2025 (2) TMI 983 - AT - Income Tax

Correct head of income - characterization of income - gain on sale of part of property/shops - Capital Gains or Profits from business and Profession - HELD THAT - Assessee has pointed that the assessee had sold some shops during the period relevant to AY 2017-18 and had offered gain on sale of said shops as Long Term Capital Gain in the return of income. AO while making assessment u/s. 143(3) examined the issue in detail and accepted the gain on sale of shops as Long Term Capital Gain. Once the Revenue has accepted the property as investment and sale of part of such property as Long Term Capital Gain the principle of consistency demands that when there is no change in the nature of holding of the property in impugned assessment year the gain on sale of part of such property cannot be re-characterized as Business Income . Decided against revenue.

Summary

The appeal before the Appellate Tribunal involved the re-characterization of income from the sale of property by the Revenue. The core legal question was whether the income should be taxed as Capital Gains, as claimed by the assessee, or as Profits from Business and Profession, as contended by the Revenue.The Revenue argued that the assessee, a builder engaged in real estate development, should be taxed under the head of Business Income due to the nature of the activities undertaken. The Revenue highlighted the partnership deed mentioning the business activities of real estate, construction of shopping malls, and others. The Revenue emphasized that the mere entries in the books of account do not determine the true nature of the activities and criticized the CIT(A) for relying too heavily on the books of the assessee.On the other hand, the assessee argued that the intention from the beginning was to hold the property as a capital investment, supported by the inclusion of the land under Fixed Assets in the Balance Sheet. The assessee contended that the sale of shops was a one-time event and not part of a regular business of buying and selling shops. The assessee also referred to previous assessment years where similar transactions were treated as Long Term Capital Gain.The Tribunal examined the facts and documents on record, noting that the property had been held as an investment since acquisition in 2008-09. The Tribunal also considered the consistency in treatment by the Revenue in previous assessment years where similar transactions were treated as Long Term Capital Gain. Based on these findings, the Tribunal upheld the CIT(A)'s decision in favor of the assessee, dismissing the appeal of the Revenue.The significant holdings of the Tribunal include the recognition of the property as an investment, the principle of consistency in tax treatment, and the dismissal of the Revenue's appeal due to lack of merit.In conclusion, the Tribunal upheld the decision that the income from the sale of shops should be taxed as Long Term Capital Gain and not as Business Income, based on the nature of the holding of the property and the consistency in treatment in previous assessment years.