2015 (5) TMI 728 - HC - Income Tax

Bombay High Court Affirms Capital Gains Treatment for Property Transaction

Commissioner of Income Tax, Central-IV Versus M/s. Ruby Mills Ltd.

The High Court of Bombay upheld the Tribunal's decision that gains from a tripartite transaction involving immovable property should be treated as capital ... Transaction in the nature of adventure - Computation of capital gain - amount received pursuant to the tripartite agreement - Tribunal termed that the amount received pursuant to the tripartite agreement is assessable to tax under the head 'Capital Gains' only - Held that:- The Tribunal concluded that having regard to the tests, it is clear that a solitary or single transaction may be termed as adventure in the nature of trade even though the assessee, in a normal course, is not engaged in such business. But there is no formula and which can be applied generally. Ordinarily an isolated transaction cannot be the sole criterion to test as to whether it is in the nature of trade or sale of investment. A holistic and overall view of the transaction has to be taken. Upon taking that and finding that the plot was allotted but could not be utilized by manufacturer of cotton and yarn that the subsequent developments took place. It is only in the year 2005 and for the first time the assignment of leasehold interest took place. It was not a sale or transfer of property by the assessee for a profit but since use could not be made, that initially a conversion permission was sought but even thereafter a utilization of the property for the assessee's purpose did not come through. It is in these circumstances that the assignment with the consent of CIDCO has taken place. Therefore, the Tribunal termed that the amount received pursuant to the tripartite agreement is assessable to tax under the head 'Capital Gains' only. The reasons assigned in para 11 of the order under challenge and particularly that the revenue did not set up a case that the assessee was engaged in such activity in respect of any other piece of land or property that the single or isolated transaction was not termed as an adventure in the nature of trade. To our mind, such conclusion arrived at and consistent with the factual data does not raise any substantial questions of law. Tribunal's view as above, is not perverse or vitiated by any error of law apparent on the face of the record. - Decided against revenue. Issues:1. Whether gains derived from a tripartite transaction involving immovable property constitute capital gains or an adventure in the nature of trade.Analysis:The High Court of Bombay heard an appeal against the Income Tax Appellate Tribunal's order regarding gains derived from a transaction involving immovable property. The appellant argued that the gains should be considered an adventure in the nature of trade rather than capital gains. The Tribunal had reversed the Assessing Officer and Commissioner's decision, relying on a Supreme Court judgment. The appellant contended that the gains arose due to steps taken by the assessee to assign leasehold interest and convert land use, indicating a trade nature. However, the Court found that the Tribunal's decision was based on a holistic view of the transaction and the specific circumstances. The Court agreed with the Tribunal that the transaction should be treated as capital gains, as it was not a sale for profit but a result of the inability to utilize the property for its intended purpose. The Court concluded that the Tribunal's decision was reasonable and not legally flawed, dismissing the appeal.The Court examined the details of the transaction, where the assessee was allotted land for a corporate office but later sought permission to convert it into a residential-cum-commercial complex. The Board of Directors decided to transfer the leasehold rights to a buyer for a specific amount. The Tribunal applied tests laid down by the Supreme Court to determine if the transaction constituted an adventure in the nature of trade. It considered the history of the land use, the inability to utilize it for the intended purpose, and the eventual assignment with CIDCO's consent. The Court agreed with the Tribunal's assessment that the transaction should be treated as capital gains, given the unique circumstances and the absence of evidence showing a pattern of similar transactions by the assessee. The Court found the Tribunal's reasoning sound and in line with the facts presented, leading to the dismissal of the appeal.In conclusion, the High Court of Bombay upheld the Tribunal's decision that gains derived from the tripartite transaction involving immovable property should be treated as capital gains rather than an adventure in the nature of trade. The Court found the Tribunal's analysis to be comprehensive, considering the specific facts and circumstances of the case. The Court determined that the transaction did not exhibit characteristics of a trade activity but rather arose due to the inability to utilize the property for its intended purpose. Therefore, the appeal was dismissed, emphasizing that the Tribunal's decision was reasonable and legally sound based on the presented evidence and applicable legal principles.