Jagannatha Shetty, J.
1. The Income-tax Appellate Tribunal, Bangalore Bench, has referred the following question under s. 256(1) of the I.T. Act, 1961, at the instance of the Revenue :
'Whether, on the facts and in the circumstances, the finding of the Tribunal that the surplus arising out of the sale of the sites is only a realisation of capital and not an adventure in the nature of trade or business is correct in law ?'
2. This is the common question that arises for consideration in all these references.
In I.T.R.C. No. 66/80, Sri R. Ramaiah is the assessee. In 1957 he purchased 3 acres, 5 guntas, of agricultural land. In 1967 he converted the land for non-agricultural purposes. In 1975 he formed a layout and started selling the sites as building sites. He sold some sites for a total sum of Rs. 65,000. For the assessment year 1975-76, he included in his return a sum of Rs. 31,466 as capital gains. But the ITO brought that income to tax as income from business. On appeal, the AAC held that the income derived by the assessee was only in the nature of capital gains. So he allowed the appeal. That view was also affirmed by the Appellate Tribunal.
I.T.R.C. No. 67/80 :
M. R. Jayaram is the assessee in this case. His activities concerned in this case are similar to those that we have noticed in ITRC No. 66/80. In 1958 the assessee purchased 23 acres, 19 guntas, of agricultural land for Rs. 56,000. In 1967 he converted an extent of 6 acres, 4 guntas, as non-agricultural land. In 1974 he formed a layout in that area and sold some sites as building sites. During the year ending March 31, 1974, he sold 5,171 sq. yards of building sites for Rs. 57,500. In his return, he declared a sum of Rs. 36,043 as capital gains. But the ITO treated the said income as arising from an adventure in the nature of trade. In the appeal preferred by the assesse, the AAC took a different view. He held that the land was purchased as agricultural land. Subsequent conversion of that land into building sites and the sale proceeds therefrom could only be treated as capital receipt liable to capital gains tax. This view was also affirmed by the Tribunal in the appeal preferred by the Revenue.
ITRC No. 68/80 :
The assessee herein is also the assessee in ITRC No. 67/80. For the year 1975-76, the assesee sold building sites which he formed out of the land purchased by him in 1958. A sum of Rs. 11,333 realised by such sale of sites was claimed as capital gains. But the ITO rejected that claim and treated the income as business income. But the assessee succeeded before the AAC and also before the Tribunal.
ITRC No. 76/80 :
M. R. Sampangiramaiah is the assessee in this reference. In 1962 he purchased agricultural land measuring 2 acres, 28 guntas, for Rs. 25,500. In 1967 he converted that land for non-agricultural purposes. In 1974 he formed a layout with building sites. In the year 1974-75 he sold some sites and received Rs. 40,000. In the return filed before the ITO he declared a sum of Rs. 21,645 as capital gains. The ITO treated the said income as business income. But the assessee got the relief before the AAC and also before the Tribunal.
ITRC No. 77/80 :
M. R. Sampangiramaiah is also the assessee herein. In the year 1975-76 he converted the land purchased by him in 1962 into sites and realised a sum of Rs. 85,760. He declared the said income in his return as capital gains. But the ITO treated the income as income from business. Like the other assessees, he got relief in the appeal before the AAC and also before the Tribunal.
3. The assessees are brothers. They purchased agricultural lands and cultivated them for 5 to 10 years. In 1967 they obtained permission for converting the lands for non-agricultural purposes. Then they converted the same into building sites which they kept till 1973, perhaps to get a better price. Thereafter, they started selling the sites year after year.
4. The AAC and the Tribunal have held that the assessee after purchasing the lands used it for agricultural purposes for a number of years and, therefore, their intention was not to carry on business in the sale or purchase of the lands. Keeping or using the lands for agricultural purposes is the only circumstance relied upon by the appellate authorities for reaching the conclusion that the activities of the assessees cannot be considered as an adventure in the nature of trade.
