1998 (2) TMI 159 - AT - Income Tax

Summary

Issues Involved:
1. Classification of income from the sale of property as business income or capital gains.
2. Intention and nature of the transaction.
3. Applicability of relevant case laws.

Issue-Wise Detailed Analysis:

1. Classification of Income from the Sale of Property:
The primary issue in this case was whether the income earned by the assessee from the sale of his property should be assessed as business income or as capital gains. The assessee declared the income as capital gains, while the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] classified it as business income.

2. Intention and Nature of the Transaction:
The assessee, a senior citizen engaged in social work and journalistic activities, had booked a plot in 1962 and made payments over a span of 20 years. He started constructing a residential house on the plot but could not complete it. Subsequently, he entered into an agreement with a builder in 1991, leading to the sale of the constructed portions. The AO argued that the activities undertaken by the assessee, such as collaborating with a builder and selling the flats, constituted an adventure in the nature of trade. Hence, the income was treated as business income. However, the assessee contended that this was an isolated transaction, and his intention was to construct a residential house for personal use, not for business purposes.

3. Applicability of Relevant Case Laws:
The assessee's counsel cited several judgments, including:
- G. Venkataswamy Naidu & Co. vs. CIT (1959) 35 ITR 594 (SC): This case emphasized the intention at the time of purchase as a crucial factor in determining whether a transaction is an adventure in the nature of trade.
- Raja Bahadur Kamakhya Narayan Singh vs. CIT (1970) 77 ITR 253 (SC): Similar principles were upheld.
- Deep Chandra & Co. vs. CIT (1977) 107 ITR 716 (All) and other cases.

The Departmental Representative, however, relied on the judgment of Smt. Indramani Bai vs. CIT (1993) 200 ITR 594 (SC), where the Supreme Court held that the income derived from selling plots shortly after purchase was assessable as business income.

Tribunal's Analysis and Decision:
The Tribunal carefully examined the facts and circumstances, including the intention of the assessee at the time of purchasing the plot. It was noted that the assessee had booked the plot with the intention of constructing a residential house and not for resale. The plot was held for over 10 years, and construction was initiated, indicating a genuine intention to use it as a personal residence. The Tribunal distinguished the present case from Smt. Indramani Bai vs. CIT, where the intention to resell was evident shortly after purchase.

The Tribunal concluded that the sale of the property by the assessee did not constitute an adventure in the nature of trade. Therefore, the income should be assessed as long-term capital gains and not as business income.

Judgment:
The appeal was allowed, and the AO was directed to accept the income declared by the assessee as capital gains.

Conclusion:
In summary, the Tribunal ruled in favor of the assessee, determining that the income from the sale of the property should be classified as long-term capital gains based on the intention and nature of the transaction, supported by relevant case laws.