DCIT, CHENNAI vs. CRYSTAL RESIDENCY INDIA P LTD., CHENNAI

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

ITA No.1836/Mds/2014. :- 2 -: passed u/s.143(3) and 250 of the Income Tax Act, 1961 (herein after referred to as ‘the Act’).

The Revenue has raised the grounds alleging that the 2.

Commissioner of Income Tax (Appeals) erred in holding compensation on compulsory acquisition of land by the Government authority as income from capital gains and not under business income, though the assessee is in the business of real estate and land is stock-in-trade and further assessee not able to develop the land and sell the land due to external forces and obtained loans for development and its an adventure in the nature of trade and intention is to make profit in real estate and similar issue of Managing Director Shri. K.A. Manshoor, is challenged by Department before the Tribunal and is pending.

The Brief facts of the case that the assessee company is 3. engaged in the business of real estate and hoteliers and filed return of income declaring total income of �3,84,55,570/- on 17.03.2010. The case was selected for scrutiny and notice u/s.143(2) of the Act was issued. The ld. Assessing Officer called for various details of real estate developments and acquisition of land by Government under compulsory acquisition and compensation. The assessee has claimed compensation under income from capital gains and calculated long

ITA No.1836/Mds/2014. :- 3 -: term capital gains in the return of income. The ld. Assessing Officer is of the opinion that assessee company is in real estate business and disclosed land as stock-in-trade and not eligible for benefit of cost of indexation u/s.48(2) of the Act and income is chargeable as business income. The compensation was received for assessee’s land at Kolapakkam Village, Sriperumbudur Taluk, Kancheepuram district acquired by Airport Authority of India for expansion. The assessee company has acquired the land in the financial year 2003-04 and disclosed in the Balance sheet. The crux of the disputed issue being the ld. Assessing Officer based on the disclosures in the balance sheet and activities of the assessee on obtaining loans for development of residential plot and also the main object of the business is real estate.

Further, the adjacent land owned by Managing Director Shri. K.A.

Manshoor being developed as residential plots and the assessee company offered income from real estate business. The objects of the assessee company are adventure in the nature of trade and compensation on compulsory acquisition of land is treated as Business income and denied cost of indexation of land and passed assessment order u/s.143(3) of the Act on 23.12.2011 with assessed income of �7,24,30,460/-. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals).

ITA No.1836/Mds/2014. :- 4 -:

In the appellate proceedings, the ld. Authorised 4.

Representative of assessee argued the grounds and explained the facts of real estate business and reiterated the submissions of Assessing Officer and the compensation has to be assessed as income from capital gains and not under the head profit and gains of the business.

The ld. Commissioner of Income Tax (Appeals) considered the written submissions and referred at para 4.2. of his order and perused the assessment order and came to a conclusion that the land was acquired by the Government under compulsory acquisition by the Special Tahsildar, Chennai Airport Expansion Scheme, Sriperumbudur and compensation is paid as per scheme and relied on the provisions of Sec. 45(5) of the Act and is of the opinion that compensation from Government is chargeable under the head ‘’capital gains’’ and similarly, in case of Managing Director Shri. K.A. Manshoor and his wife on compulsory acquisition of land in the same vicinity, were the ld. Commissioner of Income Tax (Appeals) on Managing Director appeal in order CIT(A)-IX, Chennai in dated 28.03.2013 allowed the claim of the Managing Director referred at page 6 of his order as under:-

‘’10.3 The Assessing Officer’s conclusions in treating the said amount received by the appellant as business income is not acceptable as the appellant has not shown the land situated at Kolapakkam as business asset whereas it was shown as capital asset. Therefore, the ITA No.1836/Mds/2014. :- 5 -: gains arising out of transfer of the capital asset will be capital gain only. Assessing Officer has emphasized that the appellant’s intention is to covert the said lands into smaller residential units, thereby this act of appellant was categorized by the Assessing Officer as business activity. In this regard, it is to be mentioned here tht even though the appellant intended to develop the above said land into smaller residential units the appellant could not translate the same into reality as the said land was acquired by the Airports Authority of India. Assessing Officer’s conclusion would have been cored had the same not been taken over by the Airports Authority of India’’.

The ld. Commissioner of Income Tax (Appeals) based on the findings of the Assessing Officer and the ld. Commissioner of Income Tax (Appeals) order in Managing Director case is of the opinion that the ld. Assessing Officer is not justified in treating the compensation as business income and having agreed to the decision of the Appellate Authority, the ld. Commissioner of Income Tax (Appeals) decided the consideration be treated as capital gains and the assessee is eligible for cost inflation indexation benefit u/s.48(2) of the Act on acquisition cost and cost of improvement and computed tabular calculation in order and directed the Assessing Officer to allow the claim after verifying the values adopted by the assessee and working and allowed the appeal for statistical purpose. Aggrieved by the Commissioner of Income Tax (Appeals) order, the Revenue assailed an appeal before Tribunal.

