The Indore bench of the Income Tax Appellate Tribunal (ITAT) has held that the selling of plots which is part of a business project can be termed as “adventure in the nature of trade” and the income from the same shall be taxable as business income and not as capital gain under the provisions of the Income Tax Act.
The assessee, mainly engaged in the business of liquor, invested in agricultural land and other properties. As part of this, assessee purchased piece of agricultural land at Village Jhalaria near Indore and purchases of another portion of land in the very same area in the subsequent years and entered into an MoU with M/s. Aerone Developers Pvt. Ltd, Delhi (ADPL) for development and sale of this land. The developer Company M/s. ADPL developed approximately 96 hectares of land and thereafter sold the duly developed plot of lands to various purchasers. The assessee disclosed the income from the above transaction as capital gains.
However, the assessing Officer rejected the return and concluded that the profits earned from sale of land should be taxed as business income and not as Capital Gain because the action of the assessee proves that she entered into an adventure in the nature of trade.
As the assessee failed to secure relief from the first appellate authority, approached the ITAT on second appeal.
The Tribunal noted that for assessing the profit from transaction of sale of asset as Capital Gain or business income, depends on circumstantial evidences, frequency of the transaction and the modus operandi to conclude the transaction.
Upholding the orders of the lower authorities, the Tribunal held that it was a well thought business project carried out by the assessee jointly with 17 other persons by way of taking the services of Developer M/s. ADPL and the intention of entering into an adventure of business was very clear from the very first day of purchase of impugned land and completed on selling the residential plots.
“We are of the considered view that both the lower authorities have rightly appreciated the facts and concluded that the profits from sale of land situated at Village Jhalaria, Tehsil Indore is a business profit and cannot be taxed as Short Term Capital Gain or Long Term Capital Gain,” the Tribunal observed.
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