2020 (6) TMI 209 - AT - Income Tax

Correct head of income - profit on sale of land /immovable property - business income or capital gain income - Assessee is engaged in the business of trading of Dyes and Dye Intermediates and Financing Activities - thrust of the Revenue for holding the transaction for the sale of the property as in the nature of trade was based on the fact that the assessee has been incurring expenses on continuous basis for the development of the land purchased in the auction over certain period of time which is akin to the activity of the builders of the property - HELD THAT - None of the authority below has brought out anything on record on the aspects as discussed above but arrived at the conclusion that the assessee has been carrying on business of property development on the basis that the assessee has been incurring the expenditure on continuous basis for the development of the land. The contention as raised by the assessee before the authorities below that it wanted to development the impugned land for its business activities has not been challenged. In the similar facts and circumstances the Hon ble Tribunal Jodhpur has decided the issue in favour of the assessee in the case of Marudhar Hotels Pvt. Ltd v/s ACIT 2013 (2) TMI 840 - ITAT JODHPUR wherein held that share of sale consideration received by the appellant from developer on sale of plots under the development agreement was in the course of realization of a capital asset held by the appellant for over 30 long years, giving rise to income taxable under the head 'Capital gains'. Such an activity could not, on the undisputed facts of the case, be regarded as carrying on an adventure in the nature of trade. Thus we hold that the income generated by the assessee from the sale of the property in dispute is taxable under the head capital gain. - Decided in favour of assessee. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT - Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited 2020 (5) TMI 359 - ITAT MUMBAI

Issues Involved:
1. Legality of the CIT(A) order.
2. Nature of the transaction of the property (business income vs. capital gain).
3. Entitlement to capital loss and indexation benefits.
4. Classification of the gain as short-term or long-term capital gain.
5. Correct computation of demand and interest under sections 234B and 234C.

Issue-wise Detailed Analysis:

1. Legality of the CIT(A) Order:
The assessee argued that the CIT(A) order was "bad in law" and contrary to the provisions of the law and facts of the case. The appellant contended that the assessing officer framed the order without affording a reasonable opportunity of being heard, violating the principle of natural justice. The order was therefore sought to be quashed, and variations to the returned income deleted.

2. Nature of the Transaction of the Property:
The core issue was whether the profit of ?27,83,879/- from the sale of "Metro House" was business income or capital gain. The assessee, a Private Limited Company engaged in trading Dyes and Dye Intermediates and Financing Activities, sold its 1/4th share in "Metro House" for ?1,11,01,395/- and claimed a capital loss of ?25,91,351/-. The assessee argued that the property was a capital asset held for over ten years and the resultant loss should be treated as a capital loss after providing indexed cost of acquisition and improvement. The AO, however, treated the transaction as an adventure in the nature of trade, considering the continuous expenditure on the property as indicative of a business activity, thereby classifying the income under the head "business and profession" and denying indexation benefits.

3. Entitlement to Capital Loss and Indexation Benefits:
The AO did not allow the cost of improvement incurred before 21-03-2000, as the permission for commercial use was granted post this date. The CIT(A) upheld the AO's decision, asserting that the activities carried out by the assessee were organized and aimed at creating a commercial asset for profit, not merely improving a capital asset. The CIT(A) noted that the property was not shown as a capital work in progress or a business asset in the assessee's books, which would have resulted in short-term capital gain under section 50 of the Act.

4. Classification of the Gain as Short-Term or Long-Term Capital Gain:
The assessee contended that the gain should be classified as long-term capital gain, given the holding period of over ten years. The CIT(A) rejected this, stating that the organized activity of constructing a commercial complex for profit indicated an adventure in the nature of trade, thus taxable as business income. The Tribunal, however, found that the property was held as a fixed asset and not claimed for depreciation, supporting the assessee's claim of long-term capital gain.

5. Correct Computation of Demand and Interest under Sections 234B and 234C:
The assessee argued for a correct computation of demand and deletion of interest charged under sections 234B and 234C. The Tribunal did not separately adjudicate this issue, as it became consequential upon accepting the assessee's primary contention regarding the nature of the transaction.

Tribunal's Decision:
The Tribunal held that the income from the sale of the property should be taxable under the head "capital gain" and not as business income. It directed the AO to treat the transaction as a capital gain, setting aside the CIT(A)'s findings. Consequently, the other grounds raised by the assessee became consequential and were dismissed without separate adjudication.

Pronouncement Delay Due to COVID-19:
The Tribunal acknowledged the delay in pronouncing the order due to the COVID-19 pandemic, citing the unprecedented circumstances and lockdowns as valid reasons for the extension beyond the usual 90-day period.

Final Order:
The appeal of the assessee was partly allowed, with the order pronounced on 08th June 2020 at Ahmedabad.

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