Whether when assessee has received only advance payment against a sale transaction, Revenue is right in law to bring entire sum to tax in same year - NO: HC

THE issues before the Bench are - Whether when assessee has received only advance payment against a sale transaction, Revenue is right in law to bring entire sum to tax in same year and Whether when there is no evidence that borrowed capital has been used for the purchase, the gain on sale of such asset can be taxed under the head 'Profits and Gains for Business & profession'. And the verdict goes against the Revenue.

Facts of the case

A) Assessee, a Company had purchased certain properties between 08.02.2005 and 25.08.2005 for Rs. 1,06,58,000/-. This land was sold in its entirety to one A.B. Tower Private Limited for a consideration of Rs 18 crores by virtue of a sale deed, which falls in the succeeding year. However, an advance had been received of Rs. 5 crores during the year under consideration. During assessment, the AO had regarded the receipt of advance as finalization of

the transaction and subjected the entire consideration amount of Rs. 18 crores (minus the cost price) to tax in the current assessment year. Consequently, the AO had made an addition of Rs. 16,93,42,000/- on this account. On appeal, the CIT(A) had deleted the addition, which was confirmed by the Tribunal on further appeal. It was held that there was no agreement to sell between the parties in the year in question and the only document which pertained to the transfer of property was the sale deed which was executed in the subsequent year. The Tribunal further held that there was no transfer of possession in the year in question. In these circumstances, the Tribunal felt that the sum of Rs. 5 crores was only a receipt by of advance which had been received by the assessee and no transaction stood concluded in the year in question. Consequently, the Tribunal confirmed the deletion of addition.

B) Assessee had purchased the land in 1994-96. Since then, the ssessee had shown the said land in its balance sheet as a fixed asset. The same had been consistently shown as such by the assessee in all the years including the AY 2006-07. Two portions out of the said land were sold in the year in question. The assessee had claimed that the sale proceeds were not part of its business income but, being sales of its fixed assets resulted in LTCG. During assessment, the AO had not agreed with this and taxed the entire amount as part of the assessee’s business income. Consequently, the AO made an addition of the said sum of Rs. 3,07,82,342/- by holding it as profit on sale of land which was taxable under the head ‘PGBP’ and not by way of capital gains. On appeal, the CIT(A) deleted the said addition and the said deletion has been confirmed by the Tribunal by virtue of the impugned order.

Held that:

A) ++ we are in agreement with the stand and approach adopted by the Tribunal. There was no evidence of any confirmed transaction in the year in question. As such, the addition could not have been made on the ground that the transaction had been concluded. We may also point out that in the subsequent year, the entire amount has been offered for taxation and has been subjected to tax. The Tribunal observed that the facts of this case are clearly distinguishable. No agreement has been signed in this year. The possession has also not been delivered in this year. The twin conditions of execution of written agreement and handing over of the possession have to be cumulatively satisfied in order to bring the case within the ambit of section 2(47)(v) read with section 53A of the Transfer of Property Act. None of these conditions are satisfied. Therefore, it is held that the property has not been transferred in this year. It has also not been sold in this year. Since the transaction of transfer has not taken place in this year, nothing can be brought to tax as business income in this year. In this view of the matter, the money received is only an advance, which will get taxed as and when the transaction actually takes place. This happened in the immediately succeeding year. Therefore, no question of law arises for our consideration insofar as this issue is concerned;

B) ++ the Tribunal has observed that an assessee could hold lands either for business or as an investment and there was no bar on an assessee in undertaking, along with his business of sale-purchase of land, also an investment in land. In these circumstances, the Tribunal held that the assessee could very well be a trader in land as well as an investor in land simultaneously, depending on what his intention was and how he treated the asset in question. The Tribunal returned a finding that in the present case, the land was purchased and was shown as an asset in the balance sheet and that the land had also been used for agricultural purposes. It also noted the fact that the land had been held for a long period of time, the same having been purchased in 1994-96. The Tribunal was also conscious of the fact that there was no evidence that borrowed capital had been used for the purchase. All these circumstances, led the Tribunal to the inference that the land was held as an asset and, therefore, the assessee had appropriately offered it for taxation under the head ‘capital gains’. We do not find any perversity in these findings and, therefore, there is no cause for interference with the same. No substantial question of law arises for our consideration even in respect of this proposed issue. No other aspect was argued before us.