ACIT, CHENNAI V. Shri S.Vasanthakumar, CHENNAI

ITA 1491/CHNY/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64140 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 25-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 09-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKRAMADITYA IRS
• Assessee Lawyers: N DEVANATHAN
• Keywords: Capital asset; Business income; Salary income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A.NO.1491/MDS/2010) ASSESSMENT YEAR : 2007-08 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-V, CHENNAI 34. VS. SRI S.VASANTHAKUMAR, FLAT NO.301, 170/3, L.B.ROAD, BRINDAVAN, SRINIVASAMURTHY AVENUE, ADYAR, CHENNAI 600 020. PAN AAEPV 1555 F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIKRAMADITYA, IRS, JCIT RESPONDENT BY : SHRI N. DEVANATHAN, ADVOC ATE DATE OF HEARING : 25 TH JULY, 2012 DATE OF PRONOUNCEMENT : 08 TH AUGUST, 2012 O R D E R PER DR. O.K.NARAYANAN, VICE PRESIDENT THIS APPEAL FILED BY THE REVENUE RELATES TO THE A SSESSMENT YEAR 2007-08. THE APPEAL IS DIRECTED AGAINST THE O RDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-VIII AT CHENNA I DATED ITA 1491/10 :- 2 -: 24.6.2010. THE APPEAL ARISES OUT OF THE ASSESSMENT COMPLETED UNDER SEC.143(3) OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE, IN THIS CASE IS A CIVIL ENGINEER A ND ARCHITECT, WHO EARNS INCOME FROM CIVIL CONSTRUCTION WORK UNDER THE NAME AND STYLE M/S. SESHADRIES, CONSULTANCY INCOME FRO M M/S. SREVAS, SALARY INCOME AS MANAGING DIRECTOR FROM M/S . SREVAS ENGINEERS PVT. LTD. IN THE IMPUGNED ASSESSMENT YEA R THE ASSESSEE ALSO EARNED INCOME FROM LONG-TERM CAPITAL GAINS ON SALE OF HIS PROPERTY AT GOWRIWAKKAM. 3. THE ASSESSEE HAD PURCHASED THE LAND MEASURING 14 ACRES ON 25.11.1998 AND SOLD IT IN THE PREVIOUS YEAR RELE VANT TO THE ASSESSMENT YEAR UNDER APPEAL. THE ASSESSEE TREATED THE SURPLUS AS LONG-TERM CAPITAL GAINS AND CLAIMED BENE FIT OF DEDUCTION UNDER SEC.54F. 4. THE ASSESSING OFFICER TREATED THE LONG-TERM CAPI TAL GAINS DECLARED BY THE ASSESSEE AS BUSINESS INCOME ON THE GROUND THAT THE SALE OF GOWRIWAKKAM PROPERTY MADE BY THE ASSESS EE WAS IN THE NATURE OF BUSINESS CARRIED ON BY HIM. ACCORDI NG TO THE ASSESSING OFFICER, THE ASSESSEE HAD PURCHASED THE L AND ON ITA 1491/10 :- 3 -: 25.11.1998 AND PERSUADED HIS FRIENDS AND WELL WISHE RS TO PURCHASE ADJACENT PLOTS OF LAND AND AS THE LAND WAS BARREN, NO INCOME WAS ARISING THEREFROM, THAT THE LAND SITUATE D VERY CLOSE TO VGP HOUSING PROJECT AND ENGINEERING COLLEGE AND THE ASSESSEE WAS CARRYING ON THE ACTIVITY OF DEVELOPING THE LAND INTO MARKETABLE PLOTS AFTER OBTAINING CMDA APPROVAL AND THAT ALL TH ESE ACTIVITIES ULTIMATELY ENABLED HIM TO SALE THE PROPERTY FOR A F ANTASTIC PRICE. WHEN ALL THESE ACTIVITIES READ TOGETHER, IT ACCOUNT ED ADVENTURE IN NATURE OF TRADE AND THEREFORE, THE SURPLUS ON SALE OF LAND MUST BE TREATED AS BUSINESS INCOME OF THE ASSESSEE. 