TREATMENT OF REAL ESTATE BUSINESS

[SUDHAKAR SIVARAMAN]

Dear professionals,

My client is a partnership firm doing real estate business by way of buying land and converting in to plots and selling the plots. My doubt is whether income from this activity is Income from Business or under capital gain. Pls suggest

[Padmanathan KV]

The query itself suggests that the activity of firm is business of buying and selling land. There must be a recital in the partnership deed to this effect. Therefore, it appears that the income would be taxable under the head profit or gains from business/profession.

For academic interest, also check COMMISSIONER OF INCOME-TAX VERSUS (1) SOHAN KHAN (2) MOHAN KHAN 2008 (4) TMI 142 - RAJASTHAN HIGH COURT:

G. VENKATASWAMI NAIDU AND COMPANY VERSUS COMMISSIONER OF INCOME-TAX 1958 (11) TMI 5 - SUPREME COURT

 

AI Summary

Real estate business income: sale of developed plots by a partnership treated as business income when activity is trading. Income from a partnership firm that buys land, converts it into plots and sells those plots is taxable as profit or gains from business/profession where the activity constitutes trading; the partnership deed should record the carrying on of real estate business to support this classification.