1. I have been entrusted with the task of deciphering the recent judgment of the Hon’ble Supreme Court rendered in the case of CIT v. Glowshine Builders and Developers Pvt. Ltd. reported in (2023) 454 ITR 249 (SC). Though the aforesaid judgment involves mixed question of fact and law, which requires the entire spectrum of the facts involved in the subject case to analyse it in its entirety, I could not lay my hands on the order of the Income Tax Appellate Tribunal (ITAT), which was challenged before the Hon’ble High Court by the Revenue in an unsuccessful attempt, and the said order of the High Court dismissing the appeal of the Revenue, was ultimately challenged before the Hon’ble Supreme Court, wherein the Hon’ble Supreme Court has set aside the order of Hon’ble Bombay High Court and remanded the matter back to the ITAT to consider the appeal afresh in accordance with law. Hence, in absence of order of the ITAT, my analysis of the judgment is based on the limited facts as noted in the judgment of Hon’ble Supreme Court and the order of Hon’ble Bombay High Court.

FACTS OF THE CASE ON HAND

2. The dispute involved in the subject case is pertaining to taxability of amount received on sale of development right as income from business and profession vis-à-vis income from capital gains. In the Assessment Year 2009- 10, the assessee Glowshine Builders and Developers Pvt. Ltd. (GBDPL) has entered into an agreement dated 06.05.2008 with M/s. Kirit City Homes Pvt. Ltd. (KCH) for sale of development rights of a property situated at Vasai. The said agreement was preceded by Memorandum of Understanding (MoU) dated 27.12.2007 executed between said the parties. As per the said MoU, the development right of aforesaid land was transferred to KCH for a total consideration of Rs.5,24,27,354/-. The aforesaid MoU covers 27.44 acres of land out of total parcel of land of 50.16 acres. It is further seen that, on execution of aforesaid MoU, on 02.01.2008, necessary entry debiting the account of KCH and crediting the account of M/s. SICCL was passed in the books of account of GBDPL. The credit in the account of SICCL was made due to the reason that, GBDPL was owing a sum of Rs.8.10 crore to SICCL, and therefore, GBDPL directed the KCH to pay the consideration directly to SICCL*. On execution of MoU and passing of entry of consideration exchanged on 02.01.2008, the possession of the impugned land of 27.44 acres was handed over to KCH. Subsequently, as stated earlier, on 06.05.2008, a development agreement was executed between GBDPL and KCH, wherein due to error in mentioning the amount of sale consideration for transfer of development right, the rectification deed was executed immediately on 30.05.2008 realising the mistake that, sale consideration for transfer of development right was incorrectly stated as Rs.15,94,06,500/- instead of correct figure of Rs.5,24,27,354/-.

3. Now, if the analysis is made of events which transpired during the course of assessment proceedings and appellate proceedings, it can be seen that, the Assessing Officer, on perusal of AIR information, which carries the transaction value of Rs.15,94,06,500/- in respect of transaction pertaining to sale of development right through development agreement dated 06.05.2008, had issued a notice u/s.142(1) for Asst. Year 2009-10 wherein GBDPL was show caused as to why the provision of section 50C should not be initiated on the transaction of sale of development right and further why the sales consideration should not be adopted at Rs.15,94,06,500/- as against the amount of Rs.5,24,27,354/- as mentioned in the rectification deed dated 30.05.2008. In response to show cause notice on applicability of section 50C, it was contended by GBDPL that, it had sold its stock-in-trade and not the capital asset. The Assessing Officer, not agreeing with the submissions put forth by GBDPL, has made an addition of Rs.15,94,06,500/- by treating the transaction of transfer of development right under the head ‘Income from Capital Gains’ and consequently, the income was charged as short term capital gain in the Asst. Year 2009-10. The Assessing Officer disagreed with the submission of GBDPL that, the transaction of sale of development right was duly offered to tax in the Asst. Year 2008-09 on a sale consideration of Rs.5,24,27,354/-. Being aggrieved by the said order of the Assessing Officer making assessment on the amount of Rs.15,94,06,500/- under the head ‘Income from Capital Gains – short term capital gain’, GBDPL preferred an appeal before the Commissioner of Income Tax (Appeals). The said appeal was decided by CIT(A) against GBDPL by confirming the order of Assessing Officer, and accordingly, the GBDPL remained unsuccessful before the first appellate authority i.e. CIT(A). The said unsuccessful appeal necessitated the filing of further appeal to ITAT disputing the correctness of the order passed by the Assessing Officer and CIT(A). The ITAT, ultimately, paid heed to the grievance voiced by GBDPL by deciding the appeal in its favour. The ITAT held that, GBDPL is engaged in the business of building and development, the factum of which as far as nature of business is concerned, is accepted by the Assessing Officer in scrutiny assessment orders passed u/s.143(3). It was further held by the ITAT that, what was sold by GBDPL was part of its inventory and not capital asset, and GBDPL has offered the income in the Asst. Year 2008-09 on the basis of reduced sale consideration of Rs.5,24,27,354/- backed by MoU dated 27.12.2007, and accordingly, it was held that, such income cannot be taxed in the Asst. Year 2009-10. The ITAT agreed with GBDPL that, sale consideration in respect of transfer of development right is Rs.5,24,27,354/- only. Accordingly, the ITAT by allowing the appeal in its entirety had deleted the addition made by the Assessing Officer of Rs.15,94,06,500/- and accordingly. ITAT has reversed the order of CIT(A). The obvious fall out of aforesaid order was further appeal u/s.260A of the IT Act,1961 before the Hon’ble Bombay High Court ast the instance of the revenue. On the said appeal, Hon’ble Bombay High Court had declined to interfere with the order passed by the ITAT by holding that, none of the questions proposed by the Revenue are substantial questions of law. It is this order of Hon’ble Bombay High Court, which was carried over to the Hon’ble Supreme Court in Civil Appeal No.2565 of 2022 giving rise to the judgment, which is subject matter of present article.

