2014 (12) TMI 851 - HC - Income Tax

Court affirms capital gain status for property sale income. Lack of business activities key.

Commissioner of Income Tax - 18 Versus M/s. Preeti Enterprises

The court dismissed the appeal, affirming the Tribunal's decision that the income of Rs. 5,71,03,487 from the sale of a property should be treated as Long ... Treatment of income – LTCG or business income – Property acquired for dealing in real estate investment - Held that:- Both the Commissioner and the Tribunal have rightly found that the reliance placed by the Revenue in the case of Rajputana Textile Agencies Ltd. v/s. CIT [1961 (4) TMI 7 - SUPREME Court] was misplaced - partnership firm of husband and wife undertook only one project and completed it only after more than eight years - They did not have any business -They realized that developing the property cannot be their business - The period of nine years coupled with the fact that barring one project nothing more was undertaken, leave alone, completed by the firm, that the property was acquired for dealing in real estate investment – thus, the order of the Tribunal is upheld and as such no substantial question of law arsies for consideration - Decided against revenue. Issues:1. Whether the income of Rs. 5,71,03,487 should be treated as Long Term Capital Gain or business income.Analysis:The appeal by the Revenue challenges the Tribunal's order regarding the treatment of income for the Assessment Year 2007-08. The main contention is whether the income of Rs. 5,71,03,487 should be considered as Long Term Capital Gain or business income. The Assessing Officer observed that the Assessee sold a property and classified the profit as Long Term Capital Gain. However, it was argued that the partnership firm of husband and wife was formed for business as a Builder & Developer, indicating the property was not solely an investment. The Assessee had applied for clearances and permissions to develop the property, suggesting a business intention. The Commissioner and Tribunal disagreed with the Revenue's reliance on a previous judgment, emphasizing that the Assessee did not engage in business activities for a significant period, indicating an investment motive. The Tribunal's decision was deemed legally sound, and the appeal was dismissed.In conclusion, the judgment revolves around determining the nature of income derived from the sale of a property - whether it should be classified as Long Term Capital Gain or business income. The Tribunal's decision, supported by the Commissioner, highlighted the lack of substantial business activities by the Assessee over an extended period, leading to the property being considered an investment. The court dismissed the appeal, stating that no substantial question of law was raised, and the Tribunal's findings were not erroneous.