2016 (5) TMI 872 - AT - Income Tax

Sale of shops/flats - Capital gain v/s business income - Held that - The assessee had constructed area in form of shops and flats. Originally this land was belonged to his grandmother Rani Sahiba Smt. Rajkanwar Nathawat Ji, who made agreement in 1995 with the builder namely M/s Krisha Pratap & Co. Pvt. Ltd. to build and construct the mall. They made agreement to share the constructed area on 50-50 basis. All the cost was borne by the builder. This land has not been shown as a stock in trade in the books of account by the assessee. The assessee is not in the activity of regularly purchasing and selling the flats/shops and it is not organized business activity of the assessee. There was no intention of the assessee to enter into real estate business. The assessee has also shown sale consideration on the basis of valuation of stamp authority U/s 50C of the Act. Thus, the assessee rightly claimed long term capital gain on sale of shops/flats during the year under consideration. Addition n account of deduction U/s 24(a) - Held that - The assessee, undisputedly, has disclosed the rental income from shops of mall under the head income from house property. The deduction U/s 24(a) is mandatory, therefore, we uphold the order of the ld CIT(A).

Summary

Issues:
1. Treatment of income as Capital gain or business income
2. Addition of deduction claimed under Section 24(a) on rental income

Issue 1: Treatment of income as Capital gain or business income:
The appeal involved a dispute regarding the treatment of income amounting to ?89,89,150 as either Capital gain or business income for the Assessment Year 2008-09. The Assessing Officer initially treated the income as Capital gain, while the CIT(A) disagreed and held it to be business income. The Assessing Officer based the decision on the intention of the assessee to earn profit from selling flats and shops developed from inherited land. However, the CIT(A) emphasized that the mere intention to earn profit does not automatically categorize the income as business income. The CIT(A) highlighted that the assessee did not maintain books of accounts for the inherited land, and it was not shown as stock in trade. The CIT(A) concluded that the income should be treated as Capital gains, considering the nature of the transactions and the absence of organized real estate business activities by the assessee.

Issue 2: Addition of deduction claimed under Section 24(a) on rental income:
The second issue revolved around the addition of ?7,09,303 on account of deduction claimed under Section 24(a) on rental income. The Assessing Officer disallowed the deduction, considering the rental income as business income. However, the CIT(A) disagreed and held that the transaction was not a business transaction but related to capital assets of the assessee. The CIT(A) concluded that the rental income from the property should be taxed as income from house property, allowing the deduction under Section 24(a). The Tribunal upheld the CIT(A)'s decision, emphasizing that the deduction under Section 24(a) was mandatory for the rental income from the property.

In summary, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s orders on both issues related to the treatment of income as Capital gains and the addition of deduction claimed under Section 24(a) on rental income. The Tribunal's decision was based on the nature of transactions, the absence of organized business activities, and the mandatory nature of the deduction under Section 24(a) for rental income.