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2023 (3) TMI 1217 - AT - Income TaxIncome earned by the sale of the property - taxability lies in the hands of assessee AOP or the members of the assessee AOP - taxable in the hands of the members of the assessee OR in the hands of the Assessee - assessee, an association of persons (AOP) registered under the provisions of the Bombay Non-Trading Corporation Act, purchased a property in an auction carried out by the office of the Chief Commissioner of income tax, Gujarat, Ahmedabad - As submitted assessee was the real owner of the property and the assessee had complete control over the entire venture from the start to the end - HELD THAT - CIT(Appeals) has not erred in facts and in law in holding that it was the members of the assessee AOP who were the real owners of the impugned property in question, and accordingly income is liable to be taxed in the hands of the respective members, in proportion to their holding. Whether sale of property was capital gains or adventure in the nature of trade and hence taxable as business income? - The entire purchase was funded by the members of the AOP. No interest-bearing loan was taken for the purpose of purchase of said property and construction thereon. No change in land user of the property was affected in order sell the aforementioned property. It is not the case of the Department that when initially the assessee AOP purchased the land and took possession thereof on 19-01-1994, the buyers were identifiable and thus the whole purpose of purchase and subsequent construction was for the purpose of selling the same and not earning any rental income. Accordingly said sale of property would be taxable as capital gains and not business income, and we find no infirmity in the order of ld. CIT(A). Year of taxability of the aforementioned property - We find no infirmity in the order of Ld. CIT(Appeals) wherein the held that the year of taxability of the impugned property sold was financial year 2007-08 relevant to assessment year 2008-09.
Issues Involved:
1. Taxability of income from the sale of property in the hands of the assessee AOP or its members. 2. Classification of income from the sale of property as capital gains or business income. 3. Determination of the correct assessment year for taxability of the income from the sale of property. Issue-wise Detailed Analysis: 1. Taxability of Income from the Sale of Property in the Hands of the Assessee AOP or Its Members: The primary issue was whether the income from the sale of the property "Vision House" should be taxed in the hands of the assessee AOP or its individual members. The Assessing Officer (AO) contended that the assessee AOP was the "real owner" of the property and had complete control over the venture, thus the income should be taxed in the hands of the AOP. However, the Commissioner of Income Tax (Appeals) [CIT(A)] and the Tribunal found that the funds for the purchase and construction of the property were provided by the members, and the property rights were allotted to them through allotment certificates. The members were recognized as owners by various authorities, including the Ahmedabad Municipal Corporation (AMC) and the Registrar of Stamps, Gujarat. Consequently, it was concluded that the members were the "real owners" and the income should be taxed in their hands proportionately. 2. Classification of Income from the Sale of Property as Capital Gains or Business Income: The second issue was whether the income from the sale should be classified as capital gains or business income. The AO argued that the transaction was an adventure in the nature of trade and should be taxed as business income. However, the CIT(A) and the Tribunal disagreed, noting that the property was held for a long duration (from 1994 to 2007), and there was no evidence to suggest that the property was acquired with the intention of trading. The purchase was funded by the members without any interest-bearing loans, and there was no change in land use to indicate a business motive. Therefore, it was determined that the income should be classified as capital gains. 3. Determination of the Correct Assessment Year for Taxability of the Income from the Sale of Property: The final issue was the correct assessment year for taxing the income from the sale of the property. The AO contended that the income should be taxable in the assessment year 2007-08 since the agreement to sell was executed in January 2007, and part payment was received in the financial year 2006-07. However, the CIT(A) and the Tribunal observed that the registered sale deed and possession transfer occurred in May 2007, and the full sale consideration was received in the financial year 2007-08. Judicial precedents established that an agreement to sell does not constitute a transfer of property without possession. Therefore, it was concluded that the income should be taxable in the assessment year 2008-09. Conclusion: The Tribunal upheld the CIT(A)'s decision, concluding that: - The income from the sale of the property should be taxed in the hands of the individual members of the assessee AOP. - The income should be classified as capital gains. - The correct assessment year for taxability is 2008-09. All grounds of appeal by the Department were dismissed.
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