Profit on the sale of land is classified as capital gains, not business profits, based on the nature and conduct of the transactions rather than tax treatment or entries in accounts.

JUDGMENT :

Anita Sumanth J.

This is an appeal relating to assessment year (AY) 2004-05 filed at the instance of the revenue as against an order passed by the Income Tax Appellate Tribunal (in short ‘Tribunal’) on 08.12.2010. The issue that arises for consideration is as to whether profit earned by the assessee/respondent on sale of land should be assessed under the head ‘capital gains’ or under the head ‘business profits’. The question of law admitted on 16.08.2011 is as follows:

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the profit on sale of lands held by the assessee should be considered under the head ‘Capital Gains’ only and not as business profits of the assessee?

2. We have heard the detailed submissions of Mr.T.Ravikumar, learned Senior Standing Counsel for the appellant/revenue and Mr.N.V.Balaji, learned counsel for the assessee/respondent.

3. Mr.Balaji would submit that there is no question of law, much less a substantial question of law that arises for determination in this matter. Mr.Ravikumar, would assail the impugned order of the Tribunal taking us through the trajectory that the matter has taken over the years.

4. A return of Income had been filed by the assessee in terms of the provisions of the Income Tax Act, 1961 (in short ‘Act’), wherein a sum of Rs.9,87,12,654/- had been offered to tax as capital gain. An intimation had been issued under Section 143 (1) of the Act, but the Assessing Authority was of the view that the amount ought to have been assessed as business income and hence reopened the assessment by issuance of notice under Section 148 of the Act.

5. The assessee was engaged in the activity of manufacturing and trading, IATA approved cargo agent and customs house agent, and was not carrying on the business of purchase and sale of properties. Hence, it contested the re- assessment adopting the stand that any income earned from sale of property would be assessable only under the head ‘capital gains’ and would have no incidence of business activity.

6. Per contra, the Assessing Authority noted that property development figured as a line of activity in the financials. Hence, the consideration of Rs.10,02,60,000/- for sale of 22.28 acres of land in the relevant financial year was brought to sale as profits and gains of business.

7. As against the aforesaid conclusion, an appeal was filed by the assessee before the Commissioner of Income Tax (Appeals), who dismissed the appeal in the following terms:

6. I have carefully considered the facts of the case and the submissions of the Id.AR. It is seen that the appellant company is engaged in the business as IATA approved cargo agents, customs house agents and property development. Thus one of the main activities of the appellant company is property development. The transactions carried out by the appellant is to be examined in the background of the business the appellant is engaged in. The Assessing Officer treated the profit on sale of land as business income because the assessee company has been engaged in the business of development of property. During the year, it has sold land of 22.28 acres. The cost as per the books was only Rs.21,769/- whereas the sale consideration received was Rs.10,02,60,000/-. After considering the reasons given by the Assessing Officer and after perusing the details submitted by the Id.AR, I am of the view that the Assessing Officer has rightly treated the gain on sale of land as business income. Merely becaus