TMI Blog2020 (1) TMI 252X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee indulged in an Adventure in the nature of trade when he relinquished his rights under an agreement. Therefore the right acquired under the Agreement by the Assessee has to be regarded as Capital Asset . Giving up of a right to claim specific performance by conveyance in respect to an immovable property, amounts to relinquishment of the capital asset. Therefore, there was a transfer of capital asset within the meaning of the Act. The payment of consideration under the agreement of sale, for transfer of a capital asset, is the cost of acquisition of the capital asset. Therefore, in lieu of giving up the said right, any amount received, constitutes capital gain and it is exigible to tax. However, as is clear from s. 48, before the income chargeable under the head capital gains is computed, the deductions set out in s. 48 has to be given to the assessee. It is only the amount thus arrived at, after such deductions under s. 48, would be the income chargeable under the heading capital gains. We are of the view that income from relinquishing rights under an agreement should be assessed under the head income from capital gains. We hold accordingly. We however find th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with 9 car parks (hereinafter referred to as built up area ). The Assessee and the developer entered into an construction agreement on the very same day i.e., 2.5.2012 whereby the cost of construction of the built up area was agreed at a sum of ₹ 13,25,13,750/-. The Assessee had paid a sum of ₹ 3 crores as advance under the Agreement to sell undivided share of land and another sum of ₹ 2,64,54,130/- as advance under the Construction Agreement. 4. Thereafter the Assessee made further payment of ₹ 6,40,00,000 to the Developer in the following manner:- 2013-14 55,00,000 2013-14 20,00,000 2013-14 35,00,000 2013-14 35,00,000 2013-14 20,00,000 2014-15 1,50,00,000 2014-15 1,25,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Date of transfer 05 Jan 16 Sale consideration 13,87,54,130 Acquisition details Financial Year Cost Index Cost Cost-30021920*1081/852 2012-13 3,00,21,920 3,80,91,192 Cost-24754130*1081/852 2012-13 2,47,54,130 3,14,07,529 Total 6,94,98,721 Improvement details Cost 5500000*1081/939 2013-14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to tax u/s.28 of the Act, under the head Income from Business . 9. In response to the proposal of the AO, the Assessee vide its reply dated 12.12.2018 submitted that the Assessee was neither a trader purchasing and selling properties nor was he carrying on any real estate business. The purpose of bargaining for purchase of the undivided share of the property and the built up area was as an investment to let out the same and earn rental income. Since there was delay in completion of the project and the property was not found suitable to the needs of the Assessee due to unsatisfactory facility provided in the project and the project not being in compliance with Vasthu Sastra Specifications. The AO however was of the view that neither in the MOU dated 5.1.2016 nor in the cancellation deed dated 5.1.2016 was there any mention about the reasons for the Assessee not completing the process of acquiring the undivided share of land of the property and the built up area. The AO proceeded to treat the gain in question of ₹ 2 crores as income under the head Income from businesss and not income under the head Capital Gain . The following were the relevant observa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he owners of the property, Developer and the Assessee dated 2.5.2012 and the Construction Agreement dated 2.5.2012 between the Assessee and the Developer, was a right to enforce the agreement by specific performance and other remedies and that right which is in the nature of a capital asset was relinquished and therefore the gain on such relinquishment has to be regarded only as giving raise to capital gain not income from business. 11. In this regard the Assessee placed reliance on decision of Hon ble Karnataka High Court in the case of H. Anil Kumar (2011) 242 CTR 537 (Karnataka) wherein the facts of the case were that, Assessee had entered into an agreement to purchase immovable property and paid ₹ 1,00,000 as advance amount. He filed a suit for specific performance of the agreement of sale. The Assessee then withdrew the suit for specific performance in lieu of a payment of ₹ 7,50,000. The revenue however brought to tax the gain on relinquishment of right under the agreement for sale under the head Capital gain . On appeal by the Assessee, the Hon ble Karnataka High Court upheld the action of the revenue and held that the word capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property cannot be regarded as adventure in the nature of trade. In this regard the Assessee pointed out before CIT(A) that it had never indulged in any transactions in the past and the intention at the time of acquisition of the property in question was to earn rental income only. The Assessee submitted that he owned a property in United Kingdom and the rental income from the same is offered to tax under the head income from House Property and another property at Bangalore and income from the same is also offered to tax under the head Income from House Property. 