Gain on property kept for investment purpose taxable only under capital gain: Kerala HC

PCIT Vs Arun Majeed (Kerala High Court)

Kerala High Court held that when a property kept not for trade, but for an investment purpose is sold, the gain has to fall under head ‘capital gains’ and such transaction is only taxable under capital gain and not under adventure of trade.

Facts- The challenge in these appeals is confined to the correctness of taxing profits from the sale of lands as ‘business income’ instead of treating the same as ‘capital gain’. Revenue contends that though the primary business activity of the assessee is that of running medical shops under the Trade name ‘Sevana’, he had during the relevant assessment years indulged in buying and selling of landed property with a view to earn profit. This, according to the Revenue can only be termed as an ‘adventure in the nature of trade’ as envisaged in Section 2(13) of the Income Tax Act, 1961 thus making the income derived from the sale of landed property to be business income as against the claim of the assessee that it was in ‘the nature of capital gains’.

Conclusion- Held that when a property kept not for trade, but for an investment purpose is sold, the gain has to fall under head ‘capital gains’ and such transaction is only taxable under capital gain and not under adventure of trade. If the Revenue intends to prove the contrary, then the burden is upon it to prove it by reliable evidence. Merely because the assessee makes some profit in a particular transaction, it can not be treated as an adventure in the nature of trade so long as the initial intention or a reason investing money was to hold the property and utilise it for a different purpose.

Held that the asseesse had held the landed property as investment and disposal of the same would not convert, what was a capital accretion, to an adventure in the nature of trade. The finding arrived at by the ITAT based on the facts and circumstances available at hand, that the assessee had treated the landed property as an investment acquired over the years and did not choose to carry on any commercial activity with reference to such land and had upon noticing favourable market conditions, sold the land and fetched a good price, does not justify the action of the AO to treat the activities of the assessee as adventure in the nature of trade.

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