S. 45 r.w. S. 28(i) — Assessee in business of real estate — Land held as investment — Agreement of sale entered in F.Y. 2002-03 — Full consideration received by F.Y. 2004-05 — Capital gains offered to tax in A.Y. 2005-06 — Taxed as business income in A.Y

33 (2010) 127 ITD 94 (Bang.)

Asha Housing Enterprises v.
DCIT

A.Y. 2003-04. Dated :
31-3-2010

S. 45 r.w. S. 28(i) —
Assessee was in the business of real estate — Land was held as investment —
Agreement of sale entered in F.Y. 2002-03 — Full sale consideration received by
F.Y. 2004-05 — Long-term capital gains offered to tax in A.Y. 2005-06 — AO held
it as business income for A.Y. 2003-04 — Held : Land to be treated as investment
and transfer is said to be complete in F.Y. 2004-05.

Facts :

The assessee firm was
engaged in real estate business. It had purchased land in the year 1992. On
22-6-2002, the assessee had entered into agreement of sale with A Developers for
Rs.12.25 crores. On the date of agreement, the assessee received a part payment
of Rs.5.25 crores. Thereafter, sale consideration was received in piecemeal in
the F.Ys. 2002-03, 2003-04 and 2004-05. The assessee offered to tax the income
arising out of this transaction as long-term capital gains in the A.Y. 2005-06.

The Assessing Officer
assessed the income as business income arising in A.Y. 2003-04. The AO observed
that general power of attorney (GPOA) in the favour of developers was executed
in F.Y. 2002-03 and therefore transfer had taken place in A.Y. 2003-04.

Held :

1. The execution of GPOA
cannot be construed as transfer of property.

2. The AO was not having any
conclusive evidence to show that possession of property was indeed handed over
to the developers.

3. The agreement of sale
clearly stated that the vendor shall deliver the possession of property on the
date of sale and against payment of entire sale consideration. The supplemental
agreement also had stated that the vendors at request of purchasers have
permitted by way of licence to enter upon the property to do the work of
property and that the licence granted to the purchasers was on specific
condition that the same shall not be construed as possession u/s.53A of the
Transfer of Property Act.

4. The assessee had held the
said land as investment right from the time the land was purchased. In the F.Y.
2000-01, the assessee had sold a portion of property and treated the gain out of
the same as long-term capital gain. The Department had accepted the same. The
Department cannot now treat the land as stock-in-trade. A firm involved in real
estate business can hold land as investment and/or stock-in-trade.

5. In view of the above, the
assessee had correctly offered income as long-term capital gains for A.Y.
2005-06.