2013 (11) TMI 375 - AT - Income Tax

Tribunal: Development rights as stock-in-trade, additional income as business income

The Tribunal upheld the CIT(A)'s decisions on both issues: 1. The transfer of development rights was treated as stock-in-trade, not invoking Section 50C. ... Valuation u/s 50C - sale of plots - Investment in purchase and sale of plots by a builder who is indulged in selling buildings is ancillary and incidental to his business activity - assessee has treated the land as stock in trade - Held that:- Stock in trade has been excluded from the definition of capital asset. According to the Webster's New International Dictionary, the 'stock-in-trade' is 'a. The goods kept for sale by a shopkeeper. b. The fittings and appliances of a workman.' In other words, the stock-in-trade includes all such chattels as are required for the purposes of being sold or let to hire on a person's trade. According to Stroud's judicial dictionary, 4th Edition, Volume 5 page 2623 'stock-in-trade comprises all such chattels as are required for the purposes of being sold, or let to hire on a person's trade. In Additional Commissioner of Income-tax Vs. Puttu Coal Pvt. Ltd., (1982 (1) TMI 24 - BOMBAY High Court), the assessee was money lender, who purchased a ship in satisfaction of his major portion of outstanding loan. The ship was considered as stock in trade of the assessee's money lending business - The appeal is dismissed by holding that on the facts of the present case, the Tribunal has rightly held that the provisions of section 50C are not applicable with respect of sale of land as sale of land was not capital asset - Decided against Revenue. Income from other sources or Business income - Search u/s 132(4) - Held that:- cash was found from the residential and business premises of the assessee. The assessee in his statement recorded u/s.132(4) has accepted the same as unaccounted business income and offered the same for taxation along with unexplained investment in Icon Tower. The declaration made u/s.132(4) for investment in Icon Tower was accepted without assigning any specific reason but the same was not accepted selectively for the cash found. Further, the declaration for taxability was accepted but the source of the cash found was not accepted. It has been held in a number of judicial decisions that statement recorded during the course of search u/s.132(4) has to be considered and accepted as a whole if the Assessing Officer wants to use it as an evidence. The Assessing Officer cannot be allowed to blow hot and cold simultaneously. The revenue could not be permitted to use that part of the statement which was beneficial to it and reject the other part of the statement which was detrimental to it. When the assessee is undisputedly engaged in the business of real estate, land dealings, running of restaurants and bakeries etc. in individual capacity as well as through partnership firm for the last so many years, therefore, the cash found from residence as well as business premises would belong to such activities. Considering the totality of the facts of the case and in view of the detailed reasoning given by the Ld. CIT(A) while allowing the claim of the assessee that the money found during the search and declared by the assessee as additional income has to be assessed under the head 'business and profession' and not under the head 'income from other sources' - Decided against Revenue. Issues Involved:1. Applicability of Section 50C to the transfer of development rights.2. Classification of additional income declared during the search as 'business income' or 'income from other sources'.Issue-wise Detailed Analysis:1. Applicability of Section 50C to the Transfer of Development Rights:The primary issue was whether the transfer of development rights by the assessee to a joint venture should be treated as a transfer of a capital asset under Section 45(3) of the Income Tax Act, thereby invoking Section 50C, or whether it should be treated as business income.Facts and Arguments:- The assessee, engaged in real estate and other businesses, transferred development rights to a joint venture.- The Assessing Officer (AO) observed that the market value of the property for stamp duty was higher than the book value and applied Section 50C, treating the transfer as a capital asset.- The assessee argued that the development rights were stock-in-trade and not a capital asset, thus Section 50C should not apply.CIT(A) Decision:- The CIT(A) held that the development rights were shown as stock-in-trade in the balance sheet under 'current assets'.- It was noted that the assessee had consistently treated similar assets as stock-in-trade in previous years and paid wealth tax accordingly.- The CIT(A) concluded that the development rights were not capital assets as defined under Section 2(14) and therefore, Sections 45(3) and 50C were not applicable.Tribunal's Conclusion:- The Tribunal upheld the CIT(A)'s decision, agreeing that the development rights were stock-in-trade and not capital assets.- It cited the Allahabad High Court's decision in CIT vs. Kan Construction Colonizers Pvt. Ltd., which stated that Section 50C does not apply to stock-in-trade.2. Classification of Additional Income Declared During the Search:The second issue was whether the additional income declared by the assessee during a search should be treated as 'business income' or 'income from other sources'.Facts and Arguments:- During the search, cash amounting to Rs. 1.20 crores was found, which the assessee declared as additional income.- The AO treated this as 'income from other sources' based on the assessee's statement that it was not business cash.- The assessee contended that the cash was from business activities and should be treated as business income.CIT(A) Decision:- The CIT(A) noted that the assessee had consistently stated that the cash was from business activities.- It was observed that the AO selectively used parts of the assessee's statement to classify the income as 'income from other sources'.- The CIT(A) held that the entire statement should be considered, and since the assessee was engaged in real estate and other businesses, the cash should be treated as business income.Tribunal's Conclusion:- The Tribunal upheld the CIT(A)'s decision, agreeing that the additional income should be treated as business income.- It emphasized that the statement recorded during the search should be considered as a whole and not selectively.- The Tribunal found no infirmity in the CIT(A)'s reasoning that the cash was related to the assessee's business activities.Conclusion:Both appeals filed by the revenue were dismissed. The Tribunal upheld the CIT(A)'s decisions on both issues:1. The transfer of development rights was treated as stock-in-trade, not invoking Section 50C.2. The additional income declared during the search was classified as business income, not 'income from other sources'.