2008 (4) TMI 142 - HC - Income Tax

High Court rules land sale as capital asset transfer, not trade. Regularity and intention key.

The High Court upheld the findings of the Commissioner of Income Tax and Tribunal, determining that the transaction involving the sale of plots was a ... AO holding transaction of disposal of large extent of land under site plan, in nature of trade - nothing to show, that the land was purchased with intention to sale it at a profit, or with requisite intention, to bring it within the parameters of “stock in trade” - not shown, that assessee is a regular dealer in real estate – transaction was of capital asset only and not a transaction of any stock-in-trade - therefore, it is liable to be taxed only, as the capital gain – revenue appeal dismissed Issues Involved:1. Nature of the transaction: Whether it is an adventure in the nature of trade or a transaction of transfer of a capital asset.2. Taxability: Whether the income from the sale of plots should be taxed as business income or capital gains.Issue-Wise Detailed Analysis:1. Nature of the Transaction:The core issue revolves around whether the sale of plots by the assessee constitutes an adventure in the nature of trade or merely a transaction involving the transfer of a capital asset. The facts reveal that the assessee purchased a large chunk of land in 1970, which was later found to be under the cloud of ceiling laws. After this cloud was cleared, the assessee decided to sell the land by dividing it into plots to fetch the best price.The Assessing Officer (AO) concluded that the transaction was in the nature of trade, citing several factors: the land was surrounded by lands owned by relatives, the sale was planned together in schemes (Nagnechi Scheme and Vallabh Garden), and the intention was to gain profit. The AO emphasized that the land was never used for personal purposes and was always intended for profit.However, the Commissioner of Income Tax (CIT) and the Tribunal disagreed with the AO's conclusion. They found that the assessee was not a regular dealer in land and had no intention to deal in property as a business. The land was purchased as an investment in a capital asset, and there was no development or improvement made before the sale. The CIT and Tribunal also noted that in the earlier assessment year 1993-94, similar transactions were taxed as capital gains.2. Taxability:The CIT and Tribunal determined that the income from the sale of plots should be taxed as capital gains and not as business income. They relied on the fact that the assessee had purchased the land in 1970 and had not engaged in any further purchase or sale of land, indicating no intention to carry on a business in real estate. The Tribunal also highlighted that in the case of other co-owners, the income from the sale of similar plots was taxed as capital gains.The Revenue's appeal argued that the transaction should be treated as an adventure in the nature of trade, referencing the Supreme Court judgment in G. Venkataswami Naidu & Co. Vs. Commissioner of Income-Tax. However, the High Court noted that the character of isolated transactions must be determined based on the total effect of all relevant factors and circumstances, and there is no universal test to apply.Conclusion:The High Court upheld the findings of the CIT and Tribunal, concluding that the transaction was not an adventure in the nature of trade but a transfer of a capital asset. The court emphasized that the regularity of transactions and the intention behind the purchase are significant considerations. Since the land was purchased in 1970 and sold in piecemeal after the cloud of ceiling laws was cleared, it remained a disposal of a capital asset and not stock in trade. Therefore, the income from the sale was liable to be taxed as capital gains.The appeals were dismissed, and the question was answered against the Revenue and in favor of the assessee.