1985 (3) TMI 105 - AT - Income Tax

Summary

Issues:
Nature of surplus realized on sale of property at Sikandrabad, treatment of property as capital asset or business asset, determination of profit as capital gains or business profit.

Analysis:

Nature of Surplus:
The controversy in this appeal revolves around the nature of the surplus realized on the sale of a property at Sikandrabad. The assessee claimed the surplus as capital gains, while the Income Tax Officer (ITO) argued it was profits and gains of business. The Commissioner (Appeals) concluded that the property was a business asset and the surplus was profits and gains of business. The assessee challenged this finding, arguing that the property was treated as an investment and the surplus should be considered a capital surplus, not business profit.

Treatment of Property:
The assessee acquired the Sikandrabad property in satisfaction of trading debts, but the question arose whether it was a capital asset or a trading asset. The balance sheets indicated the property was treated as an investment since its acquisition in 1970. The Tribunal agreed with the assessee that the property was a capital asset based on the intention shown in the balance sheets and the absence of evidence of dealing in properties as a business activity.

Profit Determination:
The Tribunal analyzed whether the sale of the property constituted a transaction of business or an adventure in the nature of trade. It was emphasized that the dominant impression from the facts of each case determines the nature of the transaction. In this case, the Tribunal found that the sale of the Sikandrabad property did not indicate a business activity, as the property was treated as an investment, and there was no intention to deal with it as part of a business. Therefore, the surplus was assessed as capital gains, not business profit.

Conclusion:
The Tribunal held that the surplus from the sale of the Sikandrabad property should be treated as profit under the head 'Capital gains' due to the property being considered a capital asset and not a trading asset. The Tribunal accepted the assessee's argument that the burden of proof for showing a transaction as a business profit was not met by the department. Consequently, the contentions raised by the assessee in the appeal succeeded.

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