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2016 (1) TMI 312 - ITAT HYDERABAD

2016 (1) TMI 312 - ITAT HYDERABAD - TMI - Sale of the building - capital gains v/s income from business - Held that:- No doubt as contented by the learned Counsel for the assessee, a business asset can always be converted into an investment and retained by the assessee. The assessee, in support of its contention that the above property was held as an investment, is relying upon the entries in its balance sheet for the year 2007-08 wherein the asset is reflected as an investment. Further, it is a .....

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s always to retain the asset. We find that the CIT(A) has considered these facts in addition to the longevity of the period of holding to hold the income from transfer of the property is capital gains exigible to tax. The Revenue has not been able to controvert any of these contentions of the assessee or the finding of the CIT(A) with any evidence to the contrary. In view of the same, we do not see any reason to interfere with the order of the CIT(A). - Decided against revenue - ITA No. 1409/Hyd .....

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that the assessee, a partnership firm engaged in the business of building and developing properties, filed its return of income for A.Y 2007-08 on 31.08.2007 by declaring total income of ₹ 72,52,160. Subsequently, assessee filed revised return of income admitting a total income of ₹ 94,01,960 which included long term capital gain of ₹ 92,51,772. Assessment was completed u/s 143(3) on 17.12.2009 determining assessed income at ₹ 91,01,960 including long term capital gain. S .....

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property. Accordingly, the AO issued notice u/s 143(2) dated 6.9.2012 requiring the assessee to explain as to why sale proceeds of the building complex should not be considered as 'income from business in the context of the order of the CIT u/s 263. In response to the same, assessee stated that the intention of the assessee has always been to hold the developed property as an investment or a capital asset and not as 'stock-in-trade and accordingly the property was let out to a single ten .....

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est of the building was pending completion. It was submitted that this proves that the intention of the assessee was always to hold the property as an investment. It was further submitted that the property was held for more than 10 years as an investment and the entire building was ultimately sold to a single party through a single sale deed and not to various persons and the reference to the assessee in the sale deed as a developer cannot and will not change the character and nature of the prop .....

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also assessable as capital gains only. AO was, however, not satisfied with the assessee s contentions and observed that the assessee is a partnership firm having seven partners and the partnership firm was constituted on 6.11.1995 and the Managing Partner of the assessee firm had entered into an agreement of development on 15.11.1993 with the land owners for developing commercial cum residential complex on a land admeasuring 963 sq.yards at Jambagh, Hyderabad and further that the partnership dee .....

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business income. He accordingly brought it to tax as business income. Aggrieved, assessee preferred an appeal before the CIT (A) who allowed the same and the Revenue is in appeal before us. 3. The learned DR submitted that the business of the assessee firm was to construct and develop properties and its business was not to hold any asset as an investment and therefore, the business asset sold by the assessee would result in business income to the assessee. She submitted that even in the sale dee .....

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accepted the rental income from business asset as 'income from house property , in the earlier years, it would not change the nature of the asset held by the assessee. She therefore, argued that the order of the CIT (A) be set aside and the order of the A.O. be upheld. 4. On the other hand, the learned Counsel for the assessee supported the order of the CIT(A) and submitted that the crucial question before us is the nature of the asset. While reiterating the facts of the case, he submitted t .....

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m and after holding the asset for a long period of 10 years, the entire asset has been sold, as it is, during the financial year relevant to the A.Y before us. Therefore, according to him, the CIT (A) has rightly held the asset to be a capital asset and has accordingly treated the income as capital gain. He further submitted that there was a survey action in the case of the assessee in the year 1998 wherein after thorough verification, the AO has accepted the income from the above property as in .....

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e balance sheet of the assessee company for the relevant A.Y wherein the building has been shown as an investment and has also drawn our particular attention to the fact that the assessee has never treated the said asset as a business asset. Therefore, according to him, the CIT (A) has rightly treated the asset as a capital asset and treated the income from sale of the same as capital gain. 5. Having regard to the rival contentions and the material on record, we find that the land owners had ent .....

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of the commercial -cum- residential complex before the firm came into existence and the business of the assessee firm was to continue to develop and construct the property or any other allied nature of business. Clause-3 of the partnership deed reads as under : "3. The nature of the business of the partnership shall continue to be Developing and Constructing of Proprietary or any other allied nature of business and the partners may decide to undertake any other business for the mutual adva .....

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ding. The assessee had been returning the rental income from SBI as 'Income from House Property and the same was scrutinused by the Revenue in the A.Y 1998 after a survey operation and accepted the same. The main argument of the assessee is that the Revenue should take a consistent and a uniform stand from year to year and cannot take a stand contradictory to its stand in the earlier years. Undisputedly, the Revenue has treated the rental income as 'Income from House Property . Now the m .....

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usiness asset by sale or otherwise immediately on completion of the construction and therefore, may let it out in the lean period. The income earned during such period when the business asset is let out, whether is to be treated as 'Income from House Property or 'Business Income had come up for consideration before the Hon'ble Supreme Court in the case of Chennai Properties and Investments Ltd. vs. CIT in Civil Appeal No.4494 of 2004 dt. 09.04.2015 and the Hon ble Apex Court had noti .....

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e Court to the facts of the case before us, we find that the business of the assessee is to continue to develop and construct the properties or carry on any other allied nature of business. Thus, letting out of the property is not one of the main objects of the assessee, but may be allied nature of business. Therefore, in the case before us, the assessee being in the business of construction and development and the object of the business is to build and construct, the asset would definitely acqu .....

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