since the land was sold after improvement, the activity constituted venture in the nature of trade. This transaction is also to be seen in the fight of the fact that at no point of time the assessee-company acted as a land speculator or land developer, but in-fact, improvement in the capital asset, was made to discharge financial liability. We also tend to agree with the arguments pressed by the learned A.R that the primary factors that in which could have determined in the nature of instant transaction, that whether it was a venture in the nature of trade or not was the intention of the party at the time when the land was originally acquired on lease by the assessee. Obviously, in the present case when the assessee-company got this land on lease it had no intention to sell it for earning profits or income by getting enhanced price. Rather on the contrary, the assessee-company was bound by the agreement with the Punjab Government to use the land for running a textile mill to which the company adhered to. We are also mindful of the fact that never in the history of the assessee, the assessee indulged in such-like activities other than one of the selling of the land in question. We are also constrained to observe that sine qua non for treating the sale of land as business income in the hands of the company was to prove that land was used as stock in trade and in that case fair market value was to be taken on the debit side at its original cost. It is also worth-nothing that the Assessing Officer at no stage did establish that the company ever acted as a land speculator. Conversely, he hypothetically, connected the sale of land with the business venture against admitted, undisputed facts that land was never acquired for earning profits and the same was utilized as factory land since 1951 to 1996 for the period spanning over 45 years. The fact that since its inception the assessee-company never ventured into this arena either in the past i.e. earlier to the sale of factory land or in subsequent period would go a long way to establish that the selling of property once in 45 years and that too in peculiar circumstances, could not be treated a business venture by any stretch of imagination. There is also no cavil to the arguments advanced by the learned A.R, that had this property been not sold in the manner in which it was done, the banks, creditors would have adopted normal legal course leading to the liquidation of the assessee-company which would have resulted in assets being taken over by the banks. And if this was the case, the laud would have been sold by the banks without developing 'the same which would have fetched much lesser price without achieving the desired results i.e. payment of loans to the banks. One factor which also goes in favour of the assessee is that the proceeds of sale were deposited directly in the joint account held by the assessee-company as well as the creditors, and the loans were repaid directly to the banks under the supervision of the creditor's committee. This mode of sale as well as the payment also shows that if the seller/vendor of the property cannot utilize the sale proceeds as per its free-will, at best this could be termed a business arrangement for a particular purpose but not a venture in the nature of trade for the purposes of business activity.

9. At this juncture we would also like to scan through the case-law cited by the learned A.R. in support of his contention.

(i) Shymala Pictures (P.) Ltd. v, CIT (1985) 142 ITR 115 (Mad.).

"Mere application for permission for a layout of the surplus land or the subsequent sale of land would not lead to the inference that there was conversion of the capital asset into a stock-in trade. The intention of the assessee to sell the laid-out plots was only to discharge the debts and. not for carrying on any adventure in the nature of trade. The fact that the assessee had applied for the sanction of the layout and sold the layout plots instead of selling the entire land as such was only for the purpose of obtaining the best possible price and not for engaging itself in real estate trade. The Tribunal was accordingly correct in its conclusion that surplus was assessable as capital gains."

(ii) CIT v. Habib Bank Executors and Trustee Co. 1985 SCMR 284.

"There is no material to hold and none of the authorities dealing with the case have held as a fact that the assessee was in the business as investor, or that it was dealing speculatively with the investments already made or that the investment formed the stock-in-trade. On the contrary, the record shows that these investments were of funds surplus to its need, were made not the most lucrative stocks but in assessee's own allied concerns. Besides, disinvestments or change in investments did not take place too frequently to project a systematic planned commercial activity. The only fact that its memorandum permitted it to so investment the surplus fund is not on the facts and circumstances of this case sufficient to alter the character of a stray isolated investment into trade or business or art adventure in the nature of trade."

(iii) Naseer A. Sheikh and 4 others v. CIT 1992 PTD 621.

