2017 (10) TMI 383 - HC - Income Tax

Sale of land - business income OR capital gain - Assessing Officer considered the profit of such sale as business income - Held that - From the impugned orders, it appears that the land had been purchased by the assessee in course of his real estate business and after purchasing the said land within a period of about six months, it entered into an agreement with M/s. Karani Builders on 3.1.1997 for development, sale of land and constructed building thereon. It is also a finding arrived at by the Tribunal that in terms of the said agreement between the assessee-builder and M/s.Karani Builder, the assessee was entitled to get its share in the business apart from separate value for the land. Therefore, we are in complete agreement with the finding of the Tribunal in the present matters treating the land as stock in trade as established from the agreement entered into between the assessee-builder and M/s.Karani Builder. The land had been purchased by the assessee-builder who was engaged in real estate business and in terms of the agreement entered into between assessee & M/s.Karani Builders, the latter was doing construction and transfer of the property on behalf of the assessee.

Summary

Issues:
1. Classification of profit as "capital gain" or "business income" for the appellant.
2. Interpretation of the agreement between the appellant and another builder.
3. Determination of whether the land should be treated as "stock in trade."

Analysis:
The High Court of Orissa addressed the challenge to the orders passed by the Income Tax Appellate Tribunal regarding the classification of profit earned by the appellant, Balaji Builders, as either "capital gain" or "business income." The Assessing Officer disputed the classification of profit as "capital gain," asserting that the appellant was engaged in the business of purchasing, developing land, and constructing houses for sale. The court noted that the appellant had entered into an agreement with another builder, M/s. Karani Builders, for the development and sale of land. The Tribunal found that the land was purchased by the appellant in the course of its real estate business and that the agreement with M/s. Karani Builders entitled the appellant to a share in the business and separate value for the land.

Regarding the interpretation of the agreement between the appellant and M/s. Karani Builders, the court concurred with the Tribunal's finding that the land should be considered "stock in trade" based on the nature of the agreement and the appellant's engagement in the real estate business. The court emphasized that the appellant's involvement in purchasing the land and the agreement with M/s. Karani Builders for construction and property transfer supported the classification of the land as "stock in trade."

Ultimately, the court concluded that no substantial questions of law arose in the batch of Income tax appeals, and there was no merit in challenging the Tribunal's orders. Therefore, the court dismissed the appeals, affirming the decisions of the Income Tax Appellate Tribunal, Cuttack Bench, Cuttack. The batch of Income Tax Appeal was consequently dismissed.