13. The CIT(A) however confirmed the order of the AO for the following reasons:- 4.2 The submissions of the appellant have duly been considered. The only issue which needs to be examined is whether the transaction had resulted into income which could be taxed as capital gains or as adventure in nature of trade. A perusal of agreement to sell dated 02.05.2012 does not through much light on the intention of purchasing the said immovable property. However the MOU dt 05.01.2016 and deed of cancellation of construction agreement dt 03.02.2016 do reveal the intention with whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions made before the revenue authorities also placed reliance on decision of Hon ble Gujarat High Court in the case of Pr.CIT Vs. Bhanuprasad D.Trivedi (HUF) (2017) 87 taxmann.com 137(Guj.) SLP dismissed by Hon ble Supreme Court reported in (2018) 95 taxmann.com 19 (SC) wherein it was held that to decide the question whether income from sale of shares has to be assessed as Income from Business or Capital Gain , the intention at the time of purchase is very material. The learned counsel for the Assessee submitted that the Assessee had no intention of doing any business and earn income at the time when he bargained to purchase the property in question and therefore the gain in question has to be regarded only as income chargeable to tax under the head Capital Gain . He also highlighted the fact that the CIT(A) has sustained the order of the AO on a different basis viz., on the basis that in the deed of cancellation there was a clause that if the consideration is not paid as agreed there could be incidence of interest payable on the unpaid money which will be treated as business loan by the Assessee to the Developer. According to him, this clause was only a default clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of trade so as to characterize the income received on surrender of rights under an agreement as giving raise to Income from Business is the question for our determination. In the case of G. Venkataswami Naidu (supra) , the Hon ble Supreme Court explained as to when a single of isolated transaction can be regarded as an Adventure in the nature of trade in the following words:- it is impossible to evolve any formula which can be applied in determining the character of isolated transaction which come before the Courts in tax proceedings. It would besides be inexpedient to make any attempt to evolve such a rule or formula. Generally speaking, it would not be difficult to decide whether a given transaction is 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 adventur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from them and mechanically apply it to the facts before us. In this connection it would be relevant to refer to another test which is sometimes applied in determining the character of the transaction. Was the purchase made with the intention to resell it at a profit? It is often said that a transaction of purchase followed by resale can either be an investment or an adventure in the nature of trade. There is no middle course and no half-way house. This statement may be broadly true ; and so some judicial decisions apply the test of the initial intention to resell in distinguishing adventures in the nature of trade from transactions of investment. Even in the application of this test, distinction will have to be made between initial intention to resell at a profit which is present but not dominant or sole; in other words, cases do often arise where the purchaser may be willing and may intend to sell the property purchased at profit, but he would also intend and be willing to hold and enjoy it if a really high price is not offered. The intention to resell may in such cases be coupled with the intention to hold the property. Cases may, however, arise where the purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The stand taken by the Assessee was not disbelieved by the AO and he proceeded to hold that the MOU dated 5.1.2016 whereby the Assessee and the Developer agreed to rescind the agreement has not been referred to in the subsequent registered cancellation deed dated 3.2.2016. As we have already observed there is no reference to the MOU dated 5.1.2016 nor is there any reference to the reason as to why the Assessee and the Developer seek to enter into a cancellation agreement. Nevertheless, the fact remains that the plea of the Assessee in this regard has not been doubted by the Revenue authorities. The CIT(A) proceeded on the basis of a term in the cancellation deed which provided for commercial rate of interest. From existence of such a term in the default clause it cannot be said that the Assessee entered into an adventure in the nature of trade in the matter of purchase of undivided share of land of the property and acquiring built up area in a proposed office complex. The Assessee is not in the business of dealing in real estate. The Assessee s claim that there are no instances of similar transaction in the past is not disputed or contradicted by any material brought on rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because the expression property of any kind is of wide import. The Hon ble Court held that when this expression is read along with the expression defined in s. 2(47)(ii) i.e., extinguishment of any rights therein , the giving up of a right of specific performance by the assessee to get conveyance of immovable property in lieu of receiving consideration, results in the extinguishment of the right in property, thereby attracting the rigor of s. 2(14) r.w.s. 2(47). Giving up of a right to claim specific performance by conveyance in respect to an immovable property, amounts to relinquishment of the capital asset. Therefore, there was a transfer of capital asset within the meaning of the Act. The payment of consideration under the agreement of sale, for transfer of a capital asset, is the cost of acquisition of the capital asset. Therefore, in lieu of giving up the said right, any amount received, constitutes capital gain and it is exigible to tax. However, as is clear from s. 48, before the income chargeable under the head capital gains is computed, the deductions set out in s. 48 has to be given to the assessee. It is only the amount thus arrived at, after such de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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