Holiday Ventures Pvt. Ltd., Kochi V. The Income Tax Officer Corporate Ward 1(3), Kochi, Kochi

ITA 469/COCH/2022

AI Insights

The case involves cross-appeals by the Income Tax Officer (ITO) and M/s. Holiday Ventures Pvt. Ltd. concerning the assessment year 2016-17. The primary issue was the classification of income from the sale of land and the applicable head of income under which the sale proceeds should be taxed. The ITO argued that the income should be classified as 'business income' due to the nature of the transactions, while the assessee contended it should be classified as 'capital gains'. The Tribunal found that the assessee was not engaged in real estate business but in running hotels and holiday homes, and thus the income from the land sales should be treated as capital gains.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 134594 (ITAT-COCHIN)
• Duration Of Justice: 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 31-12-0000
• Assessment Year: misc
• Appeal Filed On: 05-04-2022
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JM JAMUNA DEVI LD
• Assessee Lawyers: JOSEPH MARKOS LD
• Keywords: Business income; Capital Gains

Judgement Text

आयकर अपीलीय अिधकरण, कोचीन पीठ, कोचीन म । IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN माननीय %ी सतबीर िसंह गोदारा, -ाियक सद. एवं माननीय %ी मनोज कु मार अ3वाल ,लेखा सद. के सम6। BEFORE HON’BLE SHRI SATBEER SINGH GODARA, J.M AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, A.M आयकर अपील सं./ ITA No.392/Coch/2020 (िनधा@रण वष@ / Assessment Year: 2016-17) ITO Corporate Ward -1(1), Kochi. बनाम/ V s. M/s. Holiday Ventures Pvt. Ltd. HIG-5, Panampilly Nagar, Ernakulam, Kochi – 682 036. थायी लेखा सं./जीआइ आर सं./P AN /GI R No . AAB C H -3 2 1 8 - F (अपीलाथ /Appellant) : ( थ / Respondent) & आयकर अपील सं./ ITA No.469/Coch/2022 (िनधा@रण वष@ / Assessment Year: 2016-17) M/s. Holiday Ventures Pvt. Ltd. HIG-5, Panampilly Nagar, Ernakulam, Kochi – 682 036. बनाम/ V s. ITO Corporate Ward -1(3), Kochi. थायी लेखा सं./जीआइ आर सं./P AN /GI R No . AAB C H -3 2 1 8 - F (अपीलाथ /Appellant) : ( थ / Respondent) अपीलाथ की ओरसे/Assessee by : Shri Joseph Markos (Advocate) – Ld. A.R थ की ओरसे/Revenue by : Smt. JM Jamuna Devi (Addl. CIT) – Ld. DR सुनवाई की तारीख/Date of Hearing : 10-11-2022 घोषणा की तारीख /Date of Pronouncement : 05-12-2022 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. These cross-appeals for Assessment Year (AY) 2016-17 arises out of first appellate order passed by learned Commissioner of Income - 2 - Tax (Appeals)-1, Kochi [CIT(A)] dated 17-09-2020 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s.143(3) of the Act on 27-12-2018. 2. The Ld. AR advanced arguments supporting the case of the assessee which have been controverted by Ld. Sr. DR. The solitary issue in the cross-appeal is head of income under which the sale proceeds of land would be assessable to tax and the extent to which the gains would be taxable in this year. Having heard rival submissions, the cross-appeals are disposed-off as under. 3. Assessment Proceedings The resident being corporate assessee is stated to be engaged in real estate business. It entered into an agreement with its sister concern i.e., M/s Holiday Projects Kerala (P.) Ltd. on 08.03.2007 and 15.12.2008 to build certain flats in the name and style of Bay Castle and Grandeur respectively. The projects were completed in 2016 and the assessee worked out capital loss of Rs.225.87 Lacs from these two projects. The Ld. AO held that the assessee as well as the sister concern was engaged in real estate and the properties were held for a short duration and therefore, the dominating object was to exploit the real estate and to earn profits and therefore, the gains were to be assessed as ‘Business Income’. Finally, the indexation benefit was denied to the assessee and business income was worked out as Rs.552.83 Lacs as against capital loss of Rs.225.87 Lacs as computed by the assessee. 