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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAJESH KUMAR
Date of Hearing – 19.02.2018 Date of Order – 28.03.2018
O R D E R PER SAKTIJIT DEY, J.M.
This is an appeal by the assessee against order dated 5th March 2013, passed by the learned Commissioner (Appeals)–30, Mumbai, for the assessment year 2008–09.
The grounds raised by the assessee are on the following issues:–
i) Whether the income derived from sale of land is to be assessed under the head business or long term capital gain; and 2 Shri Uttam Mulchand Amarnani ii) In case the income from sale of land is treated as long term capital gain, whether the assessee is eligible for indexation benefit and deduction under section 54 of the Act.
Brief facts are, the assessee an individual is engaged in the business of builders and developers through its proprietory concern M/s. Everest Developers and M/s.Everest Builders. For the assessment year under dispute, the assessee filed its return of income declaring total income of ` 1,13,42,620. During the assessment proceedings, the Assessing Officer found that in the relevant previous year, the assessee has sold a land at Khar Danda and profit from which has been shown as long term capital gain. On perusing the agreement for sale, he found that the assessee has entered into a lease agreement for 999 years. He also found that the assessee is a builder and holds several properties as stock–in–trade. Thus, on the basis of aforesaid facts, the Assessing Officer called upon the assessee to show cause why the profit from sale of land should not be treated as business income. In response, it was submitted by the assessee that since the land was held as investment, the income derived from sale of land is chargeable to long term capital gain. The Assessing Officer, however, did not find merit in the submissions of the assessee. He observed, the assessee had entered into an agreement in respect of the said land with Sameer Bhojwani on 10th November 2003 in the capacity of sole proprietor of Everest Builder. He also observed, the land has been held
3 Shri Uttam Mulchand Amarnani in the Balance Sheet of Everest Developer as stock–in–trade. From the facts on record, the Assessing Officer found that the assessee was in habit of holding several lands and in the practice of buying and selling them. Thus, the Assessing Officer held that the assessee cannot suddenly change the nature of an asset from business to investment. Referring to certain judicial precedents ultimately the Assessing Officer held that the profit on sale of land has to be treated as business income as against the claim of long term capital gain by the assessee. Accordingly, he added back the profit from sale of land amounting to ` 4,15,76,970, without allowing any deduction. Being aggrieved of such addition, the assessee preferred an appeal before the learned Commissioner (Appeals).
The learned Commissioner (Appeals) though found that in the Balance Sheet of Everest Developer the subject land appears as investment, however, he was of the view that if the intention of the assessee at the time of purchase of land in the year 1995 was for the purpose of investment, the land should have appeared in the personal Balance Sheet of the assessee and not in the Balance Sheet of the Everest Developers. Thus, he was of the view that at the time of purchase of land, the intention of the assessee was to hold the land as business asset and develop it in future. Agreeing with the Assessing Officer that the assessee was in practice of buying and selling land, the 4 Shri Uttam Mulchand Amarnani learned Commissioner (Appeals) held that the land in question was held as business asset and not as an investment. He observed, if the assessee wanted to hold the land as an investment of the proprietorship concern, he should have converted the land to stock– in–trade while entering into the development agreement. Thus, the learned Commissioner (Appeals) upheld the decision of the Assessing Officer in treating the profit derived from sale of land as income from business thereby negating assessee’s claim of long term capital gain and consequently disallowing deduction under section 54 of the Act.
Learned Authorised Representative contesting the findings of the Departmental Authorities submitted that the land having been held as investment, the profit derived from sale of land cannot be treated as business income as against assessee’s claim of long term capital gain.
Learned Departmental Representative relying upon the observations of the first appellate authority submitted that accounting entries in respect of land sold by the assessee is not conclusive but the intention of the assessee while purchasing the land coupled with its activities has to be looked into. She submitted, the Assessing Officer has brought material on record to establish that the assessee was in the business of property development and lands were purchased for engaging in such activities. Therefore, the profit derived from sale of land has to be treated as income from business.
5 Shri Uttam Mulchand Amarnani We have heard rival submissions and perused material available on record. Though, in the assessment order the Assessing Officer has stated that in the Balance Sheet of Everest Developer, the subject land has been shown as stock–in–trade, however, the learned Commissioner (Appeals) has recorded a factual finding that in the Balance Sheet of Everest Developer, the land appears as investment. Though, we agree with the learned Departmental Representative that accounting entries appearing in the books of the assessee are not conclusive and the intention of the assessee while purchasing the land has to be looked into. However, the true intention of the party, whether to hold the land as investment or stock–in–trade (business asset), requires to be examined keeping in view the attending facts. Undisputedly, the subject land was purchased by the assessee in the year 1995. On 10th November 2003, the assessee entered into an agreement with a third party for development of land. However, as it appears from the facts on record, the said agreement was ultimately terminated and the assessee sold the land on 27th July 2007 to another party on long term lease basis. Thus, it is a fact on record that land in question was held by the assessee from the year 1995 till its sale in the year 2007. Therefore, the question which arises is, if a person is in the business of buying and selling land, whether he will hold on to the land for such a long period or whether he will sell it at 6 Shri Uttam Mulchand Amarnani the first available opportunity. The next issue which arises is, what was the intention of the assessee while purchasing the land in the year 1995. As observed earlier, though the Assessing Officer has stated that the land was shown as stock–in–trade in the Balance Sheet of Everest Developer, however, the learned Commissioner (Appeals) has given a factual finding that the land has been shown as investment in the Balance Sheet of Everest Developer. Therefore, holding of land for such a long period coupled with the fact that it has been shown in the Balance Sheet as investment to some extent establishes assessee’s claim that he intended to hold the land as an investment and not as stock–in–trade. It is evident from the orders of the Departmental Authorities that assessee’s claim has been rejected primarily on two grounds, firstly, because it has not been shown in the personal Balance Sheet, and secondly because assessee has not converted the land to stock–in–trade before its sale. We fail to understand how on the basis of aforesaid reasoning it can be concluded that the assessee was treating the land as business asset. Thus, reasonings on which the learned Commissioner (Appeals) has treated the land as business asset of the assessee are not at all relevant for deciding whether the land in question was held as investment or business asset. It appears from record, in assessment year 2006–07, the Assessing Officer had assessed the money received from Samir Bhojwani in pursuance to the development agreement in respect of the same land as income of the 7 Shri Uttam Mulchand Amarnani assessee. Though, the issue was set aside to the Assessing Officer by the Tribunal, however, it needs to be seen under which head the Assessing Officer treated it as income and the reason for doing so. In this regard, the Balance Sheets of earlier years are also required to be examined. Considering the overall facts and circumstances of the case, we are of the opinion that the issue whether the land in question was held as an investment or business asset requires to be examined afresh taking into consideration all material facts including the intention of the assessee at the time of purchase of land. Accordingly, we set aside the impugned order of the learned Commissioner (Appeals) and restore the matter back to the file of the Assessing Officer for fresh adjudication after due opportunity of being heard to the assessee. In the event the Assessing Officer treats the profit derived from sale of land as long term capital gain, he should also examine assessee’s claim of deduction under section 54 of the Act. Grounds are allowed for statistical purposes.
In the result, assessee’s appeal is allowed for statistical purposes. Order pronounced in the open Court on 28.03.2018