2021 (1) TMI 1086 - AT - Income Tax

Rectification of mistake - Gain on sale of property - Business income or capital gain - whether the Revenue authorities were justified in treating the gain on sale of properties by the assessee which was considered by the Assessee as a long term capital gain, as giving rise to business income/short term capital gain? - HELD THAT - Tribunal has not adjudicated the main grievance of the assessee regarding conclusions of the AO that the gain on sale of property was short term capital gain and has adjudicated on the issue whether the income in question give raise to capital gain or business income. The findings of the AO are contradictory as already pointed out above and the CIT(A) has also not rendered any clear finding on the issue. In these circumstances, we are of the view that the order of the Tribunal suffers from mistake apparent from the face of the record in as much as ground No.5 and 6 raised by the Assessee remains undecided. Hence, the proper course would be to recall the entire order rather than deciding the other grounds as these grounds are interconnected or interlinked. The order of the Tribunal is recalled and registry is directed to fix the appeal for hearing afresh in due course after notice to parties. Assessee s Miscellaneous Petition is allowed.

Summary

Issues:
1. Whether the gain on sale of properties by the assessee should be treated as business income/short term capital gain.
2. Whether the co-ownership agreement formed the basis for concluding that the gain on sale of property was business income.

Issue 1: Gain Classification
The issue in this case revolved around determining the nature of the gain on the sale of properties by the assessee. The Tribunal had to decide whether the Revenue authorities were correct in treating the gain, initially considered by the assessee as a long-term capital gain, as business income/short-term capital gain. The assessee, a salaried employee, entered into a co-ownership agreement to jointly purchase lands with two others. The purchased land was later converted from agricultural to non-agricultural use. The properties were subsequently sold, and the capital gain income earned was claimed as a deduction under section 54F for investment in a residential apartment. The Assessing Officer (AO) initially considered the gain as business income but later treated it as short-term capital gain, leading to a contradiction in the order. The Commissioner of Income Tax (Appeals) upheld the AO's decision. The Tribunal, in its order, focused on whether the gain should be classified as income from business or capital gain, emphasizing the co-ownership agreement's terms and the purpose of joint land purchase for business. The Tribunal concluded that the income from the purchase and sale of land under the co-ownership agreement should be taxable as business income, regardless of other activities on the land.

Issue 2: Co-Ownership Agreement
The second issue raised in the case pertained to the co-ownership agreement and its impact on the classification of the gain on property sale. The assessee argued that there were erroneous assumptions regarding the co-ownership agreement, which influenced the conclusion that the gain was business income. The assessee claimed that the document was incomplete and never acted upon. The Tribunal acknowledged that it did not address the main grievance of the assessee concerning the AO's classification of the gain as short-term capital gain. The Tribunal found contradictions in the AO's findings and the lack of a clear decision by the CIT(A) on the issue. Consequently, the Tribunal decided to recall the entire order, emphasizing that the grounds raised by the assessee were interconnected and needed further consideration. The Tribunal allowed the assessee's Miscellaneous Petition, recalling the order and directing a fresh hearing after notice to the parties.

In conclusion, the judgment by the Appellate Tribunal ITAT Bangalore delved into the classification of the gain on property sale by the assessee, considering aspects such as the co-ownership agreement and the conversion of land use. The decision highlighted the importance of the co-ownership agreement in determining the nature of the income generated from the land transaction. The Tribunal's order to recall the decision for further examination of the interconnected issues demonstrates a commitment to ensuring a fair and thorough assessment of the case.