2023 (9) TMI 1532 - AT - Income Tax

Correct head of income - gain on sale of land - nature of land sold - LTCG or business income - AO observed that the assessee had purchased agriculture land, thereafter converted it into non-agriculture category in 2001, then converting into a non-agriculture (N.A.) land in the subsequent years, getting the plan approved from the Vadodara Municipal Corporation and later giving right for development of remaining land to the company in which the assessee himself is a Managing Director, since is not found to be in the nature of investment - AO observed that the nature of above activity is basically business activities HELD THAT - The said land was admittedly acquired in 2001. The said land was agricultural land, and it is an admitted position that no agriculture activities were ever carried on in the said land since it was acquired in 2001 by the assessee and his brother, both as co-owner. The assessee applied for getting NA(Non agriculture ) permission from Collector order No. S.R./4/2006-07 land/D/VASHI/1355/2008 dated 27/05/2008 and taken the permission for construction from Vadodra Municipal Corporation on 26.08.2008. The assessee also got his lay out map. Assessee entered into development agreement with the company M/s Mahindra Patel Builders Private Limited on 08.04.2013 and given the land for development. The assessee has claimed that permission for construction was revised on 23.07.2012. The assessee had converted the land use from agricultural to non-agricultural, and paid the prescribed requisite fee including the betterment charges, development charges, scrutiny charges, mapping fees, zoning certificate fees and sketch plan and other charges. AO observed that the land was purchased, and subsequently substantial expenses were incurred for improvement to make it useful for business purposes and to exploit it in commercial way. The department has claimed that the payments for sale of land was not received immediately on development agreement entered into by the assessee on 08.04.2013 , but were received in 20 months and the assessee shared the risk with developer, while the assessee is claiming that the entire consideration was received in one go. These are disputed facts, as well detailed investigation of facts are required to identify the true intention of the assessee in acquiring the said land, converting the same into non-agricultural land, taking permission for construction from vadodra municipal corporation, the manner of executing development agreement so on and so forth - Tribunal is last fact finding body. Assesssee has chosen not to file factual paper book. The adjudication of this appeal requires detailed study of all the factual documents, to enable Tribunal to discern the true intention of the assessee while holding the said land from 2001 to 2013. The manner in which land was acquired, the various applications/plans filed with government authorities. terms of development agreement entered into by the assessee etc. are all required to be analyzed in depth to arrive at true intentions of the assessee, as to whether land is held as investment or as business asset. The complete facts/evidences/documents are not on record before us as well some facts are disputed. Thus, we are inclined to set aside and restore the matter back to the file of the AO for fresh adjudication. The appeal of the assessee is allowed for statistical purposes.

Issues Involved
1. Classification of income from the sale of land as long-term capital gain or business income.
2. Consistency in tax treatment for co-owners of the same property.
3. Allowability of expenses incurred for conversion and development of land.

Detailed Analysis

1. Classification of Income from Sale of Land
The primary issue was whether the income from the sale of land should be classified as long-term capital gain (LTCG) or business income. The assessee claimed LTCG on the sale of a plot of land, while the Assessing Officer (AO) treated it as business income. The AO observed that the assessee had purchased agricultural land, converted it into non-agricultural land, obtained commercial development permissions, and entered into a development agreement with a company where he was the Managing Director. The AO concluded that these activities indicated a business motive rather than an investment motive, thus treating the transaction as an "adventure in the nature of trade" and taxing it as business income under Section 28 of the Income-tax Act, 1961.

2. Consistency in Tax Treatment for Co-owners
The assessee's brother, a co-owner of the land, reported his share of the sale proceeds as LTCG, which was accepted by the Revenue. The assessee argued that the same treatment should apply to his share. The Tribunal noted that while principles of res judicata do not apply to tax proceedings, consistency is essential. However, the Tribunal also observed that the facts and circumstances might differ between co-owners, especially since the assessee was a Managing Director of a construction company, while his brother was a farmer. This distinction justified a different tax treatment.

3. Allowability of Expenses
The assessee requested that if the income were treated as business income, the expenses incurred for converting and developing the land should be allowed as deductions. The CIT(A) rejected this request due to the lack of detailed evidence and documentation supporting the expenses.

Tribunal's Decision
The Tribunal acknowledged the complexity of the case, noting the need for a detailed investigation to determine the true intention behind holding and selling the land. The Tribunal observed that the assessee had not provided a comprehensive factual paper book, which hindered a thorough analysis. Consequently, the Tribunal decided to set aside the matter and remand it back to the AO for fresh adjudication, emphasizing the need for a detailed study of all relevant documents and facts. The Tribunal instructed the AO to provide the assessee with a proper and adequate opportunity to present his case in accordance with the principles of natural justice.

Conclusion
The appeal was allowed for statistical purposes, and the matter was remanded back to the AO for a fresh decision. The Tribunal did not comment on the merits of the case, leaving all contentions open for reconsideration. The order was pronounced on 13/09/2023 in Ahmedabad, Gujarat.

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