9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (9) TMI 879 - AT - Income TaxCorrect head of income - Gain on sale of properties - whether income from sale of these two properties should be taxable under the head Capital Gain or under the head Business Income ? - HELD THAT - The assessee and Shri. Dharmeshbhai Patel (SDP) entered into an arrangement wherein, Shri. Dharmeshbhai Patel (SDP) provided the money required to buy such property, physical possession of which, is not possible in the name of assessee. Therefore these properties would be later sold for profit and the profit is shared at ratio of 10 90 after recovering the investment made by Shri. Dharmeshbhai Patel (SDP). We note that no investment is made by the assessee. The assessee has not incurred any cost of acquisition . Hence, the lands cannot be called as his capital assets. The assessee has only allowed his name to be used in the transactions and has personally involved in the making of these deals. The income earned by the assessee is not an appreciation of his investment, but it is consideration for being part of the arrangement to earn profit from transactions involving lands. The income earned is towards his personal involvement and for time contributed. There is no transfer of capital asset by the assessee. For this reason too the income earned by the assessee cannot be said to be capital gains. It is evident from the bank account, the amounts invested by Shri. Dharmeshbhai Patel (SDP) and 90% the profit made on two transactions is remitted to his account. Shri. Dharmeshbhai Patel (SDP) has disclosed the profit made from these two transactions in his return of income under the head Business Income which is accepted u/s 143(3) - Since the 90% of the profit arising from these transactions has already been taxed as Business Income by the Department. Principles of uniformity demands that the balance 10% also to be taxed as Business Income in the hands of the assessee. - Decided against revenue.
Issues Involved:
1. Deletion of addition on account of Long Term Capital Gain (LTCG) from the sale of two properties. 2. Determination of income from the sale of two lands as business income. 3. Validity of the sale of land at Survey No. 550, Vesu. 4. Validity of the sale of land at Survey No. 547, Vesu. 5. Treatment of lands as capital assets and cost of acquisition. 6. Non-disclosure of the sale of the two lands in the original return of income. 7. Whether the order of the CIT(A) should be upheld or the Assessing Officer's order restored. Detailed Analysis: 1. Deletion of Addition on Account of LTCG: The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 14,78,58,450/- on account of LTCG from the sale of two properties. The Assessing Officer had treated the income from the sale of these properties as LTCG, arguing that the properties were shown as fixed assets in the balance sheet and not as stock-in-trade. The assessee, however, claimed that the transactions were business transactions and the income should be treated as business income. 2. Determination of Income as Business Income: The CIT(A) determined that the income from the sale of the two lands should be taxed as business income. The assessee argued that the transactions were part of an arrangement with Shri Dharmeshbhai Patel (SDP), who provided the investment for purchasing the properties. The profits were shared in a 10:90 ratio between the assessee and SDP. The CIT(A) observed that the transactions were conducted as laid out in a Memorandum of Understanding (MOU) between the assessee and SDP, indicating a business arrangement rather than an investment in capital assets. 3. Validity of the Sale of Land at Survey No. 550, Vesu: The CIT(A) held that the sale of land at Survey No. 550 was invalid and thus, the income could not be considered as capital gain. The land was under litigation, and the State Government had canceled the sale. The assessee had entered into an agreement to transfer his rights in the land to another party, but this agreement was not registered, and the ownership of the land vested with the State Government. Therefore, there was no valid transfer of the land. 4. Validity of the Sale of Land at Survey No. 547, Vesu: Similarly, the CIT(A) held that the sale of land at Survey No. 547 was invalid. The land was involved in a dispute, and the original owners, along with the assessee and 15 companies, sold the property to a third party. The sale deed mentioned all parties as sellers, but the assessee only received a portion of the sale proceeds, which he then transferred to SDP. The CIT(A) concluded that the transactions were business transactions rather than sales of capital assets. 5. Treatment of Lands as Capital Assets and Cost of Acquisition: The CIT(A) observed that the assessee did not incur any cost of acquisition for the lands, as the investment was made by SDP. Therefore, the lands could not be treated as capital assets of the assessee. The income earned by the assessee was for his involvement in the transactions and not an appreciation of his investment. Hence, the income could not be considered as capital gains. 6. Non-disclosure of the Sale of the Two Lands in the Original Return: The Revenue argued that the assessee deliberately did not disclose the sale of the two lands in the original return of income and only reflected it as business profit in the revised return after receiving a notice under section 143(2). The CIT(A), however, accepted the assessee's explanation and treated the income as business income based on the MOU and the sequence of transactions. 7. Whether the Order of the CIT(A) Should Be Upheld: The Tribunal upheld the order of the CIT(A), agreeing that the transactions were business transactions and the income should be taxed as business income. The Tribunal noted that the CIT(A) had carefully considered the facts, the MOU, and the sequence of transactions. The Tribunal also observed that 90% of the profit from the transactions had already been taxed as business income in the hands of SDP, and principles of uniformity demanded that the remaining 10% be similarly taxed in the hands of the assessee. Conclusion: The Tribunal dismissed the appeal of the Revenue, upholding the CIT(A)'s decision to treat the income from the sale of the two lands as business income and not as LTCG. The Tribunal found no infirmity in the CIT(A)'s order and concluded that the transactions were business transactions involving an arrangement between the assessee and SDP.
|
