2013 (8) TMI 82 - HC - Income Tax

Capital gain or business income - Ownership of property - Nature of income in the hands of land developer (vendor) - Tribunal held income as capital gain - Held that - Original agreement between the assessee and the original owners makes no reference to the profession status of the assessee for taking the services of the assessee - when possession was given to the assessee enabling exercise of general control for discharging certain services, in consideration whereof the assessee was to be given 3 grounds of land coupled with the power given to the assessee to sell the 3 grounds, then the receipt would attract capital gains at his hands - Decided against Revenue.

Summary

Issues Involved:
1. Ownership of the 3 plots as per the agreement dated 10.10.95.
2. Nature of the Rs.90 lakhs received - whether it should be assessed as income from profession or as capital gains.

Issue-Wise Detailed Analysis:

1. Ownership of the 3 plots as per the agreement dated 10.10.95:
The assessee entered into an agreement with the original owners, Chakravarthy and Umapathy, on 10th October 1995, regarding the property in Puliyur village, Kodambakkam. The agreement stipulated that the assessee would prepare a sketch and obtain patta for the property, in return for which the owners would transfer 3 grounds of land to the assessee. The owners handed over possession of the property to the assessee to facilitate these services. The Tribunal noted that possession was given immediately to the assessee, and the agreement did not mention the assessee's professional status as an Advocate. The Tribunal concluded that the property was a capital asset in the hands of the assessee, and the transfer of 3 grounds was in consideration for the services rendered, not professional services.

2. Nature of the Rs.90 lakhs received - whether it should be assessed as income from profession or as capital gains:
The Revenue contended that the Rs.90 lakhs received by the assessee should be treated as professional income, given his status as a practising lawyer. However, the Tribunal and the High Court disagreed, noting that the original agreement did not reference the assessee's professional capacity. The High Court emphasized that the agreement and subsequent actions were consistent with the transfer of a capital asset. The Court referred to Section 2(47) of the Income Tax Act, 1961, which includes transactions involving possession under part performance of a contract as a "transfer." The Court held that the receipt of Rs.90 lakhs was in the context of the transfer of 3 grounds for services rendered, aligning with capital gains rather than professional income.

Conclusion:
The High Court upheld the Tribunal's decision that the assessee became the owner of the 3 plots as per the agreement dated 10.10.95 and that the Rs.90 lakhs received should be assessed as capital gains. The substantial questions of law were answered in favor of the assessee, rejecting the Revenue's appeal.