Income from Sale of Land held as “Stock-in-Trade” by Builder Taxable as “Business Income”, Not “Capital Gain”: ITAT [Read Order]

The Income  Tax Appellate Tribunal (ITAT) Chennai Bench has recently, in an appeal filed before it, held that the Income from sale of Land considered as “Stock-in- Trade” by builder and Taxable as Business income ,not capital gain.

M/s.Shrijee Developers Ltd.,the assessee company is engaged in the business of construction and development of properties. During the financial year relevant to AY 2003-04, the assessee company had transferred a land at Vadapalani to M/s.Macro Marvel Projects Ltd., Chennai, for a consideration of Rs.2.46 crs. and computed long term capital loss at Rs.10,58,177/- after claiming indexed cost of acquisition.

During the course of assessment proceedings, the AO noticed that the assessee main business activity is construction and real estate development and further, the assessee has classified land sold for the impugned assessment year as stock-in-trade up to AY 2002-03.

 However, from AY 2002-03, the land has been converted into investment and treated as capital asset. Therefore, opined that profit or loss derived from sale of assets is assessable under the heading ‘income from business’.

Section 45(2) of the Income Tax Act contains that  the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as, stock- in- trade of a business carried on by him shall be chargeable to income- tax as his income of the previous year .

The Counsel for the appellant contended  that although, the land has been classified as stock-in-trade in the books of accounts up to AY 2001-02, but from AY 2002-03, the same has been converted into investment, because, the assessee had entered into a Joint Development Agreement with third party for development of the land at Vadapalani.

Further, the assessee transferred the entire land to the nominees of third party during the financial year relevant to AY 2003-04 and accordingly, admitted profit or loss derived from sale of land under the head ‘capital gains’.

The council for respondent submitted that there is no evidence with the assessee to justify its arguments that it has satisfied conditions prescribed u/s.45(2) of the Act. Therefore, the AO has rightly assessed profit or loss under the head ‘income from business.

A Coram comprising Justice  Mahavir Singh and Manjunatha (accountant member) observed that the profit or loss derived from sale of land under the head ‘income from business or profession’ and thus, we are inclined to uphold the findings of the Ld.CIT(A) and dismiss the appeal filed by the assessee.

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