2024 (11) TMI 1024 - AT - Income Tax

Characterization of profit/receipts - profit on sale of land - business income or long-term capital gain - holding period of asset - HELD THAT - Hon'ble Supreme Court in the case of CIT vs. Madan Gopal Radhey Lal 1968 (9) TMI 14 - SUPREME COURT has held that a trader may acquire a commodity in which he is dealing for his own purposes and hold it apart from the stock in trade of his business. There is no presumption that every acquisition by a dealer in a particular commodity is acquisition for the purpose of his business; in each case the question is one of intention to be gathered from the evidence of conduct by the acquirer and his dealings with the commodity. Since the assessee in the instant case has held the land for more than five years without carrying out any developmental activity on the same, the Revenue in the preceding and succeeding assessment years has accepted the treatment of the assessee in claiming the long term capital gain on account of sale of land even though she was also a director in various concerns at that time, therefore, in view of the above discussion and in view of the detailed reasoning given by the Ld. CIT(A) / NFAC on this issue, no infirmity in his order deleting the addition made by the AO. Accordingly, the same is upheld and the grounds raised by the Revenue are dismissed.

Summary

Issues Involved:

1. Whether the sale of land by the assessee should be treated as business income or long-term capital gain.
2. The applicability of the principle of consistency in tax treatment across different assessment years.
3. The significance of holding period and lack of developmental activity on the classification of land transactions.
4. The impact of the assessee's role in real estate businesses on the nature of income from land sales.
5. The relevance of borrowed funds in determining the nature of the transaction.
6. The applicability of the decision in G. Venkataswami Naidu & Co. vs. CIT to the present case.

Detailed Analysis:

1. Treatment of Sale of Land:
The core issue was whether the income from the sale of land at Charoli should be classified as business income or long-term capital gain. The Assessing Officer (AO) treated the transaction as an "adventure in the nature of trade," citing the assessee's involvement in real estate and the use of borrowed funds. However, the CIT(A) / NFAC found that the land was held for more than five years without any developmental activity, classifying it as a capital asset. The Tribunal upheld this view, emphasizing that the mere involvement in real estate business does not automatically convert personal transactions into business transactions.

2. Principle of Consistency:
The CIT(A) / NFAC and the Tribunal highlighted the importance of consistency in tax treatment. In the preceding (2012-13) and succeeding (2014-15) assessment years, the income from similar transactions was treated as long-term capital gain. The Tribunal noted that deviating from this treatment without substantial reasons would violate the principle of consistency, as established by the Supreme Court in Radha Soami Satsang vs. CIT.

3. Holding Period and Developmental Activity:
The Tribunal considered the five-year holding period of the land and the absence of developmental activity as indicative of an investment rather than a business activity. This aligns with the decision in ITO v. Bajuio Investment Pvt. Ltd., where long-term holding without development was treated as an investment.

4. Role in Real Estate Businesses:
The AO argued that the assessee's role as a director in real estate companies implied business intent. However, the Tribunal, referencing CIT vs. Gopal Purohit, clarified that an individual can maintain separate portfolios for investment and business, and mere association with real estate does not alter the nature of personal transactions.

5. Borrowed Funds:
The AO's contention that the use of borrowed funds indicated a business transaction was rejected. The Tribunal noted that the funds were sourced from an HUF where the assessee was a member, and no interest was paid, thus not constituting a typical loan scenario.

6. Applicability of G. Venkataswami Naidu & Co. vs. CIT:
The AO relied on this Supreme Court decision to classify the transaction as a business activity. However, the Tribunal distinguished the present case, noting the lack of evidence of an intent to resell for profit and the long holding period, which aligned more with investment intent.

In conclusion, the Tribunal upheld the CIT(A) / NFAC's decision to treat the sale of land as a long-term capital gain, emphasizing the importance of consistency, the nature of holding, and the absence of developmental activities. The appeal by the Revenue was dismissed.