TMI Blog2011 (2) TMI 1117X X X X Extracts X X X X X X X X Extracts X X X X ..... come unless the so-called agreement terminated. Besides the assessee never treated this as income in the books. The assessee consistently holding it so as the amount attached with a liability to refund. Thus there must be a debt owed to the assessee and until this is created in favour of the assessee as a debt due to the assessee, it cannot be said as income accrued - allow this ground of the assessee as it cannot be treated as income for the year relevant under appeal. Sale proceeds of land - to be treated as business income or under capital gains - AO considered the transaction of the assessee as business activity as the other objects for which the company was established included carrying on of the business Agency for real estate also among other items of business mentioned therein - Held that:- Assessee, whose prime business is manufacturing and selling of ice creams. The Memorandum of Association includes an enabling clause for the assessee to carry on the business of Agency for real estate among others. This clause was heavily relied upon by the Assessing Officer. The argument of the department that the assessee possessed substantial land holdings and frequent purchase of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r from the dealers deposit while settling their account. The assessee can do so only on the termination of the agreement as envisaged in the said agreement. In other words during the subsisting period of agreement the assessee is not entitled to any income. This was according to the ld. counsel was wrongly interpreted by the taxing authorities. The Assessing Officer treated this as income accrued in this year and ld. CIT(Appeals) also agreed to that proposition, against which this issue is carried to Income-tax Appellate Tribunal for proper adjudication. 4. The ld. counsel would contend that the time of accrual is of significance in taxation. In order that income may said to have been accrued at a particular point of time it must have happened at that point of time and the assessee should have accrued the right to receive the money at that time. The ld. counsel attempted to explain that in the cases present before us the right to accrue arises only on termination of agreement and not as long as the agreement with the dealer is continued. 5. It is also further explained on behalf of the assessee that the assessee has also recognized the income during the relevant assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th clause 7 of the agreement. Therefore, according to the ld. Jr. DR, the claim of the assessee is that the income accrues to it only on termination of the agreement and not before, may be relevant for passing the book entries but revenue cannot be compelled to wait only for this reason particularly on the undisputed facts that the assessee had already received the funds and the same became non-refundable even on the basis of terms of agreement. As per the said agreement the whole deposit received by the assessee is non-refundable after lapse of a period of more than three years. Thus the deposits received converts into income of the assessee in the form of compensation for use by the vendor of freezer supplied to the assessee as per the Agreement itself. The assessee claims these freezers as business asset and consequential depreciation also claimed by the assessee on these freezers and the department is also allowing the depreciation claim. Hence, the Jr. D.R. concluded her arguments to justifying the orders of the authorities and prayed for dismissal of this appeal. 8. We have considered the rival submissions and perused the materials available on record. The assessee treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 270 ITR 1 (SC); (b) CIT v. Bharat Petroleum Corpn. Ltd. v. CIT [1993] 202 ITR 492 (Cal.) (c) CIT v. Sugauli Sugar Works (P.) Ltd. [1999] 236 ITR 518 (SC); (d) Star India (P.) Ltd. v. Addl.CIT [2009] 311 ITR (AT) 235 (TM); (e) CIT v. Govind Prasad Prabhu Nath [1988] 171 ITR 417 (All.); (f) CIT v. Hindustan Housing Land Development Trust Ltd. [1986] 161 ITR 524 (SC); (g) Ace Builders Pvt. Ltd. v. CIT - 225 ITR 746 (SC) (sic); (h) CIT v. Mantra Tantra Yantra Vigyan [2008] 300 ITR 140(Raj.); and (i) Guardian Industries Corpn. v. Asst. DIT [2008] 7 DTR 594 (Del). are also supports the plea of the assessee. The accrual has been dealt with in the relied judgments. Hence, under the given set of facts and circumstances, we by relying the above decisions set aside the orders of the authorities and allow this ground of the assessee as it cannot be treated as income for the year relevant under appeal. 12. Coming to the next contentious issue of whether the sale proceeds of land to be treated as business income or to be charged under capital gains. The assessee took shelter as capital gain. The department's contention would be that it is business income only and not to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-trade. 17. One of the pre-conditions for the imposition of tax on capital gain is the existence of the capital asset. In other words, if the asset which is not considered as a capital asset such gain cannot be brought within the ambit of taxation. The test of asset qualifying a capital asset has to be done at the time of transfer. The capital asset means property of any kind held by an assessee whether or not connected with his business or profession but does not include (i) any stock- in-trade, consumable stores or raw materials held for the purposes of his business or profession and (ii) .., which will take for the narrow definition for the purpose of deciding the issue of any stock-in-trade. This is the definition of capital asset - Section 2 (14). For deciding this issue, it is important to ascertain the reason for holding a particular asset before it could be classified as a stock-in-trade and fall within this exemption. For example, shares in the hands of a share trader could constitute stock-in-trade and as such the gain arising on the sale of such shares would be treated as business income whereas shares held by any other person would be treated as capital asset and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessing Officer that for the land development, assessee claimed expenditure in the Profit Loss Account. Hence, it should be accepted as a business income as the expenditure has been claimed by the assessee and allowed by the Department. This argument will not support the case of the Department unless there is clinching evidence to refer with which that there is adventure in the nature of trade so as to qualify for business income. The only solitary claim of expenditure for land development claimed in the P L Account should have been rejected by the Assessing Officer while considering the issue in the assessment. This was not done by the Assessing Officer. This wrong claim by the assessee should have been rejected by the Assessing Officer. The Assessing Officer has to assist the assessee to arrive at the correct taxable portion of the income. As the above judgments reveal that it is not a business income as adventure in the nature of trade and it is only an investment and the sale of the capital asset would attract only capital gains. Hence, we reject the argument of the ld. Jr. D.R. that frequent sale of land is a business income. Therefore, the assessee's income is f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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