TaxTMI 
TaxTMI 
2019 (1) TMI 1330
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....ing the year under consideration assessee had sold a land measuring 133 Kanal, 14 Maria which is about 17 acres to Mapsko Builders(P) Ltd., New Delhi for Rs. 128 crores. The said land was purchased in the year April, 2005. 3. The Ld. AO required the assessee as to why the income shown under the long term capital gain should not be treated as business income as done by the AO in the assessment year 2009-10, as assessee company is in the business of real estate. In response, the assessee submitted that it had acquired certain lands in different batches in Gurgaon, which were held as fixed assets and these lands was not acquired as stock in trade. This fact was duly disclosed in its balance sheet as fixed assets. Further, the land was held by the assessee for a considerable period of time. Assessee also relied upon various judgments wherein it was held that if assessee has maintained two portfolios, viz., investment portfolio, then it has to be treated as capital asset; and second as a trading portfolio, comprising of stockin- trade then same has to be treated as trading asset. The Ld. AO rejected the assessee's contention and observed that Assessee Company had deposited the fee fo....
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.... 2008-09 there was more purchase of land and part of the land purchased was sold. There was loss on sale of land of Rs. 23,33,205/- in the, AY 2008-09. In the AY 2009-10 there was further purchase and sale of land. Profit on sale of land of Rs. 55,91,82,736/- was shown in the AY 2009-10. The appellant company has also entered into the sale agreement for land with developer in the year under consideration and has received advance against this. The appellant has entered into a development agreement with M/s. Vatika for the development of its land where M/s. Vatika Ltd. is the developer and the appellant company's only benefit is, "That upon 'the approval of lay-out plant of the colony, only the owner will be free to sell any developed area falling under Owner's allocation without any interference on the part of the developer." The role of the appellant company is to provide land and all other work related to project is to be done by the Developer only. 5.3. From the above, it is evident that there were continuous transactions of purchase and sales of land. The purchase and sale of land in the case of appellant is not an isolated transaction and the manner of dealing ....
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....d also perused the relevant finding given in the impugned orders. It is an undisputed fact that assessee all throughout has been showing land as an investment right from the assessment year 2006-07 till this year. The land in question was purchased in assessment year 2006-07 and was shown as fixed assets. In that year assessment was made u/s 143(3), wherein such treatment of the land in question was accepted as business assets. Thereafter, part of this land was sold in assessment year 2008- 09 wherein the assessee has declared long term capital gain and in which has not been disturbed by the department. Here in this case both AO and Ld. CIT (A) have referred to the similar treatment done by the AO in the assessment year 2009-10. However, in the that year the Tribunal had dealt and discussed this issue in detail and took note of judgments relied upon the AO and Ld. CIT (A). The relevant observation and the finding of the Tribunal in this regard reads as under:- "18. The main issue which arises for consideration is as to whether the land held by the assessee was being held as a capital asset or not. There is no dispute to the fact that this land was purchased in the year 200....
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.... assessee during the year. Assessee is permitted to have two portfolios, one as investment and another as stock-in trade. Even for the sake of an argument it is assumed that by entering into an agreement in respect of another land with a developer, that land has become a part of the business, and then this will not change the nature and character of this land held as capital asset which has been sold and on which capital gain has been earned. In fact as rightly contended by the Learned AR that section 45(2) of the Income Tax Act do permit an assessee to convert an asset held as stock in trade of a business carried on by him. It may be relevant to refer to the provisions of Section 45(2) which reads as under.- "45(2) Notwithstanding anything contained in sub-section (I), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section '48, the fair market value of the asset on the date of ....
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....pany is to carry on the business of construction or residential house, hotels, vendors, etc. We are of the view that this will not mean that the income arising on sale of capital assets will become business income. The main object may be to carry on the business of real estate business but that will not debar such a company from holding an asset as capital asset. If the company holds the land as, a capital income arising on sale of such capital asset will be chargeable to tax under the head capital gain and not as business income in view of the specific mandate of section 45(1) of the Income Tax Act. In this regard it may be relevant to refer to section 45(1) which reads as under:- "45.(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H, be chargeable to income-tax under 'the head "Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place. " 24. As per the above provision, gain arising from transfet of a capital asset is to be taxed under the head capital gain. Further sec....
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.... and carried it over as closing stock. The fact that assessee did not carry on any activity on the land nor any development, division or sub-division and also did not incur any expenditure also supports the contention of the assessee. The fact that assessee has declared capital loss in the preceding year also cannot be ignored. No doubt principles of res judicata are not applicable to income tax proceedings but the intent and nature of the asset held can be judged from these facts. The nature of asset held as capital asset in the preceding year and accepted as such will not change to stock in trade in the next year merely because the gain arising on sale of stock in trade will be chargeable at the rate of 30 per cent as against 20 per cent chargeable on capital gain. The learned DR could not controvert the fact that in the preceding year such loss has been assessed as capital loss. 26. The law even permits person carrying on the business in particular nature or trade such person to make investment and hold similar type of asset as capital asset. In the case of CIT vs. Gopal Purohit 336 ITR 287 (Born) an issue has arisen whereby the assessee was trading in shares a....
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....imilarly the Honourable Delhi High Court in the case of CIT vs. PNB Finance and Industries Ltd. 46 DTR 345(Del) has held as under:- "Assessee was not involved in the business of buying and selling of shares after 1st April 1997. It had purchased the shares in question on 27th Jan.'1996 and held the same for seven years before selling them. Though the object incorporated in its memorandum of association states that the assessee can deal in shares, there was no such regular activity. A taxpayer can have two portfolios i.e., an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock-in-trade which are to be treated as trading assets. Shares in question were held by the assessee as investment. Therefore) sale thereof gave rise to capital gains and not business income" 30. In the present case the appellant company has acquired the land in the year 2005-06 as a capital asset. It has accounted for the same as capital asset. It has continued to hold the same as a capital asset. It has not converted that capital asset. It has not converted that capital asset to stock-in-trade. There ar....
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....ssee with Vatika Ltd. would not change the nature and character of the land since in terms of the agreement it was the developer who would undertake the work of development upon being paid a fee by the Assessee. It was also observed that although the main object of the Assessee may be to carry on the business of real estate, that would not prevent the Assessee from holding the land in question as a capital asset. Therefore the income generated through the sale of land would be chargeable to tax under the head capital gains and not as business income. 5. Having heard Mr. Dileep Shivpuri, learned Senior Standing Counsel for the Revenue and having examined the orders of the AO, CIT(A) and the impugned order of the ITAT, the Court is not persuaded to agree with the Revenue's submission that the impugned order of the ITAT is perverse. 6. In the facts and circumstances of the present case, no substantial question of law arises for consideration. The appeal is dismissed." 10. Thus, when same issue on similar set of facts and reasoning has been decided in favour of the assessee by the Tribunal which has also been upheld by the Hon'ble Delhi High Court, then this is....