2020 (7) TMI 373 - HC - Income Tax

Determination of income from property: land held as investment classified as long term capital gain, not business income

Determination of income from property concerned classification of receipts as business income or long term capital gain. The assessee acquired land, ... Correct head of income - Determination of income from the property - business income or long term capital gain - substantial question of law - HELD THAT:- Admittedly, the properties were acquired by the assessee in the year 1992 and assessee had entered into an agreement for sale on 13-5-2002. Thereafter in the accounts up to the year 2004, the property was mentioned as an asset. Assessee has not conducted any other activity other than holding the land as investment. It is also pertinent to mention here that the revenue has not come up with any documentary evidence to suggest that assessee had earned income from the transaction to the land in question during the year 2003-04. The Tribunal thereafter on the basis of meticulous appreciation of evidence on record has recorded a finding that assessee has rightly disclosed the income from the property as long term capital gains instead of business income. The aforesaid finding by no stretch of imagination can be believed to either perverse and arbitrary. - Decided against revenue Issues:1. Determination of income as business income or capital gains for the assessment year 2003-04.Analysis:The case involved appeals under section 260A of the Income-tax Act, 1961, filed by the Revenue regarding the treatment of income as business income or capital gains for the assessment year 2003-04. The assessee had purchased lands in 1992 and entered into agreements for sale in subsequent years, receiving partial payments as sale consideration. The assessing officer treated the income as business income, which was challenged by the assessee. The Tribunal held that the transactions were capital in nature, relying on the fact that the properties were never transferred to the buyer and the assessee retained possession. The Tribunal also considered the absence of documentary evidence supporting income generation from the land transactions in the relevant year.The Revenue contended that the intention of the assessee to conduct business with the properties should have been considered, especially since the properties were transferred to the buyer on the agreement execution date. The Revenue cited relevant case law to support its argument. On the other hand, the assessee argued that the nature of income was a question of fact, and the Tribunal's findings were based on a thorough evaluation of the evidence. The assessee also highlighted the Revenue's acceptance of the income as capital gains in a subsequent assessment year, supported by a relevant court decision.The High Court emphasized that its scrutiny was limited to substantial questions of law and could not interfere with factual findings. Referring to established legal principles, the Court outlined criteria for determining the nature of income from property transactions. The Court noted the long holding period of the properties as investments and the absence of evidence indicating business activity related to the land transactions in the disputed year. Based on these considerations, the Court upheld the Tribunal's decision to treat the income as long term capital gains and dismissed the Revenue's appeals.In conclusion, the High Court ruled in favor of the assessee, finding no merit in the Revenue's appeals. The judgment highlighted the importance of factual analysis and adherence to legal principles in determining the character of income from property transactions.