IMPORTANT POINT
The intention of the assessee at the time of the transaction is crucial in determining whether a transaction constitutes an adventure in the nature of trade or capital gains, with the burden of proof resting on the Revenue.

JUDGMENT :

SYAM KUMAR V.M., J.

1. These appeals filed by the Revenue raises common questions for consideration and hence they are considered and disposed of together. The orders under challenge in all these appeals were all rendered by the Income Tax Appellate Tribunal, Cochin Bench on 06.02.2019 and they pertain to the assessment years 2011-12 to 2014-15.

2. The challenge in these appeals is confined to the correctness of taxing profits from the sale of lands as ‘business income’ instead of treating the same as ‘capital gain’. Revenue contends that though the primary business activity of the assessee is that of running medical shops under the Trade name ‘Sevana’, he had during the relevant assessment years indulged in buying and selling of landed property with a view to earn profit. This, according to the Revenue can only be termed as an 'adventure in the nature of trade' as envisaged in Section 2(13) of the Income Tax Act, 1961 thus making the income derived from the sale of landed property to be business income as against the claim of the assessee that it was in 'the nature of capital gains’.

Brief facts:

3. The assessee, who is the respondent in these appeals, runs a medical shop and is also a partner in certain other medical shops under the trade name “SEVANA”. There was a search under Section 132 of the Act in the residential and business premises of the assessee on 18.12.2013. In response to the notice u/s.153A of the Act, the assessee filed the returns of the income for the assessment year 2011-12 to 2014-15. The Assessing Officer completed the assessment u/s.143(3) r.w.s Section 153A of the Act on 31.03.2016 [Annexure A] by making various additions. While thus completing the assessment, the AO had treated the income from sale of landed property as ‘income’ under the head ‘business’ as against the claim of the assessee that it was ‘income from capital gain’. According to the AO, there has been systematic purchase and sale of large extent of land in various locations on a continuous basis over many years either in individual capacity or in collaboration with other individuals. The assessee had filed appeals against the Annexure A Order of the AO before the Commissioner of Income Tax (Appeals). The CIT(A) vide Order dated 10.07.2018 [Annexure B] partly allowed the appeals of the assessee and held that the income from the sale of landed property is to be assessed as 'income from capital gain' instead of income under the head 'business income' as proposed by the Assessing Officer. The CIT (A) reasoned that since the assessee had consistently disclosed the income from sale of land as capital gains, the same should have been accepted by the AO. Annexure B Order of the CIT (A) thus directed the AO to treat the income from sale of land as capital gains and not as income from 'adventure in the nature of trade'. On appeals filed by the Revenue, the Income Tax Appellate Tribunal (ITAT) vide Order dated 06.02.2019 [Annexure C] concluded that there was no finding by the AO that the assessee had converted the landed property into stock in trade so as to start business in the landed property. It was also noted by the ITAT that the assessee had not taken permission from the authorities for converting the landed property as plots, as the assessee never had intention to carry on any business of real estate in respect of landed property. The ITAT held that the intention of the assessee cannot be presumed by the AO unless supported by any material evidence that the assessee is in the business of real estate. Holding thus, the ITAT concluded that the treatment given by the assessee for the landed property clearly indicates that the intention of the assessee was to hold the same as capital asset to have good returns from the same. The ITAT after due consideration held that income has to be treated as income from capital gain and not from business. Annexure C Orders passed by the ITAT are challenged in these appeals.

Substantial questions of law:

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