I inherited agricultural land, got it converted, carved it into plots, laid roads and drains and sold the plots over three years. The Assessing Officer says it is an adventure in the nature of trade. Must the gain be business income?
Not on these facts. The Madhya Pradesh High Court held that selling one's own land after plotting it out in order to secure a better price is not an adventure in the nature of trade or business, that an isolated transaction can be business only where there is regular activity of purchasing and selling, and that nothing showed the land had been acquired for the purpose of selling it in plots. The Revenue's appeals were dismissed, on that ground and also because the tax effect fell below the CBDT's monetary limit for filing an appeal.
Decided by the High Court (P.K. Jaiswal J (named in the source as author and as the bench); no second judge is named in the report read, although the judgment is written in the first person plural) on 2007-01-11, reported as (2007) 209 CTR (MP) 410; [2008] 298 ITR 277 (MP); 2007 (2) MPHT 296; Madhya Pradesh High Court, Misc. Appeals under s.260A against the common Tribunal order of 11 September 2002 in I.T.A. Nos. 1979, 1980 and 1981/Del/1995; the Misc. Appeal numbers are not stated in the report read. It bears on section 2(13), section 2(14), section 45, section 260A of the Income Tax Act 1961, in Capital Gains, Assessment & Scrutiny and Appeals matters.
This is the taxpayer's half of the commonest live dispute on a sale of agricultural land, and it should always be read alongside the Revenue's half — see Rajendra Kumar Dwivedi v. CIT (Allahabad High Court, 24 August 2012), where materially similar development activity produced business income and a s.45(2) conversion charge. What separates them is not the plotting or the roads, which were present in both, but how the land came in and what the taxpayer's occupation was. Here the land was received by gift, the taxpayer had no history of dealing in real estate, and the Court treated the development as an owner realising his asset to advantage; there the taxpayer had bought part of the land, executed 43 sale deeds over seven years, and carried on no agricultural operations. The controlling authorities the Court relied on are the ones to cite: CIT v. A. Mohammed Mohideen for the proposition that plotting and developing before sale does not by itself establish trading and that the Revenue must establish by positive evidence that the purchase and sale were with a view to earn profit through a trading transaction, and Indian Hume Pipe for sporadic purchases sold in driblets without development. Note the second, independent ground: the Court held the appeal not maintainable because the CBDT circular of 27 March 2000 barred a departmental appeal where the tax effect was below Rs 2 lakh. That makes the case a two-ground authority — merits and maintainability — and the monetary-limit ground is not year-limited in principle, though the current threshold is far higher and has to be looked up for the year in hand.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
The assessee had income from the sale of property, agricultural income and income from a general goods business at Sadar Bazar, Guna. He had been adopted by Smt. Mishri Bai, and as the adoption was in litigation she gifted him agricultural land by a gift deed dated 2 September 1974; the dispute was later resolved in his favour. From 1982 he took steps to have the land diverted to non-agricultural purposes and the diversion order came in 1986. The land was then converted into 40 plots forming Goyal Colony. Besides approval of the map and deposit of tax, development work including the making of roads was carried out, and expenditure on development was claimed in two of the three assessment years; part of the land was reserved for his own use. The Assessing Officer held the sale of the plots to be an adventure in the nature of trade. The Commissioner (Appeals), having regard to the location, the diversion, the growth of Guna and the industrial activity around Gwalior and Bhopal, and to the levelling, road and drainage work, upheld him. The Tribunal reversed, holding the surplus to be capital gains, and the Revenue appealed under s.260A. The assessee also objected that the appeal was not maintainable because the CBDT circular of 27 March 2000 barred departmental appeals where the tax effect was below Rs 2 lakh.
All three appeals were dismissed. The selling of one's own land after plotting it out in order to secure a better price is not an adventure in the nature of trade or business; the surplus was capital gains and not assessable as business income, and in any event the question was essentially one of fact so that no substantial question of law arose. The Court additionally upheld the objection that the Revenue could not file the appeal at all, the tax effect being below the limit fixed by the CBDT circular (paras 15 to 17).
