The Commissioner of Income Tax vs M/s. Mysore Premier Investment Co. Ltd.

Chitra Venkataraman, J.—Following is the question of law raised by the Revenue seeking admission of the Tax Case (Appeal) filed for the assessment year 2007-08.

Whether under the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in that the sum of Rs. 2 crores received by the assessee pursuant to the MOU entered into by it for joint development of its property is assessable under the head income from capital gains and not income from business?

The assessee herein, a company, entered into Memorandum of Understanding on 14.08.2002 for development of its property on joint venture. Pursuant to the agreement, the assessee received a sum of Rs. 2 crores, which was offered under the head ''capital gains''. The Assessing Officer, however, stated that the said income was income from business and profession.

The assessee filed appeal before the Commissioner of Income Tax (Appeals), who concluded that the transaction was not in the nature of business, hence, the income could not be assessed under the head "income from business". Thus, the Commissioner of Income Tax (Appeals) agreed with the assessee''s contention that the income was to be assessed under the head "capital gains". Aggrieved by this, Revenue went on appeal before the Income Tax Appellate Tribunal.

On an overall material consideration, the Income Tax Appellate Tribunal came to the conclusion that there was no evidence or material produced by the Revenue that the property in question held by the assessee for more than five decades was converted into stock-in-trade. In the absence of any evidence to show that Memorandum of Understanding in question was in the nature of trade, the Income Tax Appellate Tribunal agreed with the view of the Commissioner of Income Tax (Appeals) and treated the income as assessable under "capital gains" and not as "business income". Aggrieved by such finding, the Revenue has preferred the present Tax Case (Appeal) seeking admission on the above cited question of law.

Learned Standing Counsel appearing for the Revenue submitted that even though the assessee had carried on business in insurance, yet, it had started its business in real estate; consequently, the agreement in question was to be treated as business venture resulting in business income.

We do not agree with the said submission of the Revenue. It is not denied by the Revenue that the assessee was holding the property for more than five decades and that it had been carrying on business only in insurance. The consistent case of the assessee is that when it had entered into joint venture agreement, it had decided to retain 19,300 sq. ft. of developed area or a cash compensation of Rs. 2 crores in lieu there off. The assessee contended that the ownership of the property was never transferred to the developer in absolute terms and never it was the intention to embark or venture in the nature of trade in properties. The Assessing Officer rejected the contention of the assessee without any material and adopted 30% tax treating the income as income from "business" and not as "capital gains", which assessable at the rate of 20%.

We find that the Assessing Officer, in so adopting this view had not spelt out any material based on which such conclusion was reached. The Revenue does not dispute the fact that the assessee was carrying on business only in insurance and in the year under question, the income returned from business as negative. The fact that the assessee had gone for a joint venture agreement for development of the property itself would not lead to the inference that the joint venture was more in the nature of business and that the assessee was engaged in property development. Leaving aside the fact that the said venture as a solitary instance, as rightly pointed out by the Income Tax Appellate Tribunal, the Revenue had not placed any material to show that the property in question was to be treated as "business asset" or the assessee converted it into stock-in-trade for the purpose of carrying business with it. In such circumstances, we do not find any justifiable ground to admit the Tax Case (Appeal). Accordingly, the same stands dismissed. No costs.