IN THE INCOME TAX APPELLATE TRIBUNAL“ F” BENCH, MUMBAI
BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM)

ITA No.1063/Mum/2014
Assessment Year : 2009-10
Mr. Vinod D Motiwala (Appellant) vs. Income Tax Officer (Respondent)
Date of Order : 26-10-2015

ORDER

Per B.R.BASKARAN, Accountant Member:
The appeal of the assessee is directed against the order dated 09-12-2013 passed by Ld CIT(A)-23, Mumbai for assessment year 2009-10. The assessee is assailing the decision rendered by Ld CIT(A) affirming the decision of the AO on the following issues:-

(a) Determination of rent at fair market value.
(b) Assessment of gains arising on sale of plot as business income.

2. The assessee is an individual and filed his return of income declaring a total income of Rs.24,69,360/-. The assessee had let out a property having an extent of 400 Sq. Ft., for a monthly rent of Rs.20,000/- and accordingly computed the income from house property. The AO made market enquiries and determined the annual letting value at Rs.6,89,325/- and accordingly enhanced the income from house property. The assessee had sold two plots during the year under consideration and declared long term capital gain thereon at Rs.10,34,353/-. The assessee had also sold one more plot along with super structure constructed thereon and declared short term capital gain thereon at Rs.7,57,668/-. The AO noticed that the assessee had purchased these plots as agricultural land, but did not carry on any agricultural activity. Further, the assessee had purchased these plots as a co-owner, i.e., jointly with other unrelated persons. Hence, the AO took the view that the assessee had indulged in real estate activities and accordingly assessed the capital gains, referred above, as business income. The assessee could not succeed in the appeal filed before Ld CIT(A) and hence the assessee has filed this appeal before us.

3. We heard the parties and perused the record. With regard to the first issue relating to the determination of Annual letting value of the property, both the parties agreed that the same requires fresh examination at the end of the AO by duly considering the decision rendered by the Hon’ble jurisdictional Bombay High Court in the case of Tip Top Typography (2014)(368 ITR 330). Accordingly, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to examine this issue afresh by following the decision rendered by the Hon’ble jurisdictional Bombay High Court rendered in the case of Tip Top Typography (supra).

4. The next issue relates to the assessment of capital gain arising on sale of plots as business income of the assessee. We notice that the assessee has been making investments in purchase of plots since 2006 at periodic intervals. We further notice that the assessing officer himself has observed that the assessee has held the plots as investment. The only reason cited by the assessing officer was that the assessee did not carry on agricultural activities, though the plots have been purchased as agricultural lands. Further the AO has noticed that the assessee has carried out certain construction on a plot and sold the same. With these observations, the AO has come to the conclusion that the intention of the assessee was to act as trader in plots and not to act as investor. We notice that the Ld CIT(A) has also confirmed the order of the AO accepting the reasoning given by him.

5. We have noticed earlier that the AO has considered the fact that the assessee did not carry on any agricultural activity. In our view, the absence of agricultural activity cannot be considered to be the sole ground to determine the intention of the assessee. The question relating to presence or absence of agricultural activity may be relevant to determine the character of land, but, in our view, the same may not be relevant to determine the intention of the assessee to hold the same as investment or as stock in trade. Similarly, the joint purchase of land cannot also be considered to be the main determinative factor, since it is quiet normal to make investments jointly with others. It is well settled proposition that the intention of the assessee at the time of purchase of plot would determine the nature of asset either as investment or as stock in trade. In the instant case, the submission of the assessee is that these assets were purchased by him to hold them as his investments. In our view, the assessing officer is very much entitled to examine the veracity of the claim of the assessee that he purchased the plots as investment on the basis of his conduct and surrounding circumstances. However, the assessing officer should contradict the claim of the assessee with proper reasoning and material, if any.

6. We notice that the assessee has been holding various plots for quiet a reasonable time and hence he has declared long term capital gain on sale of two adjacent plots. We also notice that the assessee continues to hold other plots as his investments only. The long holding period, in our view, supports the case of the assessee. Further, it is not shown to us that the assessee has been indulging in repetitive transactions of purchase and sale in plots. It was also not shown that the assessee has borrowed funds for the purpose of purchasing plots. Since the AO has not brought on record any valid reason to support his case, we are of the view that the tax authorities are not justified in assessing the capital gain as his business income. Hence, we are not able to agree with the view taken by the Ld CIT(A) on this issue. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to assess the profit arising on sale of plots as Capital gains.

7. In the result, the appeal filed by the assessee is treated as allowed for statistical purposes. Pronounced accordingly in the open court on 26th Oct, 2015.

Sd/                                                                   Sd/
SANJAY GARG                                    B.R. BASKARAN
JUDICIAL MEMBER                            ACCOUNTANT MEMBER