The Court took the definition of 'business' in s.2(13), which includes any adventure or concern in the nature of trade, commerce or manufacture, and held that although an isolated transaction can be part of business, there must be regular activity of purchasing and selling before the question of business arises. There was nothing on record to show that the land had been purchased for the purpose of selling it in plots; it was gifted land, developed and sold in plots with a view to securing a better price, so the isolated activity fell outside the concept of an adventure in the nature of trade (para 15). In reaching that view the Court relied on CIT v. A. Mohammed Mohideen (1988) 74 CTR (Mad) 129, that plotting and developing land before sale would not by itself establish trading, that an owner may undertake such acts to realise the maximum price, and that the Revenue must establish by positive evidence that the purchase and sale were with a view to earning profits through a trading transaction (para 9); on Indian Hume Pipe Co. Ltd. v. CIT (1992) 107 CTR (Bom) 95, that an assessee not in the real estate business who bought pieces of land sporadically and sold them mainly in driblets without developing or improving them was not assessable to business income (para 10); on the Hyderabad Tribunal in B. Narasimha Reddy, where ancestral agricultural land was plotted and sold per square yard after layout approval and the profit was held to be capital gains on a transaction to realise the maximum from a capital asset (para 11); and on the Supreme Court in CIT v. Gemini Pictures Circuit Pvt. Ltd. 220 ITR 43 (para 12). On maintainability it applied the rule that CBDT circulars bind the Revenue, following the Bombay High Court in CIT v. Cameo Colour Co. 254 ITR 565 and CIT v. Pithwa Engineering Works and its own decision in ACIT v. Aradhana Oil Mills (2002) 30 ITC 446, and the Supreme Court decisions in Navnit Lal C. Javeri, Ellerman Lines and K.P. Varghese (para 16).
Considering the aforesaid facts and circumstances of the case, we are also of the view that the selling of own land after plotting it out in order to secure better price, is not an adventure in the nature of trade or business.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppNot on these facts. The Madhya Pradesh High Court held that selling one's own land after plotting it out in order to secure a better price is not an adventure in the nature of trade or business, that an isolated transaction can be business only where there is regular activity of purchasing and selling, and that nothing showed the land had been acquired for the purpose of selling it in plots. The Revenue's appeals were dismissed, on that ground and also because the tax effect fell below the CBDT's monetary limit for filing an appeal. This was decided by the High Court (P.K. Jaiswal J (named in the source as author and as the bench); no second judge is named in the report read, although the judgment is written in the first person plural) and bears on section 2(13), section 2(14), section 45, section 260A of the Income Tax Act 1961. It is reported as (2007) 209 CTR (MP) 410; [2008] 298 ITR 277 (MP); 2007 (2) MPHT 296; Madhya Pradesh High Court, Misc. Appeals under s.260A against the common Tribunal order of 11 September 2002 in I.T.A. Nos. 1979, 1980 and 1981/Del/1995; the Misc. Appeal numbers are not stated in the report read. This is the taxpayer's half of the commonest live dispute on a sale of agricultural land, and it should always be read alongside the Revenue's half — see Rajendra Kumar Dwivedi v. CIT (Allahabad High Court, 24 August 2012), where materially similar development activity produced business income and a s.45(2) conversion charge. What separates them is not the plotting or the roads, which were present in both, but how the land came in and what the taxpayer's occupation was. Here the land was received by gift, the taxpayer had no history of dealing in real estate, and the Court treated the development as an owner realising his asset to advantage; there the taxpayer had bought part of the land, executed 43 sale deeds over seven years, and carried on no agricultural operations. The controlling authorities the Court relied on are the ones to cite: CIT v. A. Mohammed Mohideen for the proposition that plotting and developing before sale does not by itself establish trading and that the Revenue must establish by positive evidence that the purchase and sale were with a view to earn profit through a trading transaction, and Indian Hume Pipe for sporadic purchases sold in driblets without development. Note the second, independent ground: the Court held the appeal not maintainable because the CBDT circular of 27 March 2000 barred a departmental appeal where the tax effect was below Rs 2 lakh. That makes the case a two-ground authority — merits and maintainability — and the monetary-limit ground is not year-limited in principle, though the current threshold is far higher and has to be looked up for the year in hand. If it applies to you, the first step is this: Establish how the land came into your hands. Inheritance, gift or long holding is the strongest single fact; a purchase shortly before the plotting is the weakest.
