2016 (1) TMI 312 - AT - Income Tax

Sale of the building - capital gains v/s income from business - Held that - No doubt as contented by the learned Counsel for the assessee, a business asset can always be converted into an investment and retained by the assessee. The assessee, in support of its contention that the above property was held as an investment, is relying upon the entries in its balance sheet for the year 2007-08 wherein the asset is reflected as an investment. Further, it is also the argument of the assessee that the assessee has never claimed depreciation on the said asset, which proves that the assessee has never treated the asset as a business asset. Further argument is that the assessee, if it had any intention to sell the property as a business asset, could have sold any part of the building as a unit as and when the demand had arisen but has sold the property as a single unit and all these facts go in favour of the assessee that the intention of the assessee was always to retain the asset. We find that the CIT(A) has considered these facts in addition to the longevity of the period of holding to hold the income from transfer of the property is capital gains exigible to tax. The Revenue has not been able to controvert any of these contentions of the assessee or the finding of the CIT(A) with any evidence to the contrary. In view of the same, we do not see any reason to interfere with the order of the CIT(A). - Decided against revenue

Summary

Issues: Revenue's appeal on whether income from the sale of a building should be treated as capital gains or income from business.

Analysis:
1. The Revenue appealed for the A.Y 2007-08, contesting the CIT (A)'s decision to treat the income from the sale of a building as capital gains instead of business income as determined by the AO.
2. The assessee, a partnership firm, initially declared total income of &8377; 72,52,160, later revising it to &8377; 94,01,960, including long term capital gain. The CIT invoked section 263 due to the AO's error in treating business receipts as capital gains without evidence of investment intent.
3. The Revenue argued that the business nature of the firm meant the asset sold should yield business income, not capital gains, emphasizing the longevity of holding period and consistent rental income treatment.
4. The assessee contended that the asset was always intended as an investment, supported by historical treatment, balance sheet entries, and the singular sale of the property.
5. The tribunal found that the asset's nature was pivotal, considering the firm's business activities and the intention behind holding the property. The CIT (A)'s decision to treat the income as capital gains was upheld due to lack of evidence contradicting the assessee's claims.
6. Consequently, the Revenue's appeal was dismissed, affirming the treatment of income from the building sale as capital gains.

This detailed analysis delves into the core issue of whether the income from the building sale should be classified as capital gains or business income, highlighting the arguments presented by both parties and the tribunal's rationale for upholding the CIT (A)'s decision.