2020 (4) TMI 761 - HC - Income Tax

Correct head of income - gain on sale of building - long term capital gains or business income - HELD THAT - Except last nine years, the property which comprises land and building was let out by the assessee for a long period. The assessee had earned income by way of rent and rental income so received by the assessee was offered for taxation as income from the house property. The assessee has shown the property in question as capital asset in its balance sheet - there is no material on record to hold that the aforesaid property was converted by the assessee as an item of stock in trade. On the other hand, the said property was treated as capital asset. It has further been held that merely because the assessee is engaged in the construction business is not a ground that land and building should be treated as part of stock in trade. It is also pertinent to note that the assessee has not claimed any depreciation in any of the Assessment Years while offering rental income as house property income. Thus, the income from the sale of property has been treated as long term capital gain. The aforesaid finding of fact is based on meticulous appreciation of evidence on record and in substance is a finding of fact. - Decided in favour of assessee.

Summary

Issues:
1. Whether income from sale of property should be assessed under the head of business or capital gains.

Analysis:
The case involved an appeal under Section 260A of the Income Tax Act, 1961, regarding the categorization of income from the sale of a property as either business income or capital gains. The assessee initially declared an income of ?37,10,085 for the Assessment Year 2006-07, but the Assessing Officer considered the property as stock in trade, attributing ?6 Crores to business income. The Commissioner of Income Tax (Appeals) upheld this decision, leading to an appeal before the Income Tax Appellate Tribunal. The Tribunal, however, determined that the property was a capital asset, not part of the business stock, and categorized the income from the sale as long term capital gains, allowing the assessee's appeal.

The revenue contended that the assessee's business involved constructing commercial buildings on purchased land, indicating the income should not be classified as income from house property but as part of a business activity. The revenue further argued that the Tribunal erred in treating the property income as capital gains. In contrast, the assessee argued that the property's categorization depended on factual analysis, emphasizing the Tribunal's findings that the property was a capital asset, not stock in trade. The assessee supported this stance by referencing a previous court decision.

Upon review, the High Court noted that the property had been rented out for a significant period, with rental income declared as income from house property. The property was also listed as a capital asset in the balance sheet, with no evidence supporting its conversion to stock in trade. Additionally, the assessee had not claimed depreciation on the property in any Assessment Year. Consequently, the Court affirmed the Tribunal's decision to treat the income from the property sale as long term capital gains, based on a factual assessment of the evidence. The Court dismissed the appeal, ruling in favor of the assessee and against the revenue.