2011 (12) TMI 380 - AT - Income Tax

Capital gain Vs. Business income - order of CIT(A) - appeal by revenue - held that - Although it would have been more appropriate to deal with the issues in detail, where about 25 pages were devoted only to reproduction of assessment order, grounds of appeal, remand report etc. Issues on merit have been decided in two pages without disclosing properly the process of reasoning. However, it is also a fact that bare essential ingredients for coming to the conclusion have been mentioned in this part of the order. In regard to the excess income, no fact has been narrated, but the matter has been restored to the file of the AO for verification and for giving effect to the rectification in the figure of capital gain. - remand order of CIT(A) does not amount to perversity. - Decided against the revenue. Where the appeal involves inter-connected grounds having impact on one another, the matter should be considered in a broad perspective. It is true that the appellant should not be made to suffer on account of failure of respondent to file the appeal, but equally the procedural rule should not be interpreted in a manner so as to confer a relief on the appellant to which he is not entitled. Regarding addition of Rs. 16,93,42,000/-, made by the AO on account of income accrued on advance received for sale of land - Held that The twin conditions of execution of written agreement and handing over of the possession have to be cumulatively satisfied in order to bring the case within the ambit of section 2(47)(v) read with section 53A of the Transfer of Property Act - Therefore, it is held that the property has not been transferred in this year. It has also not been sold in this year. Since the transaction of transfer has not taken place in this year, nothing can be brought to tax as business income in this year. In this view of the matter, the money received is only an advance, which will get taxed as and when the transaction actually takes place. This happened in the immediately succeeding year. - Decided against the revenue. Regarding Capital or business income - lands had been shown as fixed assets in the balance sheet of the assessee - Held that - entry in the books of account is not conclusive in deciding the appropriate head of income - It is no doubt true that the MOA permits the assessee to carry on the business of purchase and sale of land. It had, in fact, carried on such business also - an assessee could be trader as well as investor in land simultaneously, depending upon what his intention is and how he treats the asset in question - the facts on record lead to an inference that the land was held as an asset - Surplus is treated as capital gain - Decided against the revenue.

Summary

Issues Involved:
1. Deletion of addition of Rs. 16,93,42,000/- made by the AO on account of income accrued by way of advance received on sale of land.
2. Assessing the income of Rs. 3,07,82,342/- under the head "capital gains" instead of under the head "profits and gains of business or profession".

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 16,93,42,000/-:
The revenue's grievance was that the CIT(A) erred in deleting the addition of Rs. 16,93,42,000/- made by the AO on account of income accrued by way of advance received on sale of land. The AO had brought the profit on sale of land to tax in the year the advance was received, computing the profit at Rs. 16,93,42,000/-. The CIT(A) deleted this addition, stating that no sale agreement or MOU was drawn in that year, and the sale deed was executed in the succeeding year, where the profit was disclosed and taxed. The revenue argued that the CIT(A) passed the order without application of mind, admitting additional evidence without following Rule 46A, and without granting the AO an opportunity to rebut the evidence. The CIT(A) had concluded that the advance money received by the assessee could not be taxed as revenue receipt in the year it was received, as the transaction was disclosed and taxed in the succeeding year.

The Tribunal held that the CIT(A)'s order was not illegal or perverse, as it contained the essential reasoning that no agreement or MOU was drawn in the relevant year and the sale deed was executed in the succeeding year. The Tribunal also noted that the additional evidence could be ignored as per the assessee's counsel's submission. The Tribunal dismissed the revenue's ground, stating that the property had not been transferred in the relevant year, and the advance received was not taxable as business income in that year.

2. Assessing the Income of Rs. 3,07,82,342/- under "Capital Gains":
The AO had assessed the income from the sale of two pieces of land under the head "profits and gains of business or profession," arguing that the assessee was authorized to carry on the business of purchase and sale of land as per its memorandum of association. The CIT(A) reversed this finding, directing the AO to compute the profit under the head "capital gains," noting that the land had been shown as fixed assets since assessment year 1995-96, used for agricultural purposes, and not converted into stock-in-trade. The CIT(A) also referred to a similar transaction in assessment year 2005-06, where the profit on sale of land was taxed under the head "capital gains."

The revenue argued that the CIT(A) passed a non-speaking order and did not consider the criteria for classifying the income under the appropriate head. The Tribunal, however, upheld the CIT(A)'s decision, stating that the land was held as an asset, used for agricultural purposes, and held for a long period, indicating it was not intended for business purposes. The Tribunal dismissed the revenue's ground, concluding that the surplus realized on the sale of the land was taxable under the head "capital gains."

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on both issues. The Tribunal found that the CIT(A) had rightly deleted the addition of Rs. 16,93,42,000/- as the property was not transferred in the relevant year, and the advance received was not taxable as business income. The Tribunal also upheld the CIT(A)'s direction to assess the income of Rs. 3,07,82,342/- under the head "capital gains," as the land was held as an asset and used for agricultural purposes, indicating it was not intended for business purposes.