The Kerala High Court directed to treat income from sale of immovable properties owned by assessee as ‘Capital Gains’. It was viewed that the requirement of ensuring uniformity and consistency in tax assessments cannot be overlooked, especially while categorizing the nature of the activity carried on by an assessee to earn its income for the purposes of taxation.
Knowell Realtors India Pvt. Ltd, the assessee/appellant classified its rental income as “Income from House Property,” which was accepted by the Department in prior assessments. However, for the assessment years 2012-13 and 2015-16, the Department reclassified this income as “Business Income,” resulting in the sale proceeds being taxed as business income rather than capital gains.
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Aggrieved by the assessment orders, the assessee preferred appeals before the First Appellate Authority. The Commissioner of Income Tax (Appeals) allowed the appeals.
The Revenue filed an appeal before the Income Tax Appellate Tribunal challenging the order passed by the Commissioner of Income Tax (Appeals). The Revenue filed a rectification application, arguing that the assessments were based on audit objections, qualifying as exceptional circumstances under CBDT Circulars. The Tribunal accepted this and restored the appeals.
The assessee submitted that the income was always classified under the head ‘Income from house property’ and there was no change in circumstance warranting a change in classification of the head of income. It followed therefore that the income from sale of immovable properties had to be seen as ‘capital gains’ and not as ‘business income’ for the purposes of taxation.
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It was observed that the requirement of ensuring uniformity and consistency in tax assessments cannot be overlooked, especially while categorizing the nature of the activity carried on by an assessee to earn its income for the purposes of taxation.
The bench noted that the assessee has been consistently seen as deriving income from letting out house property owned by it. It is on that basis that it has been assessed in all the assessment years prior to, and subsequent to, the assessment years under consideration in these appeals.
It was found that merely for the reason that in the said assessment years, the assessee effected a sale of some of its properties, it cannot be seen as having embarked upon a business of buying and selling properties in those years, even if it was authorized to do such business as per its Memorandum of Association.
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The bench viewed that the Appellate Tribunal did not have the jurisdiction to consider the rectification application belatedly preferred by the Revenue and held that the Appellate Tribunal being a creature of the Statute cannot extend its jurisdiction beyond what is expressly conferred on it under the Statute.
While allowing the appeal, the Division Bench of Justices A.K. Jayasankaran Nambiar and K.V. Jayakumar viewed that the requirement of ensuring uniformity and consistency in tax assessments cannot be overlooked, especially while categorizing the nature of the activity carried on by an assessee to earn its income for the purposes of taxation.
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