"The question as to whether or not that a transaction is an adventure in the nature of trade, has to be determined, keeping, in view the intention of the assessee, in the light of the legal requirements of concerned of the business."

(iv) 1984 PTD (Trib.) 127.

"Assessee was allotted plot for construction of cinema house--Assessee obtaining loan from Bank for payment of price of plot-Assessee taking all possible steps for getting sanction for construction of cinema house from all concerned authorities--Assessee failing in obtaining requisite "No Objection Certificate" from concerned quarters and disposing of plot without embarking on a commercial plan like converting plot into smaller plots---Held; Resale of plot under circumstances could be to liquidate loan taken from the bank for purchase of plot and also to take profit---Intention of assessee at the time of purchase could not be said to be nothing but to earn substantial profit by resale--Transaction in question, held was not venture in nature of trade and profits earned by assessee were not liable to tax.".

(v) 1989 PTD 460 (Trib.)

"The solitary issue 'requiring determination was whether the transaction of sale made by the assessee through sale agreement amounted to an adventure iii the .nature of trade and profits earned therefrom were taxable as revenue receipts. For resolving this issue the real test is the dominant intention and conduct of the concerned party. It has to be seen that at the time of purchase/sale of land, what was the intention of the assessee."

(vi) 1969 PTD 317

"In order to continue a business, there must be a continuous exercise of activity for the purpose of gain. This element of continuity is essential to constitute a business of investment. The reason for this condition is that in modern society people no longer hold their savings in gold or cash but are encouraged to invest their savings in property and securities, yet a man who invests his savings in buying a .property would not be said to be carrying on a business if he lets out the property on rent, nor would a person who has purchased shares out of his savings be said to carry on business merely because he derives income from his investment. If, however, he regularly buys and sells property or shares, so as to mate profit out of the fluctuations in the prices of property or shares, then it would be said that he was carrying on the business of investment; there is thus a fundamental distinction between the business of investment and the purchase and sale of investment by a person. Even occasional speculation in shares does not amount to carrying on a business, therefore, a person, who buys property or shares and retains them for a long period of time, would not be considered to be carrying on the business of investment."

(vii) 1990 PTD (Trib.) 671.

"The solitary issue requiring determination is whether the transaction undertaking by the assessee-company was an adventure iii the nature of trade. Decision of this issue mainly depends on the intention of the assessee-company at the time of purchase."

(viii) Messrs Pakistan Industrial Credit and Investment Corporation v. CIT 1980 PTD 322.

"Whether or not a transaction or transactions are in the line of assessee's trade is not capable of an easy answer. The answer to be given cannot be promised on a single- criterion. In each case regard must be had to the character and circumstances of the transaction. If what is purchased is some thing which is itself an ordinary investment, such as shares, a potential source of revenue, the transaction, in the absence of evidence to the contrary, will not be in the line of business. On the other hand buying and selling shares speculatively in order to make gain, the shares will become stock-in-trade and dealing in such investment, a business, making the profit a revenue receipt. Such dealing would amount to commercial disposal of shares. The later will be profit income and the former accretion to capital . "

(ix) Edulji Dinshaw Ltd. v. I.T.O. 1990 PTD 155 (S.C. Pak.)

"On the facts and circumstances proved on record, the sale proceeds of the properties, and the compensation amounts received from the Government in respect of the compulsory acquisition of the properties were indeed capital gain, and was not income from business for the company was not a dealer or engaged in the business of buying and selling of the properties."

(x) 2006 PTD (Trib.) 447.

"We are of the considered view that 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.

(xi) 1989 PTD (Trib.) 460 (Trib.)

"The departmental officers failed to establish the assessee's intention of purchase of land in 1965 for sale after 15 years in the hope of earning of any profit."

(xii) 1988 PTD (Trib.) 354.

"In order to see whether any transaction is an adventure of trade the criterion is the intention of the purchaser at the time of purchase and not at the time of the sale."

