2015 (3) TMI 277 - HC - Income Tax

Gains arising from sale of land - business profit or capital gains - Held that - Neither in the assessment order nor in the order of the Commissioner of Income Tax (Appeals) there is any material to show that the assessee is engaged continuously in the business of purchasing and selling of land with or without development, as has been observed by the Commissioner of Income Tax (Appeals). A solitary instance of purchase in the year 1993, development and plotting out in the assessment year 2001 cannot partake the character of business venture or profit. ITAT was right in holding that the gains arising from sale of land is not business profit and liable only to be assessed under capital gains - Decided in favour of assessee.

Summary

Issues:
1. Characterization of gains from the sale of land as business profit or capital gains.
2. Disallowance of development expenses and proper assessment of the same.

Issue 1: Characterization of gains from the sale of land
The case involved the assessment year 2001-2002 where the assessee purchased agricultural land in 1993, developed it into housing plots, and sold 21 plots during the assessment year. The Assessing Officer contended that the profit earned should be classified as income from a real estate business rather than long-term capital gains. The Commissioner of Income Tax (Appeals) supported this view, emphasizing the organized nature of the dealings and the intention to develop and sell the property for profit. However, the Tribunal, considering the seven-year gap between purchase and sale and relying on precedent, ruled in favor of the assessee, stating that a single instance of purchase and sale does not establish a continuous business activity in real estate.

Issue 2: Disallowance of development expenses
The Assessing Officer disallowed development expenses exceeding Rs. 2.00 lakhs due to lack of proper vouchers and bills. The Commissioner of Income Tax (Appeals) upheld this decision. However, the Tribunal, following the decision in a previous case, found no evidence indicating the assessee's intention to engage in trading activity. The High Court, in line with precedent, confirmed the Tribunal's decision, stating that there was no material to suggest the assessee was involved in a real estate business. The Court emphasized that the transaction was akin to a realization of capital investment rather than a trade venture, leading to the dismissal of the Tax Case (Appeal).

In conclusion, the High Court dismissed the appeal, affirming that the gains from the sale of land were rightly assessed as long-term capital gains and not business profit, and the disallowance of development expenses beyond Rs. 2.00 lakhs was justified based on the lack of evidence indicating a trading activity.