Rajes Kumar, J. - (1.) The Income Tax Appellate Tribunal, Allahabad has referred the following question under Section 256 (1) of the Income-tax Act (hereinafter referred to as "Act") relating to the assessment year 1986-87 for opinion to this Court: "Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was legally justified in confirming the view of the learned CIT (A) who held that the profits arising from the sale of land was not an adventure in the nature of trade and further in directing the assessing officer to treat the receipt of Rs. 21,30,175/- during the year and balance being receipts in the subsequent year as capital gains?"
(2.) The brief facts of the case are that the assessee-applicant (hereinafter referred to as "assessee") is a registered firm and was carrying on the business of cold storage and for the accounting period ending December, 1985 filed return on 31st July, 1987, declaring a net loss of Rs. 85,380/-. The assessee opted a mercantile method of accounting. The assessment was completed under Section 143 (3) of the Act computing the total income of Rs. 19,65,860/- and during the relevant previous year, the assessee sold some land for a total consideration of Rs. 21,30,173/-. The sale consideration was shown under the head capital gains' and according to it in all the capital gains tax was attracted as the assessee purchased the capital gains units from UTI and all conditions of the provisions of Section 54-E of the Act were fulfilled. Thus the entire sale proceeds from the sale of land declared under the head 'capital gains' were claimed as exempt under the aforesaid Section on account of investment in the capital units of the UTI.
(3.) It may be mentioned here that the land which was sold by the assessee earlier belonged to Shri Vishwanath and Brij Mohan who were the partners in the capacities of karats of HUFs in the assessee firm which was transferred to the firm for a total consideration of Rs. 1,96,360/- by crediting the account of Shri Vishwanath and Brij Mohan at Rs. 90,650/- and Rs. 1,05,510/respectively. However, the aforesaid two partners on behalf of the firm entered into an agreement to sell the major portion of the land to Shri Kamlesh Kumar and Dr. Laxmi Narain and Ors.. During the course of assessment proceedings, the assessing authority required the assessee to explain as to why the profits arising from the sale of the land should not be treated as adventure in the nature of trade as the assessee has given detailed explanation which was not found available to the assessing authority and the profit arising from the sale of the land were treated as adventure in the nature of trade. Aggrieved by the assessment order, assessee filed appeal before the CIT (Appeals) which was allowed. The CIT (Appeals) held that it was not the case of purchase of land with the intention to resell at a profit but only realisation of investment and thereby earning profit. The CIT (Appeals) was of the view that the assessee firm created the asset as the fixed asset and used for business purpose and the land sold as a whole and not into plots for a fixed consideration to M/S Agarwal Enterprises. He was further of the view that carving of the plot and the development activities as well as expenditure on the land were done by M/S Agarwal Enterprises and not by the assessee firm and merely the assessee firm signed some applications and obligation of the agreement dated 11th March. 1985 and the sale deeds were executed in favour of the buyers of the plots as nominee of M/S Agrawal Enterprises and the receipt of consideration by drafts or cheques was only to protect the interest of the assessee firm. He, thus, concluded that it was a case of realisation of investment and could not be termed as adventure in the nature of trade. Detailed finding has been recorded by CIT (Appeals) vide paragraph 6 and 6.3 the part of which will be dealt hereinafter. Consequently, the assessing officer was directed to treat the receipt of Rs. 21,30,173/- during the year, the balance being received in subsequent year as capital gains. However, the assessing officer was directed to verify the claim of exemption under Section 54-E of the Act to the effect that the entire sale proceeds has been invested in the capital units within a period of six months thereby there is no taxable amount of the capital gains Aggrieved by the order of the CIT (Appeals), revenue filed appeal before the Tribunal which was dismissed. The Tribunal confirmed the view of the CIT (Appeals).;