1983 (11) TMI 111 - AT - Income Tax

Summary

Issues:
Treatment of income from the reassignment of a shop as long-term capital gain or business income.

Analysis:
The appeal involved a dispute regarding the treatment of income amounting to Rs. 61,000 received by the assessee from the reassignment of a shop during the assessment year 1981-82. The department contended that the income should be treated as business income, while the assessee claimed it to be a long-term capital gain. The Commissioner (Appeals) had directed the income to be treated as long-term capital gain, leading to the department's appeal before the tribunal.

The facts of the case revealed that the assessee, a firm dealing in dry fruits, purchased a building near its shop, which was fully tenanted. Subsequently, the assessee reassigned two shops in the building to another entity and received Rs. 1,51,000, resulting in an income of Rs. 61,000. The Income Tax Officer (ITO) treated this income as business income, stating that there was no transfer of property ownership to trigger capital gains tax. However, the Commissioner (Appeals) accepted the assessee's argument that the transaction involved the transfer of a capital asset, specifically the right of possession of the shops, resulting in long-term capital gain.

During the tribunal proceedings, the departmental representative relied on the ITO's reasoning and highlighted Section 28(iv) of the Income-tax Act. Conversely, the assessee argued that since the shops were not its stock-in-trade and were used for business purposes before reassignment, the income should be considered a long-term capital gain. The tribunal considered the intention behind the building purchase, concluding that it was not for real estate dealing but for extending the existing dry fruits business. As such, the income from the reassignment was deemed taxable as capital gains, not business income.

The tribunal clarified that the transaction's accounting treatment did not determine its legal character, emphasizing that the income was from the transfer of a capital asset and should be taxed under the head of 'Capital gains.' Ultimately, the tribunal upheld the Commissioner (Appeals)'s order, dismissing the department's appeal and confirming the treatment of the income as long-term capital gain.