TMI Blog2023 (9) TMI 1350X X X X Extracts X X X X X X X X Extracts X X X X ..... constructing landed property for being, similarly, either sold at a profit or leasing it. Where it found the land purchased (purchased for Rs. 78.80 lakhs on 02.05.2012), which was out of the sale proceeds of the godown sold during FY 2011-2012, could not be subject to commercial construction, i.e., its intended user, the same was immediately disposed of on 19.05.2014, i.e., for a business reason, even if at a meager profit of Rs. 1.20 lacs. The same could be held as a capital asset inasmuch as its location would only be appropriate, awaiting again in value over time, but was sold at near par once it was found that it did not serve a business purpose. The assessee is thus undertaking the business of real estate development, of which leasing, as is sale, an integral and a regular part. Thus setting aside the impugned order, uphold the assessment as framed, assessing the capital gains and income from house property as business income. Revenue s appeals are allowed. - Shri Sanjay Arora, AM And Shri Manomohan Das, JM For the Appellant : Sri. Santosh P. Abraham, Adv. For the Respondent : Smt. J. M. Jamuna Devi, Sr.DR ORDER PER SANJAY ARORA, AM: These are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age, dispose off or turn to account or otherwise deal with all or any part of the property of rights of the company and to sell and realize the proceeds of sale of any property movable or immovable against which the company may have made advances or over which the company may have any power of disposal. [emphasis, ours] That apart, the assessee is also selling properties at good returns, i.e., as and when deemed profitable, as it has during the previous years relevant to AYs. 2011-2012 and 2013-2014, i.e., besides the years under reference. 3.2 The assessee s case, on the other hand, was based on the letting by it being on long-term lease basis in it s capacityas the owner of the house property, which was accordingly held as a fixed (capital) asset, yielding rental income, and not as stock-in- trade (SIT). There had been no regular purchase and sale of property, as sought to be made by the Assessing Officer (AO), with each sale being accompanied by strong and definite reasons. The income had been regularly returned since AY 2000-2001 as IFHP, and accepted as such, i.e., except for the years under reference (PB pg. 24). No depreciation had been claimed on the fixed assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consider the law in the matter as explained and expounded by the Hon ble Apex Court over the years.We extract from its observations in East India Housing Land Development Trust Ltd. vs. CIT [1961] 42 ITR 49 (SC), one of the earliest by it, as under, to place the issue in context: Income-tax is undoubtedly levied on the total taxable income of the taxpayer and the tax levied is a single tax on the aggregate taxable receipts from all the sources; it is not a collection of taxes separately levied on distinct heads of income. But the distinct heads specified in s. 6 indicating the sources are mutually exclusive and income derived from different sources falling under specific heads has to be computed for the purpose of taxation in the manner provided by the appropriate section. If the income from a source falls within a specific head set out in s. 6, the fact that it may indirectly be covered by another head will not make the income taxable under the latter head. [emphasis, ours] The head of income under which a particular income is assessable under the Act is, thus, to be determined with reference to it s source. Ownership of house property is itself recognized as a source of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting of property (real estate) is itself being carried on by the assessee as his business, i.e., letting asa business? This assumes significance as in that case, ownership becomes incidental and integral to the business, which thus becomes the immediate source of income. Implicit in the concept, and an incident, of business, is a set of activities, i.e., something more and beyond letting, which is an incident of ownership alone, so that ownership of property is a part of or an incidence of that business. That the house property is fully equipped, viz. with furniture, electrical fittings, lifts, etc., as was the case in Sultan Bros. (supra), would only be a case of a composite letting, implying business income (or income from other sources) where inseparable, for which the Hon ble Court devised a test. In all such cases property is not being exploited as a capital asset, but in the capacity of a trader, and it s value realized, by way of sale or lease, as a business. That is,the income derived is not from the exercise of property rights only, but is derived from carrying on an adventure or concern in the nature of trade. The aspect stands explained by the Apex Court in Karanpura Dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where it is by way of an inseparable letting along with other assets, which exception is carved by the statute itself, or where the income derived is from carrying on an adventure or concern in the nature of trade, a matter of fact. This understanding of law remains undisturbed, and toward which we have perused the decisions up to it s recent decisions, as in Rayala Corp. Pvt. Ltd. v. Asst. CIT [2016] 386 ITR 500 (SC) and Raj Dadarkar Associates v. Asstt. CIT [2017] 394 ITR 592 (SC); it relying upon and applying the law enunciated by it per its earlier decisions cited supra.The matter, given the clear law, becomes essentially a matter of fact, which also explains the varying decisions in different cases. 4.3 It is therefore immaterial whether the house property yielding rental income is a residential or a commercial property; the nature of income in either case being it s lettable value and, source, the ownership of the property. The test deciding whether the same would be, in the facts and circumstances of the case, a business income or income from house property; the line of difference being thin, is if the property leasing is an integral part of the assessee s business, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the years, is, after meeting expenses, ploughed back in the business, purchasing and constructing landed property for being, similarly, either sold at a profit or leasing it. Where it found the land purchased (purchased for Rs. 78.80 lakhs on 02.05.2012), which was out of the sale proceeds of the godown sold during FY 2011-2012, could not be subject to commercial construction, i.e., its intended user, the same was immediately disposed of on 19.05.2014, i.e., for a business reason, even if at a meager profit of Rs. 1.20 lacs. The same could be held as a capital asset inasmuch as its location would only be appropriate, awaiting again in value over time, but was sold at near par once it was found that it did not serve a business purpose. The assessee is thus undertaking the business of real estate development, of which leasing, as is sale, an integral and a regular part. There is, thus, no substance or merit in the assessee s claim of it being a capital asset, or income by way of lease rent being not a business income. In fact, it not claiming depreciation on it s buildings is also consistent with the property yielding revenue by way of rent being held for turning them to account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... changing the object clause in February 2007 to bring it s activities within the frame work of it s charter. The Apex Court has recently in CIT v. Glowshine Builders and Developers Pvt. Ltd. [2023] 454 ITR 249 (SC) clarified that to examine whether a particular transaction is a sale of the capital asset or a business transaction, multiple factors, such as frequency of trade; volume of trade; nature of the transactions over the years, etc., are required to be examined. The same, it would be seen, is in complete agreement with the law explained by it per a series of decisions, beginning G. Venkataswami Naidu Co. v. CIT [1959] 35 ITR 594 (SC), with that in Raja J. Rameshwar Rao (supra) being consistent therewith; the business activity in that case being plotting of land. It would be noticed that even as we have concurred with the Revenue in conclusion, our findings are not wholly in agreement therewith; we finding the assessee company as not holding an asset awaiting suitable time for its disposal, as the AO claims, but seeking to realize it upon development, which defines it s business. The sale in the same form (i.e., as undeveloped land) is again guided by considerations of busine ..... X X X X Extracts X X X X X X X X Extracts X X X X
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