2013 (10) TMI 199 - HC - Income Tax

Income from sale of land - income under the head long term capital gains or business income Held that - Similar issue for earlier assessment year 2003-04 the income earned from the sale of land has been assessed to capital gain. The revenue has accepted the order of the Assessing Officer for assessment year 2003-04. The Tribunal by impugned order while applying rule of consistency held that it is not permissible for the revenue to agitate the same issue when in the earlier assessment year 2003-04 the same being taxable as capital gains has been accepted by the revenue Decided against the Revenue.

Summary

Issues:
1. Recomputation of disallowance u/s.14A without rule 8D for A.Y. 2004-05.
2. Utilization of interest-bearing funds for tax-free income.
3. Characterization of income from sale of land as long term capital gains.
4. Classification of income from sale of land as long term capital gains or trade.

Analysis:

1. Recomputation of disallowance u/s.14A without rule 8D for A.Y. 2004-05:
The Tribunal directed the Assessing Officer to recompute the disallowance u/s.14A without rule 8D for the assessment year 2004-05. The Tribunal relied on the judgment of the Bombay High Court in the case of Godrej & Boyce Manufacturing Company Ltd. v. DCIT [2010] 328 ITR 81. The High Court dismissed the revenue's appeal, stating that there was no reason to entertain the issue as the matter had been remanded to the Assessing Officer based on the mentioned judgment.

2. Utilization of interest-bearing funds for tax-free income:
The Tribunal set aside the case and relied on the judgment of the Bombay High Court in the Godrej & Boyce Manufacturing Company Ltd. case despite the Assessing Officer's assertion that interest-bearing funds were used for earning tax-free income. The High Court found no reason to entertain this issue as the Tribunal had already remanded the matter to the Assessing Officer for decision based on the previous judgment.

3. Characterization of income from sale of land as long term capital gains:
The Tribunal held that the income from the sale of land should be classified as long term capital gains, disregarding the revenue's argument that the transaction partook the character of business income due to planned and systematic development. The High Court noted that for the assessment year 2003-04, the revenue had accepted the income as capital gains, applying the rule of consistency. Therefore, the High Court declined to entertain this issue as well.

4. Classification of income from sale of land as long term capital gains or trade:
The Tribunal determined the income from the sale of land to be long term capital gains, despite the revenue's contention that the transaction was an adventure in the nature of trade. The High Court reiterated the rule of consistency, pointing out that the revenue had accepted the same classification for the previous assessment year. Consequently, the High Court dismissed the appeal, emphasizing the importance of maintaining consistency in tax assessments.