2020 (11) TMI 205 - AT - Income Tax

Rights on property or gain/losses - co-ownership agreement made between the assessee s brother and relative - HELD THAT - Land in question was purchased by the assessee along with co-owners in pursuance to the deed of co-ownership entered into by the assessee with other 2 co-owners Shri. N. Srinivasan and K. N. Ramesh. From copy of this co-ownership agreement it is stated that the nature of business will be joint purchase of the land. In co-ownership agreement, it is also stated that the net income of the co-ownership after deduction of all expenses shall be shared by the co-owners in accordance with this deed of co-ownership. When this is admitted position that the purchase of the land in question in the month of September 2005 was in pursuance to this co-ownership agreement entered into in June 2002 and as per this co-ownership agreement, this is the business of this co-ownership to have joint purchase of land and the net income of the co-ownership after deduction of all expenses is to be shared by the co-owners in accordance with the manner provided in the co-ownership agreement, nothing further is required to be seen and it can concluded without any hesitation that the income arising on purchase and sale of land in pursuance to this co-ownership agreement is taxable as business income and this is not relevant as to whether any other activity was done by the co-owners on the land purchased or in any other manner. As per the co-ownership agreement executed on 15.06.2002, the nature of business of this co-ownership arrangement is to have joint purchase of land and the income arising to this co-ownership after deduction of all expenses has to be shared by the co-owners in accordance with this deed of co-ownership and therefore, we hold that there is not infirmity in the order of CIT(A) and hence, no intervention is called for in the order of CIT(A). - Decided against assessee.

Summary

Issues:
1. Classification of profit from sale of land as business income or capital gains.
2. Eligibility for exemption under section 54F of the Income Tax Act.
3. Determination of period of holding for capital gains tax.

Issue 1:
The appeal concerned the classification of profit from the sale of land as business income or capital gains. The assessee argued that the land was purchased as part of a co-ownership agreement for joint purchase of land, indicating a business purpose. The Tribunal concluded that the income arising from the purchase and sale of land under the co-ownership agreement should be taxable as business income, regardless of other activities conducted on the land. The Tribunal emphasized the importance of the co-ownership agreement, which specified joint purchase of land as the business activity, leading to the classification of the income as business income.

Issue 2:
The appellant claimed exemption under section 54F of the Income Tax Act. The Tribunal analyzed the facts and held that the appellant was eligible for exemption under section 54F, as the asset sold was considered a capital asset and the profit on the sale was assessable under the head of capital gains. The Tribunal further determined that the original date of acquisition should be considered for reckoning the period of holding, qualifying the asset as a long-term capital asset for tax assessment purposes.

Issue 3:
Regarding the determination of the period of holding for capital gains tax, the Tribunal considered the actual date of purchase, as stated in the co-ownership agreement, as the starting point for calculating the period of holding. This decision impacted the tax treatment of the gain as long-term capital gain rather than short-term capital gain. The Tribunal also dismissed the relevance of various judicial pronouncements cited by the appellant, as they were deemed inapplicable to the specific facts of the case.

In conclusion, the Tribunal dismissed the assessee's appeal, upholding the order of the CIT(A) and affirming the classification of the income from the sale of land as business income, eligibility for exemption under section 54F, and the determination of the period of holding for capital gains tax based on the original date of acquisition.