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2010 DIGILAW 496 (KAR)

Commissioner of Income Tax v. S. Rajamannar

2010-04-06

B.V.NAGARATHNA, K.L.MANJUNATH

body2010
JUDGMENT K.L. Manjunath, J.— The Revenue has come up in this appeal challenging the order passed by the Commissioner of Income Tax (Appeals), Bangalore which has been further confirmed by the Income Tax Appellate Tribunal, Bangalore in I.T.A. No. 10(Bang)/2001, dated 21.02.2005 raising the following substantial questions of law: (i) Whether the Appellate Authorities were correct in holding that a sum of Rs. 29,83,050/- derived by the assesses from the sale of 28,510 square feet of land received by the assessee for developing to 2 Acres 29 Guntas of agricultural land belonging to Sri Anjanappa into a residential layout should be treated as the capital asset of the assessee and indexation allowed by bringing the said income to tax under the head capital gains. (ii) Whether the Appellate Authorities having held that the assessee had acquired 28,510 square feet of land in the course of business were correct in holding that the sale proceeds derived from the sale of this property cannot be brought to tax under the head business income as it was not treated as stock in trade by the assessed which was on account of his default. (iii) Whether the Appellate Authorities were correct in holding that 28,510 square feet of land can be treated as capital asset of the assessee when the same was net registered in his name and such a transfer is not recognized by the Transfer of Property Act, Stamp Act and the Registration Act. 2. In order to appreciate the case of the Revenue, it would be appropriate for us to look into the facts of the case. One Sri Anjanappa was the owner of 2 acres 29 guntas of land situated at Sy. No. 33/2, Hennur Village, Kasaba Hobli, Bangalore North Taluk. Under an agreement dated 3.6.1990, Sri Anjanappa entrusted the work of developing the aforesaid extent of land and convert the same into residential sites and to secure the prospective buyers. For the efforts taken by the Assessee and the amounts spent by him to develop the residential lay out by forming the roads, providing drainage, water supply and other civic amenities to the sites, the owner of the land has agreed to give an extent of 30000 sq.ft. of land to the Assessee. Therefore the Assessee became the owner of 30000 sq. ft. of land to the Assessee. Therefore the Assessee became the owner of 30000 sq. ft. of land even though regular registration was not effected in favour of the Assessee by the said Anjanappa. Later the Assessee sold the entire extent of 30000 sq. ft of land which was given to him by the owner by view of the agreement after completion of the formation of the lay out. The Assessee filed the return of income on 29.9.1997 for the assessment year 1997-98 offering the capital gain in accordance with the income earned by selling the 30000 sq. ft. of land which was given to him by Sri Anjanappa in terms of the contract. 3. The Assessing Officer rejected the case of the Assessee and treated the sale consideration received by the Assessee as an income from business. Accordingly an order of assessment came to be passed. Against it, the Assessee filed an appeal before the Commissioner of income Tax (Appeal), which came to be allowed by holding that the sale consideration received by the Assessee by selling 30000 sq. ft. of land should be treated as income from capital gain and not as business income. Being aggrieved by the order of Commissioner of Income Tax (Appeals), the Revenue filed an appeal before the Tribunal. The Tribunal also confirmed the order passed by the Commissioner of Income Tax (Appeals) and dismissed the appeal. Aggrieved by the concurrent findings of the Court below, the present appeal is filed by the Revenue. 4. We have heard the learned Counsel for the parties. 5. At the outset, Sri Aravind and Sri Parthasarathi contend that even though 3 substantial questions of law are framed, the actual dispute in the case is whether the sale consideration received by the Assessee is to be treated as business income or it has to be treated as a capital gain Therefore they submit that if a finding is giver; to this effect, there is no necessary to consider the 3 substantial questions of law. Accordingly we have to consider whether the sale consideration received by the Assessee has to be treated as business income or has to be treated as a capital gain? 6. The main contention of Sri Aravind before us is that the Assessee being a contractor is indulging in such activities and therefore the receipt of 30000 sq. ft. Accordingly we have to consider whether the sale consideration received by the Assessee has to be treated as business income