2020 (5) TMI 299 - AT - Income Tax

Income earned by sale of land - business income or Long Term Capital Gains - whether the land in question is investment or stock-in-trade irrespective of the fact whether the books of accounts have been wrongly accounted or whether the capital gains have been wrongly offered to tax? - assessee has taken plea that the land has been sold only on account of the notice received from the revenue department to surrender the land as it was an encroachment on the Gaon Sabha Land - HELD THAT - The notice was issued in the year 1997 hence cannot be given any relevance with regard to determination for the issue before us. The fact that the land in question has been sold after obtaining NOC from the ADM, South District, New Delhi on 24.01.2011. We find that the main objects of the company are to acquire purchase take on lease are otherwise any land building, structures plot to act as real estate agents in connection with buildings schemes and also to be colonizers to sale plots and flats. Having acquired the land as stock-in-trade, the land continued to be held for business purpose and continued to be shown as closing stock for all the years. The assessee is into the business of acquiring and sale of plot and colonizers. On going through the Memorandum and Articles of Association, conduct and business affairs of the assessee, and on perusal of the books of accounts of the assessee, it cannot to be said to be an income arising out of capital gains and has been rightly treated as business income by the ld. CIT (A). Whether the capital gains are eligible to avail its exemption? - Since, the income earned has been already adjudicated on merits to be taxed as business income , it is hereby clarified that the treatment proposed by the assessee to consider the proceeds of the sale of land under the head Long Term Capital Gains and subsequent exemption from taxation cannot be held to be valid in the eyes of law. Disallowance u/s 40(a)(ia) - CIT-A uphold addition on the grounds that the assessee is not a new company and been in the business of land transactions from 1997 and the provisions of TDS are clearly defaulted by the assessee - HELD THAT - In the absence of any evidences contra, putforth by the assessee, we hereby decline to interfere with the order of the ld. CIT (A) on this issue. - Decided against assessee.

Summary

Issues Involved:
1. Treatment of income from the sale of land as business income vs. long-term capital gains.
2. Eligibility for exemption on the sale of agricultural land.
3. Disallowance of brokerage expenses under Section 40(a)(ia) of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Treatment of Income from Sale of Land:
The primary issue was whether the income from the sale of land should be treated as business income or long-term capital gains. The assessee claimed the sale proceeds as long-term capital gains, arguing that the land was held as a long-term investment and not as stock-in-trade. The assessee pointed out that the land was shown at cost in the balance sheet and held for 13 years, indicating it was an investment. However, the Assessing Officer (AO) and CIT(A) treated it as business income, noting that the land was consistently shown as stock-in-trade in the balance sheets. The Tribunal upheld the AO's decision, emphasizing that the land was held as stock-in-trade, the assessee’s main business was dealing in land, and the land was shown as closing stock in the books of accounts. The Tribunal also highlighted that the treatment of land in the books and the assessee's business activities supported the conclusion that the income was business income.

2. Eligibility for Exemption on Sale of Agricultural Land:
The assessee claimed exemption on the grounds that the land was agricultural and located outside municipal limits. The AO, based on an Income Tax Inspector's report, found the land within the municipal limits of South Delhi Municipal Corporation, disqualifying it from being treated as agricultural land under Section 2(14) of the Income Tax Act. The Tribunal noted that the land was within municipal limits at the time of purchase and sale, thus not qualifying for exemption as agricultural land. The Tribunal also dismissed the assessee's argument regarding the municipal corporation's bifurcation, stating that the municipal limits remained unchanged.

3. Disallowance of Brokerage Expenses:
The assessee contested the disallowance of ?2,00,000 related to brokerage expenses under Section 40(a)(ia) for non-deduction of TDS. The assessee argued that it was the first year of business transactions, and in the absence of a TAN, no TDS was deducted. The CIT(A) upheld the disallowance, noting that the assessee had been in business since 1997 and was aware of TDS provisions. The Tribunal agreed with the CIT(A), finding no evidence to contradict the disallowance.

Conclusion:
The Tribunal dismissed the appeal, affirming the treatment of the income from the sale of land as business income, rejecting the exemption claim for agricultural land, and upholding the disallowance of brokerage expenses. The Tribunal emphasized the consistency in treating the land as stock-in-trade in the books of accounts and the nature of the assessee’s business activities.