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2015 (10) TMI 2173 - AT - Income TaxSale of premises - Long Term Capital Gain OR Business Income - assesse submitted that the assessee has let out this 7th floor at ‘Span Centre’ since its construction and income from house property since beginning has been offered for taxation as ’Income from house property’ which has been also assessed by Revenue u/s 143(3) of the Act read with Section 143(2) of the Act for assessment year’s 2004-05,2005-06 and 2006-07 - Held that:- The contention of the assessee that it hardly matters how the same is reflected in its books of accounts is erroneous as the law postulate burden on the assessee to reflect the change from stock of unsold stock to Investment . The assessee being in the business of Builders and offering the income thereof as business income, any unsold stock of flat will be presumed to be business trading asset and assessable as such. The assessee has also shown the same as trading business asset in its books of accounts as WIP from year to year till 31-3-2006. The assessee has manifested its intention to convert the said trading business asset into Investment in its books of accounts on 1-4-2006 when the book entry was passed and hence the said asset at best can be held to be ‘Investment’ w.e.f. 01-04-2006. The contention of the assessee that it has shown income from rent of these unsold flats as ‘Income from house property’ and hence the sale proceeds of the said flat shall be chargeable to tax as ‘Income from Capital Gain’ is again erroneous. Hon’ble Bombay High Court has held in the case of CIT v. Sane and Doshi Enterprises in (2015 (4) TMI 882 - BOMBAY HIGH COURT) that in case of real estate developers , income from rent from unsold stock has to be assessed to tax as ‘Income from House Property’. The assessee has also rightly offered to tax income from rent as ‘Income from House Property’ but that will not change character of the asset from business trading asset ie WIP to ‘investment’ unless the assessee manifest its intention by taking steps to change the character of the said asset by amending its books of accounts and also bringing the same on record with Revenue which in the instant case was done by the assessee on 01-04-2006. We, therefore, upheld the order of Assessing Officer and reverse the order of CIT(A). hence, The gain from sale of 7th Floor, Span Centre was rightly brought to tax by assessing officer as ‘Income from business’ or alternatively, even if it is assumed that the assessee treatment of the said asset as investment is accepted for genuine purposes then also the same was done on 01-04-2006 and the asset was sold thereafter immediately within the assessment year 2007-08 and hence the asset was held for less than 36 months as ‘Investment’ as such and the gain arising thereof on sale of such asset shall be chargeable to tax as ‘ Income from Short Term Capital Gain’ but the same cannot be brought to tax as ‘Income from Long Term Capital Gain’ - Decided in favour of revenue. Disallowance of expenditure incurred on cost of improvement of property while computing the capital gain - CIT(A) allowed the claim - Held that:- hese assets are not towards the cost of the improvement of the property as there is no improvement in the property itself by installing Air Conditioners, Work Station, Office Tables, Working Tables, Meter Room, Electrical Fitting, Bathroom Toilet Fittings, Smoke Detectors, Pantry etc. However, since the assessee has acquired these assets during the assessment year under reference and the sale consideration of the said premises include the price towards these assets so acquired, it will be just and fair that the sale consideration of ₹ 3,14,60,000/- is reduced by this amount to arrive at the net sale consideration(after excluding recoupment of this expenditure of ₹ 5,00,000.00) so that no prejudice is caused to the assessee. We, therefore, find no reason to interfere with the order of CIT(A) and the same is hereby upheld but subject to our holding in the preceding para’s that the income from sale of the flat at 7th floor, Span Centre shall be charged to tax as income from business - Decided against revenue.
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