2010 (7) TMI 1185 - AT - Income Tax

Summary

Issues Involved:
1. Nature of the property sold (capital asset vs. stock-in-trade).
2. Treatment of income from the sale (business income vs. long-term capital gains).
3. Validity of protective assessments (short-term capital gains and long-term capital gains).
4. Levy of interest u/s 234A, 234B, and 234C.

Summary:

1. Nature of the Property Sold:
The primary issue was whether the property sold by the assessee was a capital asset or stock-in-trade. The assessee argued that the property was a long-term capital asset, as it was shown as a fixed asset in the balance sheet, and rental income from it was declared as 'income from house property'. The Assessing Officer (AO) contended that the property was stock-in-trade, citing the nature of the assessee's business and the fact that the property was not let out for nine years before the sale.

2. Treatment of Income from the Sale:
The AO treated the sale proceeds as business income, arguing that the property was held for business purposes. The CIT(A) upheld this view. However, the assessee maintained that the surplus should be treated as long-term capital gains, as the property was always treated as a capital asset, and no depreciation was claimed on it. The Tribunal agreed with the assessee, noting that the property was consistently shown as a capital asset and rental income was assessed as 'income from house property'.

3. Validity of Protective Assessments:
The AO made protective assessments treating the surplus as short-term capital gains u/s 50 and as long-term capital gains. The Tribunal found no basis for these protective assessments, as the property was not a depreciable asset, and the assessee had not claimed depreciation on it. Therefore, the protective assessments were deemed unsustainable.

4. Levy of Interest u/s 234A, 234B, and 234C:
The assessee disputed the levy of interest u/s 234A, 234B, and 234C, arguing that no opportunity was given before the levy. The Tribunal did not specifically address this issue in the judgment.

Conclusion:
The Tribunal held that the property sold by the assessee was a capital asset, and the surplus from the sale should be treated as long-term capital gains. The protective assessments made by the AO were not sustainable. The appeal filed by the assessee was allowed, and the AO was directed to accept the computation of long-term capital gains returned by the assessee.