AFONSO REAL ESTATE DEVELOPERS vs. THE COMMISSIONER OF INCOME TAX AND ANR.,
What did the High Court hold?
The High Court held that the sale of properties constituted business income. The Court referred to the Partnership Deed dated July 29, 1989, which explicitly stated the business of the firm was 'buying and developing the properties into plots including construction works and/or any other business as the parties hereto may mutually agree upon from time to time. The business shall include buying or selling of properties situated at various places in Goa either wholly or in plots.' The Court found that this clause clearly encompassed buying and selling properties, including agricultural properties, and that the sale of properties on July 13, 2006, was not a solitary transaction, as another property was also sold. The Court found sufficient material to sustain the findings of the AO and ITAT, deeming the finding of fact not perverse. The decision in Narain Swadeshi Weaving Mills was distinguished. The substantial question of law was answered against the appellant.
What were the facts?
The appellant, M/s. Afonso Real Estate Developers, a partnership firm registered on April 4, 2006, acquired agricultural land in Cavelossim in 1990. This land, along with another property, was sold on July 13, 2006, for ₹1,69,20,000. The assessee filed its return for Assessment Year 2007-08, claiming deductions under Sections 54E and 54EC for long-term capital gains. The Assessing Officer (AO) reopened the assessment under Sections 147 and 148, treating the income as business income. The CIT (Appeals) allowed the assessee's appeals, setting aside the AO's orders. The Revenue appealed to the ITAT, which restored the AO's order, classifying the income as business income. The assessee then filed this appeal before the High Court.
What were the issues?
1. Whether the learned Tribunal was right in holding that the transaction is a business transaction when there was only one transaction and not a series of transactions? This question turns on the interpretation of the nature of the transaction and whether it constitutes business income under the Income Tax Act, 1961. The appellant argued that a single transaction cannot constitute business and that there was no material to establish they were in the business of selling agricultural properties, relying on Narain Swadeshi Weaving Mills vs. Commissioner of Excess Profits Tax. The revenue contended that the ITAT's finding was borne out by the material on record and did not warrant interference. 2. Whether the learned Tribunal has correctly interpreted the provisions of Section 2(14) of the Income Tax Act? This question was not decided as the parties agreed to focus on the first substantial question of law.
Which sections of the Income-tax Act were involved?
Section 2(14),Section 54E,Section 54EC,Section 147,Section 148
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
ORAL JUDGMENT (Per M. S. Sonak, J.) Heard Mr. S. R. Rivonkar, learned Senior Advocate along with Ms. N. Rivonkar for the Appellant and Ms. Amira Razaq, learned Standing Counsel for the Income Tax Department - Respondent.
2 TXA No.30 of 2013 dtd. 21.02.2020
On 10.12.2013, this appeal was admitted on the following substantial questions of law: i. Whether the learned Tribunal was right in holding that transaction is a business transaction when there was only one transaction and not series of transactions? ii. Whether the learned Tribunal has correctly interpreted the provisions of Section 2(14) of the Income Tax Act?
Mr. S. R. Rivonkar, learned Senior Advocate for the appellant submits that in fact, only the substantial question of law at (i) above arises for determination and should the same be answered in favour of the appellant, then, the impugned judgment and order dated 23.08.2013 made by the Income Tax Appellate Tribunal (ITAT) will have to be set aside and the order of the CIT (Appeals) dated 26.03.2013 will have to be restored.
Ms. Amira Razaq, learned Standing Counsel for the respondent also accepts that the aforesaid position stated by Mr. Rivonkar is correct. Hence, we proceed to decide only the first substantial question of law which arises in the present appeal.
The appellant-assessee is a partnership firm constituted vide Partnership Deed dated 29.07.1989. This firm was however registered only on 04.04.2006, about which there is no serious dispute. The 3 TXA No.30 of 2013 dtd. 21.02.2020 record indicates that the firm had acquired agricultural land at Cavelossim admeasuring 28,200 sq.mtrs. vide a Deed of Exchange dated 15.08.1990. This land along with another property admeasuring 2,525 sq.mtrs., was sold by the appellant-assessee vide Sale Deed dated 13.07.2006 to Headway Resorts Line Pvt. Ltd. Company for total consideration of `1,69,20,000/-.
