2006 (1) TMI 166 - AT - Income Tax

Tribunal Confirms Property Sale Gains as Capital Gains, Dismisses Revenue Appeals on Benami Transactions & Expenses.

The Tribunal dismissed all appeals filed by the Revenue, affirming the CIT(A)'s decisions across various issues. The Tribunal upheld that the gains from ... Capital Gains - residential house - purchase and sale of agricultural lands, plots - deduction u/s 48 - Sale of plots out of the land inherited - transaction was an adventure in the nature of trade or not - HELD THAT:- As regards the residential house at Amritsar, the contention of the assessee that the same was purchased for the purpose of his own residence and later the same was sold after a gap of 10 years because of terrorist activities at Amritsar, the same appears to be correct. The Revenue has not placed any material on record that after the purchase of this house, the assessee took some further steps for use of this property for commercial purposes and not for residence. Coupled with this is a fact of holding of this property for a longer period of 10 years which would show that the property was. purchased not with an intention to earn profit rather for investment. Therefore, the CIT(A) has rightly treated the resultant surplus as liable to capital gains because the same represented investment only. As regards the shops, it is not in doubt that the shops were given on rent and such rental income was disclosed in the returns as income from property in the earlier assessment years. This shows that the intention of the assessee was to earn rental income. This intention is further strengthened from the fact that the shops were held for a period of 10 years. In the case of G. Venkataswami Naidu & Co. vs. CIT [1958 (11) TMI 5 - SUPREME COURT], the Hon'ble Supreme Court has held that if a person invested money in land intending to hold it, enjoys its income for some time, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from adventure in the nature of trade. Even if the assessee was extensively dealing in purchase and sale of land yet it does not mean that it could not hold certain properties for the purpose of investment. Thus, we do not find any fault with the order of the CIT(A). The same is upheld and this ground of appeal is rejected. Sale of plots out of the land inherited by the assessee through the Will of late Sh. Kashmiri Lal - It is obvious that Late Sh. Kashmiri Lal had executed the Will on 15th Sept., 1981 and the same was registered with sub-Registrar, Ludhiana on 16th Jan., 1989. Late Sh. Kashmiri Lal expired in the year 1985. There is no evidence or material placed on record to show that the land owned by Sh. Kashmiri Lal was held as Benamidar of the assessee. Therefore, in the absence of any documentary evidence, we agree with the findings of the CIT(A) that the genuineness of the Will could not be doubted. In the case of CIT vs. Smt. Sushila Devi Jain [2002 (11) TMI 86 - PUNJAB AND HARYANA HIGH COURT], held that for the purpose of deciding whether a particular transaction was an adventure in the nature of trade or not, one has to see the intention of the assessee at the time of purchase of the land. Since the land was not purchased by the assessee, it could not be said that the intention was right from the beginning to earn profit. In the present case also, the land was not purchased by the assessee himself and he inherited by virtue of Will. Therefore, it could not be said that the intention of the assessee was right at the time of purchase to earn profit from the same. Subsequently, when the assessee became owner, the resultant surplus on the date when he converted into stock-in-trade by taking the fair market value was shown as capital gain and further surplus was shown as business profit. Such course of action was in conformity with the provisions of the Act. Thus, we do not find any justification to interfere with the orders of the CIT(A) and the same are upheld and respective grounds of appeals of the Revenue are dismissed. In the result, all the appeals filed by the Revenue are dismissed. Issues Involved:1. Capital gains on the sale of residential house and shops.2. Addition on account of income declared in the hands of assessee's minor sons.3. Addition on account of profit from the sale of land developed as a colony.4. Addition on account of unexplained marriage expenses.5. Addition on account of profit on the sale of plots in a residential colony.6. Addition on account of the sale of plots held in the names of assessee's mother and father-in-law.7. Addition on account of the sale of a booth belonging to assessee's mother.8. Addition based on income disclosed by the assessee on behalf