5. IN FIRST APPEAL, THE ASSESSEE ARGUED BEFORE THE COMMISSIONER OF INCOME-TAX(APPEALS) THAT THE DOMINA NT INTENTION OF THE ASSESSEE TO PURCHASE THE LAND WAS TO OBTAIN BETTER REALIZATION OF CAPITAL ASSETS AND IN FACT, HE HAD N OT CARRIED OUT ANY BUSINESS OR TRADE IN PURCHASE AND SALE OF LAND AND, THEREFORE, THERE IS NO BASIS IN BRANDING THE SALE OF HIS LAND AS A BUSINESS TRANSACTION. THE COMMISSIONER OF INCOME-TAX(APPEAL S) FOUND THAT THE ASSESSEE HAD INCURRED HUGE EXPENDITURE IN IMPROVING THE QUALITY OF THE LAND AND THE ASSESSEE NEVER CLAIMED SUCH EXPENDITURE AS DEDUCTION IN COMPUTING HIS BUSINESS INCOME. THE ITA 1491/10 :- 4 -: COMMISSIONER OF INCOME-TAX(APPEALS) FURTHER OBSERVE D THAT THE PROPERTY WAS MAINLY SOLD TO CONSTRUCT HIS PERSONAL RESIDENTIAL HOUSE AND HE HAD NOT CARRIED ON ANY LAND TRANSACTIO N PREVIOUS OR SUBSEQUENT TO THE IMPUGNED TRANSACTION. THE ASSESSE E NEVER TOOK THE LAND AS A TRADING ASSET IN HIS BOOKS OF AC COUNT. THE COMMISSIONER OF INCOME-TAX(APPEALS) FURTHER HELD TH AT THE ASSESSEE HAD KEPT THE LAND OWNERSHIP FOR MORE THAN SEVEN YEARS AND NO PRUDENT BUSINESS MAN WILL KEEP SUCH ASSET ID LE WITHOUT OPTIMIZING THE TURNOVER. RELYING ON THE DECISION O F THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. KASTURI EST ATES (P.) LTD. (62 ITR 578) AND OTHER JUDGMENTS, THE COMMISSIONER OF INCOME- TAX(APPEALS) HELD THAT THE ASSESSEE WAS RIGHT IN OF FERING THE SURPLUS ON SALE AS LONG-TERM CAPITAL GAINS AND ALSO IN CLAIMING DEDUCTION UNDER SEC.54F. 6. IT IS AGAINST THE ABOVE THAT THE REVENUE HAS COM E IN APPEAL BEFORE US. 7. THE GROUND RAISED BY THE REVENUE IS THAT THE COM MISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN DIRECTING THE A SSESSING OFFICER TO TREAT THE INCOME OFFERED BY THE ASSESSEE FROM ITA 1491/10 :- 5 -: DEVELOPMENT AND SALE OF PLOTS AS INCOME FROM CAPIT AL GAINS AND NOT AS INCOME FROM BUSINESS. IT IS THE CASE OF T HE REVENUE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CIVIL C ONSTRUCTION AND ALSO IN CONSULTANCY BUSINESS AND RENDERING SERVICES FOR DEVELOPMENT OF PLOTS. IT IS ALSO THE CASE OF THE R EVENUE THAT THE ASSESSEE CARRIED OUT VARIOUS SUCH ACTIVITIES PARTIC ULARLY IN RELATION TO THE PROPERTY PURCHASED BY HIM AND SOLD THE PROPE RTY AFTER DEVELOPING, DIVIDING THE LAND INTO SMALL PLOTS AFTE R OBTAINING