2019 (8) TMI 1259 - AT - Income Tax

Correct head of income - income earned from the sale of the property - capital gains or business income - HELD THAT - In the case in hand, the assessee after sale of the land during the year under consideration had surplus money in his hand, which he invested in many small properties, out of which he had to resale six properties for the reason that the assessee was not expecting much gain from the said properties due to certain disputes / non preferred location etc. of these properties. However, rest of the properties have been retained by the assessee for long term. Merely because, the assessee had purchased many small properties that also itself is not good enough reason to hold that it was a business transaction. The quantum or number or number of investments i.e. whether the assessee invested in a single property or in many small properties to get better appreciation, does not change the nature of the investment to categorize it as business transaction. No justification on the part of the lower authorities in treating the income of the assessee from sale of property during the year as business income. The order of the lower authorities on this issue is set aside and the Assessing Officer is directed to treat the income from the sale of property as under the head capital gain . This issue is accordingly allowed in favour of the assessee. Deduction u/s 54F - amount spent for construction of residential house - assessee is owner of other commercial property - construction was not completed within three years - HELD THAT - Except a share in the ancestral house in the property mentioned at S.No.4, the assessee did not possess any other residential property on the date of sale of the property and in view of above, the assessee has rightly claimed the deduction u/s 54/54F on construction of a residential house. So far as the rejection of the claim on the ground that the construction was not completed within three years from the date of sale of property is concerned, considering the beneficial provisions of this chapter intended to promote the construction of residential houses, and also considering the evidence furnished by the assessee of approved plan of municipal corporation regarding one single house constructed by the assessee, we do not find any justification on the part of the lower authorities in rejecting the claim of deduction on this ground. In view of this order of the lower authorities on this issue is set aside and the AO is directed to grant the deduction on account of construction of residential house under the relevant provisions of Section 54/54F. - Decided in favour of assessee.

Summary

Issues involved:
1. Nature of income earned from the sale of property - Whether to be treated as 'capital gains' or 'business income'.
2. Rejection of deduction claimed under Section 54F for construction of a residential house.

Detailed Analysis:

Issue 1: Nature of income earned from the sale of property
The appellant contested the order of the Commissioner of Income Tax (Appeals) (CIT(A)) regarding the treatment of income earned from property sale as business income. The Assessing Officer classified the income as business income due to multiple property transactions by the assessee. The Tribunal remanded the matter back to the CIT(A) for a fresh decision. The appellant argued that the properties were held as investments, not for business purposes, citing various reasons for the sale of some properties. The Departmental Representative (DR) contended that the volume and types of properties bought and sold indicated a business intent. The Tribunal held that the mere purchase of multiple properties did not establish a business transaction. The motive behind the transactions was crucial, whether for quick profit or long-term investment. As the appellant had retained most properties for long-term appreciation, the income was reclassified as 'capital gains,' overturning the lower authorities' decision.

Issue 2: Rejection of deduction claimed under Section 54F
The appellant challenged the rejection of the deduction claimed under Section 54F for constructing a residential house. The Assessing Officer denied the deduction, stating the appellant owned multiple residential properties. The CIT(A) upheld this decision. The Tribunal examined each property listed by the Assessing Officer and found that most were commercial or ancestral properties not owned by the appellant individually. Only a share in an ancestral property was residential. Regarding the completion time for construction, the Tribunal considered the beneficial intent of the provision and evidence of one house construction within three years. Consequently, the Tribunal directed the Assessing Officer to grant the deduction for residential house construction under Section 54F. As a result, the appeal of the assessee was allowed.

This detailed analysis of the legal judgment highlights the key issues, arguments presented by both parties, and the Tribunal's reasoning leading to the final decision in favor of the assessee on both issues.