$ * IN HIGH COURT OF DELHI AT NEW DELHI R-145 + ITA 299/2003 SHANTI BANERJEE (deceased) by LRs. ..... Appellant Through: Mr Rajat Navet, Advocate with Mr Kushagra Pandit, Advocate. versus DY. COMMISSIONER OF INCOME TAX ..... Respondent Through: Ms Suruchi Aggarwal, Senior Standing Counsel with Ms Lakshmi Gurung, Junior Standing Counsel with Ms Radhika Gupta, Advocate. CORAM: JUSTICE S. MURALIDHAR JUSTICE VIBHU BAKHRU ORDER % 17.11.2015 S.Muralidhar, J: 1. This is appeal by Assessee against order dated 20th March, 2003 passed by Income Tax Appellate Tribunal ( ITAT ) in ITA No. 3626/D/98 for Assessment Year 1993-94. 2. While admitting this appeal on 12th November, 2003, following question was framed Court for consideration: Whether in facts and in circumstances of case, Tribunal was correct in law in holding that income from sale of flats in question was to be assessed as business profits and not as long term capital gains? 3. facts of case are that Assessee, (who died during pendency ITA No. 299/2003 Page 1 of 5 of this appeal and is substituted by her legal representatives) was housewife, having no source of income other than pension of her deceased husband. Assessee was owner of property No. F-23, Hauz Khas, New Delhi wherein she was residing since 1956. 4. Assessee entered into agreement with M/s Exclusive Properties (hereinafter Builder ) on 27th May, 1991 to construct flats on 985 sq. yards of land on her property. In terms of said agreement Builder was to develop and construct at its own costs and resources and in lieu thereof Builder was to be allotted proprietary rights of 40% in built up area and 60% was to be retained by Assessee. 5. In return filed for Assessment year 1992-93 Assessee claimed that she did not have any residential house. She offered to tax capital gains arising from transfer of 40% rights to builder in terms of Section 54 F read with Section 45 of Act. This was on basis that in lieu of consideration in terms of money, Builder had constructed new residential house. 6. On 17th December, 1992 Assessee entered into agreement for sale of two of flats from her share in property to close family friends. In return filed for AY 1993-94 she declared Rs. 11,55,802/- as long term capital gain in terms of Section 54 F (3) of Act. It is not in dispute that she paid long term capital gains tax computed on above basis. 7. return was picked up for scrutiny and on 18th March, 1996 ITA No. 299/2003 Page 2 of 5 Assessing Officer (AO) passed assessment order in which, after setting out clauses of agreement entered into with Builder, AO concluded that agreement was "in nature of adventure for trade on property". AO proceeded to treat sum received by Assessee pursuant to agreement for sale dated 27th May, 1992 not as long term capital gain but as business income. 8. After dismissal of appeals of Assessee by Commissioner of Income Tax (Appeals) and ITAT by orders dated 13th January, 1998 and 20th March, 2003 respectively Assessee filed present appeal. 9. Court has heard learned counsel for parties. 10. principal question to be decided is whether in facts and circumstances of case, it may be said that having sold two flats that fell to her share pursuant to collaboration agreement with Builder, Assessee had undertaken adventure in nature of trade warranting receipt to be treated as business income. 11. issue, it appears, is no longer res integra. In G. Venkataswami Naidu and Co. v. CIT [1959] 35 ITR 594, Supreme Court observed that while single "plunge" in waters of trade may be enough, mere purchase of property "if that is all that is involved in plunge may fall short of anything in nature of trade". It was emphasised that what might be in nature of trade would depend on facts and circumstances of particular case. ITA No. 299/2003 Page 3 of 5 12.The expression adventure in nature of trade was again considered by Supreme Court in Raja Bahadur Kamakhya Narain Singh v CIT [1970] 77 ITR 253. It was observed that if transaction was in ordinary line of assessee s business, there would be no difficulty in concluding that it was trading transaction. But where it was not, facts had to be carefully assessed to determine if it was in nature of trade. 13. On more or less similar facts, this Court held in favour of Assessee in Commissioner of Income Tax v R.V. Gupta [2002]261 (Del). In that case Assessee was senior IAS officer and was allotted plot of land admeasuring 664 sq. m by Delhi Development Authority (DDA) in group housing society in New Delhi. Assessee constructed six flats on said plot and for meeting cost of construction he and his brother entered into agreement to sell with friends in respect of four of them and retained remaining two for their own use. question was whether transaction was adventure in nature of trade and therefore profits accruing therefrom were to be taxed under head income from business or profession. This Court was of view that there was no change in character of said plot from year of its allotment till year flats were constructed thereon. There was no material on record from which it could be said that assessee ever had intention to exploit plot as commercial venture. Merely because six flats had been constructed out of which four were sold to friends it would not show that it was adventure in nature of trade . ITA No. 299/2003 Page 4 of 5 14. facts of present case are no different. Merely, because Assessee sold two plots that fell to her share pursuant to collaboration agreement in respect of property owned by her since 1956, it would not render transaction as 'adventure in nature of trade' leading to resultant receipt as business income in her hand. Further Assessee offered long term capital gains arising out from same flats to tax and filed her return on that basis. 15. Consequently, question is answered in negative i.e. in favour of Assessee and against Revenue. impugned order dated 20th March, 2003 of ITAT and corresponding orders of CIT (A) and AO hereby set aside. appeal is allowed but in circumstances with no order as to costs. S. MURALIDHAR, J VIBHU BAKHRU, J NOVEMBER 17, 2015 pkv ITA No. 299/2003 Page 5 of 5 Shanti Banerjee (deceased) v. Dy. Commissioner Of Income Tax