2017 (4) TMI 409 - HC - Income Tax

Nature of land - Property considered as a stock-in-trade or a part of inventory or whether it can be treated as capital asset? - Held that - Tribunal has recorded the finding of fact that the assessee- company has erred in disclosing the land earmarked for promoting software park in the financial system of stock-in-trade. The Tribunal has further found that it is genuine mistake of the assessee in recording the financial statements cannot be seriously viewed in interpreting the provisions of the Income-tax Act. The Tribunal has also further recorded that subsequent conduct of the assessee in leasing out the buildings also reflects the initial intention of the company to hold these assets as fixed assets/investments. The aforesaid finding of fact so recorded by the Tribunal cannot be termed as perverse to the record because learned counsel for the Revenue has not been able to show or satisfy the court that any of the aforesaid finding of fact is not supported by the record or Tribunal has recorded such finding of fact without there being any material on record. Applying the test of reasonable prudence, when aforesaid facts and circumstances are apparent and if the Tribunal has taken the view that entries in the books of account or statement given by the assessee to the property as stock-in-trade and not as fixed assets/investments/capital assets, could be said as genuine mistake or error, such view on the part of the Tribunal cannot be said to be ex facie unreasonable view or that no person with reasonable prudence would take such a view. As such, we are of the considered opinion that a view on the basis of facts placed before the Tribunal could be said as one possible view and not an impossible view by applying the test of reasonable prudence. Finding recorded by the Tribunal is not perverse to the record nor we have found that finding recorded or the view taken by the Tribunal is not an impossible view

Summary

Issues Involved:
1. Whether the sale of land should be treated as 'capital gain' or 'business income'.
2. Whether loans advanced to sister concerns were given for commercial expediency.

Detailed Analysis:

Issue 1: Treatment of Sale of Land as 'Capital Gain' or 'Business Income'

Facts and Background:
The assessee initially filed returns declaring the land as "stock-in-trade/inventory" and the income from its sale as "business income." However, after a search in September 2006, the assessee revised the returns, declaring the income from the sale of land as "capital gains."

Assessment Proceedings:
The Assessing Officer (AO) treated the income from the sale of land as "business income," rejecting the revised returns. This decision was upheld by the Commissioner of Income-tax (Appeals).

Tribunal's Findings:
The Tribunal, after considering extensive records and judicial precedents, concluded that the land was acquired as an investment and not as stock-in-trade. The Tribunal noted:
- The land was acquired for setting up a Software Technology Park (STPI).
- The land was sold to parties with the condition to set up STPI/IT parks.
- The initial categorization of the land as "stock-in-trade" was a genuine mistake.

Legal Precedents Considered:
- CIT v. R. Ramaiah: Distinguished on the grounds that the assessee in this case did not convert the land into building sites and sell them year after year.
- Fort Properties Pvt. Ltd. v. CIT: Supported the view that mere entries in the books of account do not determine the nature of the asset.

High Court's Analysis:
The High Court noted that the Tribunal's findings were based on a thorough consideration of facts and circumstances:
- The land was acquired with the intention of investment.
- The subsequent conduct of leasing out buildings indicated the intention to hold the land as a capital asset.
- The Tribunal's view that the initial categorization as "stock-in-trade" was a genuine mistake was reasonable.

Conclusion:
The High Court held that the Tribunal's findings were not perverse and were supported by the record. The income from the sale of land should be treated as "capital gains" and not "business income."

Issue 2: Loans Advanced to Sister Concerns

Facts and Background:
The Revenue questioned whether the loans advanced to sister concerns were given for commercial expediency, given the lack of documentary evidence.

Tribunal's Findings:
The Tribunal had previously ruled in favor of the assessee, holding that the loans were given for commercial expediency.

High Court's Analysis:
The High Court noted that this issue was already covered by a previous decision dated October 14, 2014, in I.T.A. No. 175 of 2014, which ruled against the Revenue.

Conclusion:
The High Court affirmed that the issue of loans advanced to sister concerns was already settled in favor of the assessee.

Final Judgment:
The High Court disposed of the appeals, affirming the Tribunal's decision to treat the income from the sale of land as "capital gains" and confirming that the loans advanced to sister concerns were for commercial expediency. The appeals by the Revenue were dismissed, and the appeals by the assessee were rendered non-surviving.