The appellant-assessee filed return of income on 30.01.2008 for the Assessment Year 2007-08 declaring a total income of `1,57,069/-, claiming deduction to the extent of `1,69,20,000/- inter alia on the ground that the amount received towards the sale of the properties were assessable as long term capital gains which were entitled to be deducted in terms of Section 54E and 54EC of the Income Tax Act, 1961 (I.T. Act).
The Assessing Officer (AO) did not agree with the contention of the appellant-assessee inter alia on the ground that the Cavelossim property fell within a distance of 8 kms. from the limits of the Margao Municipal Council. The appellant-assessee appealed to CIT (Appeals) vide ITA No.163/MRG/10 (AY 2007-08).
Soon thereafter, the respondent no.2 issued notices under Sections 147 and 148 of the I.T. Act to the appellant-assessee seeking
4 TXA No.30 of 2013 dtd. 21.02.2020 to reopen the assessment for Assessment Year 2007-08. After hearing the assessee, revised assessment order was made on 21.02.2011 computing the entire income of the appellant-assessee as “business income”and bringing the same to tax. The appellant-assessee therefore, preferred yet another appeal being ITA No.348/MRG/10-11 to the CIT (Appeals).
The CIT (Appeals), disposed of both the appeals by common judgment and order dated 26.03.2013. Both the appeals were allowed and the orders of the AO were set aside.
The Revenue instituted appeal being ITA No.98/PNJ/2013 before the ITAT to question the common judgment and order dated 26.03.2013 made by CIT (Appeals). The appellant-assessee filed cross- objections which were numbered as 26/PNJ/2013. The ITAT vide common order dated 23.08.2013 allowed the Revenue’s appeal and dismissed the cross-objections of the appellant-assessee, thereby, restoring the orders made by the AO that the income derived by the appellant-assessee from the sale of the properties was “business income”. Hence the present appeal on the aforesaid substantial question of law.
Mr. Rivonkar, the learned Senior Advocate for the appellant
5 TXA No.30 of 2013 dtd. 21.02.2020 submits that the business of the appellant-assessee was to develop properties into plots or by constructing buildings and thereafter engage in the real estate business. He submits that the fact that the agricultural land was purchased in the year 1990 and the same was not even converted suggests that the appellant-assessee was not carrying on any business in relation to such property. He submits that on the basis of a single transaction of this nature, it could not have been held that the appellant-assessee was carrying on business in selling and purchasing properties. He submits that there is absolutely no material on record to establish that the appellant-assessee was engaged in the business of selling and purchasing agricultural properties and therefore, the ITAT, was not at all right in recording a finding that the proceeds from sale constitute income from business. He relied upon decision of the Supreme Court in Narain Swadeshi Weaving Mills vs. Commissioner of Excess Profits Tax – AIR 1955 SC 176. 12. On the other hand, Ms. Razaq defends the impugned judgment and order made by the ITAT on the basis of the reasoning reflected therein. She submits that the finding recorded by the ITAT is borne out by the material on record and therefore warrants no interference in this appeal.
The rival contentions now fall for our determination.
6 TXA No.30 of 2013 dtd. 21.02.2020
The main issue involved in this appeal is whether the proceeds from sale of the properties vide sale deed dated 13.07.2006 can be regarded as income from business or not.
The appellant-assessee was constituted vide Deed of Partnership dated 29.07.1989. The business of the partnership is that of real estate developers. Clause 2 of the Partnership Deed is most relevant and the same reads as follows:
“2. The business of the partnership firm shall be that of buying and developing the properties into plots including construction works and/or any other business as the parties hereto may mutually agree upon from time to time. The business shall include buying or selling of properties situated at various places in Goa either wholly or in plots.”
