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2015 (8) TMI 990 - MADRAS HIGH COURT

2015 (8) TMI 990 - MADRAS HIGH COURT - TMI - Sale of land - business income or capital gain - Tribunal held that the income from the sale of undivided share in land and sale of flats separately in different years cannot be subjected to computation of capital gains and said income is to be treated as business income - Held that:- The respondent is an individual. Unlike the companies incorporated under the Companies Act, 1956, whose articles of association contain the object clauses, an individual .....

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as a business income. - Decided against revenue.

Valuation report submitted by the DVO - reliance placed by the Assessing Officer under Section 69C - Tribunal held that the addition of difference in cost of construction based on DVO's valuation report made by the Assessing Officer under Section 69C cannot be sustained - Held that:- The value adopted for the purpose of executing sale deeds to convey the undivided share of right in the land was only for the purpose of registration, whic .....

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ore to the assessee than what was stated in the accounts. Therefore, there cannot be a case that the assessee had spent something more and realized something more from the buyers. When such a case is not possible, there is no basis for dissecting the superstructure from the wholesome transaction and attempt to adopt a different valuation for the said superstructure. The whole exercise of the Assessing Authority in this regard is irrational. We do not see anything wrong with the opinion of the Tr .....

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(1/3) of the total extent of land should necessarily be reserved for public utility such as roads, etc. It is not possible for a developer to convey the entire land in favour of the purchasers, as he is obliged by the Town and Country Planning Act, 1971 and the Development Control Rules to leave spaces earmarked for public purposes. Therefore, this question has also been rightly answered against the Department by the Tribunal. - Decided against revenue. - T.C.A.Nos.354 to 360 & 417 of 2015 - Dat .....

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n by name M/s.Win Pharma, which is engaged in the business of manufacturing and selling pharmaceutical items in a small scale. It appears that the said concern M/s.Win Pharma was originally a partnership firm comprising of the respondent herein as well as two others as its partners. Therefore, when the concern was carrying on business in partnership, it purchased land of an extent of about 1 acre on 14.12.1978. The land was depicted as the business asset of the partnership firm. 4. It appears th .....

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ondent sold an extent of about 25,000 sq.ft., to Life Insurance Corporation of India in the year 1991-92. The remaining portion of the land was sold by the respondent to various persons under several registered sale deeds during the period 1999-2000, by way of undivided shares. The purchasers of those undivided shares of the remaining extent of land got flats constructed for themselves on the remaining extent of the land. 7. The income derived out of this activity was returned by the respondent, .....

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gaged only in the business of manufacture and sale of pharmaceutical products and that therefore, the respondent ought to have paid capital gains tax. 9. A series of assessment orders was passed on 29.3.2006 for the assessment years 2000-2001 to 2003-2004. Similarly, two orders were passed on 31.8.2007 in respect of the assessment years 2004-2005 and 2005-2006. Aggrieved by these orders, the assessee filed appeals in I.T.A. Nos.122 to 125/2006-2007 and 87 and 88/2007-2008 before the Commissioner .....

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he assessment years 2003-2004 and 2004-2005, as against the disallowed portion of his claims. By a common order dated 11.7.2011, the Tribunal dismissed the appeals filed by the Revenue and allowed the two appeals filed by the assessee. Hence, the Revenue is on appeal before us. 11. The Revenue has raised the following substantial questions of law arising in respect of these appeals : "(i) Assessment Year 2000-2001 to 2005- 2006: Whether on the facts and in the circumstances of the case, the .....

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ion 69C cannot be sustained ? (iii) Assessment year 2003-2004 and 2004- 2005 : (a) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is developer of housing unit and is entitled for deduction under Section 80IB(10) ? (b) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee had developed the land to the extent of 1 acre as provided in Section 80IB(10) ? and (c) Whether on the fac .....

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to the issue as to whether the sale of undivided share in land by the assessee could be treated as a business income or not. 13. The facts, which we have narrated in the first part of this order would show that the respondent was originally a partnership firm, which purchased a land as part of its business asset. After the retirement of two partners and the firm became a sole proprietary concern, the respondent became the sole proprietor and he acquired the adjoining land for business purposes. .....

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, the Department raised an objection on the ground that the sale of properties was not part of the business of the respondent and that therefore, the income derived therefrom cannot be treated as business income. 15. The contention of the Department is primarily fallacious. The respondent is an individual. Unlike the companies incorporated under the Companies Act, 1956, whose articles of association contain the object clauses, an individual need not necessarily confine his activity to a particul .....

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hat the Tribunal was right in holding that the income from the sale of undivided share of land and the construction of flats cannot be subjected to computation of capital gains and that the same would be treated as business income. As a consequence of this opinion, questions (iii)(a) to (iii)(c) raised in relation to the assessment years 2003-2004 and 2004-2005 should automatically go in favour of the assessee. 16. Coming to the question of law relating to the valuation report submitted by the D .....

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4 of the order of the Tribunal in this regard read as follows : "23. The next point to be considered in the appeals filed by the Revenue is the addition of ₹ 1,39,08,127/- made by the Assessing Authority for the assessment year 2003-2004 under Section 69C towards under-statement of cost of construction. The basis of making an independent valuation of the superstructure itself has been attempted by the Assessing Authority on the premise that the project of the assessee constituted two .....

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re is no basis for making an independent valuation of the superstructure. 24. Apart from the above basic fallacy relied on by the Assessing Authority, it is to be seen that the consideration was paid by the buyers as a whole for the purchase of apartments along with the undivided share of right in the land and as such the value of land and value of apartment cannot be worked out independently. The value adopted for the purpose of executing sale deeds to convey the undivided share of right in the .....

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