TMI Blog2014 (11) TMI 680X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment rather than as stock-in-trade – in K.C. Thappar Vs. CIT [1971 (8) TMI 29 - SUPREME Court] it has been held that a particular asset owned as investment in the books as well as balance sheet, is one of the most relevant factor even though not conclusive to hold that assets were held by assessee as investment - merely because rental income earned on the property was shown as business income, the property so held as investment cannot be treated as a stock-in-trade of the business ignoring the fact that “real estate business’ is separate from “rental income’. Claim of rental income as business income will not change the character of property so held as capital investment on which assessee has earned the rental income - The intention of the assessee since beginning was only to hold the capital asset for the purpose of exploiting the same and earning regular income from it – revenue itself has accepted assessee’s claim of land asset insofar as none of the earlier years, the AO has objected the treatment of property as “land asset’ in the nature of capital investment. Claim for exemption u/s 54EC – Held that:- There was no infirmity in the order of CIT(A), that assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee as stock in trade in the balance sheet in any of the earlier years nor in the year under consideration. Accordingly, the CIT(A) allowed assessee s claim of long term capital gains. After giving benefit of indexation and investment made in capital gains bonds u/s.54EC, CIT(A) allowed assessee s claim of capital gains after having the following observations:- 2.3 I have gone through the contents of the impugned assessment order as well as arguments submissions of Ld. Authorized Representative of the appellant along with material available on record. I find that the Assessing Officer has treated the transaction of sale of Sukanraj Centre to be a business transaction on the basis of the presumption that this property has been shown as Business Asset in the balance sheet as at 31st of March 2008. In my opinion, the fact cannot be ascertained by merely looking at the description' in the balance-sheet for the impugned' asset as at 31st of March 2008 as to whether the impugned asset is a stock-in-trade or an investment. I have gone through the balance-sheets of many earlier years and found that the impugned asset has been shown in the balance-sheet under the caption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Learned DR relied on the order of AO and contended that since assessee was a developer and builder, the property so acquired and sold by the assessee had constituted stock-in-trade, therefore, the AO was correct in holding the profit on its sale as business income in place of capital gains. 5. It was argued by learned AR that even though assessee engaged in the business of construction, but it was also holding properties as investment. As per learned AR assessee has sold such property during the year and after claiming benefit of indexation and investment in capital bonds offered the income under the head capital gains. As per learned AR there was no much activity in business of development and construction since last 10-15 years and for this purpose, our attention was invited to the profit and loss account and balance sheet of the assessee for the earlier assessment years. As per learned AR assessee was holding some properties which was not for the purpose of resale or construction of building thereon but for the purpose of earning future benefits. In support of the proposition that even though assessee was in the business of builder, certain properties held as investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We have considered rival contentions, carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by the lower authorities in their respective orders as well as cited by the learned AR and DR during the course of hearing before us, in the context of factual matrix of instant case. From the record, we found that assessee has acquired property namely, Sukanraj Centre in the year 1978. Since 1978, property was shown under the head land asset . The interest paid on the funds borrowed for acquisition of property was also capitalized by the assessee in all the years till the year of sale i.e. 2008. Such interest expenses was not claimed in the profit and loss account in any of the years and same was forming part of the cost of improvement of property. During the year under consideration assessee sold the said property and declared capital gain of ₹ 1,46,51,978/-. However, the AO did not accept assessee s claim and treated gain so earned as profit from business and profession. The main objection of the AO was that assessee was engaged in the business of development of real estate, therefore, property so acquired wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no much activity in business of development and construction since last 10-12 years. Merely because rental income earned on the said property was shown as business income, the property so held as investment cannot be treated as a stock-in-trade of the business ignoring the fact that real estate business is separate from rental income . Claim of rental income as business income will not change the character of property so held as capital investment on which assessee has earned the rental income. The intention of the assessee since beginning was only to hold the capital asset for the purpose of exploiting the same and earning regular income from it. The fact that the property was sold after 30 years of its acquisition, itself is sufficient to establish that asset was capital asset only. It is also not in dispute that assessee had never treated the said property as stock-in-trade, which is evident from the balance sheets of assessee, wherein this property was shown under the head sundry land assets . The Hon ble Delhi High Court in the case of Hitashi Estate Ltd., 178 taxman 2011, held that even a capital asset wrongly shown as stock and certain expenditure also claim in earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. Ace Builders, 144 taxmann 855, observed that exemption u/s.54EC is allowable on asset where it is depreciable or non-depreciable asset, therefore, exemption available to depreciable asset u/s.54EC cannot be denied by referring to fiction created under section 50 of the Act. In view of the above discussion, we hold that gain on sale of capital asset Sukanraj Center have rightly been treated as capital gain by CIT(A) after giving detailed finding at para 2.3 of his order, which has not been controverted by learned DR by bringing any positive material on record. 13. In support of the proposition that long term capital asset is eligible for claim of exemption u/s.54EC, reliance can be placed on the following decisions :- i) CIT Vs. Assam Petroleum Industries (P) Ltd. 2003 131 taxmann 699 (Gau), ii) CIT Vs. Ace Builders Pvt. Ltd. 2005 144 taxmann 855 (Bom) iii) CIT Vs. Legal Heirs of Late Mrs. S.R.Pandit, ITA No.144/2007, dated 30-08-2005 In view of the above, the CIT(A) has rightly allowed the appeal of the assessee after considering the facts and circumstances of the case available on record and applying the judicial pronouncements as cited by learned AR and also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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