No bar in law for a person dealing in land to also have investment in land. SC dismisses SLP

No bar in law for a person dealing in land to also have investment in land. Assessee can hold same class of assets as investment and also as stock ­in ­trade. SC dismissed SLP of the Revenue

ABCAUS Case Law Citation:
ABCAUS 3222 (2020) (01) SC

The   Respondent   was  a   partnership   firm,   engaged   in   the business of building construction  and land developers. During the course of scrutiny proceedings, the Assessing Officer noted that  the Respondent had shown  long term capital gains on account of sale of plot. This  plot was  a  part of land purchased by the Respondent previously and the conveyance was made later. A part of the purchased property had been developed by construction of buildings. The remaining portion of the property   had   been   sold   by   the Respondent in the relevant to Assessment Year and after deducting the expenditure, the Respondent had offered long  term  capital  gains  on the sale of land. 

However, the Assessing Officer (AO) was of the view that as the business of the Respondent ­Assessee was construction, the plot of land sold should be treated as its stock ­in ­trade and  the income/gain arising on the same should be taxed under the head ‘income from business’ and  not as capital gain.

Being aggrieved with the order passed by the AO, the assessee  filed appeal to the Commissioner  of  Income Tax (Appeals) who found that:­

(i) Respondent had shown sufficient compliance with the CBDT Circular  No. 4 of  2007 dated 16th  June, 2007 to justify that the plot was held by it as an investment;

(ii) The plot was shown in its books of account as an  investment and not as stock ­in ­trade;

(iii) The conversion of land as investment was accepted by the Revenue  in the earlier Assessment Orders passed under Section 143(3) of the Act;

(iv) The Statement of purchasers of the land that the land purchased  was agricultural land and they had obtained necessary permission to make it non ­agricultural;

(v) The plot of land was valued at cost year after year  and  not at cost or market price whichever is lower as applicable as stock­ in ­trade.

Therefore, the CIT(A) allowed   appeal   of   the Respondent.  

The Revenue being aggrieved by the order of the CIT(A), filed an appeal to the Tribunal which by the impugned order  confirmed the fact that, land had been shown in its books of account as investment. The Tribunal also observed that in the earlier Assessment Year, an Inspector was deputed by the  Assessing  Officer  to  verify  the  correctness of the  status of the land i.e. an investment or not. On inspection, the Inspector  reported that no construction was carried out on the plot of land which was held as an  investment.  

On the above facts, the Tribunal upheld the finding of fact by the CIT(A).

On further appeal, the Hon’ble High Court observed that both the CIT(A) as well as the Tribunal had come to a concurrent finding of fact on examination of the record, that plot of the land had been held by the Respondent   as investment which was evident from the books of account, balance sheet of the Appellant  and the treatment given to it in its accounts. This finding of fact was further confirmed by the visit of the Inspector. The Hon’ble High Court stated that the Revenue completely ignored the fact that, it is always open to an assessee to hold the same class of assets as investment and also as stock ­in ­trade. There is no bar in law for a person dealing in land to also have investment in land. Thus, the Hon’ble High Court dismissed the appeal of the Revenue.

Subsequent to dismissal of the appeal by the High Court the Revenue filed a Special Leave Petition before the Hon’ble which has been dismissed.

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