2021 (7) TMI 287 - AT - Income Tax

Correct head of income - profits arisen from the sale of land constitutes Capital Gains or Business Income - HELD THAT - In the instant case, undisputedly, the intention of the parties apart from the treatment given in the books of accounts i.e., as investments, there is no material brought on record by the assessing authority to indicate that the land was purchased by the assessee with an intention to resale for profit. On the other hand, the intention of the parties clearly demonstrated in the form of treatment given in the books of accounts. There is nothing on record to infer the contrary and the facts of the present case are identical to the case of Baguio Investments Pvt Ltd 2013 (1) TMI 812 - BOMBAY HIGH COURT wherein has confirmed the findings of the Tribunal that the land forms part of the investment and the land was held for a period of 10 years - decision of the order of Ld.CIT(A) is based on the proper appreciation of the facts and in consonance with the settled position of law. Therefore, we do not find any reason to interfere with the findings of Ld.CIT(A) that the profits arising on sale of land should be assessed as Capital Gains. Undisclosed consideration should be assessed as part of the sale consideration of land and the findings of CIT(A) is based on the consideration of material evidence like there is an established link between the transaction of sale of land to the MCA and grant of Corporate Boxes in the Cricket Stadium - Findings of Ld.CIT(A) is also based on the material on record and we do not find any material on record contrary to the findings of the Ld.CIT(A). Thus, this ground of appeal also stands disallowed.

Summary

Issues Involved:
1. Classification of profits from the sale of land as "Business Income" or "Capital Gains."
2. Addition of undisclosed consideration of ?70 lakhs related to the allotment of a Corporate Box.

Detailed Analysis:

1. Classification of Profits from Sale of Land:
- Facts and Contentions: The respondent/assessee, an LLP engaged in property development, declared profits from the sale of land as "Long Term Capital Gains," while the Assessing Officer (AO) classified it as "Business Income." The land was initially purchased in 2007 and sold to Maharashtra Cricket Association (MCA) in 2011, with the sale deed executed in 2012. The AO argued that the land was acquired using borrowed funds and converted to non-agricultural land, indicating an intention to resell for profit. The assessee countered that the land was shown as an investment in the balance sheet, not as stock-in-trade, and that no development activities were carried out on it.
- Legal Precedents and Arguments: The assessee relied on the decision of the Hon'ble Bombay High Court in CIT Vs. Baguio Investment Pvt. Ltd., which held that mere realization of capital investment and generation of huge profit does not amount to an adventure in the nature of trade. The AO's contention that the land was acquired using borrowed funds was rebutted by the assessee, stating that proceeds from 8% redeemable non-cumulative preference shares do not constitute borrowed funds, a position supported by the Karnataka High Court in Kirloskar Electric Company Ltd. Vs. CIT.
- Tribunal's Findings: The Tribunal held that the land was shown as an investment in the books of account and was sold after six years, indicating an intention to hold it as an investment. The AO failed to provide material evidence to prove that the transaction was an adventure in the nature of trade. The Tribunal emphasized that the intention at the time of acquisition is crucial, and the mere realization of huge profits does not convert an investment into a business transaction. The Tribunal upheld the CIT(A)'s decision to treat the profits as "Capital Gains."

2. Addition of Undisclosed Consideration:
- Facts and Contentions: The AO added ?70 lakhs to the assessee's income, alleging it was undisclosed consideration received in the form of a Corporate Box from MCA. The AO found that MCA allotted Corporate Boxes to various entities for a fee of ?70 lakhs and concluded that the Corporate Box allotted to Dr. C.S. Poonawalla was in consideration for the sale of land.
- Legal Precedents and Arguments: The assessee argued that the Corporate Box was directly linked to the sale of land and should be treated as part of the sale consideration. The CIT(A) agreed with this view, holding that the Corporate Box allotment was part of the land sale transaction.
- Tribunal's Findings: The Tribunal found that the CIT(A)'s decision was based on material evidence establishing a link between the sale of land and the Corporate Box allotment. The Tribunal saw no reason to interfere with the CIT(A)'s findings and upheld the decision to treat the ?70 lakhs as part of the sale consideration of the land.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to classify the profits from the sale of land as "Capital Gains" and to include the ?70 lakhs as part of the sale consideration. The order was pronounced on 5th July 2021.