M/S INDUS VALLEY HOUSING, CHENNAI V. ACIT NON CORPORATE CIRCLE 7 (1), CHENNAI

CO 61/CHNY/2018

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3941 (ITAT-CHENNAI)
• Duration Of Justice: 28 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 24-07-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 26-06-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T BANUSEKAR
• Assessee Lawyers: SAILENDRA MAMIDIPCIT
• Keywords: Capital asset; Business income
• Section: 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI . . . , ! . '#'$ , % !& ' [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./ I.T.A. NO. 621/CHNY/2018 & C.O.NO.61/CHNY/2018 / ASSESSMENT YEAR : 2010-2011. THE ASSISTANT COMMISSIONER OF INCOME TAX, NON CORPORATE CIRCLE 7(1) CHENNAI-34. VS. M/S. INDUS VALLEY HOUSING, A-68, ANNA NAGAR EAST, CHENNAI 600 102. [PAN AACFI 2508P] ( () / APPELLANT) (RESPONDENT/ CROSS OBJECTOR) / APPELLANT BY : SHRI. SAILENDRA MAMIDI, PCIT. /RESPONDENT BY : SHRI. T. BANUSEKAR, C.A. /DATE OF HEARING : 24-07-2018 ! /DATE OF PRONOUNCEMENT : 24-07-2018 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THESE ARE APPEAL AND CROSS OBJECTION OF THE REVEN UE AND ASSESSEE RESPECTIVELY DIRECTED AGAINST AN ORDER DA TED 15.12.2017 OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-7, CHENNAI . GROUNDS TAKEN ITA NO.621 & C.O.61/2018 :- 2 -: BY THE REVENUE ARE THREE IN NUMBERS OF WHICH GROUND S 1 & 3 ARE GENERAL, NEEDING NO SPECIFIC ADJUDICATION. 2. GROUND NO.2 IS REPRODUCED HEREUNDER:- 2.1 THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN RELYING THE DECISION OF THE ITAT, CHENNAI IN THE ASSESSEES OWN CASE FOR THE AYS 2009-10 & 2011-12 BY HOLDING THAT THE ASSESSEES REAL ESTATE DEALING ARE TO BE TREATED AS CAPITAL GAINS WHICH WAS NOT ACCEPTED BY THE DEPARTMENT AND FURTHER APPEAL IS PENDING BEFORE HON BLE HIGH COURT OF CHENNAI 2.2 THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THE FACT THAT THE MANNER IN USAGE OF LAND, THE DOMINANT INTENTION OF THE ASSESSEE FIRM, AND EVEN THE FORMATION OF THE ASSESSEE FIRM ITSELF- ALL LEAD US TO THE INESCAPABLE CONCLUSION THAT THE LAND WAS ALW AYS A STOCK-IN-TRADE IN ASSESSEE FIRMS HANDS, HENCE, IT SHOULD BE TAXED UNDER THE HEAD INCOME FROM BUSINESS . 3. LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTE D THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD FOLLOWED A N ORDER DATED 17.06.2016 OF THIS TRIBUNAL IN ITA NOS.230 &231/MDS /2016, IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2009-2010 AND 2010-2011 WHERE A SIMILAR ISSUE WAS CONSIDERED. AS PER THE L D. AUTHORISED REPRESENTATIVE, QUESTION RAISED IN THIS YEAR ALSO W AS ON THE NATURE OF THE INCOME ARISING FROM SALE OF THE LAND AT NOLAMBU R HELD BY THE ASSESSEE. SUBMISSION OF THE LD. AUTHORISED REPRESEN TATIVE WAS THAT IN THE PRECEDING AS WELL AS SUBSEQUENT ASSESSMENT YEA RS WHERE ALSO LD. ITA NO.621 & C.O.61/2018 :- 3 -: ASSESSING OFFICER TREATED THE GAINS AS INCOME UNDER THE HEAD BUSINESS INCOME, THIS TRIBUNAL HELD IT TO BE AS SESSABLE UNDER THE HEAD CAPITAL GAINS. AS PER THE LD. AUTHORISED REPRESENTATIVE, FACT SITUATION BEING THE SAME, THE ORDER OF THE LD.CIT ( APPEALS) HAD TO BE UPHELD. 4. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT LD. COMMISSIONER OF INCOME TAX (APPE ALS) THOUGH HE FOLLOWED AN EARLIER ORDER OF THE TRIBUNAL IN ASSES SEES OWN CASE, STILL FACTS COULD SHOW THAT ASSESSEE WAS DOING A BUSINESS OF REAL ESTATE. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. LD. ASSESSING OF FICER HAD TREATED THE INCOME RETURNED BY THE ASSESSEE UNDER THE HEAD I NCOME FROM CAPITAL GAINS AS INCOME FROM BUSINESS. THE LAND AND THE FLATS THEREIN WHICH WAS SOLD AND FROM WHICH ASSESSEE DERIVED THE GAINS WAS SITUATED IN NOLAMBUR. PAYMENTS FOR PURCHASE OF THIS LAND WAS MADE BY ONE M/S. PETRO PLAST INDUSTRIES LTD IN FEBRUARY A ND MARCH 2005. THE QUESTION WHETHER INCOME ARISING FROM SALE OF THE FLATS AND UNDIVIDED SHARE IN SUCH LAND COULD BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS OR CAPITAL GAINS HAD COME UP BEFORE THIS T RIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2009-2010 AND 2011-2012. ITA NO.621 & C.O.61/2018 :- 4 -: WHAT WAS HELD BY THIS TRIBUNAL AT PARA 7 TO 10 OF I TS ORDER DATED 17.06.2016 IS REPRODUCED HEREUNDER:- 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EI THER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE QUESTION ARISES CONSIDERATION IS WHETHER THE IN VESTMENT MADE BY THE ASSESSEE IN THE LAND AT NOLAMBUR IS A S TOCK-IN- TRADE OR CAPITAL ASSET? IF THE LAND IS STOCK-IN-TR ADE, THEN NATURALLY THE PROFIT ON SALE HAS TO BE CONSIDERED A S INCOME FROM BUSINESS. IF IT IS CONSIDERED AS CAPITAL ASSE T, THEN THE PROFIT HAS TO BE TREATED AS CAPITAL GAIN. TO ASCER TAIN WHETHER THE LAND IN QUESTION IS CAPITAL ASSET OR ST OCK-IN- TRADE, THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF THE PROPERTY HAS TO BE ASCERTAINED. IT IS NOT I N DISPUTE THAT THE ASSESSEE-PARTNERSHIP FIRM WAS FORMED ON 05.04.2005 BY MEANS OF PARTNERSHIP DEED. HOWEVER, THE PAYMENT FOR PURCHASE OF LAND AT NOLAMBUR WAS MADE B Y M/S PETRO PLAST INDUSTRIES LTD. IN FEBRUARY-MARCH, 2005. THEREFORE, IT IS OBVIOUS THAT BEFORE FORMATION OF P ARTNERSHIP FIRM, THE PARTNERS, NAMELY, THE MEMBERS OF THE AGAR WAL FAMILY DECIDED TO PURCHASE THE PROPERTY BY MAKING PAYMENT. THEREFORE, THE INTENTION OF THE PARTNERS OF THE FIRM HAS TO BE ASCERTAINED AS TO WHETHER THEY INTENDED T O TRADE IN REAL ESTATE OR THEY INTENDED TO KEEP THE LAND AS INVESTMENT. EVEN THOUGH THE ENTRIES IN THE BOOKS O F ACCOUNT WOULD NOT DETERMINE THE NATURE OF THE LAND HELD BY THE ASSESSEE, HOWEVER, THE ENTRIES IN THE BOOKS ARE CIRCUMSTANTIAL FACTORS TO BE TAKEN INTO CONSIDERATI