Sale consideration of Floor developed under Joint Venture is Not Business Income: Calcutta HC Quashes Addition against Former CBDT Official [Read Judgment]

The Calcutta High Court, while quashing an order passed by the Revenue against IRS Manjith Singh, former CBDT official, has clarified that the sale consideration of a floor developed under a Joint Venture Agreement is taxable as Long Term Capital Gain (LTCG) and not as business income under the provisions of the Income Tax Act, 1961.

Shri Manjit Singh, entered into a joint venture agreement with a builder as per which, the assessee has right over the entire first floor, basement etc. assessee sold the same and disclosed the same in the return under the head ‘Capital Gain’.

However, the Assessing Officer took a view that this transaction constituted the adventure in the nature of trade and therefore, it must be treated as business income. During the course of assessment, the assessee died and was represented by his wife in the proceedings.

Advocate D. Chowdhury, the counsel for the assessee contended before the Court that the intention of higher profit clothed the transaction with the character of adventure in the nature of trade and no element of pride of possession came into the picture.

Dismissing the revenue’s appeal, the Justice Aniruddha Bose and Justice Amitabha Chatterjee held that the income in dispute is taxable as long-term capital gain. The bench said that “It might be natural for a person, who is not undertaking any business venture, to seek the higher return from the sale of his assets. That would be a rational pursuit and in our view reflects normal human behavior and not a special attribute for a trader or a businessman. Just because for a particular unit, an intervening transaction is aborted for the reason that the property would fetch a better price, if sold to another person, the grievance may be caused to the person with whom the earlier arrangement was entered into. But such an exercise would not transform the nature of activity from the normal sale of the capital asset to a business venture. There is the substantial gap in time between the day of acquisition of the asset and its development and part-sale. The original assessee was not a property dealer but a member of the Indian Revenue Service, working with the Income Tax department itself. Only a portion of the property was sold. In these circumstances, the test laid down in the case of G.Venkataswami Naidu & Co. (supra) has to be decided in favor of the assessee.”