4. Appellate Proceedings 4.1 During appellate proceeding, the assessee submitted that it was incorporated to run hotels / resorts / holiday homes business. To - 3 - achieve the same, the assessee purchased certain land at Marine Driver, Shanmugam Road, Kochi as well as at Kathrikadavu, Ernakulam which was shown as fixed asset in the Balance Sheet. Since the hotel project was not viable, the assessee decided to sell the plot and accordingly, handed over the same to its sister concern who agreed to construct and sell commercial and residential apartments. As per the terms of the agreement, the assessee was to be paid land cost of Rs.25 Lacs per cent and Rs.7 Lacs per cent for land situated at Marine drive and Ernakulam respectively. The consideration was to be paid only when the land was registered in the name of the prospective buyers. In this year, both projects were substantially completed and sale of apartments commenced and accordingly, the assessee computed capital gains on entire land and offered the same in the return of income. In the alternative, the assessee submitted that profit on sale was to be recognized only to the extent of land registered in the name of the buyers in this year since the land was sold from AYs 2014-15 to 2020-21. 4.2 Accepting alternative contention of assessee, Ld. CIT(A) directed Ld. AO to treat the income as ‘business income’ but only to the extent of profit on land sold during this year which was worked out to be Rs.34.37 Lacs. The Ld. AO was directed to reopen the assessment of other years to bring to tax business income on land sold during AYs 2017-18 to 2019-20. The adjudication has given rise to cross-appeals before us. The assessee plead that the income should be assessed under the head ‘capital gains’ whereas the grievance of the revenue is that Ld. CIT(A) is not correct in bifurcating the gains in various years. - 4 - Our findings and Adjudication 5. The undisputed position that emerges is that the assessee is engaged in setting and running of hotels and holiday homes etc. and it is not engaged in real estate business as held by Ld. AO. The extract from Memorandum of Association (MOA) as culled out in impugned order support this fact. For the said purpose, the assessee acquired two pieces of land which was shown as fixed asset in the Balance Sheet and do not form part of stock-in-trade. Since the hotel projects were found to be not viable, the vacant pieces of land were handed over to its sister concern for fixed amount of Rs.25 Lacs per cent and Rs.7 Lac per cent which were to be received upon completion of project and commencement of sale. The assessee was only entitled for cost of land whereas sister concern was required to construct the project and sell the same to the prospective buyers and any profit / loss accruing from construction activities would belong to sister concern only. Since the projects were substantially completed in this year and sale of flats commenced, the assessee computed capital gains, on aggregated basis and offered the same in the return of income. The Ld. AO, rejecting the claim, held that this activity was in the nature of trade and therefore, the income from land was to be assessed as business income. Accordingly, indexation benefit was denied to the assessee and business income was computed on project as a whole overlooking the fact that only few of the flats were sold during the year. The Ld. CIT(A) rejecting the main plea of the assessee directed Ld. AO to consider business income to the extent of sale carried out in the - 5 - project and further directed to reopen the assessment of other years to bring to tax sale consideration in those years. 6. The aforesaid factual matrix would lead us to conclude that since the land was part of fixed asset and the assessee was entitled to receive consideration against land only, the resultant gains / losses were rightly offered under the head capital gains. The transactions so undertaken by the assessee could not be held to be an adventure in the nature of trade rather it was instance of sale of capital asset i.e., land simplicitor. Therefore, we direct Ld. AO to compute the capital gains, on aggregate basis, in this year only. We order so. 7. The assessee’s appeal stand allowed whereas the revenue’s appeal stand dismissed. Order pronounced on 05 th December, 2022. Sd/- (SATBEER SINGH GODARA) -ाियक सद. /JUDICIAL MEMBER Sd/- (MANOJ KUMAR AGGARWAL) लेखा सद. / ACCOUNTANT MEMBER िदनांक / Dated : 05-12-2022 EDN/- Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) -NFAC, Delhi 4. The CIT - 5. The DR, ITAT, Cochin 6. Guard File