The assessee had income from the sale of property, agricultural income and income from a general goods business at Sadar Bazar, Guna. He had been adopted by Smt. Mishri Bai, and as the adoption was in litigation she gifted him agricultural land by a gift deed dated 2 September 1974; the dispute was later resolved in his favour. From 1982 he took steps to have the land diverted to non-agricultural purposes and the diversion order came in 1986. The land was then converted into 40 plots forming Goyal Colony. Besides approval of the map and deposit of tax, development work including the making of roads was carried out, and expenditure on development was claimed in two of the three assessment years; part of the land was reserved for his own use. The Assessing Officer held the sale of the plots to be an adventure in the nature of trade. The Commissioner (Appeals), having regard to the location, the diversion, the growth of Guna and the industrial activity around Gwalior and Bhopal, and to the levelling, road and drainage work, upheld him. The Tribunal reversed, holding the surplus to be capital gains, and the Revenue appealed under s.260A. The assessee also objected that the appeal was not maintainable because the CBDT circular of 27 March 2000 barred departmental appeals where the tax effect was below Rs 2 lakh. The matter was decided on 2007-01-11 by the High Court (P.K. Jaiswal J (named in the source as author and as the bench); no second judge is named in the report read, although the judgment is written in the first person plural). On those facts the High Court held as follows. All three appeals were dismissed. The selling of one's own land after plotting it out in order to secure a better price is not an adventure in the nature of trade or business; the surplus was capital gains and not assessable as business income, and in any event the question was essentially one of fact so that no substantial question of law arose. The Court additionally upheld the objection that the Revenue could not file the appeal at all, the tax effect being below the limit fixed by the CBDT circular (paras 15 to 17).
The Court took the definition of 'business' in s.2(13), which includes any adventure or concern in the nature of trade, commerce or manufacture, and held that although an isolated transaction can be part of business, there must be regular activity of purchasing and selling before the question of business arises. There was nothing on record to show that the land had been purchased for the purpose of selling it in plots; it was gifted land, developed and sold in plots with a view to securing a better price, so the isolated activity fell outside the concept of an adventure in the nature of trade (para 15). In reaching that view the Court relied on CIT v. A. Mohammed Mohideen (1988) 74 CTR (Mad) 129, that plotting and developing land before sale would not by itself establish trading, that an owner may undertake such acts to realise the maximum price, and that the Revenue must establish by positive evidence that the purchase and sale were with a view to earning profits through a trading transaction (para 9); on Indian Hume Pipe Co. Ltd. v. CIT (1992) 107 CTR (Bom) 95, that an assessee not in the real estate business who bought pieces of land sporadically and sold them mainly in driblets without developing or improving them was not assessable to business income (para 10); on the Hyderabad Tribunal in B. Narasimha Reddy, where ancestral agricultural land was plotted and sold per square yard after layout approval and the profit was held to be capital gains on a transaction to realise the maximum from a capital asset (para 11); and on the Supreme Court in CIT v. Gemini Pictures Circuit Pvt. Ltd. 220 ITR 43 (para 12). On maintainability it applied the rule that CBDT circulars bind the Revenue, following the Bombay High Court in CIT v. Cameo Colour Co. 254 ITR 565 and CIT v. Pithwa Engineering Works and its own decision in ACIT v. Aradhana Oil Mills (2002) 30 ITC 446, and the Supreme Court decisions in Navnit Lal C. Javeri, Ellerman Lines and K.P. Varghese (para 16). In the words reproduced by the source cited on this page: "Considering the aforesaid facts and circumstances of the case, we are also of the view that the selling of own land after plotting it out in order to secure better price, is not an adventure in the nature of trade or business." The decision followed or applied CIT v. A. Mohammed Mohideen (1988) 74 CTR (Mad) 129 — followed; Indian Hume Pipe Co. Ltd. v. CIT (1992) 107 CTR (Bom) 95 — followed; CIT v. Gemini Pictures Circuit Pvt. Ltd. 220 ITR 43 (SC) — considered; CIT v. Cameo Colour Co. 254 ITR 565 (Bom.) — followed on the binding effect of the CBDT circular.
