By Ajay R. Singh, Advocate
[Affirmed The Sonawala Company Pvt. Ltd.
vs. ACIT. [ITA No. 4004/MUM/2010 ; Bench : F ; dated 27/08/2014; A Y: 2007-
2008. Mum. ITAT]
CIT vs.The Sonawala Company Pvt. Ltd.
[Income tax Appeal no. 385 of 2015 dated : 11/07/2017 (Bombay High Court)].
The assessee had gross income received as
hoarding charges/compensation consisted of hoarding charges, lease rent,
parking charges etc.
The assessee had sold a plot located in Pune
for a consideration of Rs.2.23 crore. The assessee had acquired the lease hold
rights on it through an agreement dated 11.12.1941. The assessee declared the
profit arising on sale of above said plot as long term capital gain and claimed
deduction u/s. 54EC of the Act. The AO noticed that the assessee had proposed
to construct flat on the above said land about 20 years back and had also
obtained advances from the parties.
The assessee had also prepared plans for construction
of residential premises and also obtained sanction from Pune Municipal
Corporation. However, the project was abandoned and the advances received from
parties excepting a sum of Rs.73,200/- were returned back.
The AO took the view that the assessee had
converted the above said plot as “Business asset” and accordingly
assessed the gain arising on sale of land as business income. Consequently, he
rejected the claim for deduction u/s. 54EC of the Act.
The Revenue submits that though the open
space was acquired in the year 1941 by the Assessee, it was only in the year
2004, the construction permission was obtained for developing the said flat and
the same was assigned along with construction rights. As such the same will
have to be constituted as business income and not long term capital gain.
The assessee submitted that even a solitary
transaction can amount to business transaction. The attending circumstances are
writ large to come to the conclusion that the sale of a flat along with
construction permission of the project is a business income. The Hon’ble Punjab
& Haryana High Court had considered an identical issue in the case of CIT
vs. Raj Bricks Industry (2010)(322 ITR 625).
The Tribunal observed that in the instant
case, the assessee has been holding the leasehold right in the land since 1941.
It has sold the same after holding it for about 65 years.
About 20 years back, the assessee had
attempted to develop the same, but it was prevented by the order of the Hon’ble
Bombay High Court. Hence, the assessee could not develop the same.
Subsequently, the assessee has obtained permission to construct a residential
premises. All these sequences would show that the assessee has continued to
hold the land as its capital asset. Under these circumstances, the Tribunal
held that the CIT(A) was justified in holding that the gain arising on sale of
land should be assessed as “Long term Capital gain” only.
Consequently it was held that the assessee
can claim deduction u/s. 54EC of the Act, subject to the fulfilment of
conditions prescribed in that section.
The Hon. High Court held that totality of
the facts as were discussed by the CIT (A) and the Tribunal would show that no
error has been committed in treating the income from the sale of land as long term
capital gain.
In view of that, no substantial questions of
law arise. The appeal as such is dismissed.
