2015 (10) TMI 2469 - AT - Income Tax

Determination of rent at fair market value - Held that - Both the parties agreed that the same requires fresh examination at the end of the AO by duly considering the decision rendered by the Hon ble jurisdictional Bombay High Court in the case of Tip Top Typography (2014 (8) TMI 356 - BOMBAY HIGH COURT ). Accordingly, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to examine this issue afresh Assessment of gains arising on sale of plot as business income - Held that - We notice that the assessee has been holding various plots for quiet a reasonable time and hence he has declared long term capital gain on sale of two adjacent plots. We also notice that the assessee continues to hold other plots as his investments only. The long holding period, in our view, supports the case of the assessee. Further, it is not shown to us that the assessee has been indulging in repetitive transactions of purchase and sale in plots. It was also not shown that the assessee has borrowed funds for the purpose of purchasing plots. Since the AO has not brought on record any valid reason to support his case, we are of the view that the tax authorities are not justified in assessing the capital gain as his business income. Hence, we are not able to agree with the view taken by the Ld CIT(A) on this issue. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to assess the profit arising on sale of plots as Capital gains.

Summary

Issues:
1. Determination of rent at fair market value.
2. Assessment of gains arising on sale of plot as business income.

Analysis:

Issue 1: Determination of rent at fair market value
The appellant, an individual, had let out a property and declared income from house property based on a monthly rent of Rs. 20,000. The Assessing Officer (AO) enhanced the income by determining the annual letting value at Rs. 6,89,325 after market inquiries. The appellant challenged this decision, leading to the appeal. The Tribunal acknowledged the need for fresh examination based on the decision of the Bombay High Court in the Tip Top Typography case. Consequently, the Tribunal set aside the order of the Ld CIT(A) and directed the AO to re-examine the issue in line with the High Court's decision.

Issue 2: Assessment of gains arising on sale of plot as business income
The second issue revolved around the assessment of capital gains from the sale of plots as business income. The AO considered the appellant's investments in plots since 2006 and noted that the appellant held the plots as investments. However, the AO concluded that the appellant's intention was that of a trader due to the absence of agricultural activities on the purchased agricultural lands. The Tribunal disagreed with this reasoning, emphasizing that the absence of agricultural activity alone cannot determine the intention of holding the plots as investments or stock in trade. The Tribunal stressed that the assessing officer should evaluate the claim based on the appellant's conduct and surrounding circumstances. Since the appellant had held the plots for a significant period, declared long-term capital gains, and did not engage in repetitive transactions or borrow funds for plot purchases, the Tribunal ruled in favor of treating the profit from the plot sales as capital gains, overturning the decision of the Ld CIT(A).

In conclusion, the Tribunal allowed the appeal filed by the appellant for statistical purposes, emphasizing the importance of assessing the nature of assets based on the intention of the assessee at the time of purchase and considering the surrounding circumstances rather than solely relying on isolated factors like agricultural activity or joint ownership.