ITA No.1836/Mds/2014. :- 6 -:

Before us, the ld. Departmental Representative has 5. submitted that assessee has disclosed the land as fixed asset and expenditure on improvement in the Schedule of current asset. The main activities of the assessee being in real estate business as per Memorandum of Articles. The assessee satisfied activities as adventure in nature of trade and were the land takes the characteristic of stock-in-trade. The treatment of land as capital asset is without any basis except the ld. Commissioner of Income Tax (Appeals) relied on the decision of Managing Director whose land is adjacent to assessee company land was compulsorily acquired by Airport Authority and same was treated as capital asset and pleaded to set aside the order of Commissioner of Income Tax (Appeals) and allow the grounds.

2(14) of the Act. Further, under the provisions of Sec. 45(5) of the Act in cases of compulsory acquisition under the law or by Central

ITA No.1836/Mds/2014. :- 7 -:

Government, Income has to be treated under capital gains. The ld. Authorised Representative argued that no doubt the Village Panchayat has given permission for layout in the year 2007, but before development of lands as per layout the Airport Authorities have acquired the land and supported his arguments with judicial decisions and financial statements and prayed for dismissing of Revenue appeal.

We heard the rival submissions, perused the material on 7. record and judicial decisions. The ld. Departmental Representative only contention being that land owned by assessee at Kolapakkam Village cannot be treated as capital asset, as the assessee company is in real estate business and activities are adventure in the nature of trade. The assessee company obtained permission for layout which could not be completed as the land was acquired for Airport expansion. The ld. Authorised Representative drew our attention to the financial statements of the assessee for assessment year 2004-05 and Schedule 4 of the Balance sheet as on 31.03.2004, were the assessee company has disclosed the land at Kolapakkam Village as

per provisions of Companies Act under fixed asset schedule and development and leveling expenditure as work in progress schedule of current asset, loan and advances and carried forward from the

ITA No.1836/Mds/2014. :- 8 -: subsequent assessment years till assessment year 2009-2010. The disclosure of the land in the fixed asset schedule was accepted by the Revenue authorities were the accounts are Audited under provision of Companies Act, 1956 by the Statutory Auditors and Audit report was obtained. The assessee has not claimed deprecation on lands as

per the provisions of Income Tax Act and has to be compulsory disclosed under fixed assets schedule. The MOA and AOA permits the assessee to deal in immovable properties. On perusal of the Memorandum of Article and Article of Association, the assessee’s main objects are to ‘’carry on the business of buying, selling or other wide dealing in land, building, flats, tenements, shop offices and also to carry on the business of real estate property development, builders of residential, commercial complex, factories, industrial sheds’’. Further, the assessee has been in the real estate business from the assessment year 2004-05 and on perusal of the profit and loss account, the assessee was offering income from construction and real estate income from earlier years. The assessee in the assessment year 2009-2010 has shown the activities of work in progress of land being the case real estate works. We perused the loan sanction letter dated 02.11.2007 for developing residential layout reflecting sector of the assessee company is in real estate-land development.

ITA No.1836/Mds/2014. :- 9 -:

The assessee obtained development/ planning permission from Panchayat on 22.02.2007 for Kolapakkam land. The ld. Authorised Representative supported his arguments with judicial decisions that land has to be treated as capital asset not business asset. The assessee was directly or indirectly perusing its main objective of real estate at different places. Prime Facie, the intention of the assessee on perusal of the financial statements and evidence and the activities are real estate business and Hoteling business further Kolapakkam land is not a sole transaction. Considering the apparent facts and the commercial character of the land supported with assessee’s intention to develop residential plots and the ld. Commissioner of Income Tax (Appeals) has relied wholly on the decision of Commissioner of Income Tax (Appeals) order of the Managing Director being individual assessee. Whereas the assessee company Books of accounts are Audited under provisions of Companies Act and main objective in the nature of real estate works, the land cannot take the characteristic of capital asset, considering the work in progress and accounting disclosures. Therefore, we are of the opinion that objects and intention of the assessee company are the real estate business and the compensation received from Government of India on compulsory acquisition of land has to be treated as Business Income and we set

ITA No.1836/Mds/2014. :- 10 -: aside the order of Commissioner of Income Tax (Appeals) and allow the Revenue ground.

In the result, the appeal of the Revenue is allowed. 8.

Order pronounced on Tuesday, the 31st day of May, 2016, at Chennai.