Real-estate development transactions treated as business income where township planning and developer arrangements showed commercial activity.

Planned real-estate development, approval of the township layout, and transfer of land through a developer agreement to a concern connected with the assessee showed a commercial adventure rather than mere disposal of a capital asset. The Tribunal treated the profits from sale of the immovable properties as business income, not capital gains, and accepted the Revenue's characterization. It also held that the genuineness of the claimed development expenditure required fresh factual verification from bills and vouchers, so that limited issue was remitted to the Assessing Officer for examination of actual allowable expenditure if duly proved.

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Issues: (i) Whether the income from sale of immovable properties was assessable as capital gains or as business income. (ii) Whether the limited issue of genuineness of expenditure claimed on development was required to be examined afresh by the Assessing Officer.

Issue (i): Whether the income from sale of immovable properties was assessable as capital gains or as business income.

Analysis: The properties were part of a planned township arrangement, the approved map had changed the status of the land to "at disposal", and the lands were thereafter transferred through a developer agreement to a real estate company in which the assessee and his brothers were directors. The surrounding facts, including repeated and co-developed transactions, indicated a commercial adventure rather than mere realisation of a capital asset. On this material, the character of the transaction was held to be business activity and the profit was to be assessed under the head business income.

Conclusion: The issue was decided in favour of the Revenue and against the assessee.

Issue (ii): Whether the limited issue of genuineness of expenditure claimed on development was required to be examined afresh by the Assessing Officer.

Analysis: While upholding the business nature of the transaction, the Tribunal found that the actual expenditure incurred for development and conversion of the properties required factual verification from bills and vouchers. The matter was therefore sent back only for examining the genuineness of the expenditure claim and for allowing the actual expenditure, if duly proved.

Conclusion: The issue was restored to the Assessing Officer for limited verification.

Final Conclusion: The Revenue's challenge succeeded on the principal characterization issue, and the assessment was sustained as business income, while the question of actual development expenditure was left open for fresh verification at the assessment stage.

Ratio Decidendi: Where the surrounding circumstances show a planned real-estate development, approval of the township layout, and transfer of the property through a developer agreement to a business concern, the profit on transfer is taxable as business income and not as capital gains, subject to factual verification of actual allowable expenditure where necessary.

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