2013 (7) TMI 541 - HC - Income Tax

Classification of Income - Business income or income from other sources - whether the income earned from activity of sale of shops commenced by the assessee during the year is to be considered as business income or income from other sources. Held that - The income should be treated as a business income - assessee being a cooperative society, had, after appropriate permission from the District Registrar of Cooperatives, developed two plots of land by demolishing the office and godown and constructed shops and such shops were sol - this was purely commercial activity and was aimed at reducing the assessees losses - Proper resolution was also passed by the cooperative society before undertaking such an activity the purpose of construction of the commercial complex and the sale of shops was done with the sole intention of engaging itself into a commercial activity and the construction and sale of shops was only with a view to earn profit to increase the revenue further assessee owned the land also - the income is in the nature of business income appeal decided against the revenue.

Summary

Issues:
1. Whether the Tribunal erred in directing the Assessing Officer to treat a specific sum as business income and set it off against business losses.

Analysis:
The main issue in this case revolves around a sum of Rs.54.15 lakhs that the Tribunal directed the Assessing Officer to treat as business income and allow for set off against business losses. The appellant, the Revenue, argued that the income generated from the sale of shops by the assessee should be categorized as income from other sources rather than business income. On the contrary, the assessee, a cooperative society, contended that the construction activity undertaken was to diminish accumulated losses. The Tribunal examined the facts and concluded that the purpose of constructing commercial complexes and selling shops was purely commercial in nature, aimed at reducing the assessee's losses and increasing revenue.

The Tribunal observed that the cooperative society had obtained proper permission before developing land, demolished existing structures, and constructed shops for sale. It noted that the entire activity was undertaken with the intention of engaging in commercial operations and earning profits. The Tribunal highlighted that the assessee's ownership of the land and the existence of accumulated losses were undisputed facts. Additionally, the Tribunal emphasized that the resolution passed by the cooperative society before initiating the commercial activity supported the intention to generate profits and enhance revenue.

In its analysis, the Tribunal found that the income derived from the sale of shops by the assessee should be treated as business income. The Tribunal's decision was based on the commercial nature of the activity, the intention to earn profits, and the absence of any contradictory evidence provided by the Revenue. Consequently, the High Court upheld the Tribunal's decision, stating that no legal question arose from the case, and dismissed the Tax Appeal.

In conclusion, the judgment highlights the importance of the intention behind an activity in determining the nature of income, particularly in cases involving commercial ventures by cooperative societies. The decision underscores the significance of proper documentation, such as resolutions, to support the commercial intent of an enterprise and the treatment of income for taxation purposes.