ITAT directs to compute Income earned from Sale of Property u/s 45(2) of Income Tax Act [Read Order]

The Chennai bench Income Tax Appellate Tribunal ( ITAT ) directed to compute income earned from sale of property under Section 45(2) of the Income Tax Act, 1961.

The Assessee Dharani Developers Private Limited is engaged in the business of property development.  During the course of assessment proceedings, the Assessing Officer asked the assessee to explain the nature of lands sold and the reason as to why it should not be taxed under the head 'Business'.

The assessee explained that these lands were purchased long back in 1994-95 and till now they are held only as investments, and that only recently, the assessee has decided to use those lands for construction purposes.

Thus, the Assessing Officer (AO) held that the profits out of the sale of the lands were profits from business. Accordingly, the AO taxed it under the head income from business' to the extent of ₹.9,25,317/- for the assessment year 2008-09.

After considering the submissions of the assessee, the Assessing Officer was of the opinion that the assessee is in the business of property development viz., construction of buildings and since the project itself has started any income arising out of these should only be offered under the head "income from business".

Aggrieved by the order, The assessee filed appeal before the CIT(Appeal) who dismissed the appeal. Therefore, the assessee filed another appeal before the tribunal.

During the adjudication K. Ramakrishnan, the counsel for assessee argued that the land was purchased way back in 1994-95. Up to the assessment year 2008-09, the lands were held as investment and not as stock in trade. Therefore, the income arising out of sale of property has to be treated as income from capital gains and not as a business income.

D. Hema Bhupal, Department representatives argued that the assessee has not filed any details as to when the asset was converted into stock-in trade. Therefore, the Assessing Officer has treated income as business income.

The tribunal observed that assessee has not filed any details before the Assessing Officer or CIT(A) or even before the Tribunal as to when the asset was converted into stock-in-trade.

Therefore, the bench concluded that the assessee has furnish the details, such as how long the asset was treated as long term capital gain and when the assessee has converted the property into stock-in-trade and accordingly up to conversion of the property, the Assessing Officer has to treat it as capital asset and after conversion of the property, it has to be treated as business assessee. Although, neither the assessee nor the Assessing Officer properly computed the property of the assessee

After analyzing the submission of both parties the bench comprising V. Durga Rao (Judicial Member) and Manjunatha G (Accountant Member) directed to compute income earned from sale of property under Section 45(2) of the Income Tax Act.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates