2022 (7) TMI 288 - HC - Income Tax

Correct head of income - surplus arising from the transfer and assignment of right, title and interest in the agreements for acquisition of office premises - whether the office premises could be treated as stock-in-trade by the Appellant Assessee or its investment in fixed assets - whether Tribunal has erred in holding that the surplus arising from the transfer and assignment of right, title and interest in the agreements for acquisition of office premises is an adventure in the nature of trade and therefore, assessable as business income? - HELD THAT - Tribunal noted that the property admittedly never yielded income to the Assessee, and it was never put to any personal use. When the Appellant Assessee was offered possession of the premises on 13 July 1987, the Appellant Assessee sold the premises to Bank of India on 3 August 1988 and therefore, after the right to occupy arose, within one year, the property was sold. Though it is sought to be contended by the Appellant Assessee that the decision to sell the property was taken earlier, the issue is whether the finding of the Tribunal can be considered as perverse. Tribunal also found that the Appellant Assessee had invested the entire funds in acquiring the premises was a relevant factor in deciding the intention as a man of normal business prudence would not normally invest its entire funds in acquiring the premises when it could easily carry on the business from some other premises. Assessee had not provided any evidence of litigation or paucity of funds. Tribunal rendered its finding that it is not possible for us to reappreciate the evidence on record and come to another finding of fact as that is not the scope of the appeal under Section 260-A -Tribunal has applied the correct test, taking into consideration all the relevant facts and drawing inferences from the same. Tribunal has considered the business reality and found that the two office premises by the Appellant-Assessee were acquired with an intention to resell and not for use. Having found no perversity in the approach of the Tribunal and its conclusion, the first question of law framed will have to be answered against the Appellant Assessee and is accordingly answered.

Summary

Issues:
1. Whether the surplus arising from the transfer of office premises is assessable as business income or exempt from capital gains tax.
2. Whether the capital reserve credited on the revaluation of office premises should be included in the book of profits under Section 115J.

Analysis:

Issue 1:
The primary issue in this case revolves around the nature of the acquisition and subsequent disposal of two office premises by the Appellant-Assessee. The Appellant claimed exemption under Section 54-E of the Income Tax Act, stating that the premises were held for more than three years and thus eligible for capital gains tax exemption. However, the Assessing Officer contended that the Appellant acquired the premises with the intention to resell, treating the surplus as business income. The Commissioner of Income Tax (Appeals) disagreed, noting that the premises were sold to protect the company's interests, not for trading purposes. The Tribunal reversed this decision, holding that the Appellant acquired the premises for resale, not for personal use, based on various factors such as the company's real estate business nature and the lack of income from the premises. The Tribunal's decision was upheld, emphasizing the importance of considering all relevant facts and circumstances to determine the intention behind the transaction.

Issue 2:
The second issue pertains to whether the capital reserve from the revaluation of the office premises should be included in the book of profits under Section 115J. However, due to the dismissal of the appeal regarding the first issue, the second question was deemed academic and not necessary to be decided, resulting in the overall appeal being dismissed.

In conclusion, the judgment highlights the importance of assessing the intention behind property transactions to determine tax implications, emphasizing the need to consider various factors and circumstances comprehensively. The decision underscores the significance of factual analysis and adherence to legal principles in tax matters, ultimately leading to the dismissal of the appeal based on the findings related to the nature of the property transaction in question.