AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (1) TMI 758
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave heard the detailed submissions of Mr.T.Ravikumar, learned Senior Standing Counsel for the appellant/revenue and Mr.N.V.Balaji, learned counsel for the assessee/respondent. 3. Mr.Balaji would submit that there is no question of law, much less a substantial question of law that arises for determination in this matter. Mr.Ravikumar, would assail the impugned order of the Tribunal taking us through the trajectory that the matter has taken over the years. 4. A return of Income had been filed by the assessee in terms of the provisions of the Income Tax Act, 1961 (in short 'Act'), wherein a sum of Rs.9,87,12,654/- had been offered to tax as capital gain. An intimation had been issued under Section 143(1) of the Act, but the Assessing Authority was of the view that the amount ought to have been assessed as business income and hence reopened the assessment by issuance of notice under Section 148 of the Act. 5. The assessee was engaged in the activity of manufacturing and trading, IATA approved cargo agent and customs house agent, and was not carrying on the business of purchase and sale of properties. Hence, it contested the reassessment adopting the stand that any income earne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecided in accordance with the provisions of law. The Hon'ble Supreme Court in the case of Karanpura Development Company Ltd. V CIT, 44 ITR 362(SC) held that the substance of the transaction should prevail over the form. Further, the Supreme Court in CIT v Vikram Cotton Mills, 169 ITR 597(SC) held that whether income is from business or from investments depends on various factors including conduct of the parties. It is seen from the details filed by the assessee for the A.Y 2003-04 and 2004-05 that it has substantial free hold land. It has been selling land regularly which is evident from the schedule of fixed assets submitted for the year ended on 31.3.03, 31.3.04 & 31.3.05. Thus, the activity of the appellant is real, substantial, regular and organized. Hence, it would constitute business income for the purpose of the Act. Reference may be given to the decision of the Hon'ble Supreme Court in the case of CIT vs Distributors (Baroda) Pvt. Ltd. 83 ITR 377 (SC) for the above proposition. In view of the above factual position and judicial authorities, I am of the considered opinion that the profit on sale of land is to be assessed under the head "Profits and gains of business". Accord....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... parameters to be applied in determining whether consideration from sale of property should be assessed under the head capital gains or business. 1. Badridas Daga v. Commissioner of Income-tax [1958] 34 ITR 10 (SC) 2. Karanpura Development Co. Ltd. v. Commissioner of Income Tax [1962] 44 ITR 362 (SC) 3. Commissioner of Income Tax v. Mogul Line Ltd. [1962] 46 ITR 590 (Bom) 4. Commissioner of Income-tax v. Distributors (Baroda) (P.) Ltd. [1972] 83 ITR 377 (SC) 5. Commissioner of Income Tax v. Vikram Cotton Mills Ltd. [1988] 169 ITR 597 (SC) 14. In the present case, the amalgamated company, Shaw Wallace, was primarily engaged in the business of property development. We had called for the financials of the assessee for AY 2001-02 to 2005-06 and the same have been furnished. Drawing attention to the same, Mr.Balaji would submit that the assessee maintains two portfolios, one comprising properties under the head 'investments' and the second, under the head 'freehold assets'. The subject property falls in the latter. 15. He places reliance on Circular No.4 of 2007 issued by the Central Board of Direct Taxes (CBDT/Board) to carve out a dis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y an order passed by the Company Division of this Court, with Shaw Wallace. The effective date of amalgamation was 30.09.2001. The financials for FY 2000-01, i.e. year ending 31.03.2001 (pre-amalgamation) contain a statement of fixed assets as follows, that includes freehold assets: Schedules to Consolidated Accounts 4. FIXED ASSETS Description of Assets GROSS BLOCK DEPRECIATION NET BLOCK At Cost/Revaluation as at 1st April 2001 Additions Deletions As at 31st March 2002 As at 1st April 2001 Additions For the Year Deletions As at 31st March 2002 As at 31st March 2002 As at 31st March 2001 Goodwill 233 233 0 0 233 233 Patents & Designs 47 47 47 47 0 0 Freehold Land (a) 150,964 4,584 155,548 0 0 155,548 150,964 Buildings (b) 37,704 1,768 26,344 13,128 8,500 225 6,964 1,761 11,367 29,204 Plant & Machinery (c) 52,146 51,623 523 33,400 156 3....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pies of the orders of the Hon'ble High Courts of Madras and Calcutta confirming the petitions are filed with the respective Registrar of Companies at Tamilnadu, Chennai and West Bengal at Kolkata Based on the sanctioned scheme of amalgamation the following assets and liabilities of SWPL as at the appointed date and as reduced by the provisions considered necessary, Income and expenditure for the period from the appointed date till the year end have been included in the accounts of GWL as at 31st March 2002 Particulars Assets Liabilities Fixed Asset 50 Investment 1 Inventories 9,788 Sundry Debtors 8,195 Cash and bank balances 9,805 Loans and advances 1,86,926 Accumulated depreciation 9 Unsecured Loans 597 Current liabilities & provisions 1,05,430 . . . . . . . xvi) Quantitative particulars of trading items Particulars Purchase/ Acquisition Sales Closing stock Land for development 7,500-1 No - 7,500-1 No Apartments . . . . . . . 