2019 (1) TMI 861 - HC - Income Tax

Property sale profits classified as capital gains over business income by High Court in absence of profit motive.

The High Court upheld the Tribunal's decision that profits from the sale of apartments were capital gains, not business income. The Court found the ... Assessment u/s 153A - Capital gain of sale of the land - assessee had purchased the property with an intention of reselling the same for profit - Held that:- The assessee was an employee with Syndicate Bank. He purchased a land measuring 2800 sq.ft., in the year 2001. He put up a construction of 12 apartments, out of which 8 apartments were sold and 4 apartments were retained for himself. The profits made out of sale of 8 apartments were offered as ‘short-term capital gains’ and the profits made on sale of the land was offered as ‘longterm capital gains’, after claiming exemption to an extent of ₹ 22,50,171/-. The Tribunal on considering the material on record, was of the view that since the assessee sold the flats for profit in the subsequent period, the said transaction does not tantamount to adventure in the nature of trade. When the assessee invests money in a property with an intention to hold it or enjoys the property and sells it for profit thereafter, then it is a case of capital appreciation and the profit derived there from is taxable under the head ‘capital gains’. Judgment of the Hon'ble Supreme Court in the case of G.VENKATASWAMY NAIDU VS. CO. VS. COMMISSIONER OF INCOME TAX [1958 (11) TMI 5 - SUPREME COURT] was followed. No substantial question of law Issues:1. Classification of income as capital gains or business income under the Income Tax Act.2. Validity of order under Section-263 of the Income Tax Act.3. Appeal against Tribunal's decision.Analysis:1. The case involved the classification of income as capital gains or business income under the Income Tax Act. The assessee had initially declared a total income under Section-153C of the Income Tax Act, which was subsequently assessed at a higher amount by treating income from the business of construction and sale of apartments as capital gains. An order under Section-263 of the Income Tax Act was passed to rectify this classification, bringing a significant amount under the head of profits and gains of business or profession.2. The validity of the order under Section-263 of the Income Tax Act was challenged by the assessee, leading to an appeal before the Tribunal. The Tribunal, after considering the material on record, concluded that the transaction did not amount to an adventure in the nature of trade. It was observed that when an assessee invests in a property with the intention to hold or enjoy it and later sells it for profit, it constitutes capital appreciation, and the resulting profit is taxable under the head of capital gains. The Tribunal's decision was based on the judgment of the Hon'ble Supreme Court in a relevant case.3. The appeal against the Tribunal's decision was filed by the Revenue, contending that the order was erroneous. The Revenue argued that the test to determine whether income should be classified as capital gains or arising from business or profession depends on the intention behind the purchase of the property. However, the High Court, after examining the facts and circumstances of the case, found no substantial question of law that warranted further consideration. The Court noted that there was no material to support the contention that the property was purchased with the intention of resale for profit, thus dismissing the appeal.In conclusion, the High Court dismissed the appeal, upholding the Tribunal's decision that the profits derived from the sale of the apartments were to be treated as capital gains rather than business income, based on the intention behind the initial purchase of the property and subsequent transactions.