Margao, Goa v. The Commissioner Of Income

1 TXA Suchitra IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO.30 OF 2013 M/s. Afonso Real Estate Developers, No.14/4, Garden View Bldg., Near Collectorate office, Margao, Goa. .... Appellant Versus 1. The Commissioner of Income Tax, having office at Aayakar Bhavan Patto Plaza, Panaji, Goa. 2. The Income Tax Officer, Ward-2, Margao, Goa. .... Respondents Mr. S. R. Rivonkar, Senior Advocate along with Ms. N. Rivonkar,Advocate for the Appellant. Ms. Amira Razaq, Standing Counsel for the Respondent. Coram:- M.S. SONAK & NUTAN D. SARDESSAI, JJ. Date:- 21st February, 2020 ORAL JUDGMENT(Per M. S. Sonak, J.) Heard Mr. S. R. Rivonkar, learned Senior Advocate along withMs. N. Rivonkar for the Appellant and Ms. Amira Razaq, learnedStanding Counsel for the Income Tax Department - Respondent. 2 TXA 2.On 10.12.2013, this appeal was admitted on the followingsubstantial questions of law: i.Whether the learned Tribunal was right in holding thattransaction is a business transaction when there was only onetransaction and not series of transactions? ii.provisions of Section 2(14) of the Income Tax Act? Whether the learned Tribunal has correctly interpreted the 3.Mr. S. R. Rivonkar, learned Senior Advocate for the appellantsubmits that in fact, only the substantial question of law at (i) abovearises for determination and should the same be answered in favour ofthe appellant, then, the impugned judgment and order dated23.08.2013 made by the Income Tax Appellate Tribunal (ITAT) willhave to be set aside and the order of the CIT (Appeals) dated26.03.2013 will have to be restored. 4. Ms. Amira Razaq, learned Standing Counsel for the respondentalso accepts that the aforesaid position stated by Mr. Rivonkar iscorrect. Hence, we proceed to decide only the first substantialquestion of law which arises in the present appeal. 5. The appellant-assessee is a partnership firm constituted videPartnership Deed dated 29.07.1989. This firm was however registeredonly on 04.04.2006, about which there is no serious dispute. The record indicates that the firm had acquired agricultural land atCavelossim admeasuring 28,200 sq.mtrs. vide a Deed of Exchangedated 15.08.1990. This land along with another property admeasuring2,525 sq.mtrs., was sold by the appellant-assessee vide Sale Deed dated13.07.2006 to Headway Resorts Line Pvt. Ltd. Company for totalconsideration of `1,69,20,000/-. 6. The appellant-assessee filed return of income on 30.01.2008 forthe Assessment Year 2007-08 declaring a total income of `1,57,069/-,claiming deduction to the extent of `1,69,20,000/- inter alia on theground that the amount received towards the sale of the propertieswere assessable as long term capital gains which were entitled to bededucted in terms of Section 54E and 54EC of the Income Tax Act,1961 (I.T. Act). 7. The Assessing Officer (AO) did not agree with the contention ofthe appellant-assessee inter alia on the ground that the Cavelossimproperty fell within a distance of 8 kms. from the limits of the MargaoMunicipal Council. The appellant-assessee appealed to CIT (Appeals)vide ITA No.163/MRG/10 (AY 2007-08). 8. Soon thereafter, the respondent no.2 issued notices underSections 147 and 148 of the I.T. Act to the appellant-assessee seeking to reopen the assessment for Assessment Year 2007-08. After hearingthe assessee, revised assessment order was made on 21.02.2011computing the entire income of the appellant-assessee as “businessincome”and bringing the same to tax. The appellant-assessee therefore,preferred yet another appeal being ITA No.348/MRG/10-11 to theCIT (Appeals). 9. The CIT (Appeals), disposed of both the appeals by commonjudgment and order dated 26.03.2013. Both the appeals were allowedand the orders of the AO were set aside. 8. Soon thereafter, the respondent no.2 issued notices underSections 147 and 148 of the I.T. Act to the appellant-assessee seeking to reopen the assessment for Assessment Year 2007-08. After hearingthe assessee, revised assessment order was made on 21.02.2011computing the entire income of the appellant-assessee as “businessincome”and bringing the same to tax. The appellant-assessee therefore,preferred yet another appeal being ITA No.348/MRG/10-11 to theCIT (Appeals). 9. The CIT (Appeals), disposed of both the appeals by commonjudgment and order dated 26.03.2013. Both the appeals were allowedand the orders of the AO were set aside. 10. The Revenue instituted appeal being ITA No.98/PNJ/2013before the ITAT to question the common judgment and order dated26.03.2013 made by CIT (Appeals). The appellant-assessee filed cross-objections which were numbered as 26/PNJ/2013. The ITAT videcommon order dated 23.08.2013 allowed the Revenue’s appeal anddismissed the cross-objections of the appellant-assessee, thereby,restoring the orders made by the AO that the income derived by theappellant-assessee from the sale of the properties was “businessincome”. Hence the present appeal on the aforesaid substantialquestion of law. 11. Mr. Rivonkar, the learned Senior Advocate for the appellant submits that the business of the appellant-assessee was to developproperties into plots or by constructing buildings and thereafter engagein the real estate business. He submits that the fact that theagricultural land was purchased in the year 1990 and the same was noteven converted suggests that the appellant-assessee was not carrying onany business in relation to such property. He submits that on the basisof a single transaction of this nature, it could not have been held thatthe appellant-assessee was carrying on business in selling andpurchasing properties. He submits that there is absolutely no materialon record to establish that the appellant-assessee was engaged in thebusiness of selling and purchasing agricultural properties and therefore,the ITAT, was not at all right in recording a finding that the proceedsfrom sale constitute income from business. He relied upon decision ofthe Supreme Court in Narain Swadeshi Weaving Mills vs.Commissioner of Excess Profits Tax – AIR 1955 SC 176. 