2019 (11) TMI 913 - AT - Income Tax

Gain on sale of land - year of taxation - HELD THAT - The year of taxation is the year of transfer of possession of land by the transferee from the custody of the transferor. The said decision is relevant for the ratio that the transfer is not complete and the gains are not taxable in that assessment year 2011-12 when the possession of the land is with the transferor till the entire consideration is paid, which happened in the assessment year 2012-13 in this case. Thus, the year of possession of land, payment of entire consideration and the compliance to the conditions stated in the agreement are the relevant factors that decides the year of taxation. In the present case, these events happened only in the assessment year 2011-12 and not in the current assessment year 2008-09. Accordingly, we are of the opinion that the year of taxation in the assessment year 2011-12 offered by the assessee and not assessment year 2008-09 as considered by the Assessing Officer in the assessment. Therefore, the relevant issue is decided in favour of the assessee in respect of year of taxation. Proper Head of Income Capital Gains OR Business Income - HELD THAT - It is undisputed fact that the assessee never offered any business income on trading of land either in the past or in future assessment years. It is also born out of the records that the said asset has been consistently shown as fixed asset and not as stock-in-trade. Regarding the Assessing Officer s claim that the said transaction constitutes an adventure in nature of the trade , we are of the opinion, test laid down in the case of G. Venkataswami Naidu 1958 (11) TMI 5 - SUPREME COURT in matters of dispute relating to the adventure in the nature of trade, we find the CIT(A) analyzed the said judgement and gave a finding that the said test laid down is not applicable to the facts of the present case. Therefore, in our view, the transaction in question does not constitute adventure in the nature of trade Consolidated transaction on sale of land together with his wife constitute an adventure in the nature of trade. It is also submission of the assessee that the similar claim in his wife s case, co-owner of the property, was accepted by the concerned Assessing Officer taxing the gain under the head income from capital gains. Therefore, we are of the opinion that change in the head of income is unsustainable and not in tune with the relevant judgment in the case of G. Venkataswami Naidu 1958 (11) TMI 5 - SUPREME COURT . Accordingly, the relevant grounds raised by the Revenue are dismissed. Taxation of income from let out properties - HELD THAT - It is settled legal proposition that so long as Municipal values are available the same becomes bindings and therefore, the decision of the AO in calculating the rental value based on any other method is unsustainable in law. Therefore, the above conclusion drawn by the CIT(A) on this issue is fair and reasonable and it does not call for any interference. Accordingly, the grounds raised by the Revenue are dismissed.

Issues Involved:
1. Year of Taxation of Capital Gains
2. Proper Head of Income: Capital Gains vs. Business Income
3. Taxation of Income from Let Out Properties

Detailed Analysis:

A. Year of Taxation

Revenue's Argument:
The Revenue argued that since 97.88% of the sale consideration was received in the Assessment Year (A.Y.) 2008-09, the gains should be taxed in that year. They contended that the major part of the consideration received should determine the year of taxation.

Assessee's Argument:
The assessee contended that the possession of the land was not transferred until the sale deed was executed on 23.04.2010, which falls in A.Y. 2011-12. The assessee argued that the correct year of taxation is A.Y. 2011-12, as the possession and registration of the land occurred in that year.

Tribunal's Decision:
The Tribunal held that the year of taxation should be A.Y. 2011-12. They noted that the possession of the land was not transferred until the registration was completed in A.Y. 2011-12. The receipt of 97.88% of the consideration in A.Y. 2008-09 does not determine the year of taxation. The Tribunal relied on various judicial pronouncements that supported the view that the transfer of possession and registration date are critical in determining the year of taxation.

B. Proper Head of Income: Capital Gains vs. Business Income

Revenue's Argument:
The Revenue argued that the transaction should be treated as an "adventure in the nature of trade" and thus taxable as business income. They pointed to the business motive of the assessee and the receipt of a significant portion of the consideration in A.Y. 2008-09.

Assessee's Argument:
The assessee maintained that the land was held as a fixed asset and not as stock-in-trade. The land was consistently shown as a fixed asset in the balance sheets from A.Y. 2006-07 onwards. The assessee also pointed out that they had no history of trading in land and had always treated similar transactions as capital gains.

Tribunal's Decision:
The Tribunal agreed with the assessee, stating that the land was consistently shown as a fixed asset and not as stock-in-trade. They noted that the assessee did not have a history of land trading and that the principle of consistency should be applied. The Tribunal concluded that the transaction does not constitute an adventure in the nature of trade and should be taxed under the head "capital gains."

C. Income from Let Out Properties

Revenue's Argument:
The Revenue contended that the municipal value does not represent the fair rent a property can fetch if let out and that it is computed mechanically and not revised periodically. They argued for a higher annual letting value (ALV) based on a percentage of the investment value.

Assessee's Argument:
The assessee argued that the municipal valuation should be used to determine the ALV, as it represents the annual rental value of the property. They pointed out that the municipal valuation is based on the locality, area, and type of construction, which should be binding.

Tribunal's Decision:
The Tribunal upheld the assessee's view, stating that the municipal valuation should be used to determine the ALV. They noted that the municipal valuation represents the annual rental value and should be binding. The Tribunal dismissed the Revenue's grounds for a higher ALV based on other methods.

Conclusion:
The appeal of the Revenue was dismissed on all grounds. The Tribunal upheld that the correct year of taxation for the capital gains is A.Y. 2011-12, the gains should be taxed under the head "capital gains," and the municipal valuation should be used to determine the ALV for let out properties.

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