By TIOL News Service

AHMEDABAD, MAR 14, 2017: THE ISSUE IS - Whether receipts from sale of land which was held by a dealer for eight continous years for showroom purposes, is liable to be treated as 'capital gain' and not 'business income'. YES is the verdict.

Facts of the case: The assessee at the relevant time was having a dealership agreement with Mercedes Benz. It had sold the property which was shown in the block assets for the amount of Rs. 25,22,52,000/- and had shown long term capital gain of Rs. 22,78,,50,090/- on sale of such land after applying cost indexation and claiming improvement cost of Rs. 47,47,534/-. The AO did not accept the claim of assessee to treat Rs.24,13,24,783/- as capital gain on sale of land, as he was of the opinion that when the assessee purchased the land, the intention was to get profit on sale and the transaction had all the elements of business transactions. Consequently, AO treated the amount of Rs. 24,13,24,783/- as business income and added it to the total income of assessee. On appeal, the Tribunal set aside order passed by CIT(A) as well as AO in treating the amount received by the assessee on sale of the land as income from business.

On appeal, the HC held that,

++ it is not in dispute that the assessee was already having a dealership with the Mercedes Benz since 1997. That thereafter, the assessee purchased the land on S.G. Highway Road, Ahmedabad in the year 2003, which according to the assessee was insisted as per the requirement of Mercedes Benz and to continue dealership with the Mercedes Benz. That thereafter, assessee purchased the land on SG Highway Road for sale consideration of Rs.95,92,500/-. Therefore, the assessee got the said land converted from agricultural to non agricultural use in the year 2005 and thereafter obtained necessary development permission from the AUDA (competent authority) for construction of the showroom etc. It appears that thereafter the dispute arose between the assessee and Mercedes Benz and therefore, the dealership with the Mercedes Benz came to be discontinued in the year 2009. That thereafter, in the year 2011, the assessee sold the land and received the sale consideration which was claimed by it as a capital gain. Considering the aforesaid facts and circumstances, it cannot be said that when the assessee purchased the land in the year 2003, the intention was to purchase the land to make profit by selling it. The aforesaid circumstances would suggest that the land was purchased for showroom etc. As such, the assessee hold the land for approximately 8 years and thereafter sold the same for the reasons stated herein above. Considering the aforesaid facts and circumstances of the case, when the Tribunal has held the income of Rs. 24,13,24,783/- received by the sale of land as capital gain as claimed by the assessee and not as income from business as held by the AO confirmed by the CIT(A), it cannot be said that the Tribunal has committed any error, which calls for the interference of this Court.

(See 2017-TIOL-484-HC-AHM-IT)