Partnership firm of wife & husband acquired property but they could not develop and sold it - conclusion reached by lower authorities that income is to be treated as LTCG instead of business income is proper: HC

THIS is a Revenue appeal.

It is argued that the Tribunal order, holding that the order of Commissioner of Income Tax (Appeals) was proper in law in directing the Assessing Officer to treat the income of Rs.5,71,03,487/- (AY 2007-2008) as income from Long Term Capital Gain instead of business income, is not correct as-

The Assessing Officer held that the partnership firm of husband and wife was constituted for the purpose of doing business as Builder & Developer. If the Assessee was only investing in the property, then, there was no occasion to set up such a partnership firm and if in the meanwhile and upon setting it up it was discovered that it was not viable, steps should have been taken to amend the partnership deed and particularly with regard to scope of the partnership business. In addition to this, when this property at Khetwadi, Mumbai was acquired in 1997, the Assessee made several applications seeking clearances and permissions from the Government Authorities so as to develop and construct upon the property, this would run counter and rather negate the position that the property was held as investment.

The High Court observed -

++ The present case would denote that partnership firm of husband and wife undertook only one project and completed it only after more than eight years. They did not have any business. They realized that developing the property cannot be their business. Though they have acquired the property in Mumbai and Khetwadi in 1997, they could not do anything beyond making some applications. There were sitting tenants and 72 in number on the property. They waited for another nine years and ultimately disposed of this property in 2006.

++ If the business was of Builder and Developer, it was inconceivable in a city like Mumbai, where the prices of the lands are sky rocketing, that the Builders and Developers will not do any business, even after they have set up a firm of Builder and Developer.

++ The period of nine years coupled with the fact that barring one project nothing more was undertaken, leave alone, completed by the firm, that both the Commissioner and the Tribunal reached this conclusion that the property was acquired for dealing in real estate investment.

++ Reliance by Revenue on the apex court judgment in Rajputana Textile (Agencies) Ltd. is misplaced as that case involved business of shares.

Observing that there is no error in law apparent on the face of record as having been committed by Tribunal, the High Court held that it cannot be termed as perverse.

The Revenue appeal was dismissed