A division bench of the Orissa High Court recently ruled that the consideration received by the land owner as per the joint development agreement is “business income” when the land is treated as ‘stock in trade’ under the said agreement.
In the instant case, the appellants, Balaji Builders have entered into an agreement with one M/s. Karani Builders for development and sale of the land on behalf of Balaji builders. In the income tax return, assessee disclosed the consideration on the sale of land as “capital gain”. However, the assessing officer treated the same as business income by finding that the assessee itself was in the business of purchasing and developing the land and also constructing houses thereon and selling the same.
On appeal, the Income Tax Appellate Tribunal sustained the assessment order.
The ITAT noted that the land had been purchased by the assessee in course of his real estate business and after purchasing the said land within a period of about six months, it entered into a Joint development agreement with M/s. Karani Builders. The Tribunal held that in terms of the said agreement, the assessee was entitled to get its share in the business apart from separate value for the land and therefore, the consideration is in the nature of business income as held by the assessing officer.
Aligning with the above findings, the bench noted that the Tribunal has rightly treated the land as “stock in trade” as established from the agreement entered into between the assessee-builder and M/s.Karani Builder. “The land had been purchased by the assessee-builder who was engaged in real estate business and in terms of the agreement entered into between assessee & M/s.Karani Builders, the latter was doing construction and transfer of the property on behalf of the assessee.”
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