Sale of property held with commercial intent taxable as business income, Section 50C inapplicable

A. Jesu Rajendran Vs ITO (ITAT Chennai)

Chennai ITAT allows Assessee’s appeal and deletes the addition of Rs. 2.39 Cr on account of short term capital gains from transfer of property, by holding the property sold by the Assessee to be a stock in trade and not a capital asset; Opines that the profit from sale of such property purchased with an intent to exploit commercially and sold as a stock in trade cannot be assessed to tax under the head capital gain and shall be assessed under the head, profit and gains of business or profession; Assessee-Individual, sold a property for consideration of Rs. 95 Lacs and received Rs. 45 lacs for Assessment year 2007-08, which was offered to tax as business receipts; Revenue notes that the stamp value of the said property was Rs.3 Cr and assessed the profit derived from transfer of property under the head of short term capital gains by invoking Section 50C and determined short term capital gain at Rs. 2.39 Cr, which was confirmed by the CIT(A); Further holds that Section 50C is not applicable to the transfer of such property since it is not a capital asset but a stock in trade; ITAT notes Assessee’s argument that the property was purchased and shown as stock in trade in the books of accounts; Dismisses Revenue’s argument that the income is assessable under the head of capital gains since the Assessee did not invest any amount for development of the property and observes that non-development of property during the period, when the property was held, does not decide the nature and head of income under which profit derived from transfer of said property is assessable; Explains that the nature and head of income on a particular receipt is dependent on the intent of the Assessee and the treatment given in the books of accounts for the relevant Assessment year; Observes that the land in question is situated in the location adjacent to Bangalore International Airport, where there is a lot of scope for commercial exploitation of property; Points out that the Assessee has filed necessary evidences, including financial statement for the relevant Assessment years to prove its claim that property has been shown as stock in trade in the books of accounts and tax audit report to prove that amount received from transfer of property has been treated as business receipts; Opines that the Assessee, at the time of purchase intended to commercially exploit the same, considering the location of the property and the fact that the said property was recorded as stock in trade in the books of accounts; Thus, holds that the profit derived from transfer of property are to be assessed under the head profit and gains of business and profession; On applicability of Section 50C, ITAT observes that in the property transferred by the Assessee is a stock in trade and not a capital asset; Thus, holds that Section 50C is not applicable when asset transferred is not a capital asset; Deletes the addition on account of computation of short term capital gains from transfer of property. [In favour of assessee] (Related Assessment Year : 2007-08) – [A. Jesu Rajendran v. ITO  – Date of Judgement : 08.03.2023 (ITAT Chennai)]

FULL TEXT OF THE ORDER OF ITAT CHENNAI

This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-12, Chennai, dated 21.03.2019 and pertains to assessment year 2007-08.

2. The assessee has raised the following grounds of appeals:

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