ON FOR THE PURPOSE OF ASCERTAINING THE INTENTION OF THE PARTIE S. THE FACT THAT THE PAYMENT WAS MADE BEFORE THE FORMATION OF PARTNERSHIP FIRM AND THE PARTNERSHIP FIRM WAS FORME D ONLY ON 05.04.2005, CONSEQUENTLY THE LAND WAS REGISTERED ON 23.05.2005 IN THE NAME OF THE ASSESSEE-FIRM AND THE LAND WAS TREATED AS FIXED ASSET IN THE BOOKS OF THE FIRM , WOULD INDICATE THAT AT THE TIME OF PURCHASE OF THE PROPER TY, THE INTENTION OF THE PARTNERS WAS TO TREAT THE SAME AS CAPITAL ASSET. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ENTIRE CIRCUMSTANCES AND THE MATERIAL FACTS NEED TO BE TAKEN INTO CONSIDERATION TO ASCERTAIN THE INTENTION OF THE PARTNERS AT THE TIME OF PURCHASE OF THE PROPERTY. AFTER CONSIDERING ALL THE FACTS AVAILABLE ON RECORD, INCL UDING THE PAYMENT MADE BEFORE THE DATE OF FORMATION OF PARTNE RSHIP FIRM, THIS TRIBUNAL IS OF THE CONSIDERED OPINION TH AT THE LAND IN QUESTION WAS INTENDED TO BE TREATED AS CAPITAL A SSET BY THE PARTNERSHIP FIRM. ITA NO.621 & C.O.61/2018 :- 5 -: 8. THE NEXT QUESTION ARISES FOR CONSIDERATION IS WH EN THE PARTNERSHIP FIRM ITSELF WAS FORMED FOR PURCHASE AND SALE OF LAND, CAN THE SUBJECT LAND BE HELD AS CAPITAL AS SET? THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT A COMPAN Y / PARTNERSHIP FIRM CAN HAVE TWO PORTFOLIOS, ONE IS ST OCK-IN- TRADE AND ANOTHER IS INVESTMENT. EVEN A PARTNERSHI P FIRM, WHICH IS ENGAGED IN PURCHASE AND SELLING OF LAND, C AN RETAIN PART OF LAND AS STOCK-IN-TRADE AND PART OF LAND AS INVESTMENT. WHEN THE INTENTION OF THE ASSESSEE IS TO TREAT THE LAND AS INVESTMENT, MERELY BECAUSE THE SAME WAS USED FOR DEVELOPMENT BY ENTERING INTO A MEMORANDUM OF UNDERSTANDING WITHIN A SHORT SPAN OF TIME, THAT CAN NOT BE A REASON TO TREAT THE SUBJECT LAND AS STOCK-IN-TRADE. THE ASSESSEE IN ORDER TO GENERATE FUNDS FOR BUSINESS MI GHT HAVE ENTERED INTO MEMORANDUM OF UNDERSTANDING WITH ANOTHER TRADER WHO IS DEALING IN REAL ESTATE. IF T HE INTENTION OF THE ASSESSEE IS TO DEAL IN REAL ESTATE, THE ASSE SSEE WOULD HAVE DEVELOPED THE LAND BY ITSELF. IN THE CA SE BEFORE US, THE ASSESSEE HAS NOT DEALT WITH THE LAND BY ITS ELF. THE LAND WAS IN FACT HANDED OVER TO OTHER TRADER IN REA L ESTATE FOR DEVELOPMENT. THE MATTER WOULD BE ENTIRELY DIFF ERENT IF THE ASSESSEE CONSTRUCTED THE MULTISTORY BUILDING AN D DEVELOPED THE LAND. SINCE THE LAND WAS SIMPLY HAND ED OVER TO OTHER TRADER FOR DEVELOPMENT, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE LAND IN QUESTION HAS TO BE TREATED AS CAPITAL ASSET. 9. