Basavaraju Shivakumar Holavanahalli Vs ACIT (ITAT Bangalore)
Property Sold After Six Years of Failed Rental Efforts Treated as Capital Asset—Not Business Income: ITAT Bangalore
The Assessee, an individual, had purchased a vacant site at Mysore Road, Bengaluru, on 03.09.2007 for ₹2.80 crore & constructed a commercial building (lodge & restaurant complex) using own & borrowed funds. His intention was to let out the property, as shown by negotiations with Apodis Hotel & Resorts Ltd., submission of a revised plan, & newspaper advertisements inviting tenants in 2010. However, he could not secure tenants for nearly six years.
Due to prolonged vacancy & financial strain, the Assessee decided to sell the incomplete building. The property was sold in December 2013 to 18 individuals who later formed a firm, “Raj Towers.” In his return, the Assessee declared long-term capital gains & claimed exemption u/s 54EC.
AO treated the transaction as an adventure in the nature of trade, holding that the Assessee acted as a builder & developer, thus assessing the income as business income. CIT(A) confirmed this view, observing that quick development & sale to multiple buyers showed trading intention.
Before the Tribunal, Assessee demonstrated that the property was consistently shown as an investment in the income-tax & wealth-tax returns, evidencing capital nature. The Tribunal held that the intention to earn rental income was clear & the sale after six years was due to compulsion, not business motive.
