2017 (6) TMI 588 - AT - Income Tax

Gain/loss on sale of assessee s share in agricultural land at Aurangabad - section 50C applicability - Held that - There is no merit in the stand of the Assessing Officer that the gain is to be assessed as short term capital gains and accordingly, the said stand taken by the Assessing Officer is thus rejected. Since the assessee had carried out the said transaction being adventure in the nature of trade then profit/loss arising there from is to be assessed as income from business and once it is so assessed then there is no merit in applying the provision section 50C(1) of the Act. - Decided in favour of assessee.

Summary

Issues:
Computation of income on sale of land as capital gains or business income.

Analysis:
The judgment by Ms. Sushma Chowla, JM of the Appellate Tribunal ITAT Pune dealt with two appeals regarding the assessment year 2010-11. The first appeal, ITA No. 1606/PUN/2014, was filed by an assessee against the order of CIT(A), Aurangabad, while the second appeal, ITA No. 507/PUN/2016, was filed by another assessee against the order of CIT(A)-2, Aurangabad. Both appeals were related to the computation of income on the sale of land. The Assessing Officer had treated the income as short-term capital gains under Section 50C of the Income Tax Act, 1961, based on stamp valuation. However, the assessee argued that the profit/loss should be assessed as income from business due to the nature of the transaction.

In the first appeal, the assessee contended that the income from the sale of property should be considered as profits of business rather than capital gains. The Assessing Officer had invoked Section 50C of the Act to compute the gain based on stamp valuation, leading to a dispute. The assessee claimed that the property was purchased for business purposes, intending to subdivide and build on it, but faced obstacles due to regulatory restrictions. The Tribunal held that since the transaction was an adventure in the nature of trade, the income should be assessed as business income, not capital gains. The decision cited precedent to support this conclusion.

Regarding the second appeal, the Tribunal applied the same reasoning as in the first appeal, stating that the decision in ITA No. 1606/PUN/2014 would be applicable mutatis mutandis to ITA No. 507/PUN/2016. Consequently, both appeals were allowed, and the income from the sale of land was treated as business income rather than capital gains. The judgment emphasized the importance of assessing the nature of the transaction to determine the appropriate tax treatment, especially in cases involving property dealings with commercial intent.

In conclusion, the judgment highlighted the distinction between capital gains and business income in the context of property transactions, emphasizing the need to consider the nature and purpose of the transaction to determine the correct tax treatment. The decision provided clarity on assessing income from the sale of land based on the intention and conduct of the taxpayer, ensuring a fair and accurate application of tax laws.