2022 (12) TMI 929 - AT - Income Tax

Correct head of income - treatment of profit on transfer of immovable properties as business profit instead of long term capital gains - HELD THAT - The consideration was settled partly by cheques and partly by transfer of certain vacant parcels of land in favor of the assessee which were under litigation and finally, sold in this year. Assessee, the receivables constitute business debt and any loss / gains arising in settlement thereof would be business income / loss for the assessee. Assessee has claimed losses on re-possessed assets as business loss in this year which has been allowed also. The assignment of debt in favour of another entity partly in exchange of land was integral part of the business activities of the assessee and any gain / loss arising on such an asset should be viewed as business profits only. The situation is no different from a situation wherein the assessee in exchange of loan debts, repossesses the assets of the borrower and sell the same subsequently in discharge of loan assets. Any resultant gains / losses arising therefrom would be part of normal business activities of the assessee. As clear that origin of the parcels of land so acquired is business asset only and therefore, the resultants gains would be business income of the assessee. The said proposition is duly supported by the decision of Hon ble Supreme Court as referred to in the impugned order. The case law of Pune Tribunal has rightly been distinguished 1991 (1) TMI 242 - ITAT PUNE by CIT(A) and we concur with the same. We also concur with the findings that the land was received in lieu of a business loan foregone. The assets so received by the assessee would assume the character of same business assets irrespective of its treatment by the assessee in the books of accounts. AR has averred that the land has been shown as part of fixed asset and therefore, the same should be taken as capital asset. However, it is settled position that entries in the books of accounts would not be determinative of nature of income of the assessee.

Summary

Issues Involved:
Determining the head of income for gains from the sale of immovable properties.

Detailed Analysis:
Assessment Proceedings:
The appellant, a resident corporate assessee engaged in equipment leasing and financing, assigned receivables to a financial services company in exchange for properties. The Assessing Officer (AO) treated the gains from the sale of these properties as business profits due to the assets being repossessed business assets. Indexation benefit was denied, and gains were assessed as business income.

Appellate Proceedings:
During the appeal, the appellant argued that the properties were capital assets and should be assessed under the head of 'Capital Gains.' The Commissioner of Income Tax (Appeals) (CIT(A)) held that the properties, received in lieu of a business loan foregone, were to be considered business assets. Citing legal precedents, the CIT(A) determined that the origin of the assets as business assets meant they would yield business income upon sale.

Findings and Adjudication:
The Tribunal found that the appellant's business activities included assigning receivables and exchanging them for properties, making any gains or losses from such transactions part of normal business activities. The origin of the properties as business assets led to the conclusion that gains would be considered business income. The Tribunal supported the CIT(A)'s decision and dismissed the appeal, emphasizing that entries in the books of accounts do not determine the nature of income.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to treat the gains from the sale of properties as business income, considering the assets' origin and their role in the appellant's business activities. The appeal was dismissed, affirming that the properties acquired in exchange for receivables were to be viewed as business assets, leading to the taxation of gains as business income.