2019 (4) TMI 1315 - HC - Income Tax

Correct head of income - sale of Non-agricultural land - Long Term Capital Gain OR Business income - engaged in the business of building construction and land developers - land shown in balance sheet as investment - HELD THAT - Both the CIT(A) as well as the Tribunal have come to a concurrent finding of fact on examination of the record, that 2.10 lakhs sq. mtrs of land has been held by the Respondent as investment. This, it found is evident from the books of account, balance sheet of the Appellant and the treatment given to it in its accounts. This finding of fact was further confirmed by the visit of the Inspector who was deputed by the AO to verify the correctness of the Respondent's claim that the 2.10 lakhs sq. mtr of land was being held as an investment as no construction activity was carried out on the same. The submission made on behalf of the Appellant completely ignores the fact that, it is always open to an assessee to hold the same class of assets as investment and also as stock-in-trade. There is no bar in law for a person dealing in land to also have investment in land. Thus, there is no substance in the above submission. - Decide against revenue.

Summary

Issues Involved:
Interpretation of income received from the sale of nonagricultural land as Long Term Capital Gain or Business income.

Detailed Analysis:

Issue 1: Interpretation of Income
The primary issue in this case revolves around the interpretation of income received from the sale of nonagricultural land as either Long Term Capital Gain or Business income. The Respondent, a partnership firm engaged in building construction and land development, declared total income of ?62.85 crores for the Assessment Year. The Assessing Officer contended that the land sold by the Respondent should be treated as stock-in-trade due to its business activities, and the income should be taxed under the head 'income from business' instead of capital gains.

Issue 2: Assessment by CIT(A)
The Commissioner of Income Tax (Appeals) [CIT(A)] reviewed the case and found that the Respondent had complied with CBDT Circular No.4 of 2007, demonstrating that the land was held as an investment. The land was consistently shown as an investment in the books of account since 2000, not as stock-in-trade. Additionally, previous assessment orders accepted the conversion of the land into an investment. The CIT(A) considered the valuation method, the agricultural nature of the land, and the absence of construction on the land to support the Respondent's claim.

Issue 3: Tribunal's Decision
The Tribunal upheld the CIT(A)'s findings that the land was treated as an investment by the Respondent. It noted that the land had been shown as an investment in the books of account since 2000, and an inspection confirmed that no construction had taken place on the land. The Tribunal dismissed the Revenue's appeal, affirming that the land was held as an investment, not as stock-in-trade.

Issue 4: Appeal to High Court
The Appellant argued that since the Respondent's business involved construction, the purpose of holding land could only be for business, not investment. However, the High Court observed that the Respondent's treatment of the land as investment was supported by the books of account and the Inspector's report confirming the lack of construction activity on the land. The Court emphasized that there is no legal prohibition on an assessee holding the same class of assets as both investment and stock-in-trade.

Conclusion:
The High Court dismissed the appeal, stating that the Tribunal's decision was based on factual findings and not shown to be erroneous. The Court highlighted that the Appellant's argument failed to recognize that an assessee can hold assets as both investment and stock-in-trade simultaneously. As no substantial question of law arose, the appeal was not entertained, and no costs were awarded.