2002 (11) TMI 86 - HC - Income Tax

Adventure In The Nature Of Trade - The first issue relates to the computation of profit on the sale of plot which had been assessed by the assessing authority as adventure in the nature of trade whereas the Commissioner of Income-tax (Appeals) directed the same to be taxed under the head Capital gains . - Both the Commissioner and the Tribunal have followed the correct principles of law and no factual or legal error could be pointed out by the Department. - The other issue raised before the Tribunal was in regard to the levy of interest under section 234B of the Act. The Commissioner of Income-tax (Appeals) directed the Assessing Officer to charge interest under section 234B of the Act up to the date of determination of income under section 143(1)(a) of the Act. It is settled law that interest is levied under section 234B on the basis of returned income and not on the basis of the assessed income. The Tribunal was right in setting aside the finding of the Commissioner of Income-tax (Appeals) in this regard and remanding the case back to the assessing authority for this purpose.

Summary

Issues:
1. Computation of profit on the sale of a plot - whether taxable as "Capital gains" or as income from an adventure in the nature of trade.
2. Levy of interest under section 234B of the Act.

Computation of profit on the sale of a plot:
The case involved an appeal by the Revenue against the order of the Income-tax Appellate Tribunal, where the first issue was the computation of profit on the sale of a plot. The assessee inherited agricultural land and sold a portion of it, claiming it as "Long-term capital gains." The Assessing Officer disagreed, asserting a profit motive due to previous sales, taxing the entire income as arising from trade. The Commissioner of Income-tax (Appeals) ruled in favor of the assessee, considering the land's acquisition through inheritance and the necessity to sell in parts due to its size. The Tribunal upheld this decision, emphasizing that a single activity does not constitute business without continuity. The High Court concurred, noting the absence of circumstances indicating a profit motive and the importance of the intention at the time of land acquisition. The Court affirmed that selling inherited land in parcels did not amount to trade or business under the Act, upholding the Tribunal and Commissioner's decision based on correct legal principles.

Levy of interest under section 234B of the Act:
The second issue raised was regarding the levy of interest under section 234B of the Act. The Commissioner of Income-tax (Appeals) had directed interest to be charged based on the returned income, not the assessed income. The Tribunal overturned this decision, remanding the case for the Assessing Officer to determine interest in accordance with law. The High Court found no substantial question of law in this remand order, affirming that interest under section 234B is to be levied on the returned income. Consequently, the appeal was dismissed, upholding the Tribunal's decision on the interest levy issue.

In conclusion, the High Court dismissed the appeal, upholding the Tribunal's decisions on both issues. The Court affirmed that the sale of inherited land in parcels did not constitute a trade or business, and interest under section 234B should be levied based on the returned income. The judgment provided a detailed analysis of the legal principles and factual considerations, emphasizing the importance of intention and continuity in determining tax liability and interest obligations under the Income-tax Act, 1961.