COMMISSIONER OF INCOME TAX Vs. KRISHNA RAO M

JUDGEMENT

(1.) THIS reference raises the question whether the sale of the plots by the assessee is assessable to tax as income from adventure in the nature of trade for the assessment years 1968-69 and 1969-70.

(2.) THE assessee purchased 16 acres and 14 guntas of land which was jointly held by two owners. He purchased the share of one owner on December 19, 1964, for Rs. 5,000. About three years later on September 2, 1967, he purchased the share of the other owner for Rs. 25,000. He then applied to the Village Panchayat for permission to convert the land into building sites. On January 24, 1968, the Village Panchayat granted him the requisite permission to convert his land into building sites. He had also named the colony as "Durganagar Colony". Out of the total extent of 16 acres and 14 guntas, 10 acres was converted into building sites. The assessee then sold some of the plots in the relevant assessment years 1968-69 and 1969-70 for Rs. 35,222 and Rs. 1,06,273, respectively. The ITO treated the income as an income from adventure in the nature of trade. That led to the assessee preferring an appeal before the AAC. The AAC confirmed the order of the ITO only in so far as it related to the assessment year 1968-69. As there was a change in the appellate authority for the next year (of assessment) 1969-70, the successor officer held that the income was not from the adventure in the nature of trade or business. That led to the assessee preferring an appeal to the Tribunal.

(3.) MR.Rama Rao, the learned counsel for the revenue, invited our attention to Raja J. Rameshwar Rao v. CIT to contend that the view expressed by the Supreme Court in that case is on all fours with the case on hand. Mr. Anjaneyulu, the learned counsel appearing for the assessee, contended that there is no justification at all for coming to a contrary view as it was never the intention of the assessee by plotting out the land to make a business out of it. In other words, it is his case that he was not a dealer in real property and that he had purchased agricultural land for the purpose of investment and not for the purpose of making a business out of it. The facts as emerge from the statement of the case show that he had originally purchased half share of one of the owners of the land on December 19, 1964, for Rs. 5,000. He purchased the other half share for Rs. 25,000 on September 2, 1967. It is from the fact that there was a time lag of over 21/2 years between the first transaction and the second transaction that the learned counsel for the assessee sought to contend that it was never the intention of the assessee to trade in real property, and if that was the intention he would have sought conversion of the half share which he had purchased on December 19, 1964, immediately thereafter into building sites. Whether the assessee intended to deal in real property or not has to be judged not from the fact that there was a time lag between the first transaction and the second transaction, but from the fact whether he sought to convert the land which was originally agricultural land into building sites. We are of the opinion that he waited for 21/2 years only to purchase the other half share also and make a business out of it. If it was not his intention to deal in real property and he only wanted to invest his monies, he would have sold the land as purchased by him for a higher price. It is not as if he sold the land in its original form. He applied to the Panchayat for a layout and it was sanctioned by it on January 24, 1968. As may be seen from the date of the second transaction and the date of permission granted by the Panchayat to convert the land into house sites, his intention was not to sell the property without conversion. If it was really a question of investment, as is now sought to be made out by the learned counsel for the assessee, he would have sold the land acquired by him under the two transactions as it was for a higher price. That there was rise in the market value of land is evidenced by the two transactions. He could have easily got at the rate of the second transaction, if he desired Rs. 25,000 for the half share which he first purchased at Rs. 5,000. It is, therefore, plain that his intention was to trade or deal in real property. That is why, he plotted out an extent of 10 acres of land and sold some of the plots in the assessment year 1968-69 for Rs. 35,222 and in the next assessment year for Rs. 1,06,273. He would not have realised those amounts if there was no layout and if he had not plotted out the land for building sites. The Supreme Court in Raja J. Rameshwar Rao v. CIT [1961] 42 ITR 179 has stated unequivocally that even a single venture may be regarded as in the nature of trade or business. That was a case where a jagirdar purchased about 217 acres of land for Rs. 25,502. He constructed on a portion of it shops and in the rest of the land plots were laid out which he sold for Rs. 75,820. The question arose whether the amount of Rs. 75,820 which he realised was income from business. An identical contention as has been raised in this case by the assessee was raised there too, and the learned judges repelling the contention observed (p. 181) :