12. On the other hand, Ms. Razaq defends the impugned judgmentand order made by the ITAT on the basis of the reasoning reflectedtherein. She submits that the finding recorded by the ITAT is borneout by the material on record and therefore warrants no interference inthis appeal. 13. The rival contentions now fall for our determination. 14. The main issue involved in this appeal is whether the proceedsfrom sale of the properties vide sale deed dated 13.07.2006 can beregarded as income from business or not. 15. The appellant-assessee was constituted vide Deed of Partnershipdated 29.07.1989. The business of the partnership is that of real estatedevelopers. Clause 2 of the Partnership Deed is most relevant and thesame reads as follows: “2. The business of the partnership firm shall be that of buyingand developing the properties into plots including constructionworks and/or any other business as the parties hereto maymutually agree upon from time to time. The business shallinclude buying or selling of properties situated at various”and developing the properties into plots including constructionworks and/or any other business as the parties hereto maymutually agree upon from time to time. The business shallinclude buying or selling of properties situated at various”.places in Goa either wholly or in plots 15. The appellant-assessee was constituted vide Deed of Partnershipdated 29.07.1989. The business of the partnership is that of real estatedevelopers. Clause 2 of the Partnership Deed is most relevant and thesame reads as follows: “2. The business of the partnership firm shall be that of buyingand developing the properties into plots including constructionworks and/or any other business as the parties hereto maymutually agree upon from time to time. The business shallinclude buying or selling of properties situated at various”and developing the properties into plots including constructionworks and/or any other business as the parties hereto maymutually agree upon from time to time. The business shallinclude buying or selling of properties situated at various”.places in Goa either wholly or in plots 16. From the aforesaid, it is quite clear that the business of theappellant-assessee is buying and selling properties situated in variousplaces in Goa either wholly or in plots. Mr. Rivonkar’s contention thatthe business of the appellant-assessee is only to purchase properties,develop them into plots or construct buildings upon them andthereafter to sell them cannot be accepted, looking to the aforesaidprovisions in the Deed of Partnership by which the appellant-assesseecame to be constituted. The business of the appellant-assessee veryspecifically includes buying and selling properties situated in variousplaces in Goa either wholly or in plots. Considering the wide phraseology employed, it is obvious that the business of the appellant-assessee includes buying and selling even agricultural properties.Accordingly, we are unable to accept that the sale of the properties bythe appellant-assessee vide sale deed dated 13.07.2006 has no nexus with the business of the appellant-assessee. 17. Besides, we find that both the Assessing Officer as well as theCIT (Appeals) have noted that by sale deed dated 13.07.2006, theappellant-assessee sold not merely the agricultural property but alsoanother property admeasuring 2,525 sq.mtrs. to Headway Resort LinePvt. Ltd. Therefore, this is not a case of sale of a solitary property, byway of a one off transaction. The appellant-assessee, in terms of Clause2 of the Partnership Deed is clearly involved in buying and sellingproperties situated in various places in Goa either wholly or in plots.By sale deed dated 13.07.2006, the appellant-assessee has indeed soldthe properties purchased by it for a considerable profit. This material,according to us, is more than sufficient to sustain the findings recordedby the AO and the ITAT. The finding of fact cannot be regarded asperverse, so as to give rise to any substantial question of law or so as towarrant interference. 18. The decision in Narain Swadeshi Weaving Mills (supra), isentirely distinguishable, since, it turns on its own peculiar facts. There, 8 TXA the assessee firm had virtually stopped its business mainly because noraw material was available due to the war. The factory premises werethen leased and the issue was whether the lease rent could be treated asbusiness profits liable to excess profits tax. In this fact situation, theHon’ble Apex Court held that such lease could not be described as thebusiness of the assessee firm and lease rent would therefore not qualifyas business income. These facts, offer no parallel whatsoever to the factsituation in the present case. 19. We therefore answer the substantial question of law against theappellant-assessee and in favour of the respondent Revenue.appellant-assessee and in favour of the respondent Revenue. 20. The appeal is accordingly liable to be dismissed and is herebydismissed. There shall be no order as to costs. dismissed. There shall be no order as to costs. NUTAN D. SARDESSAI, J. M. S. SONAK, J. ss