of his two sons in the statement recorded under Section 132(4) of the IT Act.9. Addition on account of sale of plots out of the land inherited by the assessee through a Will.Detailed Analysis:1. Capital Gains on the Sale of Residential House and Shops:The assessee claimed capital gains on the sale of a residential house and shops, which were held for ten years. The AO treated the surplus as business profit, arguing that the assessee was engaged in extensive transactions of purchase and sale of properties. The CIT(A) held that the properties were purchased for investment purposes, not for business, and directed the AO to compute the capital gain per the Act's provisions. The Tribunal upheld the CIT(A)'s decision, noting the long holding period and the intention to earn rental income.2. Addition on Account of Income Declared in the Hands of Assessee's Minor Sons:The AO added Rs. 60,000 to the assessee's income, treating the income shown in the names of his minor sons as Benami. The CIT(A) deleted the addition but sustained the investment amount of Rs. 86,900 in the names of the minor sons. The Tribunal upheld the CIT(A)'s decision, referring to its earlier order, which held that no income accrued or earned by the minors could be added to the assessee's income.3. Addition on Account of Profit from the Sale of Land Developed as a Colony:The AO made an addition by treating the assessee's mother's share in the AOP as Benami. The CIT(A) deleted the addition, relying on earlier orders. The Tribunal upheld the CIT(A)'s decision, referring to its previous order, which confirmed that the profit from the sale of land developed as a colony was taxable in the hands of the AOP.4. Addition on Account of Unexplained Marriage Expenses:The AO estimated the marriage expenses of the assessee's daughter at Rs. 1,25,000 and made an addition. The CIT(A) upheld the estimate but reduced the addition to Rs. 62,500, considering that half of the expenses were borne by the assessee's mother. The Tribunal upheld the CIT(A)'s decision, noting that the mother had an independent source of income.5. Addition on Account of Profit on the Sale of Plots in a Residential Colony:The AO treated the sale proceeds of plots in Shastri Nagar, Ludhiana, as the assessee's income, treating his wife and mother as Benami. The CIT(A) deleted the addition, relying on earlier orders. The Tribunal upheld the CIT(A)'s decision, referring to its previous order, which confirmed that the plots were sold before 1980, and the sale deeds were executed later due to the Ceiling Act.6. Addition on Account of Sale of Plots Held in the Names of Assessee's Mother and Father-in-law:The AO treated the sale proceeds of plots held in the names of the assessee's mother and father-in-law as the assessee's income. The CIT(A) deleted the addition, holding that the investments were made by the mother and father-in-law. The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to prove the Benami nature of the transactions.7. Addition on Account of Sale of a Booth Belonging to Assessee's Mother:The AO treated the sale proceeds of a commercial property in the name of the assessee's mother as the assessee's income. The CIT(A) deleted the addition, holding that the mother was not a Benamidar and was liable to be assessed separately. The Tribunal upheld the CIT(A)'s decision, referring to its earlier order.8. Addition Based on Income Disclosed by the Assessee on Behalf of His Two Sons in the Statement Recorded Under Section 132(4) of the IT Act:The AO made additions based on the assessee's statement under Section 132(4), disclosing income on behalf of his sons. The CIT(A) reduced the additions, holding that the investments made in the names of the minor sons during their minority were liable to tax in the hands of the assessee. The Tribunal upheld the CIT(A)'s decision, noting the lack of evidence to support the disclosed income.9. Addition on Account of Sale of Plots Out of the Land Inherited by the Assessee Through a Will:The AO treated the sale proceeds of plots inherited by the assessee through a Will as business profits. The CIT(A) held that the land was inherited and converted into stock-in-trade, and the resultant gain was shown as capital gain per Section 45(2) of the Act. The Tribunal upheld the CIT(A)'s decision, noting that the genuineness of the Will could not be doubted, and the land was not purchased with the intention to earn profit.Conclusion:The Tribunal dismissed all the appeals filed by the Revenue, upholding the CIT(A)'s orders on all issues. The Tribunal's decisions were based on the facts, evidence, and material on record, and the principles laid down in earlier judgments and orders.