2017 (3) TMI 878 - HC - Income Tax

Sale consideration of land - capital gain OR business income - Held that - It is required to be noted and it is not in dispute that the assessee was already having a dealership with the Mercedes Benz since 1997. That thereafter, the assessee purchased the land on S.G. Highway Road, Ahmedabad in the year 2003, which according to the assessee was insisted as per the requirement of Mercedes Benz and to continue dealership with the Mercedes Benz. That thereafter, assessee purchased the land on SG Highway Road on 1.12.2003 for sale consideration of ₹ 95,92,500/. That therefore, the assessee got the said land converted from agricultural to non agricultural use in the year 2005 and thereafter obtained necessary development permission from the AUDA (competent authority) for construction of the showroom etc. Thereafter the dispute arose between the assessee and Mercedes Benz and therefore, the dealership with the Mercedes Benz came to be discontinued in the year 2009. That thereafter, in the year 2011, the assessee sold the land and received the sale consideration which was claimed by it as a capital gain. Considering above it cannot be said that when the assessee purchased the land in the year 2003, the intention was to purchase the land to make profit by selling it. The aforesaid circumstances would suggest that the land was purchased for showroom etc. As such, the assessee hold the land for approximately 8 years and thereafter sold the same for the reasons stated herein above. When the learned Tribunal has held the income of ₹ 24,13,24,783/received by the sale of land as capital gain as claimed by the assessee and not as income from business as held by the AO confirmed by the learned CIT(A), it cannot be said that the learned Tribunal has committed any error

Summary

Issues:
1. Whether the sale consideration of land should be treated as capital gain or business income?

Analysis:
1. The appellant challenged the order of the Income Tax Appellate Tribunal (ITAT) which treated the sale consideration of land as capital gain instead of business income. The appellant argued that the intention of the assessee was to make a profit on the sale of land as it was converted from agricultural to non-agricultural use and plans for showroom and office were submitted. The appellant contended that the CIT(A) rightly confirmed the AO's decision to treat the amount as business income. The appellant requested the court to admit the appeal.

2. The court noted that the assessee had a dealership agreement with Mercedes Benz since 1997 and purchased the land in 2003 for showroom requirements. The land was converted for commercial use, and necessary permissions were obtained for construction. Subsequently, due to a dispute, the dealership was discontinued in 2009, and the land was sold in 2011. The court observed that the land was held for about 8 years for showroom purposes, indicating a capital asset. The court agreed with the ITAT's decision to treat the sale consideration as capital gain, as claimed by the assessee, rather than business income as assessed by the AO and confirmed by the CIT(A).

3. The court found no error in the ITAT's decision and concluded that the sale consideration should be treated as capital gain. Therefore, the court dismissed the appeal, stating that no question of law arose from the case.