2009 (8) TMI 758 - AT - Income Tax

Capital gain or business income - assessee had shown the long-term capital gain of Rs. 3,87,92,970 arrived on sale of land - The AO was not in agreement with the contention of the assessee that the amount received on sale of land was a capital gain in nature and against that he had proceeded to assess the same as business income - Held that neither there was a frequency of transaction nor the purchase appeared to be intended to trade in the land but it was retained for a considerable period i.e., about 10 years and if a gain was achieved on sale, the same can be said to be clearly outside the domain of business activity.

Issues Involved:
1. Nature of the transaction: Capital gains vs. Adventure in the nature of trade.

Detailed Analysis:

Nature of the Transaction: Capital Gains vs. Adventure in the Nature of Trade

Revenue's Position:
- The Revenue Department treated the sale of land as an adventure in the nature of trade, arguing that the profit earned should be taxed as business income rather than capital gains.
- The AO (Assessing Officer) listed nine reasons to support this position:
1. The land was initially agreed to be sold to M/s Suma Engineering (P) Ltd., a developer, indicating a commercial intent.
2. The intention was to develop the land and construct a residential building, not to hold it as an investment.
3. Entries in the balance sheet as investment were not decisive.
4. The WT (Wealth Tax) returns were filed only after an agreement with M/s Tata Autocomp, suggesting an afterthought to color the transaction as capital gain.
5. Major expenditures were incurred to develop the land, indicating a business motive.
6. A single transaction can be treated as an adventure in the nature of trade.
7. The assessee took a loan from its director to purchase the land, indicating a business intention.
8. The land was sold with TDR (Transferable Development Rights), further indicating a commercial transaction.

Assessee's Position:
- The assessee argued that the sale of land should be treated as a capital gain:
1. The land was held for over ten years before being sold, indicating a long-term investment.
2. The main object of the company was to act as an investment company.
3. The land was consistently shown as a capital asset in the balance sheet.
4. The land was never treated as a business asset.
5. WT returns disclosed the investment as a capital asset.
6. The building plans were submitted by a sister concern, not the assessee.
7. The land was sold in the same state it was purchased.
8. There was no regular and continuous purchase and sale of land.
9. The assessee was not in the business of real estate.

CIT(A)'s Findings:
- The CIT(A) accepted the assessee's position, noting that:
1. The asset was shown as a capital asset in the books of accounts from 1993-94 to 2000-01.
2. Development expenditures were capital in nature, aimed at improving the quality of the asset.
3. The transaction was a solitary one, not indicative of a business venture.
4. The asset was disclosed as an investment and not as stock-in-trade.
5. The assessee had not undertaken any steps towards development of the property.
6. The WT return, though filed belatedly, disclosed the investment for tax purposes.

Tribunal's Analysis and Conclusion:
- The Tribunal upheld the CIT(A)'s decision, emphasizing:
1. The assessee's intention was to hold the land as an investment, not for trading.
2. The land was held for a long period (ten years) before being sold.
3. The transaction was a solitary one, not indicative of a business venture.
4. The land was consistently shown as a capital asset in the balance sheet.
5. The assessee's actions did not indicate a business motive.
6. The legal precedents supported the assessee's position that the sale was a realization of investment, not an adventure in the nature of trade.

Key Legal Precedents Cited:
- Raja Bahadur Kamakhya Narain Singh vs. CIT (1970) 77 ITR 253 (SC): Excess over purchase price in selling investments is not profit assessable to tax.
- Dalhousie Investment Trust Co. Ltd. vs. CIT (1967) 66 ITR 473 (SC): Variation in investments does not necessarily mean taxable profit.
- CIT vs. Sutlej Cotton Mills Supply Agency Ltd. (1975) 100 ITR 706 (SC): Dominant intention at the time of purchase is crucial.
- G. Venkataswami Naidu & Co. vs. CIT (1959) 35 ITR 594 (SC): Excess realization from investment is outside the domain of adventure in the nature of trade.

Conclusion:
- The Tribunal affirmed the CIT(A)'s decision, concluding that the sale of land resulted in capital gains, not business income. The appeal by the Revenue was dismissed.

← Previous Next →