2011 (5) TMI 697 - AT - Income Tax

Whether the land under reference represents the assessee s capital expenditure (asset) or a stock-in-trade?. - held that - The answer lies in intention with which the property is purchased/acquired and which needs to be gathered from the entirety of the facts and circumstances, even as held by the Apex Court in the cases relied upon by the Revenue. - Both in terms of intention and action, the transaction of purchase and sale of rubber estate represents a business activity and, thus, stands rightly assessed as business income u/s. 28(i) of the Act. We decide accordingly. Depreciation for four vehicles, expenses on running and maintenance of vehicles, being car and jeep - vehicles were explained to be used by the four working partners for the purposes of the firm - no personal vehicle was either owned or maintained by the partners, so that a part user of the vehicles for their personal purposes could not be denied, the AO estimated a user of 20% as toward personal purposes, so that Rs. 59000/- qua depreciation and a lump sum of Rs. 50000/- qua maintenance expenditure stood disallowed u/s. 38(2) - same stood confirmed. Disallowance of brokerage expenses - paid to five different persons - without deduction of tax at source, i.e., by applying s. 40(a)(ia) of the Act - default u/s. 40(a)(ia), which is a non obstante provision, is admitted - in the case of Divya Business systems (P.) Ltd. (2010 -TMI - 206405 - ITAT, Cochin ), and wherein, it after consideration of the issue in all its aspects, confirmed the application of the provision in case of violation of the provision - revenue authorities is, therefore, confirmed on this issue as well - assessee s appeal is dismissed.

Summary

Issues Involved:
1. Classification of income from the sale of rubber estate.
2. Disallowance of depreciation and vehicle maintenance expenses.
3. Disallowance of brokerage expenses due to non-deduction of tax at source.

Issue-wise Detailed Analysis:

1. Classification of Income from the Sale of Rubber Estate:
The primary issue was whether the income from the sale of the rubber estate should be classified as business income or exempt as agricultural income. The assessee purchased the estate in January 2004 and began selling it in parts from February 2004. The assessee claimed the income as 'income from other sources' and later argued it was exempt as it involved the sale of agricultural land. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] found this claim contradictory and held that the assessee engaged in an adventure in the nature of trade, thus classifying the income as business income under Section 28(i) of the Income-tax Act, 1961. The Tribunal upheld this view, noting the systematic sale of land in small parcels, the financing by the bank, and the immediate commencement of sales post-purchase. The Tribunal concluded that the intention behind the purchase was to profit from rising land prices, making the transaction a business activity.

2. Disallowance of Depreciation and Vehicle Maintenance Expenses:
The assessee claimed depreciation for four vehicles and expenses on their running and maintenance. The AO disallowed a portion of these expenses, estimating 20% of the vehicle use was for personal purposes, as the partners did not own personal vehicles. This disallowance was confirmed by the CIT(A) and upheld by the Tribunal, which found the estimation reasonable and the factual position unchanged.

3. Disallowance of Brokerage Expenses Due to Non-deduction of Tax at Source:
The assessee claimed brokerage expenses paid to five persons. The AO disallowed a portion of these expenses under Section 40(a)(ia) of the Act, as tax was not deducted at source. This disallowance was confirmed by the CIT(A) and upheld by the Tribunal, which referenced the Cochin Bench's decision in Divya Business Systems (P.) Ltd. v. Asstt. CIT, affirming the application of the provision in case of such a violation.

Conclusion:
The Tribunal dismissed the assessee's appeal, confirming the classification of income as business income, the partial disallowance of vehicle-related expenses, and the disallowance of brokerage expenses due to non-compliance with tax deduction requirements.