2019 (11) TMI 1304 - HC - Income Tax

Court rules sale of gala as capital gains, not business income. Valuation and expenses issues dismissed.

The court dismissed the appeal, ruling that the income from the sale of the gala should be treated as capital gains, not business income, as ownership had ... Correct head of income - income from the sale of gala (real estate / land and construction of structure) - capital gains u/s 45 or business income u/s 28 - Tribunal confirming the order of CIT(A) assessing the income as capital gains - HELD THAT:- All the three authorities have assessed the evidence on record. The foundation of the Appellant’s assertion that the income is to be treated as a business income is that the agreement in question was only in respect of development rights and ownership did not pass on the the Appellant. Commissioner (Appeals) and the Tribunal, after examining the terms of the agreement in question dated 1 November 2007, rendered a finding that the Assessee had purchased the land along with right and whatever be the nomenclature, it was an outright purchase. There was no argument made in the alternative by the Appellant before the Tribunal as sought to be urged before us. It has been the consistent stand of the Appellant that the agreement in question is only a development agreement. In the circumstances, the issue being a question of fact, question (a) does not give rise to any substantial question of law. Valuation of the gala to the valuation officer as per section 50C(2) - HELD THAT:- As regards this question, we do not find that any submission made before the Tribunal in this regard. There is no submission nor any ground taken in the appeal memo before the Tribunal that the Assessing Officer should have referred the valuation of gala to the Valuation Officer as per section 50C (2) of the Act. Allowable business expenses - expenses included in the cost of construction of the said gala - HELD THAT:- Commissioner (Appeals) and the Tribunal have examined the claim of the Appellant towards business expenditure by examining the material produced by the Appellant. The Commissioner (Appeals), after examining the evidence, has rendered a finding that in the absence of confirmation from the parties, the contention of the Appellant was not acceptable. This finding has been confirmed by the Tribunal. This is a possible view which can be taken on the assessment of evidence. We do not find any perversity in the view taken by the Commissioner (Appeals) and the Tribunal in coming to this conclusion. This finding of fact will equally apply to a claim for cost of improvement of capital asset under section 48 of the Act. No substantial question of law. Issues:1. Characterization of income from the sale of gala as capital gains or business income.2. Referral of valuation of gala to the Valuation Officer.3. Allowability of expenses in the cost of construction of gala as business expenses.Analysis:Issue 1:The Appellant declared income from the sale of a gala as business income, but the Assessing Officer treated it as short-term capital gains. The disagreement centered on whether the income should be categorized as business income or capital gains. The Appellant argued that the intention behind the transaction should determine the classification. However, the authorities, including the Tribunal, found that the agreement was an outright purchase of land and rights, not just a development agreement as claimed by the Appellant. The courts concluded that the income should be treated as capital gains, as ownership had passed to the Appellant. This factual determination led to the dismissal of the argument that the income should be considered business income.Issue 2:The Appellant raised a query on whether the valuation of the gala should have been referred to the Valuation Officer under section 50C(2) of the Act. However, the court noted that no such submission was made before the Tribunal. As there was no argument presented on this issue during the proceedings, the court could not consider it for review.Issue 3:Regarding the claim for expenses included in the cost of construction of the gala, the Appellant contended that these expenses should be allowed as business expenditure. The Appellant argued that the genuineness of the expenses was established, and disallowing them solely due to lack of confirmation from some material suppliers was unjust. However, both the Commissioner (Appeals) and the Tribunal examined the evidence and found that without confirmation from all relevant parties, the claim could not be accepted. The courts upheld this decision, stating that the lack of confirmation was a valid reason for disallowance. This finding was deemed reasonable, and it was concluded that no substantial legal question arose from this issue.In conclusion, the court dismissed the appeal, stating that no substantial question of law was involved in the case. The issues raised by the Appellant were thoroughly examined, and the decisions of the lower authorities were upheld based on the assessment of evidence and legal provisions.