2018 (5) TMI 1098 - HC - Income Tax

Treatment to income from six transactions of sale of plots - capital gain or business income - Held that - Material on record would show that the assessee had entered into multiple agreements to sale with various developers for developing its open land for putting up construction thereon. All these agreements for some reason or the other failed. Having cancelled such agreements, finally, the assessee during the said year, sold six of the open plots. It was on the basis of such facts that CIT A and the Tribunal believed that the Assessing Officer was wrong in holding that the assessee was in the business of development of land. Analysis of the agreements entered by the assessee with the developers suggest that the assessee had at no point of time agreed to take any risk in the process. The conclusion drawn by the CIT A as well as the Tribunal are based on factual material.

Summary

Issues:
Whether the income from the sale of plots should be treated as capital gain or business income.

Analysis:
The judgment pertains to an appeal by the Revenue against the order of the Income Tax Appellate Tribunal concerning the assessment year 2010-2011. The main issue was whether the income of the assessee, a Cooperative Housing Society, from the sale of six plots amounting to ?4.02 Crores should be considered as capital gain or business income. The Assessing Officer treated it as business income, but the CIT [A] reversed this finding, leading to the Revenue's appeal to the Tribunal.

The Tribunal, in its decision, carefully analyzed the facts and agreements entered into by the assessee with developers over the years. It noted that the assessee had initially acquired agricultural land, which later got converted into a cooperative housing society. The Tribunal observed that the assessee had entered into development agreements with various developers, but these agreements were either annulled or terminated. Ultimately, the assessee sold six plots without engaging in any development activities, leading to the conclusion that the income should be treated as capital gain. The Tribunal highlighted that there was no evidence to suggest that the assessee had undertaken any risks or responsibilities akin to a business venture in the sale of the plots.

The judgment emphasized that the conclusions reached by the CIT [A] and the Tribunal were based on factual evidence, particularly the lack of any value addition by the assessee to the developers' efforts in the sale of the plots. The agreements entered into by the assessee with developers did not indicate any involvement in the development process or assumption of risks. Therefore, the Tribunal upheld the view that the income from the sale of plots should be treated as capital gain and not business income. The Tax Appeals were consequently dismissed by the High Court.

In conclusion, the judgment provides a detailed analysis of the factual background and agreements involved in determining whether the income from the sale of plots by the Cooperative Housing Society should be classified as capital gain or business income. The decision underscores the importance of factual evidence and contractual terms in assessing the nature of income for tax purposes.