MADHYA PRADESH HC: Agriculture Land Sale by Creating plots -Whether Business Activity?

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The assessee received certain agricultural land by way of a gift deed. Thereafter the assessee got the said land diverted for non-agricultural purposes. Thereafter, the land was converted into plots and in all 40 plots were carved out. The assessee undertook the development work of the colony such as levelling of the land, construction of roads and drainage system, etc., and thereafter sold the said plots. The Assessing Officer held that the activity of selling the plots to different members in different assessment years amounted to an adventure in the nature of trade. On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer on the ground that the activity of the assessee indicated that he was carrying on business in real property and it was a business venture. On further appeal, the Tribunal held that the gain arising out of the sale of the plots was an income in the nature of capital gain since the sale of plots was not a business activity.

On revenue’s appeal, the assessee raised an objection that as per the circular issued by the CBDT dated 27-3-2000 monetary limit of Rs. 2 lakhs has been prescribed for filing the appeal with a direction that if the amount of the tax is below the prescribed limit, no appeal should be filed by the revenue and the same shall not be maintainable

The issue involved before Hon’ble Court in case of Suresh Chand Goyal 298ITR277 was

MADHYA PRADESH High Court vide its order dt 1/11/2007 held as under :

The selling of own land after plotting it out in order to secure a better price, was not an adventure in the nature of trade or business. The word ‘business’ has been defined under section 2(13 ), which includes any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture. An isolated transaction or activity cannot be a part of business. To consider the question of business, there must be regular activities of purchasing and selling. In the instant case, there was nothing on record to show that the land was purchased for the purpose of selling into plots. Basically, it was a gifted land and it was developed and sold after having converted into the plots with a view to secure a better price and, therefore, that isolated activity could not come within the purview of adventure in the nature of trade or business. The main earning on the sale of the land was in the nature of capital gain and, therefore, not assessable as income from business and that question was essentially a question of fact. There was no dispute that circular issued by the Central Board of Direct Taxes was binding on the revenue and in the view of the said circular for the tax liability below Rs. 2 lakhs, the revenue could not file an appeal. Therefore, the objections raised by the assessee were upheld and the appeal was not maintainable