2022 (4) TMI 354 - AT - Income Tax

Correct head of income - income declared by assessee under the head 'capital gains' or 'business income' on account of construction and sale of apartments - HELD THAT - As in the case of PCIT vs. Smt. Chamundeswari, 2019 (1) TMI 861 - KARNATAKA HIGH COURT wherein following the decision of Hon'ble Supreme Court in the case of G. Venkataswamy Naidu 1958 (11) TMI 5 - SUPREME COURT held that property purchased with the intention of profit is business income but in case, assessee holds the property for a long period and investing in the property in an intention to hold and enjoy the property and sells it for capital appreciation, the profit deriving there from is taxable under the head 'capital gains'. The intention was to construct property, to hold property and to enjoy the property as the assessee was enjoying this property since 2003, as she was not having any other house property. The compulsion to the assessee for sale of this property was only that she was under heavy debt and to release the debt she has to sell the property and actually by selling these flats she has settled the loans and hence in the given facts, we cannot say that the assessee has entered into any trade or any case 'adventure in the nature of trade'. Hence, we reverse the orders of lower authorities and direct the AO to assess the profit arising out of sale as 'capital gains' and allow the appeal of the assessee.

Summary

Issues:
1. Condonation of delay in filing appeal.
2. Classification of income as capital gains or business income.

Analysis:

Issue 1: Condonation of delay in filing appeal
The appeal filed by the assessee was delayed by 16 days. The counsel for the assessee explained that the delay was unintentional due to the assessee's age and lack of education. The delay was condoned by the Tribunal after considering the reasons provided and the absence of objections from the Senior DR.

Issue 2: Classification of income as capital gains or business income
The primary issue in this appeal was the classification of income declared by the assessee under the head of 'capital gains' as 'business income.' The assessee had purchased plots, constructed flats, and sold them, claiming the income as capital gains. However, the Assessing Officer (AO) reclassified the income as business income due to systematic business activity. The Commissioner of Income Tax (Appeals) upheld the AO's decision, considering the construction activity and sales agent involvement. The Tribunal reviewed the facts and noted that the assessee had purchased the plots for personal use, not for trading. The Tribunal referred to relevant case laws, including the Hon'ble Karnataka High Court decision, emphasizing the intention behind property purchase for profit determination. The Tribunal concluded that in the absence of trading intent, the profit from the property sale should be treated as capital gains, not business income. Citing legal precedents, the Tribunal reversed the lower authorities' decision and directed the AO to assess the profit as capital gains, thereby allowing the assessee's appeal.

In conclusion, the Tribunal allowed the appeal, emphasizing the absence of trading intent in the property transactions and directing the assessment of profit as capital gains.