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Income Tax Appellate Tribunal, DELHI BENCH ‘F’, NEW DELHI
Before: SHRI J. SUDHAKAR REDDY & MS. SUCHITRA KAMBLE
ORDER PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER This is an appeal filed by the Assessee directed against the order of the Ld.Commissioner of Income Tax (Appeals)-XVI, New Delhi dated 6.3.2009 pertaining to the Assessment Year (hereinafter referred to as the A.Y.) 2005-06.
Facts in brief:- The assessee is a company and is engaged in the business of real estate. It filed its return of income on 3.2.2006 declaring income of Rs.2,13,446/-. The issue before us is whether the Assessing Officer (hereinafter referred to as the AO) was right in assessing the income declared by the assessee, being sale of immovable property under the head ‘income from business’ instead of ‘income from capital gain’declared by the assessee. The First Appellate Authority upheld the order of the A.O.
Aggrieved the assessee is in appeal before us. .
The A.O. at page 7 of his order listed out the following reasons based on which, he has come to the conclusion that the income declared by the assessee under the head ‘capital gains’ is actually taxable under the head ‘income from business’.
“The following facts and circumstances speak for themselves regarding the real character of the transactions and the intention of the assessee company in purchasing and selling the properties : (i) The assessee has been engaging itself in systematic and continuous activity of purchase and sale of properties in furtherance of the object in its memorandum of association. The assessee has given substantial effect to its object clause of dealing in properties. (ii) The assessee company raised substantial loans in the year in which the properties were purchased, balance sheet as on 31.3.2000, shows unsecured loans of Rs.19,98,135/-. The unsecured loans as on 31.3.2003 and 31.3.2004 also stand at Rs.19,25,000/-. Thus, the assessee has been raising substantial loans and utilizing them in its business activity of purchase, development and sale of properties. It is not a case where surplus savings have been invested in land/properties for the purpose of exploiting them and earning income from them. (iii) It has entered into a series of transactions of purchase and sale of land/properties. The magnitude of purchases and sales of properties and the substantial turnover thereof is in furtherance to the primary object in its memorandum of association. By these transactions, the assessee is giving full effect to its object of sale, development and purchase of real estate. (iv) The assessee fully developed one of the properties (the property bearing no.79, Hemkunt Colony in line with its objects before it was disposed of. It has incurred an expenditure of Rs.58,91,032/- over a period of four years. It has also been incurring costs for effecting improvements in other properties as reflected in the table. (v) The assessee itself has practically been treating the properties as stock-in- trade is further evident from the fact that it has not been filing returns of Wealth Tax, despite the fact that value of investments exceeds Rs.15 lakhs in all the years since the properties were first purchased. This is clear from the details of costs and improvements reproduced above. (vi) The assessee has itself claimed during the assessment proceedings that it had not even taken possession of two of the properties viz., plots at Gurgaon and Greater Noida. It had only transferred the allotment rights in respect of the said properties. Though this contention is contrary to the facts and has been rejected as discussed below, it further shows that the intention of the assessee company was not to hold the properties as ‘investments’ and deploying them for earning income. The transactions bear the character of business transactions and the properties were purchased for the purpose of selling them at a profit in the regular course of the assessee’s business.’
We have perused the paper book filed by the assessee which contains balance sheet of the assessee for the Financial Year ended 31.3.2000, 2001, 2002, 2003 and 2004. All the properties in question were acquired in the year 2000 and 2001 only. These properties were declared by the assessee as investments in its balance sheet. The assessee had incurred expenses on improvement of some of these properties and has not claimed the same as revenue expenditure. In fact the expenditure incurred on improvement during the A.Ys 2003-04 and 2004-05 have been capitalised and the same have been accepted by the Revenue. The assessee has not borrowed any funds for investment in these properties. 5.1. We also find that the finding of the A.O. that the assessee has engaged in systematic and continuous activity of purchase and sale of properties is factually incorrect and a perverse finding. A perusal of the annual accounts for the last many years reveals that actually there was no purchase or sale of assets in any of the years. The finding that the assessee has entered into a series of transactions of purchase and sale of land and properties and that the magnitude of the same is substantial, is also perverse finding of fact, which is factually incorrect. Even if the main object of the assessee company is real estate business, it does not bar the assessee from having investments in real estate. Two separate profiles can always be maintained. 5.2. In view of the above discussion, we are of the considered view that the income from the purchase and sale of these properties are assessable only under the head ‘capital gains’. In the result ground nos. 1, 2 and 3 of the assessee are allowed.
Ground no.4 is on the issue of applicability of provisions of S.50C of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). As this issue has not been adjudicated upon by the First Appellate Authority, we set aside the same to the file of the Ld.CIT(Appeals) for fresh adjudication in accordance with law. In the result ground no.4 is allowed for statistical purposes. 7. Ground no.5 is premature and is dismissed as such. 8. In the result the appeal of the assessee is allowed in part. Order pronounced in the Open Court on 25th April, 2016.