TMI Blog2017 (1) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... see, from the very beginning, was to exploit the property as a commercial asset and not to hold it as a Capital asset. Accordingly we are of there is merit in the claim of the assessee. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to assess the profit arising on sale of impugned property as business income of the assessee. As held that that the impugned property was not a capital asset. Hence the question of application of provisions of sec. 50C does not arise. Disallowance of claim for deduction paid upon cancellation of Joint Venture Agreement - Held that:- A perusal of the order passed by Ld CIT(A) would show that the tax authorities are not disputing the existence of Joint Venture agreement and the cancellation thereof. In fact, the assessee has furnished copy of both the agreements in the paper book and they have also been filed before the tax authorities. We have earlier held that the assessee has carried out the activity of purchase of property as a commercial venture and he has also paid the compensation on cancellation of the Joint Venture Agreement. Hence, in our view, the compensation was paid by the assessee in the cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also disallowed the claim of payment of compensation of ₹ 47,52,000/- against the profit on sale of property. The AO also noticed that the assessee has installed a Wind Mill during the year under consideration. The AO noticed that the assessee has claimed higher rate of depreciation of 80% on all the expenses incurred for installing the machinery. The AO took the view that the higher rate of depreciation is admissible on Wind Mill assembly and Blades and not on other items. Accordingly he restricted the higher rate of depreciation of 80% on the above said items and allowed depreciation at normal rate of 15% on the remaining items. 3. The Ld CIT(A) confirmed the order passed by the AO on the above said issues and hence the assessee has filed this appeal before us. 4. The first issue relates to the head under which the profit arising on sale of land is assessable. The facts relating to the above said issue has been narrated as under by the assessee before the AO:- The assessee has purchased the rights in Tenanted building namely Twilight , a G + two storey building, consisting of 725 Sq. Yards situated at Bandra being Plot No.401 of Town Planning Scheme III of Bandra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and he has also maintained separate books of account. However, the AO has taken the view that the assessee has held the asset as Capital asset, since the intention of the assessee was held by the AO to be of making profit by holding the same for some time and then sell it. 7. Before us, the Ld A.R placed his reliance on the decision rendered by Hon ble jurisdictional Bombay High Court in the case of Smt. Bhanumati A Sanghavi Vs. CIT (1979)(119 ITR 0069) to contend that the assessee has held the property as his commercial asset only. The following observations made by the Hon ble jursdictional High Court would be relevant to understand the points that should be tested to determine the nature of asset. In connection with this submission, our attention was drawn to the observations to be found in Janki Ram Bahadur Ram vs. CIT (1965) 57 ITR 21 (SC) : TC12R.356. It was observed by the Supreme Court in the above decision that the question whether profit in a transaction had arisen out of an adventure in the nature of trade was a mixed question of law and fact. It was further observed that the nature of the transaction must be determined on a consideration of all the facts and circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine the intention of the assessee. The AO also took the view that the impugned transaction was an isolated transaction. Following observations made by the AO are relevant in this regard:- .....And the tenanted property was purchased in 2004. There was hardly any other property purchased or sold by the assessee after that date, even though the assessee is claimed that he has purchased one more property in May 2010. This is so, because the assessee sold the above tenanted building in the current year, the proceeds must have been invested in another property in May, 2010. This alone will not prove that the assessee is in the business of buying and selling property frequently. The first property was purchased in 2004 and sold in 2010 this clearly indicates that the assessee is just a genuine investor in real estate and nothing more, from the proceeds he bought another property subsequently. Therefore, the claim of the assessee that he deals in property business has any relevance. The assessee has not shown any business income from the property deal in the earlier years nor shown anything in the subsequent year also. As has been discussed earlier, the Pune property is rented out and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court in the case of G.Venkataswami Naidu Co. Vs. CIT (1959)(35 ITR 594) and relevant discussions are extracted below, for the sake of convenience:- The criteria to determine as to when a receipt by sale of land would be a revenue receipt or capital receipt was laid down by the Supreme Court in G. Venkataswami Naidu Co. vs. CIT (1959) 35 ITR 594 (SC), in the following terms (headnote) : 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 profits 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 relevant, such as, e.g., whether the purchaser was a trader and the purchase of the commodity and its resale were allied to his usual trade or business or incidental to it ; the nature and quantity of the commodity purchased and resold ; any act subsequent to the purchase to improve the quality of the commodity purchased and thereby ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying on business and making profit. 5. The present cases are, therefore, fully covered by the rule laid down in Raja J Rameshwar Rao s case (supra) because here also, according to the facts found, the assessee soon after purchasing the land developed it into residential sites and started selling plots within two years of the purchase. The conclusion on these facts would be irresistible that he acquired the land with a view to selling it later on after developing it, and the activity, therefore, can be described only as business venture. In the case of G.Venkataswami Naidu Co. case, the assessee therein purchased the four plots during two years with the sole intention to sell them to the mills at a profit at a later date and this intention was held to be the deciding factor in holding that it was a case of adventure in the nature of trade. In the instant case also, we have noticed earlier that the assessee was not idle after purchasing the land. Before expiry of two months period from the date of purchase, he has entered into a Joint Venture Agreement for development of the property, which fact, in our view, shows that the intention of the assessee was not to keep the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would show that the tax authorities are not disputing the existence of Joint Venture agreement and the cancellation thereof. In fact, the assessee has furnished copy of both the agreements in the paper book and they have also been filed before the tax authorities. We have earlier held that the assessee has carried out the activity of purchase of property as a commercial venture and he has also paid the compensation on cancellation of the Joint Venture Agreement. Hence, in our view, the compensation was paid by the assessee in the course of carrying on his commercial activities and the same would go to increase the value of stock in trade, being the property here. Accordingly we direct the AO to treat the same as incremental cost to stock in trade and compute the profit accordingly. 14. The last issue contested by the assessee relates to the rate of depreciation admissible on Wind Mill accessories. The assessee had capitalised expenditure on Tower, Civil foundation, Erection Commissioning, Consultancy fee, Freight charges, Finance charges, Warranty expenses etc as part of Wind Mill cost and claimed depreciation @ 80%. The AO however allowed depreciation on the above said items ..... X X X X Extracts X X X X X X X X Extracts X X X X
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