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2015 (12) TMI 1292 - DELHI HIGH COURT

2015 (12) TMI 1292 - DELHI HIGH COURT - TMI - Sale of flats - assessable as an adventure in the nature of trade OR long term capital gain - Held that:- The Court finds that merely because the Assessee approached the builder for constructing the flats on the portion apart from the already constructed portion, would not make the transaction an 'adventure in the nature of trade.' All that the Assessee had received from the sale of the flats was a residential flat of the value of ₹ 5,32,855 an .....

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the resultant receipt as business income in her hand. The fact that the Assessee got a flat on the rear second floor apart from the original constructed portion on the ground floor made no difference to the nature of the transaction. The AO, the CIT (A) and the ITAT have proceeded on an erroneous legal premise that the agreement entered into by the Assessee with the builder and the consequent sale of the flats by the builder on behalf of the Assessee was an adventure in the nature of the trade. .....

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l/2000 for the Assessment Year ( AY ) 1990-91. 2. While admitting this appeal the Court by its order dated 18th May 2004 framed the following question of law for consideration: "Whether the Income Tax Appellate Tribunal was correct in law in holding that the amount of ₹ 9,32,855 was assessable as an adventure in the nature of trade' and not lone term capital gain' as declared by the appellant?" 3. The brief facts leading to filing of the present appeal are that the Appell .....

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uction was about ₹ 86,285. 4. On 2nd March 1988 the Assessee entered into an agreement with M/s. Mac Consolidation ( the builder ) for construction of additional area on the property in question. However, this agreement did not materialize on account of financial strains, old age and ill health. Thereafter, on 1st April 1989 a fresh agreement was entered into by the Assessee with the builder, a copy of which has been placed on record, stating that the Assessee had approached the builder fo .....

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r. Clauses 7 and 8 of the agreement dated1st April 1989 read as under: 7. That in lieu of clause no. 2 of this agreement the owner had authorized the contractor to have the selling rights of the new construction to be made by him on the terrace of the existing property. And in this connection a separate General Power of Attorney dated 1st April 1989 has also been given. 8. That in lieu of the above said clause it was mutually decided that the contractor will give one flat to the Assessee to be c .....

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ned for registration and to get the same registered, receive the consideration thereof and to acknowledge the receipt of the same to deliver the possession. 7. The net result of the above agreement was that the entire pre-determined cost of construction was to be incurred by the builder and the Assessee was to be provided with a flat on the rear of the second floor at a pre-determined cost of ₹ 5,32,855. The Assessee was also entitled to the share of the profit on the sale of the flats. 8. .....

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n 148 of the Act was sent by the Assessing Officer ( AO ) to the Assessee asking her to file a return of income for the AY in question inasmuch as he alleged to have reason to believe that the income of the Assessee has escaped assessment. Pursuant to the notice, the Assessee filed a return of income on 17th February 1997 declaring the original income as declared in the return initially filed. A copy of the computation of income for the AY in question was also placed on record. 10. During the co .....

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1125 1125 2250 Rear second floor - 2250 Total Sq.ft. 9900 11. Earlier, by a separate letter dated 22nd October 1997, the Assessee has furnished the names and addresses of the parties to whom the flats were sold. It appears that the rear and front flats on the first floor, the front flat on the second floor and the basement were sold to the different parties. The additional fact that requires to be noticed is that construction, profit and loss account (P&L) of the builder for the year ended 3 .....

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usiness income. The AO computed the profit from the sale of the flats as ₹ 4,00,000 and then observed that if the cost of the flat on the second floor (retrained by the Assessee) was reduced from the cost of construction shown at ₹ 35,39,000 then the profit would be more. The AO then observed that since the Assessee exploited the land owned by her to be used for construction of multi storey building, the activity undertaken is in the nature of trade and accordingly, the profit arisin .....

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3. The appeal filed by the Assessee before the Commissioner of Income Tax (Appeals) [ CIT (A) ] was dismissed on 8th March 2000. While dismissing the appeal filed by the Assessee against the order of the CIT (A), the ITAT held in the impugned order as under: 24. It is quite apparent from the facts of the case that the intention of the Assessee at the outset was to get the flats constructed by the contractor deploying his own funds (the contractor s) and receiving in the process a sum of ₹ .....

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is that the original property remains intact and the entire new construction gets sold off and the assessee gets a flat in the additional space constructed. In our opinion, it is not possible to treat the sum of ₹ 4,00,000 as falling under one head and the sum of ₹ 5,00,000 and odd as falling under a different head as according to us the aggregate amount of ₹ 9,32,885 would have to be treated as income arising from an adventure in the nature of trade/business ." 14. We ha .....

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t of the land was not taken into account. Mr. Sahni referred to an agreement entered into by the Assessee with one of the flat buyers which showed that what was sold was also a pro-rata 17% of the share in the land. However, for the purpose of computation of taxable income arising from the sale of the flats only the cost of construction was considered. 16. On the other hand Mr. C.S. Aggarwal, learned Senior counsel for the Assessee, placed reliance on the decision of this Court in Shanti Banerje .....

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ourt finds that merely because the Assessee approached the builder for constructing the flats on the portion apart from the already constructed portion, would not make the transaction an 'adventure in the nature of trade.' All that the Assessee had received from the sale of the flats was a residential flat of the value of ₹ 5,32,855 and ₹ 4 lakhs in cash as a result of the agreement entered into with the builder. As explained by this Court in Shanti Banerjee (deceased) by LRs .....

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