RAJESHWARI REDDY BADDAM,HYDERABAD vs. INCOME TAX OFFICER, WARD-8(2), HYDERABAD

Brief facts of the case are that the assessee, an individual, during the relevant financial year, had sold an immovable property bearing No.5-2-414 & 5-2-414/A situated at Risala Abdula admeasuring 157 sq. yards for a consideration of Rs.21.00 lakhs on 26.06.2006 vide sale deed No.2485/2006. The AO noticed that the sale value for the purpose of stamp duty amounted to Rs.32.50 lakhs and therefore, the provisions of section 50C was attracted.

Since the assessee did not file her return of income, the AO issued a notice u/s 148 of the I.T. Act on 28.3.2014 and during the assessment proceedings, brought the short term capital gain of Rs.20,34,120/- to tax. The matter travelled upto ITAT and the ITAT, vide order dated 25.01.2018 had set aside the issue to the file of the AO for consideration afresh. During the remand proceedings, the AO applied the provisions of section 50C and treated the sum of Rs.12,15,880/- as short term capital gain and brought it to tax. Aggrieved, the assessee preferred an appeal before the CIT (A) contending that the house was purchased by way of an agreement and was immediately sold within a period of 3 months and therefore, it is an adventure in the nature of trade and hence the provisions of section 50C are not applicable. The CIT (A) however, confirmed the assessment order and the assessee is in second appeal before the Tribunal by raising the following grounds of appeal:

The learned Counsel for the assessee reiterated the submissions made before the authorities below, while the learned DR supported the orders of the authorities below and submitted that the assessee had purchased the property by virtue of agreement of sale and within two months therefrom had sold the property vide registered sale deed and therefore, it is clear that the intention of the assessee was to make profit and not to retain the property. Therefore, according to me, the transaction is an adventure in the nature of trade and the income therefrom has to be treated as business income and the provisions of section 50C are not applicable to business transactions. In support of this contention that the transaction is adventure in the nature of trade and not transfer of the capital asset. He placed reliance upon the decision of the Hon'ble Supreme Court in the case of G. Venkataswami Naidu & Co. v. CIT (1959) 35 ITR 594 (SC).

The learned DR, however, submitted that the assessee has purchased the immovable property and sold the same and therefore, capital gain arises as the assessee has not done any other activity prior to or thereafter.

Having regard to the rival contentions and the material on record, I find that the only question before the Tribunal is the nature of transaction, whether it is transfer of the capital asset or the transaction is an adventure in the nature of trade. In the case of G. Venkataswami Naidu & Co. v. CIT (Supra), the Hon'ble Supreme Court held that in a case where the property was purchased with the sole intention of selling it for profit, it is an adventure in the nature of trade. In the case before me also, the assessee had purchased the property by way of an agreement of sale and therefore, has not become the title holder of the property and within two months thereafter, has sold the property for profit. This fact of purchase and sale of property within a period of two months has not been rebutted by the Department. Therefore, the intention of the assessee does not appear to be acquisition of the property and retaining the same as an investment/capital asset but it is for deriving profit within a short span of time and since the assessee has not done any such activity prior to the relevant A.Y, such a transaction of earning a profit has to be considered as an adventure in the nature of trade. Therefore, I hold that the transaction is an adventure in the nature of trade and provisions of section 50C are not applicable.

In the result, assessee’s appeal is treated as allowed.