2013 (11) TMI 280 - AT - Income Tax

Nature of income on sale of flat Exemption u/s 54 claimed - Assessee along with her husband, Mr. Bhagwandas M. Agarwal entered into a MOU dated 08.08.2002 with M/s Jay Builders, owner of property known as Devki Building at Sanyas Ashram Road, Vile Parle (West), Mumbai, to construct 5th, 6th & 7th Floors, on 50 50 at their cost and peril, along with the TDR, which the owner had acquired. After the construction was over, the assessee sold her share in the flats, i.e. flat no. 502 on 24.01.2007, wherein she declared long term capital gains of Rs.61,34,165/- and claimed exemption under section 54 on this amount Held that - Examine the two agreements, both the agreements point to the direction that there is an element of profit and trade involved. The sharing of the constructed part, that too on the premises not owned by the assessee and her husband, goes to indicate trade. In case, the premises belonged to the assessee and in such a situation, the argument of the AR would have borne some weight - On a specific query, the AR informed that the assessee and her husband are in the business of development of real estate. The Developers cause the Society to be formed by the occupants of the said building known as Devaki to admit them as members of the Society and will execute necessary conveyance in favour of the Society - This clause clearly shows that the assessee and her husband would form the society of the residents, which only developer does, after it has sold its stock to the incumbments Thus, income is in the nature of business, therefore, the deduction u/s 54 not applicable.

Issues Involved:
1. Assessment of sale consideration under business income or capital gains.
2. Claiming exemption under section 54.
3. Cost of acquisition assessment without indexation.
4. Exclusion of certain amounts from the cost of acquisition.
5. Claiming benefit under section 54.

Analysis:

1. Assessment of Sale Consideration:
The appellant contested the CIT(A)'s assessment of the sale consideration under business income instead of capital gains. The appellant argued that the intention was to acquire the residential flat for self-occupation, not for business purposes. The AR highlighted that the delay in selling the property after obtaining occupation sanctions indicated investment intentions. However, the CIT(A) viewed the transaction as a business venture due to the language used in the agreement and denied the appellant's claims. The ITAT upheld the CIT(A)'s decision, stating that the agreements indicated a profit motive, leading to the conclusion that the transaction was in the nature of trade.

2. Claiming Exemption under Section 54:
The appellant claimed exemption under section 54 for the long-term capital gains realized from the sale. The AO computed the LTCG amount differently from the appellant's calculation, leading to the dispute. The CIT(A) rejected the exemption claim and treated the transaction as a business venture. The ITAT, upholding the CIT(A)'s decision that the transaction was a trade activity, rendered the section 54 benefit irrelevant and dismissed the appellant's appeal.

3. Cost of Acquisition Assessment:
The appellant challenged the assessment of the cost of acquisition without allowing indexation benefits. The ITAT did not find any reason to interfere with the CIT(A)'s decision, as the nature of the transaction being trade-oriented affected the cost's treatment. Therefore, the ITAT rejected the appellant's grounds related to the cost of acquisition assessment.

4. Exclusion of Amounts from Cost of Acquisition:
The appellant disputed the exclusion of certain amounts from the cost of acquisition. However, since the transaction was deemed a trade activity, the ITAT upheld the CIT(A)'s decision regarding the costs' treatment and rejected the appellant's appeal on this ground.

5. Claiming Benefit under Section 54:
The appellant's claim for benefits under section 54 became irrelevant due to the ITAT's determination that the transaction fell under business income, not capital gains. The ITAT sustained the CIT(A)'s decision to withdraw the section 54 benefit, leading to the rejection of the appellant's appeal on this issue.

In conclusion, the ITAT dismissed the appellant's appeal, upholding the CIT(A)'s decision that the transaction was in the nature of trade, impacting the treatment of sale consideration, cost of acquisition, and eligibility for exemptions under section 54.

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