It was decided by the High Court on 2007-01-11 and is reported as (2007) 209 CTR (MP) 410; [2008] 298 ITR 277 (MP); 2007 (2) MPHT 296; Madhya Pradesh High Court, Misc. Appeals under s.260A against the common Tribunal order of 11 September 2002 in I.T.A. Nos. 1979, 1980 and 1981/Del/1995; the Misc. Appeal numbers are not stated in the report read. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 2(13), section 2(14), section 45, section 260A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. All three appeals were dismissed. The selling of one's own land after plotting it out in order to secure a better price is not an adventure in the nature of trade or business; the surplus was capital gains and not assessable as business income, and in any event the question was essentially one of fact so that no substantial question of law arose. The Court additionally upheld the objection that the Revenue could not file the appeal at all, the tax effect being below the limit fixed by the CBDT circular (paras 15 to 17). It arises in Capital Gains, Assessment & Scrutiny and Appeals matters, on section 2(13), section 2(14), section 45, section 260A of the Income Tax Act 1961, and was decided by P.K. Jaiswal J (named in the source as author and as the bench); no second judge is named in the report read, although the judgment is written in the first person plural. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Show there is no regular activity of purchase and sale. The Court's test is that an isolated transaction can be part of business, but there must be regular activity of purchasing and selling to make it so. Put the burden where the Court put it: the Revenue has to establish by positive evidence that the purchase and sale were with a view to earning profit through a trading transaction. Suspicion arising from the development work is not enough. Do not concede that laying roads and drains is fatal. It was present here and the Court still held it was realisation of a capital asset at the best price. Check the tax effect against the CBDT monetary limit for the year and take maintainability as a separate preliminary ground where the Revenue is the appellant. Be ready for the other side of the line: if you carried on no agricultural operations, bought part of the land, and sold over many years by dozens of deeds, expect Dwivedi and a s.45(2) conversion charge instead.
Validity check could not be completed. Validity check could not be completed. Later treatment was NOT checked — indiankanoon's search endpoint returned HTTP 429 on the citator queries attempted. Two cautions independent of later treatment. First, the decision expressly says the question is essentially one of fact, so it is persuasive on facts of the same shape rather than a rule of law; the Allahabad High Court in Rajendra Kumar Dwivedi v. CIT (24 August 2012) reached the opposite result on materially different facts and that decision is also in this batch. Second, the maintainability ground rests on the CBDT monetary limit as it stood under the circular dated 27 March 2000 (Rs 2 lakh); the limit has been revised repeatedly since and the current figure must be looked up for the year in hand — do not carry the Rs 2 lakh figure forward. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Read in full from the indiankanoon print view. The source header names P.K. Jaiswal J as author and as the bench and names no second judge, although the judgment is written throughout in the first person plural; the composition of the Bench beyond that one name could not be established from the report read. The report contradicts itself at para 6: 'There is no dispute about the facts of the case that the respondent received the land by way of gift deed dated 2-9-1974. Originally, it was a non-agricultural land. When the gift deed was executed, it was an agricultural land and thereafter the respondent got it diverted from agricultural to non-agricultural land.' The second sentence is inconsistent with the third and with para 3; the rest of the judgment proceeds on the footing that the gifted land was agricultural and was afterwards diverted. There is a second slip: para 4 cites 'Smt. Mishri Devi (2007) 184 CTR (MP) 432' and para 13 cites 'Commissioner of Income Tax v. Smt. Saraswati Jaiswal (2003) 184 CTR (MP) 432' — the same citation for two different case names. The report also gives CIT v. Shashi Kumar Agrawal as 195 ITR 67 at para 4 and as 195 ITR 767 at para 8. The Court's reasoning is also internally awkward in that having held the appeal not maintainable it nonetheless decided the merits; both grounds are stated in the disposal at paras 15 and 17. The appeal numbers of the Misc. Appeals are not printed in the report read. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
All three appeals were dismissed. The selling of one's own land after plotting it out in order to secure a better price is not an adventure in the nature of trade or business; the surplus was capital gains and not assessable as business income, and in any event the question was essentially one of fact so that no substantial question of law arose. The Court additionally upheld the objection that the Revenue could not file the appeal at all, the tax effect being below the limit fixed by the CBDT circular (paras 15 to 17).
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
Our JDA was never registered and the project collapsed. Am I still taxed on capital gains?
You gave particulars, paid by cheque and got a confirmation. Has the burden shifted?
The Tribunal recalled its whole order on my miscellaneous application. Will that recall survive?
The AO says I sold below market value and wants to tax the difference. Can he do that?