5. The question herein is whether the assessee in each of these cases did any business in purchasing and disposing of the lands by forming house sites.'Business' is defined u/s. 2(13) of the Act to include any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture.This definition is of wide amplitude, taking within its fold, dealings in real property and includes an active occupation continuously carried on with a profit motive. It also includes an adventure in the nature of trade. The object of the definition of business in the Act is to treat the receipts from an adventure also to tax just as the receipts from trade profit are brought to tax. The cases of realisation of investments consisting of purchase and sale of lands sometimes present difficulty. In each case, however, one has to determine the nature of the transaction, its volume, frequency, continuity and regularity. There is hardly any abstract rule, principle or test for application. In G. Venkataswami Naidu & Co. v. CIT : 35ITR594(SC) , the Supreme Court observed at p. 609 :
'Generally speaking, it would not be difficult to decide whether a given transaction is an adventure in the nature of trade or not. It is the cases on the border line that cause difficulty. If a person invests money in land intending to hold it, enjoys its income for some time, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. Cases of realisation of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventures in the nature of trade. In deciding the character of such transactions several factors are treated as relevant. Was the purchaser a trader and were the purchase of the commodity and its resale allied to his usual trade or business or incidental to it Affirmative answers to these questions may furnish relevant data for determining the character of the transaction. What is the nature of the commodity purchased and resold and in what quantity was it purchased and resold If the commodity purchased is generally the subject-matter of trade, and if it is purchased in very large quantities, it would tend to eliminate the possibility of investment for personal use, possession or enjoyment. Did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby made it more readily reasonable What were the incidents associated with the purchase and resale Were they similar to the operations usually associated with trade or business Are the transactions of purchase and sale repeated ?'
In Raja J. Rameshwar Rao v. CIT : 42ITR179(SC) , the Supreme Court observed (headnote) :
'Even a single venture may be regarded as in the nature of trade or business. When a person acquires land with a view to selling it later after developing it, he is carrying on an activity resulting in profit, and the activity can only be described as a business venture. Where the person goes further and divides the land into plots, develops the area to make it more attractive and sells the land not as a single unit and as he bought it, but in parcels, he is dealing with land as his stock-in-trade; he is carrying on business and making a profit.'
In Janki Ram Bahadur Ram v. CIT : 57ITR21(SC) , the Supreme Court again observed that a transaction of purchase of land cannot be assumed without more to be a venture in the nature of trade. However, the magnitude of the transaction of purchase, the nature of the commodity, the subsequent dealings and the manner of disposal may be such that the transaction may be stamped with the character of a trading venture.
6. Bearing in mind these principles we may now turn to the facts before us. The assessees in each case purchased the agricultural land lying at the outskirts of Bangalore City. They no doubt used the lands for agricultural purpose for some years. But later, almost simultaneously, they converted the lands after paying conversion fees. They did not use the converted lands for their own purposes. They formed layouts for building sites. They divided the lands into small plots, making it more attractive and marketable. They, in other words, developed the lands and sold them as house sites. These activities clearly fall within the ratio of the decision of the Supreme Court in Rameshwar Rao's case : 42ITR179(SC) .
7. The assessees did not sell any land in the condition in which they bought it. They made convenient building sites and sold the same. They did not even dispose of all the sites in one year. They went on selling the sites year after year realising more and more profits. The fact that all the assessees started converting their lands into building sites almost simultaneously in 1967 itself is an indication of their intention to trade in the lands as a venture. They made it commercially more attractive by converting and dividing into plots. The inevitable inference is that they had no intention to hold the lands as an investment. They dealt with the lands as their stock-in-trade. We are, therefore, unable to uphold the view taken by the Tribunal.
8. In the result, and for the reasons stated above, we record our answer as follows :
9. The surplus income arising out of the sale of sites is assessable as income from business and not as a realisation of capital gains.