2009 (7) TMI 21 - HC - Income Tax

Adventure in the nature of trade sale of land Business Profit or Capital Gains - The land was sold on winding up of the firm. The said income was claimed to be income from capital gain. - The Assessing Officer however held the said income to be not from capital gain but from business by treating the sale to be adventure in the nature of trade CIT (A) ITAT answered in favor of assessee by following the decision of Supreme Court in the matter of Raja Bahadur Kamakhya Narain Singh Vs. CIT 2008 -TMI - 6192 - SUPREME Court Held that it was not business of assessee to purchase and sell the land and having regard to all the circumstances the income of the assessee was covered by the head of capital gain

Summary

Issues:
1. Whether the profit on the sale of land was an adventure in the nature of trade.
2. Whether the adoption of market value of land at Rs.200/- per sq. yard was justified under Section 45(4) of the Income Tax Act.

Analysis:

Issue 1:
The appellant, a partnership firm running a brick kiln, sold land previously purchased, claiming it as income from capital gain. The Assessing Officer disagreed, treating it as business income due to an adventure in the nature of trade. However, the CIT(A) reversed this decision, citing the income as capital gains, supported by a Supreme Court judgment. The Tribunal upheld the CIT(A)'s decision, emphasizing that the land was not regularly sold for profit, but was sold to settle tax liabilities. The Tribunal found no adventure in trade, as the land was initially acquired as a capital asset and used for the brick kiln business. The Tribunal dismissed the revenue's claim that the purchaser being a property dealer made it a trade adventure, stating that dealing in land was not the firm's business. Consequently, the Tribunal directed the Assessing Officer to assess the profit as capital gains.

Issue 2:
Regarding the computation of capital gains, the Assessing Officer used a ratio of Rs. 301.42 per sq. yard, while the CIT(A) and Tribunal adopted the ratio of Rs. 200 per sq. yard claimed by the assessee. The Tribunal upheld this decision. The High Court found no substantial question of law in the matter, as both the CIT(A) and the Tribunal had made factual determinations based on the evidence presented. Therefore, the High Court dismissed the appeal, affirming the decisions of the lower authorities.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing that the income from the sale of land was rightfully treated as capital gains and that the adoption of the market value for computing capital gains was justified.