Chitra Venkataraman, J.@mdashFollowing are the questions of law raised by the Revenue in the appeal relating to the assessment year 1999-2000:
1. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the sale of the property by a dealer in real estate should be treated as capital gains?
2. Whether in the facts and circumstances of the case, the Tribunal was right in treating the property as a capital asset on the ground that the interest on borrowals was capitalised?
2. The Assessee as a Kartha of the HUF had filed a return of income of Rs. 26,45,315/-, under the head "Long Term Capital Gains". The assessment was sought to be taken up for consideration u/s 143 of the Income Tax Act, 1961, treating the said income as business income.
3. The asseseee filed an appeal before the Commissioner of Income Tax Appeals. Aggrieved by the order of the dismissal, the Assessee went on a further appeal before the Tribunal. The Tribunal pointed out that the ownership of the asset with the HUF Assessee was never denied by the Revenue. The fact that the Assessee had plotted out the property by itself would not lead to an assumption that the Assessee was carrying on business including adventure in the nature of trade. Referring to the decisions of this Court reported in
4. A reading of the orders of the authorities below show that the Assessee S. Palanichamy, HUF, represented by its Kartha, entered into a partnership, on 1.4.1991, with V. Thilakam and M. Devadoss. The object of the partnership was to carry on business, as Promoters and Developers of properties in the name and style of "M/S. Mahalakshmi Constructions". The Assessee herein contributed a sum of Rs. 9 lakhs to the constitution of the partnership. The partnership thus entered, on 1.4.1991, was dissolved on 10.7.1999.
5. On dissolution, the Assessee, an HUF, got back the properties. One of the clauses in the dissolution agreement stated that the HUF would carry on and continue the business in the name and style of "M/S. Mahalakshmi Constructions" either by itself as Palanichamy, HUF or by taking one or more persons in partnership. The assesssee developed the properties during the assessment year 1995-1996 and declared the income, under the head capital gains.
6. During the process of assessment, the Assessing Officer noted that the Kartha of the Assessee, Palanichamy, in his individual capacity was doing real estate business and so too the said Palanichamy''s wife doing real estate business. Looking at all these facts, the officer came to the conclusion that the Assessee was carrying on business in real estate and hence, the income should be assessed only under the head "business".
7. A look at the order of the Commissioner of Income Tax (Appeals) shows that in the background of law declared by the Apex Court in the decision reported in
8. The First Appellate Authority pointed out that the transaction undertaken by the Assessee had all the ingredients of a trade and even going by the definition of `business'' that even an individual transaction of purchase and sale would amount to a trading venture, the Commissioner of Income Tax (Appeals), came to the conclusion that the income had to be assessed as a business income.
9. On appeal by the Assessee before the Income Tax Appellate Tribunal, the Tribunal pointed out that the Revenue did not dispute the fact that the HUF was the owner of the property. The Tribunal further pointed out that the interest on borrowal for acquiring the property was capitalised in all the earlier years. Taking note of all these the Tribunal had allowed the Assessee''s claim to treat the receipts to capital gains. Hence the present appeal by the Revenue.
10. As pointed out by the Tribunal, the property which was offered as the HUF contribution in the firm was the property of the HUF and on disssolution it returned back to the HUF. The mere fact that the Kartha in his individual capacity and his wife were carrying on business in the real estate by itself does not lead to an interference that the HUF was holding the property only as a trading asset for the purpose of earning income as the business income.
11. As rightly pointed by the learned Counsel for the Assessee even though a single transaction by itself could constitute business, yet as rightly pointed out by the Tribunal the mere fact that the Assessee sold a portion of the property to wriggle out of the financial hardship would not make the activity, an adventure in the nature of trade.
12. The findings of the Tribunal is that the Assessee never treated this asset as stock in trade remains unchallenged before this Court. Thus, going by the facts found therein, on the mere score that the business income would be taxed at a higher rate by itself would not give the transaction of sale, the character of a "business", so as to reject the claim of the Assessee and to hold that the HUF traded on the property as business assets.
13. In the circumstances, we do not find any ground to disturb the findings of the fact that the property held by the Assessee, HUF was by way of an investment only and not as a stock in trade. It is not denied by the department that prior to the constitution of a partnership, the HUF was holding the property as an investment. In the circumstances, we do not find any justification that by a reason of the Assessee getting back properties, on a dissolution, the property usually held as investment would undergo change in the character of the holding, as business income. Consequently, we have No. hesitation in dismissing the tax case appeal. The tax case appeal stands dismissed. No. costs.
