Case Law Details
ACIT Vs Ms. Indus Valley Housing, (ITAT Chennai)
The question arises for consideration is whether the investment made by the assessee in the land at Nolambur is a stock-intrade or capital asset? If the land is stock-in-trade, then naturally the profit on sale has to be considered as income from business. If it is considered as capital asset, then the profit has to be treated as capital gain. To ascertain whether the land in question is capital asset or stock-in trade, the intention of the assessee at the time of purchase of the property has to be ascertained. It is not in dispute that the assessee-partnership firm was formed on 05.04.2005 by means of partnership deed. However, the payment for purchase of land at Nolambur was made by M/s Petro Plast Industries Ltd. in February-March, 2005. Therefore, it is obvious that before formation of partnership firm, the partners, namely, the members of the Agarwal family decided to purchase the property by making payment. Therefore, the intention of the partners of the firm has to be ascertained as to whether they intended to trade in real estate or they intended to keep the land as investment. Even though the entries in the books of account would not determine the nature of the land held by the assessee, however, the entries in the books are circumstantial factors to be taken into consideration for the purpose of ascertaining the intention of the parties. The fact that the payment was made before the formation of partnership firm and the partnership firm was formed only on 05.04.2005, consequently the land was registered on 23.05.2005 in the name of the assessee-firm and the land was treated as fixed asset in the books of the firm, would indicate that at the time of purchase of the property, the intention of the partners was to treat the same as capital asset. This Tribunal is of the considered opinion that the entire circumstances and the material facts need to be taken into consideration to ascertain the intention of the partners at the time of purchase of the property. After considering all the facts available on record, including the payment made before the date of formation of partnership firm, this Tribunal is of the considered opinion that the land in question was intended to be treated as capital asset by the partnership firm.
In view of the above, this Tribunal is of the considered opinion that the profit on sale of land has to be necessarily assessed as capital gain and not as business income. Accordingly, the orders of the authorities below are set aside and the Assessing Officer is directed to treat the profit on sale of land as capital gain.
FULL TEXT OF THE ITAT JUDGMENT
These are appeal and cross objection of the Revenue and assessee respectively directed against an order dated 15.12.2017 of ld. Commissioner of Income Tax (Appeals)-7, Chennai. Grounds taken by the Revenue are three in numbers of which grounds 1 & 3 are general, needing no specific adjudication.
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