2014 (1) TMI 1591 - HC - Income Tax

Whether the sale of property was adventure in the nature of trade - Held that - The assessee has sold the property by way of single transaction - The impugned property has been shown as fixed asset in the books of the company and agricultural income from the said property was also returned by the company - Relying upon the decision in Commissioner of Income-Tax Versus Mohakampur Ice And Cold Storage 2005 (5) TMI 23 - ALLAHABAD High Court - In order to treat a transaction within the purview of adventure in the nature of trade, it is to be seen whether the property had been purchased or acquired by the assessee with the intention to sell the property, to earn profit by indulging in several transactions of sale or to earn profit on its investment - The sale of agricultural plot was not by way of business purpose - Decided against Revenue.

Summary

Issues:
1. Interpretation of the Memorandum of Association for determining the nature of income - business income or capital gain.
2. Assessment of income from the sale of agricultural land by a company under the Income Tax Act 1961.

Issue 1: Interpretation of the Memorandum of Association
The case involved a Company registered under the Companies Act 1956 that sold agricultural land and claimed capital gain. The Assessing Officer (AO) treated the sale as 'business profits' based on the Memorandum of Association, while the CIT (A) held that the land was a capital asset, not for trading, and the surplus on sale was exigible to capital gains. The Tribunal dismissed the appeal, emphasizing that the intention was not to trade and the land was held as a fixed asset for over 11 years. The main object of the Company was to buy and sell properties, but the specific property in question was held as a capital asset, not stock in trade. The Court held that the nature of the transaction determines whether it falls under 'profit of business' or 'profit from capital gain.'

Issue 2: Assessment of income from the sale of agricultural land
The appellant argued that the company showed profits from the sale in the profit and loss account and had the object of buying and selling land as per the Memorandum of Association. However, the Court found that the property was purchased in 1993, held as a fixed asset for 11 years, and the agricultural income was accepted by the department in earlier years. The single transaction in 2005-06 did not indicate regular business activity in buying and selling property. Referring to the CIT Vs. Mohakampur Ice and Cold Storage case, the Court emphasized the intention behind the purchase of the property to determine if it was for profit from investment or regular business activity. As the Tribunal's findings were based on facts, the questions of law raised in the appeal did not arise for consideration.

In conclusion, the Court dismissed the Income Tax Appeal, upholding the findings of the CIT (A) and the Tribunal that the sale of the agricultural plot was not for business purposes. The judgment highlighted the importance of the intention behind property purchase and the nature of the transaction in determining the tax treatment as 'business profits' or 'capital gains.'