In a latest judgment reported as 2006 PTD 1422 following the consistent view held by different judicial for a, the honourable Sindh High Court while deciding a reference against the decision of the ITAT, once again, reaffirmed this view in the following manner:--

"Section 34---Concealment of income---Non-disclosure of exempt income in return - Assessee converted agricultural land into small plots and disposed them of by sale without declaring income, but however, declared in wealth tax---Tribunal found that such income was in nature of sale 'proceeds of plot of land in nature of gain and no income was concealed---Challenge to---Whether Tribunal had rightly found that profit/gain after development of agricultural land was not liable to tax and that income so earned was not required to be disclosed iii return of income---Held yes---Whether entire facts were disclosed in wealth statement and non-disclosure of income/gain in relevant column of return of income would not amount to concealment or suppression of particulars of income/gain---Held, yes.

10. In the light of arguments advanced by the learned A.R. as well as case law cited supra, following points emerge which are relevant for the determination of issue which is sub judice before us i.e. whether proceeds accrued from the sale of land effected by the assessee was a capital gain on sale of land or venture in the nature of trade:--

(a) It is very much obvious that company was never established to carry on business of sale of landed property.

(b) The land acquired by the assessee in 1951 on lease with the condition that it would be used for industrial purposes, dearly showed that at the time of acquiring property, the assessee company never intended to sell the land in order to earn profit.

(c) The sale of the land of factory after a long period of 45 years and that too under compulsive circumstances when the assessee was facing financial difficulties also proves that the assessee never wanted to sell it, hence could not be termed adventure in the nature of business trade.

(d) It is also admitted fact that the assessee-company never indulged in sale of land since its inception either earlier or subsequent to the transaction in question.

(e) It is also established that the sale of land by the assessee was a conditional sale because initially the assessee did not have permission to sell the land which was eventually sought from the Government of Punjab for payment of loan.

(f) The proceeds of sale were deposited in joint account held by the creditor's conunittee and the assessee-company and the payments were made to satisfy the loans of the banks- under the supervision of the creditor's committee.

(g) Since the land was to be sold to repay the liability, it was "prudent for the assessee to sell the land after its improvement to fetch the maximum gain in order to pay its outstanding debts and hence the activity was not in line with: its regular business.

(h) The Revenue also could not bring on record anything to say that the assessee company was ever involved or acquired the said property with the view to earn speculated profit which is a pre-requisite for adjudging such transaction as "an adventure in the nature of trade".

(i) The only reasoning which was advanced by the Assessing Officer as well. as learned First Appellate Authority for the assessment year 2000-2001 is "that land was sold after development and improvement by bifurcating into different plots and, therefore, the same was an adventure in the nature of trade" stands rebutted by the consistent view held by the Courts through various judgments/pronouncements on the issue.

11. After having analyzed the facts produced in foregoing .paragraphs coupled with the case-law cited by the learned A.R, in support of his contention, we have no hesitation in holding that case-law relied upon by the learned A.R. is on all fours to the facts of the case of the assessee.

12. At this juncture it would not be out of place to have a look at the case-law which we're referred to by the Assessing Officer at the time, of Naming the assessment for the years under consideration.

(i) S.N.H. Industries (Pvt.) Ltd. v. Income .Tax Department 2004 PTD 330.

