2015 (11) TMI 1213 - HC - Income Tax

Income from sale of flats - ITAT assessed it as business profits and not as long term capital gains - Held that - Merely, because the Assessee sold two plots that fell to her share pursuant to collaboration agreement in respect of the property owned by her since 1956, it would not render the transaction as an adventure in the nature of trade leading to the resultant receipt as business income in her hand. Further the Assessee offered the long term capital gains arising out from the same flats to tax and filed her return on that basis. See G. Venkataswami Naidu and Co. v. CIT 1958 (11) TMI 5 - SUPREME Court Consequently, the question is answered in the negative i.e. in favour of the Assessee and against the Revenue

Summary

Issues:
1. Classification of income from sale of flats as business profits or long term capital gains.

Analysis:
The case involved an appeal by the Assessee against the Income Tax Appellate Tribunal's order regarding the Assessment Year 1993-94. The primary question framed for consideration was whether the income from the sale of flats should be assessed as business profits or long term capital gains. The Assessee, a housewife with no other income source, owned a property in New Delhi and entered into an agreement with a Builder to construct flats on the land. The agreement stipulated that the Builder would have 40% proprietary rights in the built-up area, and the Assessee would retain 60%.

The Assessee initially claimed capital gains for transferring 40% rights to the Builder under Section 54 F of the Income Tax Act. Subsequently, she sold two flats from her share and declared long term capital gains for the Assessment Year 1993-94. However, the Assessing Officer treated the income as business income, leading to a series of appeals by the Assessee.

The Court analyzed whether the transaction constituted an 'adventure in the nature of trade' based on precedents. Referring to cases like G. Venkataswami Naidu and Co. v. CIT and Raja Bahadur Kamakhya Narain Singh v. CIT, the Court emphasized that the character of the transaction as a trade venture depends on the specific facts of each case. In a similar case, the Court ruled in favor of the Assessee, highlighting that the mere sale of properties did not automatically classify the transaction as a trade venture.

Applying the same reasoning to the present case, the Court concluded that selling two flats from the collaboration agreement did not constitute an 'adventure in the nature of trade.' The Assessee had correctly declared long term capital gains and filed taxes accordingly. Therefore, the Court ruled in favor of the Assessee, setting aside the ITAT's order and corresponding decisions by the CIT (A) and the AO. The appeal was allowed with no order as to costs.