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2016 (7) TMI 687 - AT - Income TaxTreatment of gains arising on sale of plot - Capital gain v/s business income - nature of activity - intention - Held that - The intention at the time of purchase of land was for the purpose of investment and merely because the bigger plot was sub divided into smaller plots does not establish that the assessee s intention was to carry on the business activity. In this regard, other circumstances of the case have to be kept in mind i.e. as against the investment in August, 2000, as against part development of projects, the assessee had sold two plots of land during the year and other years, the balance plots of land are still available with the assessee. Merely because the assessee had divided bigger plot into small plots does not establish the same to be business activity carried on by the assessee or adventure in the nature of trade, keeping in view the other circumstances of the case. Accordingly, we find no merit in the order of CIT(A) in this regard and reversing the same, we direct the Assessing Officer to compute the income under the head income from long term capital gains . - Decided in favour of assessee
Issues Involved:
1. Treatment of gains arising on the sale of plot as either long-term capital gains or business income. Issue-Wise Detailed Analysis: 1. Treatment of Gains Arising on Sale of Plot: The primary issue in this appeal is the classification of income from the sale of a plot, whether it should be treated as long-term capital gains or business income. The assessee argued that the gains should be assessed as long-term capital gains, while the Revenue authorities treated it as business income. Facts of the Case: The assessee, engaged in the business of builder and developer, purchased a non-agricultural (NA) property in August 2000. The property was subdivided into plots in 2001. Six plots were converted into stock-in-trade for constructing ownership flats, and the remaining plots were retained as investment. The capital gains on the conversion of plots into stock-in-trade were paid in the respective years. In the assessment year 2009-10, the assessee sold one plot, claiming it as an investment and worked out the income from long-term capital gains by indexing the cost. Arguments by the Assessee: The assessee contended that the property was purchased as an investment and not for business purposes. The investment in NA land was claimed to be an investment, with no expenses incurred except for development and NA charges. The assessee highlighted that the land was held for a long period without continuous activity of purchasing and converting agricultural land into NA land. Assessing Officer's View: The Assessing Officer noted that the assessee purchased agricultural land, converted it into NA property, and subdivided it for sale. The intention was to earn profits by plotting and selling the properties, indicating a business activity. The repetitive nature of transactions and the development of infrastructure supported the view that the income should be classified as business income. CIT(A)'s Decision: The CIT(A) upheld the Assessing Officer's view, treating the sale of the plot as an adventure in the nature of trade. The CIT(A) relied on the Supreme Court's decision in P M Mohammed Meerkhan Vs. CIT, emphasizing that the development of infrastructure and construction of properties indicated a business activity aimed at earning profits. Assessee's Appeal: The assessee appealed against the CIT(A)'s order, arguing that the property was purchased as an investment and not for business purposes. The assessee highlighted the long holding period and the acceptance of capital gains treatment in earlier years by the Revenue Department. Tribunal's Analysis: The Tribunal examined the facts and contentions of both parties. It noted that the property was purchased as NA land and the conversion into stock-in-trade was accepted in earlier assessment years. The Tribunal emphasized that the assessee's intention at the time of purchase was crucial. The long holding period and the fact that some plots were still held by the assessee indicated an investment intention rather than a business activity. The Tribunal also considered the principle of consistency, noting that the Revenue had accepted the assessee's treatment of similar transactions in earlier years. The Tribunal found no evidence to support the Revenue's claim that the land was initially agricultural and converted into NA property through a complicated process. Conclusion: The Tribunal concluded that the income from the sale of the plot should be treated as long-term capital gains. It reversed the CIT(A)'s order and directed the Assessing Officer to compute the income under the head 'income from long-term capital gains.' Judgment: The appeal of the assessee was allowed, and the order pronounced on May 20, 2016.
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