2022 (8) TMI 1430 - AT - Income Tax

Correct head of income - transaction of selling rights in flats by the Appellant - capital gain of business income - magnitude of transaction - HELD THAT - Assessee being Non-resident Indian having Indian origin, intend to have enduring house property for his long-term use, as capital investment. This intention based on the set of facts cannot be denied as the assessee is not regularly resides in India. He being not present in India no intention to enter into an option of having adventure in the nature of trade as he is already employed out of India. The sole purpose of his investment in India to have property for enduring benefit either to have the rental income or to have the capital appreciation over the period of time. For this intention he has added her wife s name in all the investment which he made, this also support the contention of the investment not an adventure in the nature of trade. Had the intention of the assessee is to enter into an adventure in the nature of trade he might have done the transaction in his name only and as he is employed at such level, he could get the loan sanctioned his name only but he preferred it to have the time as also co-owner of the property based on his intention of investment as his retirement plan and assessee never changed his intention. The property is purchased with a home loan so that both the investment and enduring benefit of the property achieved out of the income that he earns outside India. The investment made in India by the assessee in 2007-08 is owned and continue to hold for more than five and ten years with that intention only to hold it for capital investment. Merely, the assessee realised the price more then what he has invested cannot be the criteria the decide the nature of investment, the purpose and circumstance evidence to support the contentions is also required to be looked into. Since, his intention was to stay in India and invested for long term and that is why he has even invested in the property which are under construction and even not registered in his name - The decision to sale the property before registration will not change the income arising out of the capital investment made by the assessee. The real purpose and intention of the assessee is not in the trade or adventure in the nature of trade/business as he wanted his family to be secured in a house in his origin country mother land. As regards the contention that the property is not registered and even the agreement is also not registered and allotment right is not the capital investment is not correct view taken by the department. The revenue has not disputed presence of assessee in India for period of 22 days in the year under consideration and in last 5 years it is only 55 days. This information is already on the records and extracted in the assessment order at page 4. It is evident from the above that the stay of the assessee in the year under consideration is only to undertake the formality of the transaction that he has under taken in mother land India. As income is considered as capital gain and revenue failed sustenance their action that why the contrary view should be adopted in the year under consideration when the department has on the same very assessee s case on same fact accepted the income as income under the head capital gain and even revenue also failed to substantiate that with the view and as they substantiate there is a substantial revenue leakage too. Appeal of assessee allowed.

Summary

Issues Involved:
1. Treatment of income from the sale of flats as business income vs. capital gains.
2. Allowance of capital loss and interest expenditure.
3. Application of the principles of res judicata in tax assessments.
4. Adjudication of grounds related to the assessment years 2012-13, 2014-15, and 2016-17.

Issue-wise Detailed Analysis:

1. Treatment of Income from Sale of Flats:
The primary issue was whether the income from the sale of flats should be treated as business income or capital gains. The assessee argued that the flats were held as investments, citing factors such as long-term holding, intention for capital appreciation, and minimal visits to India. The AO contended that the transactions were an "adventure in the nature of trade," pointing to the volume and frequency of transactions, lack of registration, and the substantial sale amount. The Tribunal found that the assessee's intention was to hold the flats as investments, supported by the fact that the properties were jointly held with the spouse, were acquired with home loans, and were not frequently traded.

2. Allowance of Capital Loss and Interest Expenditure:
The assessee claimed a long-term capital loss due to indexation benefits. The AO disallowed this, treating the transactions as business income and not allowing the interest expenditure. The Tribunal, referencing a previous ITAT order, allowed the interest expenditure and upheld the capital loss claim, noting that the transactions were indeed investments and not business activities.

3. Application of Res Judicata:
The Tribunal emphasized the principle of res judicata, noting that the department had accepted the assessee's treatment of similar transactions in subsequent years as capital gains. The Tribunal cited several legal precedents to support the consistent application of tax treatment across different years, stressing that the department should not change its stance without compelling reasons.

4. Adjudication of Grounds for Different Assessment Years:
- Assessment Year 2014-15: The Tribunal allowed the assessee's appeal, confirming that the income from the sale of flats should be treated as capital gains and not business income.
- Assessment Year 2012-13: The Tribunal dismissed the revenue's appeal, which contested the allowance of interest costs as part of the opening stock, and allowed the assessee's cross-objection, treating the transactions as capital gains.
- Assessment Year 2016-17: The Tribunal set aside the assessment order, directing the AO to grant relief to the assessee based on the findings for the earlier years, confirming the treatment of income as capital gains and allowing the set-off of brought forward capital loss.

Conclusion:
The Tribunal's judgment consistently treated the income from the sale of flats as capital gains, allowed the capital loss and interest expenditure claims, and applied the principle of res judicata to ensure consistent tax treatment across different assessment years. The appeals for the assessment years 2014-15 and 2016-17 were allowed in favor of the assessee, while the revenue's appeal for the assessment year 2012-13 was dismissed.