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TMI Blog2016 (6) TMI 1308X X X X Extracts X X X X X X X X Extracts X X X X ..... n real estate for development. The matter would be entirely different if the assessee constructed the multistory building and developed the land. Since the land was simply handed over to other trader for development, this Tribunal is of the considered opinion that the land in question has to be treated as capital asset. Even though the partnership firm was formed 05.04.2005 and the land was registered in the name of the firm on 23.05.2005, the assessee has not commenced any business activities; no other land appears to have been purchased; no supplementary work was carried on by the assessee-firm in the subject land; no organized effort was made other than simply entering into Memorandum of Understanding with the builder. As all risks and rights relating to construction of building were vested with the builder and the assessee has not taken any risk in the construction and development of flats, this Tribunal is of the considered opinion that the profit on sale of the land in the hands of the assessee-firm cannot be treated differently than as it was treated in the case of Mrs. Saroj Agarwal. This Tribunal is of the considered opinion that the profit on sale of land has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property, is only to treat the land as capital asset and not as trading asset. The partnership firm, which came into existence subsequent to purchase of land, has treated the land as capital asset in their books of account. After the formation of partnership firm, the document was registered in the name of the assessee-firm on 23.05.2005. Since the land was treated as capital asset, in order to generate funds to the assessee-firm, they intended to sell the land for a profit. Accordingly, in order to earn more profit on sale of land, a Memorandum of Understanding was entered for development of land with M/s Deluxe Apartments Building Company. The sale consideration in the form of 88,200 sq.ft. of constructed area, which is equal to 45% of constructed area, was given to the assesseefirm. What was received by the assessee-firm was treated as capital asset. Therefore, the assessee returned the profit on sale of the property as capital gain. However, the Assessing Officer has treated the same as business income of the assessee. 4. Referring to the order of the CIT(Appeals), the Ld. representative for the assessee submitted that the land in question was purchased as investment and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available at page 3 of the paper-book. 6. On the contrary, Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that the assesseepartnership firm was formed by a partnership deed dated 05.04.2005 The payment for purchase of land at Nolambur was paid by M/s Petro Plast Industries Ltd. in the month of February-March, 2005. The property was registered in the name of assesseepartnership firm on 23.05.2005. The assessee entered into a Memorandum of Understanding with M/s Deluxe Apartments Building Company on 12.04.2006 for development of land. According to the Ld. D.R., the builder consolidated the land holdings of the other four individual members of Agarwal family for the purpose of joint development. Therefore, the action of the assessee-partnership firm was pre-meditated and the intention of the assessee was to do business in real estate. Therefore, according to the Ld. D.R., the Assessing Officer has rightly classified the profit on sale of land as income from business. The manner in which the land was purchased and steps taken to develop the land in a short span of time from the date of purchase clearly indicates that the intention of the assessee was to kee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the land in question was intended to be treated as capital asset by the partnership firm. 8. The next question arises for consideration is when the partnership firm itself was formed for purchase and sale of land, can the subject land be held as capital asset? This Tribunal is of the considered opinion that a company / partnership firm can have two portfolios, one is stock-in-trade and another is investment. Even a partnership firm, which is engaged in purchase and selling of land, can retain part of land as stock-in-trade and part of land as investment. When the intention of the assessee is to treat the land as investment, merely because the same was used for development by entering into a Memorandum of Understanding within a short span of time, that cannot be a reason to treat the subject land as stock-in-trade. The assessee in order to generate funds for business might have entered into Memorandum of Understanding with another trader who is dealing in real estate. If the intention of the assessee is to deal in real estate, the assessee would have developed the land by itself. In the case before us, the assessee has not dealt with the land by itself. The land was in fac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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