2013 (3) TMI 330 - HC - Income Tax

Taxability of sale of land - ITAT deleted the addition as not taxable in the instant assessment year - Held that - Stand and approach adopted by the Tribunal is acceptable as there was no evidence of any confirmed transaction in the year in question. As such, the addition could not have been made on the ground that the transaction had been concluded. No agreement has been signed in this year. The possession has also not been delivered in this year. The twin conditions of execution of written agreement and handing over of the possession have to be cumulatively satisfied in order to bring the case within the ambit of section 2(47)(v) read with section 53A of the Transfer of Property Act. None of these conditions are satisfied. Therefore, it is held that the property has not been transferred in this year - no question of law arises for consideration - in favour of assessee. Profits from the sale of lands - whether taxable under the head profits and gains of business or profession OR capital gain - Held that - Tribunal returned a finding that in the present case, the land was purchased and was shown as an asset in the balance sheet and that the land had also been used for agricultural purposes. As the land had been held for a long period of time, the same having been purchased in 1994-96 there was no evidence that borrowed capital had been used for the purchase, thus Tribunal concluded that the land was held as an asset and, therefore, the assessee had appropriately offered it for taxation under the head capital gains . No substantial question of law arises for consideration - in favour of assessee.

Summary

Issues:
1. Taxability of advance received for the sale of lands in the assessment year 2006-07.
2. Tax treatment of profits from the sale of lands under the head of profits and gains of business or profession versus capital gains.

Issue 1: Taxability of advance received for the sale of lands in the assessment year 2006-07:

The case involved the receipt of an advance of Rs. 5 crores during the financial year ending 31.03.2006 for the sale of properties, with the actual sale deed executed in the subsequent year. The Assessing Officer treated the advance as finalization of the transaction and taxed the entire consideration amount of Rs. 18 crores in the assessment year 2006-07, resulting in an addition of Rs. 16,93,42,000. However, the Commissioner of Income Tax (Appeals) and the Tribunal disagreed, concluding that no agreement to sell existed in the year under consideration, and no possession was transferred. The Tribunal held that the advance was not taxable as the transaction had not been concluded in the relevant year. The High Court concurred with the Tribunal's decision, emphasizing the absence of evidence of a confirmed transaction in the assessment year, leading to the dismissal of the appeal.

Issue 2: Tax treatment of profits from the sale of lands under the head of profits and gains of business or profession versus capital gains:

In this issue, the respondent had sold portions of land in the assessment year 2006-07, claiming long-term capital gains of Rs. 3,07,82,342. However, the Assessing Officer treated the entire amount as business income, resulting in an addition to the assessee's taxable income. The Commissioner of Income Tax (Appeals) overturned this decision, which was subsequently upheld by the Tribunal. The Tribunal analyzed the nature of the land holding, noting that the land had been shown as a fixed asset in the balance sheet since its purchase in 1994-96 and had been used for agricultural purposes. Considering the long holding period and absence of evidence of borrowed capital usage, the Tribunal concluded that the land was held as an asset, leading to the proper taxation under the head of 'capital gains.' The High Court found no error in the Tribunal's findings, emphasizing that the assessee's treatment of the land as an asset was justified. Consequently, no substantial question of law arose for consideration, and the appeal was dismissed.

In conclusion, the High Court upheld the Tribunal's decisions in both issues, ruling in favor of the respondent and dismissing the revenue's appeal under Section 260A of the Income Tax Act, 1961.