2016 (5) TMI 1484 - HC - Income Tax

Correct head of income - sale of land - business income or capital gain - Held that - A small portion of the land was sold and the loss therefrom was declared as a capital loss and was not set off against any other income. The ITAT held that a mere fact that a development agreement was entered into by the Assessee with Vatika Ltd. would not change the nature and character of the land since in terms of the agreement it was the developer who would undertake the work of development upon being paid a fee by the Assessee. It was also observed that although the main object of the Assessee may be to carry on the business of real estate, that would not prevent the Assessee from holding the land in question as a capital asset. Therefore the income generated through the sale of land would be chargeable to tax under the head capital gains and not as business income. - No substantial question of law

Summary

Issues:
1. Characterization of income as business income or capital gain from the sale of land.

Analysis:
The High Court judgment pertains to an appeal by the Revenue against the order of the Income Tax Appellate Tribunal (ITAT) regarding the Assessment Year 2009-10. The main issue raised was whether the ITAT was correct in determining the nature of the Assessee's income as business income or capital gain from the sale of land. The Assessee, primarily engaged in real estate dealings, had entered into a development agreement with another entity for its land acquired in 2005-06, which was treated as a capital asset. The ITAT observed that there was no conversion of the capital asset into stock-in-trade during the relevant assessment year.

The ITAT highlighted that the Assessee consistently treated the land as a capital asset in its accounts from the previous assessment years and did not claim any expenditure related to it. Even when a portion of the land was sold in a prior year, the loss was declared as a capital loss and not set off against other income. The ITAT emphasized that entering into a development agreement did not alter the nature of the land, as the developer was responsible for the development work. Despite the Assessee's business objective in real estate, holding the land as a capital asset was deemed permissible. Consequently, the income from the land sale was considered chargeable under the head of capital gains, not business income.

After reviewing the arguments presented by the Revenue and examining the orders of the Assessing Officer, Commissioner of Income Tax (Appeals), and the ITAT, the High Court concluded that the ITAT's decision was not unreasonable. In the absence of any substantial legal question arising from the case's circumstances, the appeal by the Revenue was dismissed by the Court.