From the aforesaid, it is quite clear that the business of the appellant-assessee is buying and selling properties situated in various places in Goa either wholly or in plots. Mr. Rivonkar’s contention that the business of the appellant-assessee is only to purchase properties, develop them into plots or construct buildings upon them and thereafter to sell them cannot be accepted, looking to the aforesaid provisions in the Deed of Partnership by which the appellant-assessee came to be constituted. The business of the appellant-assessee very specifically includes buying and selling properties situated in various places in Goa either wholly or in plots. Considering the wide
7 TXA No.30 of 2013 dtd. 21.02.2020 phraseology employed, it is obvious that the business of the appellant- assessee includes buying and selling even agricultural properties. Accordingly, we are unable to accept that the sale of the properties by the appellant-assessee vide sale deed dated 13.07.2006 has no nexus with the business of the appellant-assessee.
Besides, we find that both the Assessing Officer as well as the CIT (Appeals) have noted that by sale deed dated 13.07.2006, the appellant-assessee sold not merely the agricultural property but also another property admeasuring 2,525 sq.mtrs. to Headway Resort Line Pvt. Ltd. Therefore, this is not a case of sale of a solitary property, by way of a one off transaction. The appellant-assessee, in terms of Clause 2 of the Partnership Deed is clearly involved in buying and selling properties situated in various places in Goa either wholly or in plots. By sale deed dated 13.07.2006, the appellant-assessee has indeed sold the properties purchased by it for a considerable profit. This material, according to us, is more than sufficient to sustain the findings recorded by the AO and the ITAT. The finding of fact cannot be regarded as perverse, so as to give rise to any substantial question of law or so as to warrant interference.
The decision in Narain Swadeshi Weaving Mills (supra), is entirely distinguishable, since, it turns on its own peculiar facts. There,
8 TXA No.30 of 2013 dtd. 21.02.2020 the assessee firm had virtually stopped its business mainly because no raw material was available due to the war. The factory premises were then leased and the issue was whether the lease rent could be treated as business profits liable to excess profits tax. In this fact situation, the Hon’ble Apex Court held that such lease could not be described as the business of the assessee firm and lease rent would therefore not qualify as business income. These facts, offer no parallel whatsoever to the fact situation in the present case.
We therefore answer the substantial question of law against the appellant-assessee and in favour of the respondent Revenue.
The appeal is accordingly liable to be dismissed and is hereby dismissed. There shall be no order as to costs. NUTAN D. SARDESSAI, J.
M. S. SONAK, J. ss
More judgments on Section 2(14)
- Karan Dilipkumar Patel L/H of Late… vs Dy. Commissioner of Income Tax, Vapi…ITA 353/SRT/2024[2011-12]Status: Disposed14 Oct 2026AY 2011-12
- Jagdishbhai Vasharambhai Italiya, Ahmedabad vs The ITO, Ward-3(1)(1), AhmedabadITA 150/AHD/2026[2015-16]Status: Disposed14 Oct 2026AY 2015-16
- Ishvarbhai Bhagabhai Patel, Surat vs The ACIT, Circle-2(1)(1), SuratITA 6/SRT/2026[2015-16]Status: Disposed1 Oct 2026AY 2015-16
- Malini Satish Parekh, Surat vs ITO, Ward 2(3), SuratITA 900/SRT/2024[2013-14]Status: Disposed1 Oct 2026AY 2013-14
- Lakhmanbhai Maru, Vadodara vs ITO, Ward 1(2)(1), Vadodara, Aayakar…ITA 1046/AHD/2026[2024-25]Status: Disposed30 Sept 2026AY 2024-25
Recent GST High Court judgments
Search GST case law →- Capri Global Capital LTD Through Represented By Its Law Officer Mr. Varun Kaljoria vs. The State Of Madhya Pradesh Through Principal SecretaryMadhya Pradesh · 26 Oct 2026
- Sri Tatiparthy Venkata Swamy vs. The State Of Andhra PradeshAndhra Pradesh · 25 Oct 2026
- Piyush Shantilal Veera vs. State Of U.P.Allahabad · 23 Oct 2026
- Tvl. Pooja Shri Traders vs. The Deputy State Tax Officer - 1Madras · 23 Oct 2026
- Aashutosh vs. The State Of Madhy PradeshMadhya Pradesh · 23 Oct 2026