ARGUMENTS OF THE REVENUE BEFORE THE HON’BLE SUPREME COURT</strong >

4. It was argued by the Revenue that, ITAT has not discussed the factum of receipt of money on 31.03.2008 and consideration of Rs.5,24,27,354/- was adopted on the basis of MoU without examining the nature of transaction and entry made in the books of account. Further contention was raised to the effect that, ITAT did not question the factum of refund of differential amount to the purchaser on account of execution of rectification deed dated 30.05.2008, and accordingly, it was urged that, unless the amount shown to be refunded/returned, the same is required to be treated as income in the hands of recipient. It was argued on the basis of balance sheet for the Asst. Years 2006-07 to 2009-10, that except the impugned transactions of transfer of development right in respect of land, no sales were accounted during the aforesaid assessment years, and accordingly, it was urged that transaction was that of transfer of capital asset and not the transfer of stock-in-trade. It was further contended that merely on the basis of entry in the books of account recording the asset as stock-in-trade, the transaction of sale of such asset cannot be treated as sale on account of business transaction. The ITAT failed to take into account relevant factors like frequency of trade, volume of trade, nature of transactions over the years before holding the impugned transaction of transfer of development right as being transfer of stock-in-trade. Lastly, it was argued that, the Assessing Officer has correctly assessed the income in his assessment order dated 29.11.2011.

ARGUMENTS OF GBDPL BEFORE THE HON’BLE SUPREME COURT

5. It was emphasised by GBDPL that it is engaged in the business of building and development of properties and there was no change in the activity of GBDPL in the Asst. Year 2009-10. It was argued that, GBDPL was holding 50.16 acres of land, out of which, 27.44 acres of the land was subject matter of MoU dated 27.12.2007 and the said parcel of land of 27.44 acres was transferred to KCH for total consideration of Rs.5,24,27,354/- through aforesaid MoU. To effectuate the aforesaid MoU, necessary entries were passed in the books of account by debiting the account of KCH and crediting the account of SICCL as GBDPL was owing sum of Rs.8.10 crores to SICCL*. GBDPL has offered to tax income arising out of aforesaid transaction of sale of development right under the head ‘Income from Business and Profession’ in the Asst. Year 2008 – 09. The attention of the Hon’ble Court was also drawn to the recording of facts and finding thereon given by the ITAT in its order. It was shown that acquisition of land was made in F.Y. 1996-97 and 2004-05. It was further shown that, the aforesaid land was reflected in the books as inventory throughout the years, which was accepted by the Assessing Officer twice in the scrutiny assessment completed u/s.143(3). The factum of GBDPL being engaged in business of construction and development of buildings was acknowledged by the Assessing Officer in the scrutiny assessment order passed u/s.143(3) for Asst. Year 2005-06. It was also submitted that, mistake in showing the value of consideration in the development agreement dated 06.05.2008 was corrected by the rectification deed dated 30.05.2008. It was further submitted that, as the impugned transfer of development right is pertaining to the business of GBDPL, the provisions of sec.50C cannot be made applicable on the facts of the case. It was further contended that, both the development agreement, as well as, deed of rectification were registered with the Sub-Registrar, Vasai, and hence, the Assessing Officer could have made inquiry from Sub-Registrar, which he had failed to do. It was submitted that, in the event of dispute in relation to valuation of land, the same could have been referred to the Valuation Officer, but the Assessing Officer had failed to do so. It was contended that, Assessing Officer proceeded on the premise that there must be regular transaction of purchase and sale every year without appreciating that even a single venture may be regarded as being in nature of trade or business as laid down by the Hon’ble Supreme Court in the case of Rameshwar Rao v. CIT reported in (1961) 42 ITR 179 (SC). On the basis of above submissions, it was finally submitted that, findings recorded by the ITAT as upheld by the Hon’ble High Court are pure finding of facts, and therefore, no substantial question of law arises in the matter. The reliance was placed on the judgment of Hon’ble Supreme Court in the case of Matri Techzone Pvt. Ltd. v. Forward Foundation reported in (2019) 18 SCC 494.