CMDA APPROVAL AND ALL THESE ORGANIZED ACTIVITIES SH OW THAT THE ASSESSEE HAD BEEN CARRYING ON THE BUSINESS OF PURCH ASE AND SALE OF LAND. 8. THIS APPEAL WAS EARLIER HEARD BY THE TRIBUNAL ON 25.1.2012 IN THE INCOME-TAX APPELLATE TRIBUNAL, B BENCH, CH ENNAI. THE ORDER WAS PRONOUNCED ON 30.1.2012 IN ITA NO.1491/MD S/2010, ALLOWING THE APPEAL FILED BY THE REVENUE AND SETTIN G ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS). 9. THEREAFTER, THE ASSESSEE FILED A MISCELLANEOUS P ETITION IN M.A. 45/MDS/2012 BEFORE THE TRIBUNAL, PRAYING FOR R ECTIFICATION OF MISTAKE APPARENT ON RECORDS OF THE ORDER PASSED BY THE TRIBUNAL. ITA 1491/10 :- 6 -: THE TRIBUNAL THROUGH ITS ORDER DATED 8.6.2012 ALLOW ED THE RECTIFICATION PETITION FILED BY THE ASSESSEE IN M.A . NO.45/MDS/2012. THE MISTAKE POINTED OUT BY THE ASS ESSEE WAS THAT THE TRIBUNAL HAS NOT CONSIDERED THE JUDGMENT O F THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. S. PALANICH AMY IN TAX CASE (APPEAL) NO.232 OF 2005 DATED 8.8.2011. WHILE ALLOWING THE MISCELLANEOUS PETITION AND ADMITTING THE MISTAK E APPARENT ON THE FACE OF THE ORDER, THE TRIBUNAL HELD AT PARAGRA PH 7 AS FOLLOWS IN ITS ORDER DATED 8.6.2012: 7. A COPY OF THE UNREPORTED JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T V. S. PALANICHAMY IS AVAILABLE ON RECORDS. LIKEWISE, COPY OF THE TRIBUNAL ORDER IN SMT. N. KAASIVISALAM V. A CIT (93 TTJ 537) IS ALSO AVAILABLE ON RECORDS. ON GOIN G THROUGH THE ORDER PASSED BY THE TRIBUNAL ON 30.1.20 12, WE FIND THAT THOSE CASES HAVE NOT BEEN CONSIDERED B Y THE TRIBUNAL WHILE PASSING THE ORDER. NON-CONSIDER ATION OF THE DECISION OF THE HIGH COURT, CITED AT THE TIM E OF HEARING OF APPEAL, IS A MISTAKE APPARENT FROM THE RECORDS. THEREFORE, WITHOUT GOING INTO THE MERITS OF THE CASE, WE HOLD THAT A MISTAKE IS APPARENT ON THE FAC E OF THE ORDER INASMUCH AS IN NOT CONSIDERING RELEVANT C ASE LAWS RELIED ON BY THE PARTY, AT THE TIME OF HEARING . AS THE CASE LAWS RELIED ON BY THE ASSESSEE GO TO THE R OOT ITA 1491/10 :- 7 -: OF THE ISSUE AGITATED IN THE APPEAL, THERE IS NO S COPE FOR PIECEMEAL RECTIFICATION OF ERROR REFLECTED IN T HE TRIBUNAL ORDER. THEREFORE, IT IS NECESSARY FOR US TO RECALL THE ENTIRE ORDER AND CONSIDER THE CASE AFRES H IN THE LIGHT OF THE RELEVANT CASE LAWS. HENCE, THE OR DER OF THE TRIBUNAL DATED 30.1.2012 PASSED IN ITA NO.1491/MDS/2010 IS RECALLED AND REMITTED ON THE RO LLS OF THE TRIBUNAL FOR FRESH HEARING AND DISPOSAL ON M ERITS. THE APPEAL IS POSTED FOR HEARING TO 25 TH JULY, 2012. PARTIES MAY TAKE NOTICE. 