TMI Blog2016 (8) TMI 954X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal has arrived at a finding on fact that it was a capital gain and not the business income. No substantial question of law - Decided against revenue - ITA NO. 325/2015 C/W ITA Nos. 326, 327/2015 - - - Dated:- 14-6-2016 - MR. JAYANT PATEL AND MR. B. SREENIVASE GOWDA JJ. APPELLANTS: (By SRI. JEEVAN J. NEERALGI, ADV. FOR SRI. E. I. SANMATHI, ADV.) O R D E R JAYANT PATEL J., All appeals are preferred by the Revenue by raising the following substantial question of law:- Whether, on the facts and in the circumstances of the case, that the Tribunal is right in law in directing to treat the sale proceeds from sale of flats under the head of capital gain against the factual matrix of the case establishing the adventure in the nature of trade and ignoring the principle of preponderance of probabilities when the evidence clearly points to set off organized activities to earn profit out of business/adventure in the nature of trade which fulfills the ingredients for treating the income of the assessee as business income? 2. We have heard Sri. Jeevan J. Neeralgi and Sri. E.I. Sanmathi, learned counsel for the appellants/revenue. 3. As such it appears tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an adventure in the nature of trade or not. It is the cases on the border line that cause difficulty. If a person invests money in land intending to hold it, enjoys its income for some time, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. Cases of realisation of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventures in the nature of trade. In deciding the character of such transactions several factors are treated as relevant. Was the purchaser, a trader and were the purchase of the commodity and its resale allied to his usual trade or business or incidental to it? Affirmative answers to these questions may furnish relevant date for determining the character of the transaction. What is the nature of the commodity purchased and resold and in what quantity was it purchased and resold? If the commodity purchased is generally the subject-matter of trade, and if it is purchased in very large quantities, it would tend to eliminate the possibility of investment for personal use, possession or enjoyment. Did the purchaser by any act subseque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether shown in opening/closing stock or shown separately as investment or non-trading asset. (2) Whether assessee has borrowed money to purchase and paid interest thereon? Normally money is borrowed to purchase goods for the purpose of trade and not for investing in an asset for retaining. (3) What is the frequency of such purchases and disposal in that particular item? If purchase and sale are frequent, or there are substantial transactions in that item, it would indicate trade. Habitual dealing in that particular item is indicative of intention of trade. Similarly, ratio between the purchases and sales and the holdings may show whether the assessee is trading or investing (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment). (4) Whether purchase and sale is for realizing profit or purchases are made for retention and appreciation in its value? Former will indicate intention of trade and latter, an investment. In the case of shares whether intention was to enjoy dividend and not merely earn profit on sale and purchase of shares. A commercial motive is an essential ingredient of trade. (5) How the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present case. The assessee has been showing rental income from the unsold flats. That income has been assessed by the Assessing Officer as a house property income meaning thereby part of the investment has been accepted by the Assessing Officer as an investment. The assessee had retained the asset i.e., plot of land for more than 15 years. It indicate that he has the intention to keep the asset for earning long term capital gain or dividend in any other form. One of the objection raised by the Assessing Officer is that assessee had not the means to complete the project on his own funds. Utilisation of borrowed funds is one corroborative factor for considering a transaction in the nature of business, but again for earning house property income also one can borrow the funds and use it for construction. That is why Section 24 of the Act allow deduction of interest expenditure etc., The next objection of the Assessing Officer is that assessee has capitalized the interest charges on the borrowed funds during the pre construction period towards the cost of asset. If assessee had the intention to earn business income, he could have booked the flats for sale, recognize the revenue from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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