2015 (5) TMI 1115 - AT - Income Tax

Sale of property - capital gain or business income - applicability of section 50C - Held that - On perusal of main objects and other objects mentioned in the Memorandum of Association of the appellant company, in our understanding, there was no clause enabling the appellant company to deal in the properties. The main objects for which the company was incorporated is to carry on business of manufactures, processors, importers, exporters and dealers in all kinds of ferrous and non-ferrous material meant for any industrial or non-industrial use whatsoever and to carry on the business of castings, fabrication, cold and hot rolling, re-rolling, slitting, adgemilting, sheeting, stamping, pressing, extruding, forging, drawing, flattening, straightening, heat treatment of all kinds of steel and other metals or any other stripes, sheets, foils, tapes, wires, rods, plates and any other sections, shapes or forms. Keeping in view the above, we hold that the appellant sold the property only as investor. The version of the appellant that the property is held as stock in trade cannot be believed. Having held that the property sold was held as investment or capital asset, then the provisions of Section 50C are clearly applicable. The fact that the appellant had not received consideration over above sale proceeds stated in the registered document shall have any bearing on the applicability of the provisions of Section 50C of the Act.

Summary

Issues:
- Determination of whether the subject property was held as stock in trade or investment.
- Applicability of Section 50C of the Income-tax Act, 1961.
- Discrepancy in the returned income and assessed income.
- Interpretation of the Memorandum of Association and resolution passed by the Board of Directors.
- Consideration of relevant case laws in determining the nature of the property sold.

Analysis:

1. Nature of Property:
The appellant contended that the subject property was part of their stock in trade, while the authorities held it to be a capital asset. The appellant argued that the property was shown as inventory in their balance sheet and that their business involved dealing in immovable properties. However, the Tribunal found that the Memorandum of Association did not specifically empower the company to deal in properties, and only two properties were held by the company. Consequently, it was held that the property was sold as an investor, not as a trader in immovable properties.

2. Applicability of Section 50C:
The dispute centered on whether the provisions of Section 50C of the Act applied. The Tribunal determined that if the property was sold as an investor, Section 50C would be applicable. Since the property was considered an investment or capital asset, Section 50C was deemed to be clearly applicable, irrespective of any additional consideration received beyond the sale proceeds stated in the registered document.

3. Discrepancy in Income:
The disparity between the returned income and assessed income was due to the addition of an amount under Section 50C. The Assessing Officer did not accept the appellant's claim that the property sold was part of their stock in trade, leading to the application of Section 50C. The appeal was dismissed by the CIT(A), resulting in the appellant challenging the decision before the Tribunal.

4. Interpretation of Legal Documents:
The Tribunal analyzed the Memorandum of Association and the resolution passed by the Board of Directors to ascertain the nature of the appellant's business activities. Despite the appellant's arguments, the Tribunal concluded that the property was held as an investment, not as stock in trade, based on the company's objects and past transactions.

5. Case Law Consideration:
The appellant relied on various judgments to support their claim that the property was part of their stock in trade. However, the Tribunal found that the specific circumstances of the case, as evidenced by the legal documents and business activities, indicated that the property was treated as an investment, aligning with the authorities' decision to apply Section 50C.

In conclusion, the Tribunal dismissed the appeal, affirming that the property was sold as an investor, making Section 50C applicable, and upholding the authorities' decision regarding the nature of the property and the discrepancy in income assessment.