2013 (4) TMI 950 - AT - Income Tax

Summary

Issues Involved:
1. Classification of income from the sale of land as Long Term Capital Gain or Business Income.

Summary:

Issue 1: Classification of Income from Sale of Land

The sole ground of appeal was whether the income from the sale of land should be classified as Long Term Capital Gain or Business Income. The Assessing Officer (A.O.) observed that the appellant sold several properties during the year, earning Rs. 60,30,012/-, which was shown under Long Term Capital Gain. The A.O. provided the appellant with an opportunity to explain why this income should not be treated as business income. After considering the appellant's reply, the A.O. concluded that the land transactions were characteristic of ordinary trading activities, involving purchasing agricultural land, converting it to non-agricultural land, developing it, and selling it in small pieces. The A.O. noted that the appellant was a well-known builder and continuously engaged in such transactions, indicating a business activity rather than an investment.

The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the A.O.'s decision, stating that the appellant's activities were not isolated but part of a well-thought-out strategy to earn profits. The CIT(A) cited several legal precedents, including G. Venkataswami Naidu & Co. Vs. CIT 35 ITR 594 (SC), which held that transactions intended for resale at a profit are adventures in the nature of trade. The CIT(A) concluded that the income from the sale of plots was assessable under "Profits and gains of business or profession" u/s 2(13) of the Income Tax Act.

The appellant argued that the intention at the time of purchase was crucial and that the lands were initially purchased for agricultural purposes. The appellant also referenced previous ITAT decisions where similar transactions were treated as Long Term Capital Gain. However, the CIT(A) distinguished these cases based on the frequency and nature of transactions.

The ITAT upheld the CIT(A)'s decision, noting that the appellant's activities indicated a clear intention to trade in land rather than hold it as an investment. The ITAT referenced several Supreme Court decisions supporting the view that even a single transaction could be considered an adventure in the nature of trade if the intention was to make a profit by resale. The ITAT concluded that the appellant's activities were consistent with trading in land and dismissed the appeal.

Conclusion:
The ITAT confirmed that the income from the sale of land should be classified as Business Income, not Long Term Capital Gain, based on the appellant's consistent trading activities and intention to earn profits through land transactions. The appeal was dismissed.