Income from Sale of Flats and Land is ‘ Capital Gain ’ since Assessees’ Intention to Trade in Real Estate was not Established: ITAT [Read Order]

Flats - GST Tax scan

The Income Tax Appellate Tribunal (ITAT), Chennai bench has ruled that the income from the sale of flats and the undivided share in such land could be assessed under the head “capital gains” since the Revenue failed to prove that the assessee had an intention to trade in real estate.

In the instant case, assessee derived income from the sale of flats and land which was situated in Nolambur. Payments for purchase of this land was made by one M/s. Petro Plast Industries Ltd in February and March 2005. The Assessing Officer had treated the income returned by the assessee under the head ‘’income from capital gains’’ as “income from the business.”

The bench noticed the decision of the Tribunal in assessee’s own case for the years 2009-2010 and 2011-2012 wherein it was held that the income must be treated as capital gains. The bench had observed that the intention of the partners of the firm has to be ascertained as to whether they intended to trade in real estate or they intended to keep the land as an investment.

“The assessee has not commenced any business activities; no other land appears to have been purchased; no supplementary work was carried on by the assessee-firm in the subject land; no organized effort was made other than simply entering into Memorandum of Understanding with the builder. As all risks and rights relating to construction of building were vested with the builder and the assessee has not taken any risk in the construction and development of flats, this Tribunal is of the considered opinion that the profit on sale of the land in the hands of the assessee-firm cannot be treated differently than as it was treated in the case of Mrs. Saroj Agarwal,” the bench noted.

Subscribe Taxscan Premium to view the Judgment
taxscan-loader