The Income Tax Appellate Tribunal (ITAT) of Chennai, chaired by Mahavir Singh, Vice President, Judicial Member, and Manoj Agarwal, Accountant Member of has ruled that the land came into the possession of the assessee in lieu of a business loan foregone in the normal course of finance business, the income earned from that land shall be a business income and not a capital gain.
This appeal was preferred by the assessee M/s. TVS Finance & Services Ltd. for A.Y. 2009-10 against the order of Commissioner of Income Tax (Appeals)[CIT(A)] in the matter of an order of Assessing Officer (AO) under Section 143(3) of the Income Tax Act,1961.
The assessee is a company that operates in equipment leasing, hire purchase financing, and bill discounting, to put it briefly. It has assigned or sold its outstanding receivables, which are worth Rs. 51.07 crores, to M/s Piramal Financial Services Ltd. as part of its business for Rs. 40 crores.
The payment was paid in part with cheques and in part by giving the assessee ownership of some vacant parcels of land that were the subject of dispute before being sold. By selling the land, the assessee acknowledged the earnings under the heading “Capital Gains.”
Because the assessee was permitted to claim a loss on repossessed vehicles, the AO determined that the gains would be considered business profits. The land was also included in the business assets that were repossessed, thus it could only be assessed as business income. As a result, the assessee’s request for an indexation benefit was denied, and the gains were indeed treated as business income.
This order of AO led the assessee to prefer an appeal before the CIT(A). The CIT(A) held that the land was received in lieu of a business loan foregone. The assets so received by the assessee would assume the character of same business assets. Thus the CIT(A) supported the order of the AO.
R. Vijayaraghavan, the assessee’s counsel, contended before the tribunal that since the land was designated as a fixed asset, it should be considered as a capital asset. However, it is broadly acknowledged that entries in the assessee’s books of accounts are not indicative of the nature of the income.
The bench emphasised the Supreme Court’s ruling in Express Newspapers Ltd. 53 ITR 250 in considering this appeal, which said that an asset that was originally an assessee capital asset remains so regardless of how the proceeds from it are employed. Similar to this, even if an asset was described as a part of a fixed asset, it remains a business asset if it emanated from a business source.
The vacant land was offered to the assessee in consideration for a loan that was foregone in the normal course of business for the finance business. As a result, the unused lands assume the attributes of business assets and would generate business income as and when they are sold.
The tribunal’s findings make it abundantly evident that the land in question was acquired for business purposes alone, and as a result, the gains that followed would be considered to be part of the assessee’s business income. The tribunal ruled that the adjudication of the CIT(A) cannot be faulted and concurred with the findings of the CIT(A).
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