2015 (5) TMI 123 - HC - Income Tax

Income from the property transaction - business income or capital gains - Revenue contented that merely because the assessee was a student, the Tribunal ought not to have come to the conclusion that she could not have indulged in any business activity - Held that - A careful look at the order of the Tribunal would show that the assessee got the property by way of settlement. Thereafter, she entered into a promoter's agreement on 18.12.2007 and a construction agreement on 30.3.2008. It was in pursuance of those agreements that the assessee was compelled to sell undivided shares in the land, over a period of three assessment years namely 2008-09, 2009-10, etc. The assessee also filed a return of income for the assessment year 2008-09 under the head 'long term capital gain'. Therefore, the Tribunal rightly concluded that the transaction of sale of undivided shares in the land merely started crystallizing from the assessment year 2008-09 onwards and what is important is that the Revenue accepted the stand of the assessee. Therefore, it was clearly a case of change of opinion and it is now well settled that on the basis of the change of opinion, the power under Section 143(3) cannot be invoked. The assessee did not acquire any land for the purpose of development and sale as part of any business venture. She got this property by way of a settlement and she merely wanted to sell it. The better method of selling it was found to be to entrust it to a developer. Once an agreement for sale is entered into in the manner in which a developer wanted, there is no way the assessee would have had control over the period of time, within which, the entire transaction would have been concluded. Therefore, this is not a fit case calling for our interference. - Decided against revenue.

Summary

Issues:
1. Correctness of the order passed by the Income Tax Appellate Tribunal regarding the treatment of income from property transactions as business income instead of capital gains.

Analysis:
The case involved an appeal filed by the Revenue challenging the order passed by the Income Tax Appellate Tribunal regarding the treatment of income derived from property transactions. The assessee, an individual, initially filed a return of income for the assessment year 2009-2010, admitting a total income. Subsequently, the Assessing Officer accepted the return of income under Section 143(3) of the Income Tax Act after scrutiny. However, the Commissioner of Income Tax issued a show cause notice under Section 263, contending that the income derived from the sale of property acquired by the assessee through settlement should be treated as business income instead of capital gains.

The Tribunal allowed the appeal filed by the assessee, holding that she was a full-time student pursuing an MBBS course and not engaged in any business activity. The Revenue contended that the Tribunal erred in concluding that the assessee could not have engaged in business activity solely based on her student status. The Tribunal's decision was based on the fact that the property transactions began crystallizing from a specific assessment year, and the Revenue had previously accepted the assessee's stand. Thus, it was deemed a case of change of opinion, barring the invocation of Section 143(3) powers.

Regarding the Revenue's argument citing the Supreme Court's decision in Raja Rameshwara Rao Bahadur v. CIT, the Court differentiated the present case, emphasizing that the assessee did not acquire the property for development and sale as part of a business venture. The property was obtained through settlement, and the decision to sell it was made to be more efficient by involving a developer. The Court held that the assessee did not have control over the transaction's timeline once the sale agreement with the developer was in place. Consequently, the Court dismissed the tax case appeal, affirming the Tribunal's decision.

In conclusion, the Court upheld the Tribunal's decision, emphasizing that the Revenue's acceptance of the assessee's stand, coupled with the absence of a business venture motive in acquiring the property, supported the treatment of income from property transactions as capital gains rather than business income.