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TMI Blog2011 (3) TMI 1592X X X X Extracts X X X X X X X X Extracts X X X X ..... rn profit thereon and is accordingly covered by Section 28 of the Income Tax Act, 1961 of normal business activities and not as capital gain as claimed by he assessee company. 3. That the Commissioner of Income Tax (Appeals) has erred in law and on facts by not appreciating the fact that the land sold :as farm house during the previous year was shown by the assessee as fixed assets treated as stuck in trade in form of fixed assets. 4. That the order of Commissioner of Income Tax (Appeals)-II, Kanpur being erroneous, unjust and bad in law be vacated and the order of the Assessing Officer restored. 5. That the appellant craves leave to modify any of the grounds of appeal given above and/or add any fresh ground as and when it is considered necessary to do so." 2. The facts related to this case, in brief, are that the assessee was carrying on activities as finance service sector services and filed the return on 26/10/2006 showing total income of `29,64,949/-. The said income included long term capital gain on the sale of immovable property by the assessee during the relevant previous year. The case was selected for scrutiny. During the course of assessment proceedings, the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown as under: Stated year of acquisition of properties Cost shown (`) Cost to the assesse on the date of sale after indexation (`) Increase in cost to the assessee due to indexation treating the same as capital gain (`) July 1993 18,63,500 37,95,736 19,32,236 1996-97 20,000 32,590 12,590 1998-99 39,89,863 56,49,464 16,59,601 2000-01 2,41,720 2,95,899 54,179 2003-04 8,395 9,011 616 Total 61,23,478 97,82,700 36,59,222 2.3 The Assessing Officer held that the profit from business by treating the sale consideration of `1,25,00,000/- was normal business profit. The Assessing Officer accordingly worked out the profits from business at `63,76,522/- (sale price `1,25,00,000/- (-) `cost `61,23,478). While taking the above view, the Assessing Officer in the assessment order dated 17/12/2008, inter alia, had made the following observations: (i) The assessee pieced together the land, made value addition and sold them together as a farm house which is a business endeavor. (ii) During the year under consideration, there was no other activity except purchase and sale of land as profit generating activity. (iii) Profit on sale of land was shown by Auditor as Profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny year whether there is business activity or not. Hence it is no ground to treat the sale as business activity. (iii) The assessee is a company and the accounts of the company are to be prepared under the provisions of The Companies Act, 1956. Under the Companies Act, 1956, there is no concept of Long term/Short Term gains. On sale of asset simply the profit/loss as per cost /selling price is depicted in the profit & loss account and the Auditors have to show the transactions as such. (iv) There is no dispute that Computation of income under the Income tax Act is made and considered. Assessment of income is to be made under the IT Act and not as per the provisions under The Companies Act, 1956 or under any other Act." (v) It is submitted that even for argument sake mere existence of a clause in the Memorandum of Association does not change the nature of transaction and existence of such clause is not conclusive to establish that it was a business transaction. (vi) The investment in land/farm house has all along been treated as Fixed Assets, ie., CAPITAL ASSET AND NOT TRADING ASSET in the Balance Sheet of the assessee. The said Land/Farm House was never used in the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering the submissions of the assessee, observed that the farm land was being held by the assessee for almost 11 years. The said land was held as a capital asset and was clearly shown so in the balance sheet. He further observed that the long period of holding itself indicated that the purpose was not that of trading. According to the learned CIT (A), the Assessing Officer had laid overemphasis on not only what was written in the Memorandum but also in which part of the object clause, such a thing had been mentioned. The learned CIT (A) was of the view that for the purposes of Income Tax proceedings, Memorandum of Articles of a company does not have any significant bearing on the taxability or otherwise of a receipt or the head under which the income has to be taxed and that the transaction has to be seen purely with Income Tax perspective. The learned CIT (A) held that the farm land in question was a capital asset and the surplus on sale of such capital asset was exigible to capital gains and not business profits. Now the Department is in appeal. 4. The learned D. R. strongly supported the order of the Assessing Officer and reiterated the observations made in the assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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