Sale of property was not business income when not held as stock in trade neither was related to the business of the assessee.
ABCAUS Case Law Citation:
ABCAUS 2690 (2018) (12) ITAT
Important Case Laws Cited/relied upon:
Venkataswami Naidu & Co. vs. Commissioner of Income Tax [1959] 35 ITR 0594(SC).
Janki Ram Bahadur Ram vs. Commissioner of Income Tax [1965] 57 ITR 0021(SC).
Khan Bahadur Ahmed Alladin & Sons vs. Commissioner of Income Tax [1968] 68 ITR 0573 (SC).
The instant appeal had been preferred by the Assessee/Appellant against the order passed by the CIT(A) in concluding that transaction of sale of purchase of property by the assesee was in the nature of trade, profits of which were to be considered as business income.
The assessee was working as Director of various companies. During the relevant assessment year, he filed return of income showing income from salary, income from Capital Gains and income from other sources. The assesse had paid the taxes on the income so computed.
During the course of assessment proceedings, the assessee was asked to produce balance sheet, Profit & Loss Account, details of properties held as closing stock and relevant books of account. However, no such record was made available by the assessee.
Considering that the substantial source of income of assessee was from the sale and purchase of properties, , it was held by Assessing Officer that the assessee was not entitled for indexation benefit in respect of business properties. Accordingly, income claimed to be taxable under the long term capital gain was taxed under the head” Business Income” liable to normal tax rates.
The said addition was challenged by the assessee before the CIT(A) who upheld the addition.
Before the Tribunal, the assessee submitted that the assessee was not in the business of properties as assumed by the authorities below, neither made any transactions as business in nature.
He submitted that the transaction of plot which was sold was purchased by the assessee in his individual name and that was a personal investment and during the year under consideration, the assessee had sold two properties as the same were purchased ten years ago and there was no material that the assesse was involved in regular sale and/or purchase of property.
The Tribunal observed that the assessee had already demonstrated that he was working as a Director in in a Private Limited Company and was deriving income from salary and during the year under consideration caused capital gains.
The Tribunal observed that that the Revenue Department failed to bring any material by which it could be established that the assessee during the assessment year under consideration was engaged in the sale and/or purchase of the property and the properties which have been sold during the year under consideration, were actual in stock in trade and/or related to the business of the assessee.
The Tribunal noted that the Hon’ble Supreme Court held that the Expression “in the nature of trade” postulates existence of certain elements in the adventure which in law would invest it with the character of the trade or business. Further, observed that if a personal investment of money in land intending to hold it, enjoys its income for some time, and then sell it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. Cases of realization of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventures in the nature of trade. In deciding the character of such transactions, several factors are treated as relevant. Was the purchaser, a trader and were the purchase of the commodity and its resale allied to his usual trade of business or incidental to it and if the commodity purchased is very large in quantities then it would tend to eliminate the possibility of investment for personal use, possession or enjoyment.
The Tribunal observed that from the judgment of the Apex Court, it emerges that the nature of transactions must be determined on a consideration of all the facts and circumstances which are brought on record of the Income Tax Authorities and the question whether profit in a transaction as arising out of adventure in the nature of trade is mixed question of law and facts.
The Apex Court also emphasized that there must be desired to convert the property to some other use and some workers were employed for entering into a transactions of sale. Further, the question whether the transaction is an adventure in the nature of trade, must be decide on consideration of all the relevant facts and circumstances which are proved in the particular case.
The Tribunal opined that the answer to the question does not depend upon the application of any abstract rule, principle and formula but must depend upon the total impression and effect of all the relevant facts and circumstances established in the particular case. But in judging the character of such transactions several factors are required to be treated as significant.
The Tribunal expressed that
(a) there was no material by which it could be established by the Department that the assessee had utilized the said properties for sale and purchase.
(b) the assessee had sold the property in question after 9-10 years of purchase and there was nothing on record to suggest that the assessee had made any improvement in the said properties for making the same as more lucrative to sell in open market for business purposes and
(c) there was also no material that the assessee was involved in regular sale and/or purchase of property
Accordingly, the Tribunal set aside the addition made by the Assessing Officer and affirmed by the CIT(A).
