2021 (8) TMI 816 - AT - Income Tax

Gain on sale of land - Addition u/s 28(iv) - excess area of land received in partition - co-ownership in land - land was retained for 34 months and later, both the co-owners have entered into partition deed in Financial Year 2013-14 - assessee got 8105sq.yds and M/s Sai Infra got 2877 sq.yards towards their share - as in partition, the assessee got excess land of 2613 sq.yds than the other coowner AO viewed the excess land of 2613 sq.yds as the benefit received and chargeable to tax u/s 28(iv) - HELD THAT - Land in question was purchased as capital asset and remained as capital asset till the partition. No business activity was carried on by the co-owners and the assessee has received the land on partition. The share of land received on partition cannot be treated as income arising from the business. As discussed earlier the asset was shown in the balance sheet as capital asset but not stock in trade. Thus the contention of the assessee that the excess land received in partition was not taxable u/s 28(iv) is also supported by the decisions referred supra.6.4. Subsequent to taking the land on partition, the assessee has sold the property after the development and declared the average sale value of ₹ 24488/- per sq.yard which is more than the value adopted by the AO in the assessment. The reason for postponement of taxation was explained by the assessee as disadvantageous location for marketing. The Ld.CIT(A) followed the decision of Hon ble Supreme Court in the case of CIT Vs. Excel Industries . 2013 (10) TMI 324 - SUPREME COURT and viewed that there was no loss of revenue. Therefore, we agree with the finding of the Ld.CIT(A) that the excess area of land received was not taxable u/s 28(iv) of the Act and there is no loss of revenue. Hence, we do not find any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. Appeal of the revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition made by the Assessing Officer (AO) under Section 28(iv) of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Deletion of Addition under Section 28(iv) of the Income Tax Act, 1961:

The primary issue in this appeal is the deletion of the addition made by the AO under Section 28(iv) of the Income Tax Act, 1961. The assessee, a partnership firm engaged in construction, filed its return of income for the Assessment Year (A.Y.) 2014-15, admitting a total income of Rs. 'Nil'. During scrutiny, the AO found that the assessee purchased vacant land along with another firm, M/s Sai Infra, and later entered into a partition deed. The AO viewed that the assessee received excess land of 2613 sq. yds, equivalent to Rs. 3,19,68,000/-, which he considered a benefit chargeable to tax under Section 28(iv) of the Act. The AO issued a show-cause notice, but the assessee argued that the land received was of equal value in market terms, considering its location and surroundings. The AO, not convinced, made the addition of Rs. 3,19,68,000/-.

The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that Section 28(iv) applies to benefits or perquisites received in connection with business, whereas the land was a capital asset divided equally among co-owners. The CIT(A) agreed with the assessee, stating that the land was held as a capital asset and divided as per market value, with no benefit accrued to attract Section 28(iv). The CIT(A) referenced Supreme Court decisions in CIT Vs. Excel Industries and P. Krishna Menon Vs. CIT, concluding that there was no loss of revenue since the land was later sold, and the proceeds were taxed.

The department, aggrieved by the CIT(A)'s order, appealed to the Tribunal. The department argued that the excess land received was rightly taxed under Section 28(iv), as the land was purchased with business intent. The department contended that each assessment year is independent, and the CIT(A)'s view of no revenue loss was incorrect.

The assessee reiterated its arguments, highlighting that both parties were unrelated and the land received was of equal market value despite the area difference. The assessee emphasized that the land was a capital asset, not a business asset, and any benefit from partition cannot be taxed under Section 28(iv). The Tribunal examined the provisions of Section 28(iv), which taxes benefits arising from business, and noted that the land was a capital asset until partition. The Tribunal referenced the Gujarat High Court decision in CIT Vs. Bharatkumar R. Panchal and an ITAT Kolkata decision, both supporting that capital receipts are not taxable under Section 28(iv).

The Tribunal concluded that the land received on partition was a capital asset, not a business receipt, and thus not taxable under Section 28(iv). The Tribunal upheld the CIT(A)'s order, noting no revenue loss as the land was later sold at a higher value and taxed accordingly. The Tribunal dismissed the department's appeal and the assessee's cross objections, which supported the CIT(A)'s order and were not pressed during the hearing.

Conclusion:
The Tribunal upheld the CIT(A)'s order, confirming that the excess land received on partition was not taxable under Section 28(iv) of the Income Tax Act, 1961, as it was a capital asset and not a benefit arising from business. The appeal of the revenue was dismissed, and the cross objections of the assessee were also dismissed.