High Court Of Karnataka
CIT & ANR. vs. S. Rajamannar
Section 28(i), 45
Asst. Year 1997-98
K.L. Manjunath & Mrs. B.V. Nagarathna, JJ.
IT Appeal No. 2799 of 2005
6th April, 2010
Counsel Appeared :
K.V. Aravind for M.V. Seshachala, for the Appellants : S. Parthasarathi & Mallaha Rao, for the Respondent
K.L. MANJUNATH, J. :
The Revenue has come up in this appeal challenging the order passed by the CIT(A), Bangalore which has been further confirmed by the Tribunal, Bangalore in ITA No. 10/Bang/2001, dt. 21st Feb., 2005 raising the following substantial questions of law :
“(i) Whether the appellate authorities were correct in holding that a sum of Rs. 29,83,050 derived by the assessee from the sale of 28,510 sq. ft. of land received by the assessee for developing of 2 acres 29 guntas of agricultural land belonging to Sri Anjanappa into a residential layout should be treated as the capital asset of the assessee and indexation allowed by bringing the said income to tax under the head ‘Capital gains’ ?
(ii) Whether the appellate authorities having held that the assessee had acquired 28,510 sq. ft. of land in the course of business were correct in holding that the sale proceeds derived from the sale of this property cannot be brought to tax under the head ‘Business income’ as it was not treated as stock-in-trade by the assessed which was on account of his default ?
(iii) Whether the appellate authorities were correct in holding that 28,510 sq. ft. of land can be treated as capital asset of the assessee when the same was not registered in his name and such a transfer is not recognized by the Transfer of Property Act, Stamp Act and the Registration Act ?”
2. In order to appreciate the case of the Revenue, it would be appropriate for us to look into the facts of the case. One Sri Anjanappa was the owner of 2 acres 29 guntas of land situated at Sy. No. 33/2, Hennur Village, Kasaba Hobli, Bangalore North Taluk. Under an agreement dt. 3rd June, 1990, Sri Anjanappa entrusted the work of developing the aforesaid extent of land and convert the same into residential sites and to secure the prospective buyers. For the efforts taken by the assessee and the amounts spent by him to develop the residential layout by forming the roads, providing drainage, water supply and other civic amenities to the sites, the owner of the land has agreed to give an extent of 30,000 sq. ft. of land to the assessee. Therefore the assessee became the owner of 30,000 sq. ft. of land even though regular registration was not effected in favour of the assessee by the said Anjanappa. Later the assessee sold the entire extent of 30,000 sq. ft. of land which was given to him by the owner by view of the agreement after completion of the formation of the layout. The assessee filed the return of income on 29th Sept., 1997 for the asst. yr. 1997-98 offering the capital gain in accordance with the income earned by selling the 30,000 sq. ft. of land which was given to him by Sri Anjanappa in terms of the contract.
The AO rejected the case of the assessee and treated the sale consideration received by the assessee as an income from business. Accordingly an order of assessment came to be passed. Against it, the assessee filed an appeal before the CIT(A), which came to be allowed by holding that the sale consideration received by the assessee by selling 30,000 sq. ft. of land should be treated as income from capital gain and not as business income. Being aggrieved by the order of CIT(A), the Revenue filed an appeal before the Tribunal. The Tribunal also confirmed the order passed by the CIT(A) and dismissed the appeal. Aggrieved by the concurrent findings of the Court below, the present appeal is filed by the Revenue.
We have heard the learned counsel for the parties. At the outset, Sri Aravind and Sri Parthasarathi contend that even though three substantial questions of law are framed, the actual dispute in the case is whether the sale consideration received by the assessee is to be treated as business income or it has to be treated as a capital gain. Therefore, they submit that if a finding is given, to this effect, there is no necessity to consider the three substantial questions of law. Accordingly we have to consider whether the sale consideration received by the assessee has to be treated as business income or has to be treated as a capital gain ?
The main contention of Sri Aravind before us is that the assessee being a contractor is indulging in such activities and therefore the receipt of 30,000 sq. ft. of land from Sri Anjanappa has to be treated as a capital investment and has to be treated as a business income as the avocation of the assessee is only to carry on such activities. In the circumstances, he contends that the order passed by the CIT(A) as well as the Tribunal was required to be set aside. He further contends that in terms of the Transfer of Property Act, 1882, 30,000 sq. ft. of land had not been registered in the name of the assessee. Therefore the assessee could not have been considered as the owner in order to consider the case of the assessee holding that the income received is a capital gain and not a business income. Per contra, Sri Parthasarathi, learned counsel for the respondent assessee contends that under the IT Act, if the sale consideration is passed on and if the possession is transferred, it amounts to sale and the registration of sale deed is not required in order to treat the transaction as complete sale. According to him, the assessee had spent more than Rs. 7,00,000 for developing the layout. In addition to that, he has rendered services to secure the customers to Sri Anjanappa to sell his portion of the land excluding 30,000 sq. ft. of land. Therefore he contends that the amount spent by him in a sum of Rs. 7,00,000 has to be treated as a consideration paid by the assessee to acquire 30,000 sq. ft. of land and since possession was handed over to assessee by Sri Anjanappa, in respect of the transaction between him and Anjanappa has to be treated as complete sale in terms of s. 2(47) of the IT Act. He further contends that the Revenue has not given any foundation so that the assessee was indulging in such business from the beginning in order to treat, the sale consideration as business income. According to him, the assessee as a stray case is indulged in developing the layout and has developed the property by investing a sum of Rs. 7,00,000 and in view of the services rendered by him and the amount spent by him. 30,000 sq. ft. of land was given to the assessee by Sri Anjanappa and therefore, the Revenue cannot contend that the transaction has to be treated as a business transaction.
Having heard the learned counsel for the parties, we are of the opinion that the transaction between Sri Anjanappa and the assessee cannot be treated as a business transaction and the sale consideration received by the assessee as a business income for the following reasons : (i) Admittedly no material is placed before the Court to show that the assessee was indulging in such business right from the beginning in order to treat the sale consideration received by him as a business income and to treat 30,000 sq. ft. of land received by him from Sri Anjanappa as capital in nature. According to us, considering the agreement placed before us, which was entered into between Sri Anjanappa and the assessee the assessee has spent amounts for the formation of layout and Sri Anjanappa in turn has delivered 30,000 sq. ft. of land in terms of the contract. When the assessee is nor indulging in such activities, which is not his regular business, if 30,000 sq. ft. of land is acquired, by spending Rs. 7,00,000, the said amount has to be treated as sale consideration. Accordingly, we hold that the assessee had become the absolute owner by paying Rs. 7,00,000 as consideration. When the sale consideration is fully paid by the assessee to Sri Anjanappa and he has delivered possession to the assessee, the sale is complete in all respects under the provisions of IT Act, though such a thing is not recognized under the Transfer of Property Act. For the purpose of taxation, such transaction ought to be treated as a sale transaction and when he has sold the property, any profit earned out of such transaction has to be treated as a capital gain. Accordingly the assessee has offered the income received under the head “Capital gains”.
9. In the circumstances of the case, we are of the view that the questions of law framed by the Revenue has to be answered against it and have to be answered in favour of the assessee. Consequently the appeal is dismissed.
[Citation : 329 ITR 626]