THE PR COMMISSIONER OF INCOME-TAX vs. SMT CHAMUNDESWARI

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ITA/152/2018HC KarnatakaKAHC01035571201802 January 2019Bench: RAVI MALIMATH,MOHAMMAD NAWAZ6 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that no substantial question of law arises for consideration in the appeal. The Court found the reasoning of the Tribunal to be based on the Supreme Court judgment in G. Venkataswamy Naidu vs. Commissioner of Income Tax (35 ITR 594). The Tribunal was of the view that since the assessee sold the flats for profit in a subsequent period, it did not amount to an adventure in the nature of trade. The Court agreed with the Tribunal's reasoning that if an assessee invests money in a property with the intention to hold or enjoy it and sells it for profit thereafter, it is a case of capital appreciation, and the profit is taxable under the head 'capital gains'. The Court further noted that there was no material on record for the Commissioner of Income Tax (Appeals) to hold that the assessee had purchased the property with the intention of reselling it for profit, nor was there material to support the Revenue's contention. Therefore, the appeal was dismissed.

What were the facts?

The assessee, Smt. Chamundeswari, an individual and employee of Syndicate Bank, filed a return of income for assessment year 2007-2008 under Section 153C of the Income Tax Act, declaring an income of Rs. 15,12,240/-. The Assessing Officer completed the assessment under Section 143(3) read with Section 153C, determining the total income at Rs. 80,55,940/-, which included short-term capital gain of Rs. 55,27,190/- and long-term capital gain of Rs. 22,79,296/-. The Revenue Audit Party observed that income from construction and sale of apartments was treated as capital gains instead of business income. Consequently, an order under Section 263 was passed, and the Assessing Officer revised the assessment under Section 143(3) read with Section 263, classifying Rs. 78,06,486/- as profits and gains of business or profession. The Income Tax Appellate Tribunal (ITAT) allowed the assessee's appeal against this order. The Revenue has filed the present appeal before the High Court.

What were the issues?

1. Whether the income derived from the construction and sale of apartments constitutes 'profits and gains of business or profession' or 'capital gains' under the Income Tax Act, 1961, specifically concerning the intention behind the purchase and sale of property. The Revenue contended that the Tribunal's order was erroneous. It argued that if a property is purchased solely with the intention of reselling it at a profit, and the purchaser has no intention of holding or using the property, it constitutes an adventure in the nature of trade, leading to business income. The Revenue relied on the principle that such a presumption can be rebutted by other facts and circumstances. The Assessee disputed the Revenue's contention.

Which sections of the Income-tax Act were involved?

Section 153C,Section 143(3),Section 263

AI-generated summary — verify with the full judgment below

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU

ON THE 2ND DAY OF JANUARY, 2019

BEFORE

THE HON'BLE MR. JUSTICE RAVI MALIMATH

AND

THE HON’BLE MR. JUSTICE MOHAMMAD NAWAZ

INCOME TAX APPEAL NO.152 OF 2018

BETWEEN:

1.

THE PR. COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE, C. R. BUILDING, QUEEN’S ROAD, BENGALURU-560 001.

2.

THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE - 1(4), C. R. BUILDING, QUEENS ROAD, BENGALURU-560 001.

...APPELLANTS

(BY SRI K. V. ARAVIND, ADVOCATE)

AND:

SMT. CHAMUNDESWARI NO.79, CASTLE STREET, ASHOKNAGAR, BENGALURU-560 045, PAN: AALPC 6900A.

... RESPONDENT

(BY SRI N. MANOHAR, ADVOCATE)

2 THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF THE INCOME-TAX ACT 1961, ARISING OUT OF ORDER DATED 05/07/2017 PASSED IN ITA NO.829/BANG/2016, FOR THE ASSESSMENT YEAR 2007- 2008 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO.829/BANG/2016 DATED 05/07/2017 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(4), BENGALURU AND TO PASS SUCH OTHER SUITABLE ORDERS AS THIS HON'BLE COURT DEEMS FIT TO GRANT IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE INTEREST OF JUSTICE AND EQUITY.

*****

THIS INCOME TAX APPEAL COMING ON FOR ORDERS THIS DAY, RAVI MALIMATH J., DELIVERED THE FOLLOWING:

JUDGMENT

The assessee is an individual who filed his return of income under Section–153C of the Income tax Act, (hereinafter referred to as ‘I.T. Act’) declaring a total income of Rs.15,12,240/-. An assessment order under Section–143(3), read with Section–153-C of the I.T. Act

3 was completed by assessing the total income at Rs.80,55,940/-. The assessed income included ‘short-term capital gain’ of Rs.55,27,190/- and ‘long-term capital gain’ of Rs.22,79,296/-.

2.

On a verification made by the Revenue Audit Party (RAP), it was observed that the income from the business of construction of building and sale of apartments were treated as ‘capital gains’ instead of business income under the head ‘profit and gains of business and profession’. Hence, an order under Section–263 of I.T. Act was passed and in consequence thereof, the assessing authority passed an order under Section–143(3), read with Section-263 of the I.T. Act, bringing an amount of Rs.78,06,486/- under the head ‘profits and gains of business or profession’. Aggrieved by the said order, the assessee preferred an appeal before the Tribunal, which was allowed. Questioning the order of the Tribunal, the present appeal is filed by the Revenue.

4 3. Sri.K.V.Aravind, learned counsel appearing for the appellants contends that the order of the Tribunal is erroneous. That the test to determine whether an income would be considered as ‘capital gains’ or ‘income arising out of business or profession’, would arise where a purchase of a property has been made solely and exclusively with an intention to resell the same at a profit and the purchaser had no intention of holding the property for himself or otherwise enjoying or using it and therefore there would be a strong presumption that the transaction is an adventure in the nature of trade, even though the said presumption could be rebutted by the other facts and circumstances of the case.

4.

Sri.N.Manohar, learned counsel appearing for the respondent disputes the said contention.

5.

Heard learned counsels.

6.

The assessee was an employee with Syndicate Bank. He purchased a land measuring 2800 sq.ft., in the

5 year 2001. He put up a construction of 12 apartments, out of which 8 apartments were sold and 4 apartments were retained for himself. The profits made out of sale of 8 apartments were offered as ‘short-term capital gains’ and the profits made on sale of the land was offered as ‘long- term capital gains’, after claiming exemption to an extent of Rs.22,50,171/-.

7.

The Tribunal on considering the material on record, was of the view that since the assessee sold the flats for profit in the subsequent period, the said transaction does not tantamount to adventure in the nature of trade. When the assessee invests money in a property with an intention to hold it or enjoys the property and sells it for profit thereafter, then it is a case of capital appreciation and the profit derived there from is taxable under the head ‘capital gains’. Therefore, the judgment of the Hon'ble Supreme Court in the case of G.VENKATASWAMY NAIDU VS. CO. VS. COMMISSIONER OF INCOME TAX, reported in 35 ITR 594, was followed.

6 8. On considering the reasons assigned by the Tribunal, we do not find any substantial question of law that arises for consideration in this appeal. The reasoning of the Tribunal is based on the judgment of the Hon'ble Supreme Court referred to supra. Even on facts, there was no material on record for the Commissioner of Income Tax (Appeals) to hold that the assessee had purchased the property with an intention of reselling the same for profit. There is no material on record to trigger such a contention. Hence, there is no substantial question of law that arise for consideration in this appeal.

9.

For the aforesaid reasons, we are of the considered view that there is no merit in this appeal. Consequently, the appeal is dismissed.

Sd/-

Sd/- JUDGE

JUDGE

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