2,288-9 Nos ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sp; At cost or net realisable value: Land for development Apartments 7,500 7,500 408 1,991 -------------- -------------- ........... 7,908 9,491 22. There is no category of assets under the head 'investments' in the financials for year ending 31.3.2001, prior to amalgamation. This category of assets is found only in the financials for year ending 31.03.2002 onwards and according to the assessee, only the assets that devolved upon it post amalgamation with Shaw Wallace are classified as 'investments'. 23. The land for development has thus been identified as a separate block of assets distinct and different from the freehold land, which is the original asset base of the assessee comprising fixed assets purchased over the years. 24. We see no necessity to integrate the two, as such integration would be contrary to the treatment that has been accorded by the assessee, both in the accounts as well as by conduct. The Department has not raised any suspicion in regard to the accounts of the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Trade and Shares held as Investments - Tests for such a Distinction CIRCULAR NO. 4/2007, DATED 15-6-2007 The Income Tax Act, 1961 makes a distinction between a "capital asset" and a "trading asset". 2. Capital asset is defined in Section 2(14) of the Act. Long-term capital assets and gains are dealt with under Section 2(29A) and Section 2(29B). Short-term capital assets and gains are dealt with under Section 2(42A) and Section 2(42B). 3. Trading asset is dealt with under Section 28 of the Act. 4. The Central Board of Direct Taxes (CBDT) through Instruction No.1827 dated August 31, 1989 had brought to the notice of the assessing officers that there is a distinction between shares held as investment (capital asset) and shares held as stock-in-trade (trading asset). In the light of a number of judicial decisions pronounced after the issue of the above instructions, it is proposed to update the above instructions for the information of assessees as well as for guidance of the assessing officers. ............ 10. CBDT also wishes to emphasise that it is possible for a tax payer to have two portfolios, i.e., an investment portfo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....trade, and which only implies absence of any pre-existing business. We find it as neither, but a case of plain sale by the assessee of its capital asset/s. However, before we dilate on our reasons leading to the said conclusion, we may clarify that there is no dispute or divergence of opinion as regards the law in the matter, which stands amply elucidated by the higher courts of law, to some of which reference has been made by the Revenue. The matter is purely factual, as held by the hon'ble Karnataka high court in the case of CIT vs. B.Narasimha Reddy (supra), as under: "To, determine whether a transaction is an adventure in the nature of trade, the court in each case has to determine the nature of the transaction, its volume, frequency, continuity and regularity and there is hardly any abstract rule, principle or test for application. No individual or single fact can be taken as decisive in finding out the correct character of the transaction. The cumulative effect of all the facts and circumstance has to be taken into consideration for the said purpose." 4.2 If there is a systematic activity, the inference of 'business' and, consequently, of the inc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld as an urban land (and not as an industrial land); the same being of no consequence as the income would in either case be assessable only as capital gains. 4.3 Secondly, that the assessee is disposing its land on a continuous, regular basis, as appears to be the case, with the assessee's accounts itself exhibiting sale transactions for the preceding and subsequent periods, is again, of little relevance. Would the nature of the transactions stand to alter if the assessee were to dispose of its assets at one go? The land(s) are lying unproductive with it for years, if not decades, and it capitalizes on the opportunity, which its favourable location, as for a housing site, or on account of a boom in the real estate market, presented itself. The only 'activity', if it could be so called, that the assessee can be said to have undertaken for the purpose, was of being aware of its business environment and practicing the virtue of patience. The land user would have to be changed or perhaps may have already been so by the (prospective) buyers (so as to eliminate any risk on that score), but then that is only to enable the user of the asset for the purpose for which it....