2019 (9) TMI 309 - AT - Income Tax

Correct head of income - receipt from the sale of paintings - income from business and profession or capital gain - HELD THAT - Analysis of facts emerging from record does not suggest that the assessee has indulged in any organized or regular activity of purchase and sale of paintings. There is nothing on record to suggest that except the aforesaid assessment years, the assessee had engaged himself in the activity of purchase and sale of paintings in any other past or subsequent years. At least, no such fact has either been brought on record by the Departmental Authorities or brought to our notice by the Departmental Authorities. Therefore, in the absence of any material brought on record to demonstrate that the assessee is carrying on the business of purchase and sale of painting in an organized manner, it cannot be said that the sale of painting is a business activity or is an adventure in the nature of trade. That being the case, the conclusion drawn by the Departmental Authorities holding that the income from sale of painting is to be treated as business income, in our view, is unsustainable. As a natural corollary such income has to be treated as capital receipt. Having held so, now it is necessary to deal with assessee s contention that in assessment year 2007 08, such income is not taxable as it will come within the purview of personal effect as defined under section 2(14) In view of the aforesaid, we hold that the gain derived from sale of painting in the assessment year 2007 08 is not taxable as it is personal effect as defined under section 2(14) of the Act. However, insofar as assessment year 2008 09 is concerned, paintings have been specifically excluded from being treated as personal effect, therefore, the gain derived from sale of painting has to be assessed as long term capital gain. Undisclosed income on account of sale of shares of Matrix India Entertainment Consultant Pvt. Ltd. (MIECPL) - whether Commissioner (Appeals) had not given any opportunity of being heard to the assessee in complete violation of section 251(2) ? - HELD THAT - We are of the view that learned Commissioner (Appeals) while enhancing the income of the assessee for the assessment year 2007 08 has not complied with the mandatory provision of section 251(2) of the Act. The aforesaid factual position has not been disputed by the learned Departmental Representative. In view of the aforesaid, we restore the issue to learned Commissioner (Appeals) for fresh adjudication after providing reasonable opportunity of being heard the to assessee. These grounds are allowed for statistical purposes.

Summary

Issues:
1. Whether the receipt from the sale of paintings is to be assessed as income from business and profession or capital gain.
2. Addition of undisclosed income on account of the sale of shares of Matrix India Entertainment Consultant Pvt. Ltd.

Analysis:

Issue 1:
The appeal involved two separate orders dated 31st October 2016 by the Commissioner of Income Tax (Appeals) for the assessment years 2007-08 and 2008-09. The primary issue was whether the income derived from the sale of paintings by the assessee should be treated as income from business and profession or as capital gain. The Assessing Officer contended that the profit from the sale of paintings should be considered as business income, while the assessee argued that the paintings were personal effects and not part of any business activity. The Tribunal analyzed the facts and concluded that the assessee, a professional photographer, was not engaged in the business of trading paintings. The Tribunal found no evidence of organized or regular purchase and sale of paintings by the assessee, leading to the determination that the income from the sale of paintings should be treated as a capital receipt and not business income.

Issue 2:
Regarding the addition of undisclosed income from the sale of shares of Matrix India Entertainment Consultant Pvt. Ltd., the Assessing Officer added an amount as undisclosed income based on certain seized documents. The Commissioner (Appeals) deleted the addition after finding no evidence of the assessee receiving an amount over and above what was disclosed. However, the Commissioner observed discrepancies in the sale of shares in the assessment year 2007-08 and directed the addition of a balance amount to the income of the assessee for that year. The Tribunal noted that the Commissioner did not provide the assessee with an opportunity to be heard before enhancing the income for the previous year, thus remanding the issue back to the Commissioner for fresh adjudication after granting the assessee a reasonable opportunity to present their case.

In conclusion, the Tribunal allowed the appeal in one case and partly allowed the appeal in the other, emphasizing the importance of proper procedures and evidence in determining tax liabilities.