2018 (9) TMI 149 - AT - Income Tax

Tribunal Rules Land Sale Profits as Business Income, Confirms Disallowances

Smt. Anita Singh Versus ACIT-2 (1), Indore

The Tribunal upheld the Assessing Officer's decision to treat profits from the sale of land as business income rather than capital gains. The Tribunal ... Profits earned by the assessee from sale of land - busniss profit or capital gain - nature of land sold - Held that:- Given factual matrix it is crystal clear that it was a well thought business project carried out by the assessee jointly with 17 other persons by way of taking the services of Developer M/s. ADPL and the intention of entering into an adventure of business was very clear from the very first day of purchase of impugned land and completed on selling the residential plots - Both the lower authorities have rightly appreciated the facts and concluded that the profits from sale of land situated at Village Jhalaria, Tehsil Indore is a business profit and cannot be taxed as Short Term Capital Gain or Long Term Capital Gain. In the result these common issue raised for both the assessment years is decided against the assessee. Issues Involved:1. Treatment of profit earned from the sale of land as business income or capital gain.2. Disallowance under Section 14A of the Income Tax Act.Issue 1: Treatment of Profit Earned from Sale of LandThe core issue in these appeals is whether the profits earned by the assessee from the sale of land should be assessed as business income or capital gain. The assessee, primarily engaged in the liquor business, also invested in agricultural land and other properties. The land in question was purchased in different financial years and later sold with the assistance of a developer, M/s. Aarone Developers Pvt. Ltd. (ADPL). The assessee declared the profits from these sales as short-term and long-term capital gains, but the Assessing Officer (A.O.) treated them as business profits, arguing that the assessee's actions constituted an adventure in the nature of trade.The A.O. observed that the assessee had purchased agricultural land with the intent to fetch better prices and sold it through ADPL, which acted on behalf of the assessee by arranging sales and charging development fees. The A.O. concluded that the assessee's activities were akin to trading in land, thus treating the profits as business income.The assessee contended that the land was held as a capital asset and sold for better realization, with no intention of trading. The assessee argued that the land was shown under fixed assets, and the purpose of involving ADPL was to fetch better prices and find buyers. The assessee cited various judicial precedents to support the claim that the profits should be treated as capital gains.The Tribunal, after examining the facts and circumstances, upheld the A.O.'s view, emphasizing that the cumulative effect of all factors pointed towards a business venture. The Tribunal noted that the assessee, along with other landowners, had initiated the development of a colony, 'Country Walk,' with ADPL's assistance. The project involved substantial development and sale of plots, indicating a well-thought business project. The Tribunal concluded that the profits from the sale of land should be taxed as business income and not as capital gains.Issue 2: Disallowance under Section 14AThe A.O. made disallowances under Section 14A of the Income Tax Act for the assessment years 2012-13 and 2013-14, amounting to Rs. 13,00,145/- and Rs. 8,49,934/- respectively. The assessee appealed against these disallowances before the Commissioner of Income Tax (Appeals) [CIT(A)], who provided relief only concerning the disallowances under Section 14A.ConclusionThe Tribunal dismissed the appeals of the assessee for both assessment years, upholding the treatment of profits from the sale of land as business income and confirming the disallowances under Section 14A. The judgment emphasized the importance of considering the cumulative effect of all factors and the nature of activities undertaken by the assessee in determining the nature of income.