The central legal point established in the judgment is the characterization of property as an investment rather than a stock in trade, impacting the tax treatment of the income from the sale of the property.

CHITRA VENKATARAMAN, J.

1. Following are the questions of law raised by the Revenue in the appeal relating to the assessment year 1999-2000:

"1.Whether in the facts and circumstances of the case, the Tribunal was right in holding that the sale of the property by a dealer in real estate should be treated as capital gains?

2. Whether in the facts and circumstances of the case, the Tribunal was right in treating the property as a capital asset on the ground that the interest on borrowals was capitalised?"

2. The Assessee as a Kartha of the HUF had filed a return of income of Rs.26,45,315/-, under the head "Long Term Capital Gains". The assessment was sought to be taken up for consideration under Section 143 of the Income Tax Act, 1961, treating the said income as business income.

3. The asseseee filed an appeal before the Commissioner of Income Tax Appeals. Aggrieved by the order of the dismissal, the assessee went on a further appeal before the Tribunal. The Tribunal pointed out that the ownership of the asset with the HUF assessee was never denied by the Revenue. The fact that the assessee had plotted out the property by itself would not lead to an assumption that the assessee was carrying on business including adventure in the nature of trade. Referring to the decisions of this Court reported in Commissioner of Income Tax Vs. Kasturi Estates (P) Ltd. 62 ITR 578 and Commissioner of Income Tax Vs. ML.M.Mahalingam Chettiar [107 ITR 236(Mad)], the Tribunal allowed the appeal. Aggrieved by the same, the Revenue is on appeal before this Court.

4. A reading of the orders of the authorities below show that the assessee S. Palanichamy, HUF, represented by its Kartha, entered into a partnership, on 1.4.1991, with V.Thilakam and M.Devadoss. The object of the partnership was to carry on business, as Promoters and Developers of properties in the name and style of "M/s.Mahalakshmi Constructions". The assessee herein contributed a sum of Rs.9 lakhs to the constitution of the partnership. The partnership thus entered, on 1.4.1991, was dissolved on 10.7.1999.

5. On dissolution, the assessee, an HUF, got back the properties. One of the clauses in the dissolution agreement stated that the HUF would carry on and continue the business in the name and style of "M/s. Mahalakshmi Constructions" either by itself as Palanichamy, HUF or by taking one or more persons in partnership. The assesssee developed the properties during the assessment year 1995-1996 and declared the income, under the head capital gains.

6. During the process of assessment, the Assessing Officer noted that the Kartha of the assessee, Palanichamy, in his individual capacity was doing real estate business and so too the said Palanichamy's wife doing real estate business. Looking at all these facts, the officer came to the conclusion that the assessee was carrying on business in real estate and hence, the income should be assessed only under the head "business".

7. A look at the order of the Commissioner of Income Tax (Appeals) shows that in the background of law declared by the Apex Court in the decision reported in G.Venkataswami Naidu and Co., Vs. CIT [(1959) 35 ITR 594], the Commissioner of Income (Appeals) tested the facts and he came to a conclusion that the land purchased by the assessee to an extent of the five grounds, was a big property. Since the same was much more than the requirement of the assessee herein, plotting out the property for the purpose of earning a profit clearly indicated adventure in the nature of trade. The series of transactions undertaken by the assessee clearly established that the income has to be assessed, as a business income.

8. The First Appellate Authority pointed out that the transaction undertaken by the assessee had all the ingredients of a trade and even going by the definition of `business' that even an individual transaction of purchase and sale would amount to a trading venture, the Commissioner of Income Tax (Appeals), ca