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THE ADMINISTRATIVE COMMISSIONER, A COPY OF WHICH IS AVA ILABLE AT PAGE 3 OF THE PAPER-BOOK. MRS. SAROJ AGARWAL, O NE OF THE CO-OWNERS OF THE LAND IN WHICH THE PROJECT WAS DEVE LOPED BY M/S DELUXE APARTMENTS & BUILDING COMPANY, TREATE D THE TRANSACTION AS BUSINESS TRANSACTION AND CLAIMED THE PROFIT AS BUSINESS INCOME. THE ADMINISTRATIVE COMMISSIONE R BY EXERCISING HIS POWER UNDER SECTION 263 OF THE INCOM E-TAX ACT, 1961 (IN SHORT 'THE ACT') FOUND THAT THE ASSES SEE NEVER ENGAGED IN THE BUSINESS AND THE LAND WAS SOLD WITHO UT EVEN IMPROVEMENT. NO SUPPLEMENTARY WORK WAS MADE B Y THE ASSESSEE OTHER THAN ENTERING INTO MEMORANDUM OF UNDERSTANDING FOR DEVELOPMENT WITH SOME BUILDER TO WHICH THE PRESENT HAS ENTERED INTO. THE ADMINISTRATIVE COMMISSIONER IN THE CASE OF MRS. SAROJ AGARWAL FOUN D THAT PART OF THE LAND WAS CAPITAL ASSET. ACCORDINGLY, H E DIRECTED THE ASSESSING OFFICER TO TREAT THE GAIN AS CAPITAL GAIN. THIS ORDER OF THE ADMINISTRATIVE COMMISSIONER, PASSED UN DER SECTION 263 OF THE ACT ATTAINED FINALITY. IN THIS CASE ALSO, EVEN THOUGH THE PARTNERSHIP FIRM WAS FORMED 05.04.2 005 AND THE LAND WAS REGISTERED IN THE NAME OF THE FIRM ON ITA NO.621 & C.O.61/2018 :- 6 -: 23.05.2005, THE ASSESSEE HAS NOT COMMENCED ANY BUSINESS ACTIVITIES; NO OTHER LAND APPEARS TO HAVE BEEN PURCHASED; NO SUPPLEMENTARY WORK WAS CARRIED ON BY THE ASSESSEE-FIRM IN THE SUBJECT LAND; NO ORGANIZED EFF ORT WAS MADE OTHER THAN SIMPLY ENTERING INTO MEMORANDUM OF UNDERSTANDING WITH THE BUILDER. AS ALL RISKS AND R IGHTS RELATING TO CONSTRUCTION OF BUILDING WERE VESTED WI TH THE BUILDER AND THE ASSESSEE HAS NOT TAKEN ANY RISK IN THE CONSTRUCTION AND DEVELOPMENT OF FLATS, THIS TRIBUNA L IS OF THE CONSIDERED OPINION THAT THE PROFIT ON SALE OF THE L AND IN THE HANDS OF THE ASSESSEE-FIRM CANNOT BE TREATED DIFFER ENTLY THAN AS IT WAS TREATED IN THE CASE OF MRS. SAROJ AG ARWAL. 10. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS OF THE C ONSIDERED OPINION THAT THE PROFIT ON SALE OF LAND HAS TO BE N ECESSARILY ASSESSED AS CAPITAL GAIN AND NOT AS BUSINESS INCOME . ACCORDINGLY, THE ORDERS OF THE AUTHORITIES BELOW AR E SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO TREA T THE PROFIT ON SALE OF LAND AS CAPITAL GAIN. THE FACT SITUATION BEING VERY SAME FOR THE IMPUGNE D ASSESSMENT YEAR ALSO, WE ARE OF THE OPINION THAT LD. COMMISSIONER O F INCOME TAX (APPEALS) WAS JUSTIFIED IN FOLLOWING THE ORDER REPR ODUCED (SUPRA). WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 6. ASSESSEE IN ITS CROSS OBJECTION ASSAILS THE REOPENI NG DONE FOR THE IMPUGNED ASSESSMENT YEAR. SINCE WE ARE DISMISS ING THE APPEAL OF THE REVENUE, THE CROSS OBJECTIONS HAVE BECOME INFR UCTUOUS. 7. IN THE RESULT, BOTH APPEAL OF THE REVENUE AS WELL A S CROSS ITA NO.621 & C.O.61/2018 :- 7 -: OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON TUESDAY, THE 24 TH DAY OF JULY, 2018, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! . '#'$ ) (ABRAHAM P. GEORGE) % / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED:24TH JULY, 2018 KV &' ()*) / COPY TO: 1 . / APPELLANT 3. +,' / CIT(A) 5. )-. / / DR 2. / RESPONDENT 4. + / CIT 6. .01 / GF