The Income Tax Appellate Tribunal (ITAT) Bangalore, held that the gain on sale of land is to be regarded as income under the head “capital gain” and is therefore entitled to all the deductions permissible while computing income under the head “Capital Gain”.
The Assessee, Shri Babulal is proprietor of M/s. Bangalore Sales and Marketing, a wholesale paper merchant business. He was also distributing agent for Nandini Ghee manufactured by KMF, Karnataka.
The issue that was dealt in this case was that the Revenue authorities denied the deduction under section 54F of the Income Tax Act, 1961 to the assessee who, under the head Income from Business, claimed long term capital gain on a sum of Rs.7,12,016/- and Rs.18,01,718/- he received by selling plots of land and claimed deduction under the same.The Assessing Officer (AO) took the view that the assessee was engaged in an adventure of the nature of trade and therefore the income declared under the head “capital gains” is to be taxed under the head Income from Business. The assessee took the stand that the land was purchased with an intention of constructing a house for his self-occupation. Since the land was outside Mysore City, the assessee decided to sell the property and because he could not get a buyer for the whole land, the land was converted into plots of different dimensions and sold. The AO did not agree with the contention of the assessee and he brought the income declared under the head “capital gains” to tax.
Vice President N.V. Vasudevan while allowing the appeal of the assessee held, “When a person acquires land with a view to selling it later after developing it, he is carrying on an activity resulting in profit, and the activity can only be described as a business venture. Where the person goes further and divides the land into plots, develops the area to make it more attractive and sells the land not as a single unit and as he bought it but in parcles, he is dealing as his stock-in-trade; he is carrying on business and making a profit. In the present case however the intention at the time of purchase was to construct a house for self occupation and that intention was given up due to the fact that the land was outside Mysore city and due to financial crunch. Therefore the tests laid down in the decisions support the plea of the Assessee that he did not do any adventure in the nature of trade when he sold the larger extent of property after dividing them into smaller sites. The dates of acquisition of the property and its conversion into sites and obtaining approval and the dates of sale by the Assessee all go to show his intention at the time of acquisition was not with a view to indulge in an adventure in the nature of trade.”
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