2012 (10) TMI 781 - AT - Income Tax

Sale of agricultural land as an adventure in the nature of trade - Whether Agriculture Lands fall with the definition of Capital Asset ? - Held that - The properties are duly shown in the returns more particularly in the wealth-tax return. Thus, AO draw wrong inference by considering the facts in an erroneous manner. He could not bring any material which suggests the dominant intention of the assessee to earn profit by selling the properties at higher rate immediately after the purchase. On the other hand, assessee has demonstrated that she has been making investment in the properties intending to hold them, enjoy their income - in favour of assessee. The revenue in its grounds of appeal has also pleaded that CIT (Appeals) has deleted the addition by entertaining additional evidence in contravention of Rule 46A of Income-tax Rules, 1962. However, DR was unable to point out which document was produced by the assessee by way of additional evidence. The assessee did not move any application under Rule 46A . The documents considered by the CIT(Appeals) were produced before the Assessing Officer. In view of the above discussion, no merit in the appeal of the revenue - in favour of assessee. Compensation for delay in handing over the possession of the property - holding charges - Income from property v/s Capital receipt - t in case the developer failed to construct the building then it will pay a compensation of Rs. 50 per sq.ft. of the super area per month to the intending allottee for the period of such delay - initially assessee shown receipt of holding charges as rental income - Held that - Compensation received form DLF Commercial is a capital receipt - in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition on account of profit and gains of business or profession.
2. Admission of additional evidence in contravention of Rule 46A.
3. Treatment of compensation received for delay in property possession as capital receipt or income from other sources.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Profit and Gains of Business or Profession:
The assessee filed a return declaring total income, including salary, property income, short-term capital gain, and other sources. The Assessing Officer (AO) scrutinized the case and found that the assessee sold lands in Gurgaon, forming an opinion that the land ceased to be agricultural and should be taxed as capital gains. The AO also treated the income from the sale of land as business income, considering it an adventure in trade. The CIT(A) deleted the addition, holding that the land was agricultural, situated 12-15 KMs outside the municipal limits of Gurgaon, and thus not a capital asset under sec. 2(14) of the Income-tax Act, 1961. The Tribunal upheld the CIT(A)'s decision, noting that the revenue did not challenge the agricultural nature of the land and that the assessee's transactions did not constitute a business activity.

2. Admission of Additional Evidence in Contravention of Rule 46A:
The revenue contended that the CIT(A) erred by admitting additional evidence in contravention of Rule 46A. However, the Tribunal found no merit in this ground as the assessee did not file any application under Rule 46A, and the documents considered by the CIT(A) were already produced before the AO.

3. Treatment of Compensation Received for Delay in Property Possession:
The assessee received compensation from DLF Commercial Enterprises Ltd. for delay in handing over the possession of a property. The AO treated this compensation as income from other sources, but the assessee argued it was a capital receipt, reducing the cost of acquisition of the asset. The CIT(A) confirmed the AO's addition. The Tribunal, however, allowed the assessee's appeal, treating the compensation as a capital receipt, citing that the compensation was for delay in construction and not rental income. The Tribunal relied on precedents, including DDA vs. ITO, where similar compensation was treated as a capital receipt.

Conclusion:
The Tribunal dismissed the revenue's appeal and allowed the assessee's appeal, holding that the land sold was agricultural and not liable for capital gains tax, and the compensation received for delay in property possession was a capital receipt.