In the case, nature of business of assessee was manufacturing assembling of TV sets. It acquired an industrial plot for meeting with the requirement of further expansion of manufacturing/assembling plant. It actually utilized a portion for existing plant. His planning of further expansion was adversely affected on account of the Government policy in allowing import of TV sets. On account of this situation the assessee was faced with a dilemma as a huge amount got stuck up in the plot which was of no use to it. It ultimately sold out the plot. The Assessing Officer in assessment order under section 62 concluded that the transaction" of sale of a portion of plot was not an adventure in the nature of trade and accepted the sale proceeds as capital gain not liable to be taxed. The IAC issued show-cause notice under section 66A showing his intention of treating this transaction as an adventure in the nature of trade. In Constitutional petition before Sindh High Court, the honourable Court held that transaction was not adventure in the nature of trade Relevant portion is reproduced below:--

"No hard and fast rules or principles can be laid down for determining whether a transaction of sale of immovable property resulting in profit/gain was a transaction in the nature of-trade or not. In deciding the above issue many factors acid circumstances are required to be taken into consideration and the primary factor is the intention of party at the time when he acquired the assets whether immovable or movable."

(ii) Michael A. Kallivapalil v. CIT Kuala (1976) 102 ITR 202 (Ker.) In the above-quoted case, the assessee who owned 1000 acres of land derived income by owning and. managing estates. He entered into an agreement to buy 575 acres and borrowed money for making the purchase. He sold 225 acres and made a profit. The Tribunal held that the sale transaction amounted to an adventure in the nature of trade because (i) the assessee had borrowed money for the purchase, (ii) he intended to resell the land at a profit and (iii) at the, time of making the sale the assessee was under no dire necessity to sell. The High Court disapproved Tribunal holding with the following observation;

"The fact that the assessey haft borrowed money for purchasing the land or that he intended to resell it at profit would not necessarily mean that the transaction was an adventure in the nature of trade. The assessee who bought land was an estate owner who already owned a thousand acres of land and was making his living by managing estates. He never dealt in purchase of land or estate. It' was not shown that he had any business or trade. The bulk of the states purchased had been retained by him. On the facts and circumstances of the case the Tribunal was not justified in holding that the sale of the land by the assessee represented an adventure in the nature of trade."

(iii) C.I.T., Madras v. Kasturi Estates (Pvt.) Ltd. (1966) 62 ITR 578 (Mad.)

In this case, the company developed a portion of its lands by .laying out housing plots, making roads, etc., and disposed of nearly.30 grounds of land to various parties by parceling it into .housing plots. The Assessing Officer treated the transaction as adventure in the nature of trade. The High Court disapproved the order with the following observations;

"Developing land into building sites with a view to realize the best price, without anything more is consistent with realization of a capital investment of a landowner developed his land, expended money on it, laid roads, converted the land into house sites and with a view to get a better price for the land, eventually sold the plots for a consideration yielding a surplus, it could hardly be said that the transaction is anything than a realization of a capital investment or conversion of one form of asset into another. The surplus in such a case will not be trading or business profit because .the transaction is one of realization of asset in investment rather than one in the course of trade carried on by the assessee or an adventure in the nature of trade."

13. Perusal of the aforementioned case-law which the Assessing Officer reproduced in the assessment order also favours the stance adopted by the assessee rather than helping the Revenue. We wonder that the Assessing Officer appeared to be at pains to extract something in favour of the Department which was not there at all by any stretch of imagination.

14. In the light of aforesaid facts as well as the law cited at the bar, we find ourselves in full agreement with the. assertions made by the learned A.R. Resultantly, we vacate the orders, dated 1-11-2003 relevant to the assessment years 2000-2001, passed by the learned CIT(A) being in contravention of ratio laid down by the superior Courts as well as the a other judicial fora. Consequently, treating the gain on sale of immovable property as business income by the Assessing Officer is held to be against the law, hence taxation of gain on sale of land stands deleted.

15. Since we have accepted the appeal of the assessee for the assessment year 2000-2001; the facts and issue being identical for the assessment year 1998-99; 1999-2000 and 2001-2002, we do not feel inclined to warrant our interference in the impugned orders passed by the learned CIT(A) for the assessrnentyears1998-99, 1999-2000 and 2001-2002which are hereby confirmed.

16. As a result of above discussion appeal of the assessee succeeds white those of the Revenue stand rejected.

C.M.A./55/Tax (Trib:)Assessee's appeal succeeded.