Purchasing many small properties itself no reason to hold it as business transaction – ITAT

Purchasing many small properties itself not good enough reason to hold that it was a business transaction.

The quantum or number or number of investments i.e. whether the assessee invested in a single property or in many small properties to get better appreciation, does not change the nature of the investment to categorize it as business transaction.  

ABCAUS Case Law Citation:
ABCAUS 2981 (2019) (05) ITAT

The assessee in this appeal has inter alia challenged the order passed by the Commissioner of Income Tax (A) whereby he upheld the addition made by the Assessing Officer (AO) by treating the long term capital gain on sale of land as business income.

The assessee had declared long term capital gains and short term capital gains during the year. The Assessing Officer noticed that the assessee made huge investments in 28 properties. The nature of properties included booths, Plots, SCOs, houses, lands and shops. Out of these, 16 properties were purchased during the year and 7 other properties sold in the same year.

The Assessing Officer also observed that out of the 28 investments, 15 were shops and booths. In view of the number of transactions of sale and purchase of the property carried out by the assessee, the Assessing Officer treated the income of the assessee from the sale purchase of property as ‘business income’ against the claim of the assessee of capital gains income.

Being aggrieved by the above order of the Assessing Officer, the assessee preferred the appeal The CIT(A) by way of impugned order dismissed the appeal of the assessee. Being aggrieved, the assessee had approached the Tribunal with the moot question as to whether the income earned by the assessee from the sale of property was ‘business income’ or the same was ‘capital gains’.

The Tribunal opined that merely because assessee after sale of large chunk of land/property, purchased many small properties including some commercial properties that itself, was not sufficient to hold that the assessee was doing regular business in sale and purchase of the immovable property.

The Tribunal noted that the purpose of investment was to hold the properties for better/maximum appreciation with the passage of time. It stated that it was immaterial whether the assessee, for the purpose of investment, purchased commercial property or residential property or any agricultural land or otherwise. The motive of the assessee is to be seen whether the assessee’s intention is to earn quick profit by way of repetitive transactions of sale and purchase of the properties or to hold the properties for the purpose of investment.

The Tribunal observed that the assessee after sale of the land during the year under consideration had surplus money in his hand, which he invested in many small properties, out of which he had to resale six properties for the reason that the assessee was not expecting much gain from the said properties due to certain disputes / non preferred location etc. of these properties. However, rest of the properties had been retained by the assessee for long term.

The Tribunal opined that merely because, the assessee had purchased many small properties that also itself is not good enough reason to hold that it was a business transaction. The quantum or number or number of investments i.e. whether the assessee invested in a single property or in many small properties to get better appreciation, does not change the nature of the investment to categorize it as business transaction.

The Tribunal did find any justification on the part of the lower authorities in treating the income of the assessee from sale of property during the year as business income. Accordingly the Tribunal set aside the order of the lower authorities on this issue and the Assessing Officer is directed to treat the income from the sale of property as under the head ‘capital gain’.  

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