or has to be treated as a capital gain? 6. The main contention of Sri Aravind before us is that the Assessee being a contractor is indulging in such activities and therefore the receipt of 30000 sq. ft. of land from Sri Anjanappa has to be treated as a capital investment and has to be treated as a business income as the (sic) of the Assessee is only to canyon such activities. In the circumstances, he contends that the order passed by the Commissioner of Income Tax (Appeals) as well as the Tribunal was required to be set aside. He further contends that in terms of the Transfer of Property Act, 1882, 30000 sq. ft. of land had not been registered in the name of the Assessee. Therefore the Assessee could not have been considered as the owner in order to consider the case of the Assessee holding that the income received is a capital gain and not a business income. 7. Per contra, Sri Parthasarathi, learned Counsel for the respondent Assessee contends that under the Income Tax Act, if the sale consideration is passed on and if the possession is transferred, it amounts to sale and the registration of sale deed is not required in order to treat the transaction as complete sale. According to him, the Assessee had spent more than Rs. 7,00,000/- for developing the lay out. In addition to that, he has, rendered services to secure the customers to Sri Anjanappa to sell his portion of the land excluding 30000 sq. ft. of land. Therefore he contends that the amount spent by him in a sum of Rs. 7,00,000/- has to be treated as a consideration paid by the Assessee to acquire 30000 sq. ft. of land and since possession was handed over to Assessee by Sri Anjanappa, in respect of the transaction between him and Anjanappa has to be treated as complete sale in terms of Section 2(47) of the Income Tax Act. He further contends that the Revenue has not given any foundation so that the Assessee was indulging in such business from the beginning in order to treat the sale consideration as business income. He further contends that the Revenue has not given any foundation so that the Assessee was indulging in such business from the beginning in order to treat the sale consideration as business income. According to him, the Assessee as a stray case is indulged in developing the lay out and has developed the property by investing a sum of Rs. 7,00,000/- and in view of the services rendered by him and the amount spent by him, 30000 sq. ft. of land was given to the Assessee by Sri Anjanappa and therefore the Revenue cannot contend that the transaction has to be treated as a business transaction. 8. Having heard the learned Counsel for the parties, we are of the opinion that the transaction between Sri Anajanappa and the Assessee cannot be treated as a business transaction and the sale consideration received by the Assessee as a business income for the following reasons: (i) Admittedly no material is placed before the Court to show that the Assessee was indulging in such business right from the beginning in order to treat the sale consideration received by him as a business income and to treat 30000 sq. ft. of land received by him from Sri Anjanappa as a capital in nature. According to us, considering the agreement placed before us, which was entered Into between Sri Anjanappa and the Assessee the Assessee has spent amounts for the formation of lay out and Sri Anjanappa in turn has delivered 30000 sq. ft. of land in terms of the contract. When the Assesseee is not indulging in such activities, which is not his regular business, if 30000 sq. ft. of land is acquired, by spending Rs. 7,00,000/-, the said amount has to be treated as sale consideration. Accordingly, we hold that the Assessee had become the absolute owner by paying Rs. 7,00,000/- as consideration. When the sale consideration is fully paid by the Assessee to Sri Anjanappa and he has delivered possession to the Assessee, the sale is complete in all respects under the provisions of Income Tax Act, though such a thing is not recognized under the Transfer of Property Act. For the purpose of taxation, such transaction ought to be treated as a sale transaction and when he has sold the property, any profit earned out of such transaction has to be treated as a capital gain. For the purpose of taxation, such transaction ought to be treated as a sale transaction and when he has sold the property, any profit earned out of such transaction has to be treated as a capital gain. Accordingly the Assessee has offered the income received under the head capital gains. 9. In the circumstances of the case, we are of the view that the questions of law framed by the Revenue has to be answered against it and has to be answered in favour of the Assessee. Consequently the appeal is dismissed.