2018 (2) TMI 1630 - AT - Income Tax

Gain from the sale of Race Course plots - LTCG or busniss income - Held that - There is nothing more than the activity of dividing the plots in smaller sized units which has led the Assessing Officer to believe that the assessee was carrying on an adventure in the nature of trade. What he has overlooked is a whole bunch of factors which reasonably demonstrate that not only that the assessee was never engaged in the business of dividing the large plots of land into smaller end use units, but also that what was sold by the assessee was the land possessed by the assessee for a long period of time. Due to a fundamental change in the use of land in the areas concerned, over the long period during which the assessee held the land, the sellable standard unit size had indeed considerably come down, and, in order to get the market price for land, he had to essentially divide the land holding into plot size for which there is end user market While it may have been common to buy the land in the size that the assessee did in 60s as the use of land was agricultural at that point of time, with the passage of time, rapid urbanization and this land now being in the residential area, where smaller sized plots were required by the end users, the assessee had no choice but to sell the land plots in smaller size to get the market price. It was clearly a one off activity for the assessee as the assessee did not go beyond selling what he already held for the long years, and even the sale consideration was not ploughed back in land investments. We have also noticed that all along the gains on the sale of these plots was treated as capital gains, and, beyond any dispute or controversy, these lands were held as capital gains. CIT-A directing the Assessing Officer to reduce the income under the head income from other sources - Held that - The relief granted by the CIT(A) is on account of duality of disallowance in the sense the disallowance deleted was unwarranted as the same was already accounted for the in the figure of income from other sources, which was taken by the Assessing Officer at ₹ 2,42,073 as against the actual figure of ₹ 2,26,583. The impugned disallowance was thus clearly a double disallowance. Learned Departmental Representative could not bring on record any material to dislodge these well reasoned findings of the CIT(A). We approve the conclusions arrived at by the learned CIT(A) on this point as well, and decline to interfere in the matter.

Issues Involved:
1. Classification of income from the sale of "Race Course" plots as long-term capital gain or business income.
2. Classification of income from the sale of "Woodland Park" plots as long-term capital gain or business income.
3. Reduction of income under the head "income from other sources" by ?15,490.

Detailed Analysis:

1. Classification of Income from Sale of "Race Course" Plots:
The Assessing Officer (AO) argued that the income from the sale of "Race Course" plots should be treated as business income due to the conversion of agricultural land into non-agricultural land, subsequent plotting, and the sale of smaller plots. The AO believed these actions demonstrated the intention of trading in land.

The CIT(A) reversed this decision, noting that the land was originally a capital asset held by a partnership firm in which the assessee was a partner. Upon dissolution of the firm, the land was distributed among partners and converted to non-agricultural land as a necessity for distribution, not for business purposes. The CIT(A) emphasized that the intention at the time of acquisition, not at the time of sale, is crucial. The land was held as a capital asset, and there was no organized business activity by the assessee to suggest otherwise. The ITAT agreed with the CIT(A), stating that the division of plots was a one-off activity to facilitate the sale and not an adventure in the nature of trade. The gains were thus to be treated as long-term capital gains.

2. Classification of Income from Sale of "Woodland Park" Plots:
The AO similarly treated the income from the sale of "Woodland Park" plots as business income, citing the conversion of agricultural land to non-agricultural land and subsequent plotting as indicators of trading activity.

The CIT(A) found that the land was purchased in 1989 as agricultural land and held for a long period without frequent transactions, indicating an investment rather than trading intention. The conversion and sub-plotting were done to facilitate future sales, not as part of an organized business activity. The ITAT upheld the CIT(A)'s decision, agreeing that the land was a capital asset and the gains from its sale should be treated as long-term capital gains.

3. Reduction of Income Under "Income from Other Sources":
The AO had included an additional ?15,490 in the income under "income from other sources," which the CIT(A) found to be a duplication. The CIT(A) corrected this by reducing the income by ?15,490, noting that the figure of ?2,42,073 taken by the AO was incorrect and should be ?2,26,583. The ITAT affirmed this correction, finding no material evidence from the Departmental Representative to dispute the CIT(A)'s findings.

Conclusion:
The ITAT dismissed the appeal by the AO, upholding the CIT(A)'s decisions to treat the gains from the sale of "Race Course" and "Woodland Park" plots as long-term capital gains and to correct the duplication in the income from other sources. The cross-objection by the assessee was also dismissed as not pressed. The judgment was pronounced on January 31, 2018.

← Previous Next →