10. THE ORDER WAS THUS RECALLED AND IT IS HOW THIS MATTER CAME FOR THE SECOND TIME BEFORE US. 11. AS RIGHTLY POINTED OUT BY THE LEARNED COUNSEL A PPEARING FOR THE ASSESSEE, THE HONBLE MADRAS HIGH COURT HAS CON SIDERED EXACTLY A SIMILAR ISSUE IN THE CASE OF CIT V. S. PA LANICHAMY. THE CASE WAS CONSIDERED BY THEIR LORD-SHIPS IN TAX CASE (APPEAL) NO.232 OF 2005, IN WHICH THE JUDGMENT WAS DELIVERED ON 8.8.2011. IN THE SAID DECISION, THE HONBLE HIGH C OURT HAS HELD THAT EVEN THOUGH A TRANSACTION BY ITSELF COULD CONS TITUTE BUSINESS, YET THE MERE FACT THAT THE ASSESSEE SOLD A PORTION OF THE PROPERTY TO WRIGGLE OUT OF THE FINANCIAL HARDSHIP WOULD NOT MAKE THE ACTIVITY, AN ADVENTURE IN THE NATURE OF TRADE. IN THAT CASE, THE ITA 1491/10 :- 8 -: FINDINGS OF THE TRIBUNAL ARE THAT THE ASSESSEE NEVE R TREATED THE ASSET AS STOCK IN TRADE. THE COURT HELD THAT THERE FORE GOING BY THE FACTS FOUND THEREIN, ON THE MERE SCORE THAT THE BUS INESS INCOME WOULD BE TAXED AT A HIGHER RATE BY ITSELF WOULD NOT GIVE THE TRANSACTION OF SALE, THE CHARACTER OF A BUSINESS SO AS TO REJECT THE CLAIM OF THE ASSESSEE AND TO HOLD THAT THE PROP ERTY WAS BUSINESS ASSET, UPHOLDING THE FINDING OF THE TRIBUN AL THAT THE PROPERTY WAS HELD BY THE ASSESSEE BY WAY OF AN INV ESTMENT AND NOT AS STOCK-IN-TRADE. 12. THE ABOVE JUDGMENT OF THE HONBLE HIGH COURT WA S RENDERED SIMILAR TO THE CASE OF CIT V. KASTURI ESTA TES (P.) LTD. (62 ITR 578). IN THAT CASE, THE HONBLE HIGH COURT HAS HELD AS FOLLOWS : DEVELOPING LAND INTO BUILDING SITES WITH A VIEW TO REALISE THE BEST PRICE, WITHOUT ANYTHING MORE, IS CONSISTENT WITH REALISATION OF A CAPITAL INVESTMENT . IF A LANDOWNER DEVELOPED HIS LAND, EXPENDED MONEY ON IT, LAID ROADS, CONVERTED THE LAND INTO HOUSE SITES AND , WITH A VIEW TO GET A BETTER PRICE FOR THE LAND, EVENTUAL LY SOLD THE PLOTS FOR A CONSIDERATION YIELDING A SURPLUS, I T COULD HARDLY BE SAID THAT THE TRANSACTION IS ANYTHING MOR E ITA 1491/10 :- 9 -: THAN A REALISATION OF A CAPITAL INVESTMENT OR CONVE RSION OF ONE FORM OF ASSET INTO ANOTHER. THE SURPLUS IN SUCH A CASE WILL NOT BE TRADING OR BUSINESS PROFIT BECAUSE THE TRANSACTION IS ONE OF REALISATION OF ASSETS IN INVE STMENT RATHER THAN ONE IN THE COURSE OF TRADE CARRIED ON B Y THE ASSESSEE OR AN ADVENTURE IN THE NATURE OF TRADE. 13. IN THE ABOVE CIRCUMSTANCES, WE FIND THAT THE OR DER THE COMMISSIONER OF INCOME-TAX(APPEALS) IS JUST AND PRO PER IN LAW. THE ORDER IS TO BE UPHELD. 14. IN RESULT, THIS APPEAL FILED BY THE REVENUE IS DISMISSED. SD/- SD/- (CHALLA NAGENDRA PRASAD) JUDICIAL MEMBER (DR. O.K.NARAYANAN) VICE-PRESIDENT CHENNAI, DATED THE 08 TH AUGUST, 2012 MPO* COPY TO: APPELLANT/RESPONDENT/CIT/CIT(A)/DR