2018 (1) TMI 899 - HC - Income Tax

Assessment of income from sale of plots - income from business or as capital gains - Held that - The impugned order of the Tribunal stands rectified/modified to the extent that the issue with regard to the applicability of Section 45(2) of the Act has been restored to the Assessing Officer for fresh consideration. We are informed by counsel for the parties that neither the Revenue nor the Assessee is aggrieved by the order dated 1 January 2018 passed by the Tribunal remanding the issue to the Assessing Officer. It would be appropriate as urged by the Revenue to adjourn the hearing of these Appeals sine die to await the final factual determination with regard to the directions made by the Tribunal in paragraph 8 of its order dated 1 January 2018.

Summary

Issues:
1. Assessment of income from sale of plots as business income or capital gains.
2. Conversion of ancestral land into stock in trade and expenditure for development.
3. Genuine claim of conversion of land into stock in trade or tax evasion.
4. Taxability of capital gains under Section 45(2) of the Income Tax Act.
5. Perversity of the Tribunal's order.

Analysis:
1. The primary issue in the Appeals is whether the income from the sale of plots should be assessed as business income or capital gains. The Assessee claims the income is from business, while the Revenue argues for capital gains treatment.

2. The Assessee asserts that the ancestral land was converted into stock in trade in 1999, contested by the Revenue. The Revenue also raises the issue of taxing under Section 45(2) of the Act if the conversion is accepted.

3. Both parties agree that the issue under Section 45(2) was not decided by the Tribunal. The Revenue filed a Miscellaneous Application, leading the Tribunal to reconsider the applicability of Section 45(2).

4. The Tribunal, in a subsequent order, remanded the issue of Section 45(2) applicability to the Assessing Officer for fresh determination. Neither party objected to this decision, indicating acceptance.

5. Given the remand order, certain questions raised in the Appeal, such as the conversion of land into stock in trade, are interlinked with the outcome of the Section 45(2) issue. The Tribunal's direction suggests further investigation by the Assessing Officer.

6. Consequently, it is deemed appropriate, as proposed by the Revenue, to adjourn the Appeals indefinitely pending the final factual determination based on the Tribunal's remand order.

7. The Appeals are adjourned with liberty to apply for further proceedings once the Assessing Officer concludes the fresh examination as directed by the Tribunal.