2023 (2) TMI 1362 - HC - Income Tax

Correct head of income - income derived by way of return from a Development Agreement in favour of the owner of the land - capital gain or income from business - whether in the absence of any evidence to show that the lands which were purchased by the assessee during 1985/1990 was intended for resale or in the absence of any evidence that the land was converted into stock-in-trade, whether the earnings of the assessee pursuant to a development agreement entered into with the developer would be business income? HELD THAT - On 13th November, 1994 the assessee entered into a development agreement with the developer under which the assessee in exchange of the land in question was entitled to get 45% of the constructed area and the remaining portion of the land and shed continued to be used by the assessee for its own workshop purchase. Tribunal noted that no documents have been referred to by the revenue to show that the assessee had treated the asset as stock-in-trade. On the other hand, the assessee continued to show the land as capital asset even after 1994, which fact was accepted by the department. Tribunal had distinguished the decisions which were cited by the revenue by noting the facts of the case that the lands were purchased by the assessee during 1985/1990 and used as capital asset for its business purposes and continued to treat the same as capital asset in the accounts. Tribunal agreed with the assessee that there was no intention on the part of the assessee to enter into an adventure in the nature of trade to deal in the land as its business. Accordingly, the appeal filed by the department before the Tribunal was dismissed upholding the view taken by the CIT(A) - Decided against revenue.

Summary

The High Court of Calcutta dismissed the revenue's appeal under Section 260A of the Income Tax Act, 1961. The appeal questioned whether income from a Development Agreement should be treated as capital gain or business income. The Court upheld the Tribunal's decision that the income was not business income, as the land was treated as a capital asset and there was no evidence of an intention to trade. The appeal was dismissed, and the substantial question of law was answered against the revenue.