ANALYSIS OF FINDING OF THE HON’BLE SUPREME COURT

6. On perusal of the findings given by the Hon’ble Supreme Court at Para 7 to 7.2 of the judgment, it seems that, Hon’ble Supreme Court is dissatisfied with the approach adopted by ITAT to decide the controversy impugned in the appeal before it. On overall reading of the findings given by the Hon’ble Supreme Court in the above stated paragraphs of the judgment, I am of the opinion that, the Hon’ble Supreme Court has not positively reversed the finding given by the ITAT but it has interfered in the subject matter only because of the fact that some of the considerations which should have been taken into account while deciding the matter on either side has remained to be taken into account. Accordingly, in my opinion, the judgment of Hon’ble Supreme Court cannot be seen to be laying down any definite criteria to hold the transaction being either on account of business or capital in nature. The aforesaid understanding is supported by the fact that, at para 8 of the judgment, the Hon’ble Supreme Court has remanded the matter back to ITAT to consider the appeal afresh in accordance with the law and on its own merits. It was specifically observed by the Hon’ble Supreme Court that, “we have not expressed anything on merits in favour of either of parties.”. Thus, in my respectful submission, because of the judgment under consideration, no landscape of law has been changed, as far as laying down any criteria to classify the income arises on sale of asset as business income or capital gain is concerned.

OVERVIEW OF JUDICIAL POSITION IN RESPECT OF CAPITAL SALES AND BUSINESS SALES</strong >

7. In my humble submission, the question to classify the transaction as capital sales or a business sales is a vexed question involving more of the facts and comparatively less a law. The aforesaid question, due to its inherent debatable nature, is engaging the attention of various courts including the highest court of the land i.e. Hon’ble Supreme Court for quite some time. If we dipped down in the history of precedents on the subject matter, the earliest reference can be found in the judgment delivered by Justice Rowlatt in case of Theu vs. South West Africa Company Ltd reported in 9 Tax Cases 141 and the judgment delivered by Hon’ble Lord Justice Clerk in California Copper Syndicate v. Harris reported in 5 Tax Cases 159. Though the Hon’ble Supreme Court of India has also laid down certain tests in various judgments to evaluate whether the transaction is on account of capital sales1 or business sales since long, but due to dominative factual nature of the controversy, where courts are tasked with the job of determining the nature of transaction, it is not possible to lay down any definite legal test or exact criteria. Each case must have its own intrinsically linked circumstances, which materially affects the decision making process of the court. Slightest change in the facts or circumstances makes the comparative case law vulnerable as to its precedential value. Reference in this regard may be made to the judgment of Hon’ble Supreme Court in the case of Khan Bahadur Alladin & Sons v. CIT reported in 68 ITR 573 (SC). Some of the tests or factors, which are relevant to determine the true nature of transactions i.e. business sales or capital sales in nature, as laid down by the Hon’ble Supreme Court in case of G. Venkataswani Naidu & Co. v. CIT (35 ITR 594), at page 609 of the judgment, are as under:

1. 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?</em >
2. What is the nature of the commodity purchased and resold and in what quantity was it purchased and resold?</em >
3. 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.</em >
4. Did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby made it more readily resale able?</em >
5. What were the incidents associated with the purchase and resale?
6. Were they similar to the operations usually associated with trade or business?</em >
7. Are the transactions of purchase and sale repeated?
8. In regard to the purchase of the commodity and its subsequent possession by the purchaser, does the element of pride of possession come into the picture?</em >
9. Was the purchase made with the intention to resale it at a profit?

In my humble submission, this should not be considered as a exhaustive list but should be seen as illustrative in nature. In this background, it is apposite to reproduce here valuable observation of Hon’ble Supreme Court in the aforesaid case of G. Venkataswani Naidu & Co. v. CIT (35 ITR 594 at page 609& 610):

“…..These and other considerations are set out and discussed in judicial decisions which deal with the character of transactions alleged to be in the nature of trade. In considering these decisions it would be necessary to remember that they do not purport to lay down any general or universal test. The presence of all the relevant circumstances mentioned in any of them may help the court to draw a similar inference; but it is not a matter of merely counting the number of facts and circumstances pro and con; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction; and so, </strong >though we may attempt to derive some assistance from decisions bearing on this point, we cannot seek to deduce any rule from them and mechanically apply it to the facts before us……”</strong ></em >

Thus, in my humble submission, the judgment under consideration may be seen as only one of the judgments rendered on its own facts, more particularly, due to the fact that the Hon’ble Supreme Court has openly set aside the case without expressing anything on merits in favour of either of the parties. The rule that no hard and fast law or legal test can be laid down and every case heavily depends on its own circumstances to determine the question of taxing the transaction as capital sales or business sales, still governs the field.

To conclude, it is apt to recollect the remark made by Lord Sands in case of IR v. Livingston – 11 Tax Cases 538 at 545:

“It is a ‘matter of impression’ with the Court whether a particular transaction is in nature of trade or not.”</em >

*Prima facie, it seems that there is some incongruity in recording of the facts in respect of the amount and nature of entry passed in the books of GBDPL in the judgment, which cannot be resolved or understood in proper perspective until the entire fact is available.</em >

1 G. Venkataswani Naidu & Co. v. CIT (35 ITR 594)