2020 (2) TMI 1289 - HC - Income Tax

Correct head of income - characterization of income - proceeds from sale of the properties vide sale deed - business income or capital gain - HELD THAT - Business of the appellant-assessee is buying and selling properties situated in various places in Goa either wholly or in plots. Mr. Rivonkar s contention that the business of the appellant-assessee is only to purchase properties, develop them into plots or construct buildings upon them and thereafter to sell them cannot be accepted, looking to the aforesaid provisions in the Deed of Partnership by which the appellant-assessee came to be constituted. The business of the appellant-assessee very specifically includes buying and selling properties situated in various places in Goa either wholly or in plots. Considering the wide phraseology employed, it is obvious that the business of the appellant-assessee includes buying and selling even agricultural properties. Accordingly, we are unable to accept that the sale of the properties by the appellant-assessee vide sale deed dated 13.07.2006 has no nexus with the business of the appellant-assessee. Both the Assessing Officer as well as the CIT (Appeals) have noted that by sale deed dated 13.07.2006, the appellant-assessee sold not merely the agricultural property but also another property ad-measuring 2,525 sq.mtrs. to Headway Resort Line Pvt. Ltd. Therefore, this is not a case of sale of a solitary property, by way of a one off transaction. The appellant-assessee, in terms of Clause 2 of the Partnership Deed is clearly involved in buying and selling properties situated in various places in Goa either wholly or in plots. By sale deed dated 13.07.2006, the appellant-assessee has indeed sold the properties purchased by it for a considerable profit. This material, according to us, is more than sufficient to sustain the findings recorded by the AO and the ITAT. The finding of fact cannot be regarded as perverse, so as to give rise to any substantial question of law or so as to warrant interference. - Decided in favour of revenue.

Summary

Issues Involved:
1. Interpretation of the provisions of Section 2(14) of the Income Tax Act.
2. Determination of whether the proceeds from the sale of properties can be regarded as income from business.

Analysis:

Issue 1: Interpretation of Section 2(14) of the Income Tax Act
The appellant-assessee contended that the Tribunal erred in considering a single transaction as a business transaction without a series of transactions. The Senior Advocate argued that the appellant was not engaged in the business of selling and purchasing agricultural properties based on a single transaction. The appellant relied on the decision in Narain Swadeshi Weaving Mills vs. Commissioner of Excess Profits Tax to support their argument. On the other hand, the Standing Counsel defended the Tribunal's decision, stating it was supported by the evidence on record.

Issue 2: Classification of Proceeds from Sale of Properties
The main issue revolved around whether the income derived from the sale of properties should be considered as business income. The Partnership Deed of the appellant clearly outlined their business as buying and selling properties in various locations in Goa. The Deed explicitly mentioned buying or selling properties either wholly or in plots. The court found that the sale of properties, including agricultural land, was directly related to the business activities outlined in the Partnership Deed. The Tribunal and Assessing Officer noted that the appellant had sold multiple properties, not just the agricultural land, indicating a regular business activity of buying and selling properties for profit. The court distinguished the case from Narain Swadeshi Weaving Mills, emphasizing the specific business activities of the appellant in real estate development.

In conclusion, the court ruled against the appellant, affirming that the proceeds from the sale of properties constituted income from business. The appeal was dismissed, with no order as to costs.