Business – Adventure in nature of trade – Assessee holding immovable property from 1965 – Agreement for developing property in 1994, supplementary agreement in 1997 and memorandum of understanding in 2002 – Transaction not an adventure in nature of trade – Gains from sale of flats not assessable as business income

19.  Pr. CIT vs. Rungta Properties Pvt. Ltd.; 403
ITR 234 (Cal); Date of Order: 8^th May, 2017

A. Ys.: 2003-04, 2004-05 and
2006-07

Section 28 of ITA 1961

Business – Adventure in nature
of trade – Assessee holding immovable property from 1965 – Agreement for
developing property in 1994, supplementary agreement in 1997 and memorandum of
understanding in 2002 – Transaction not an adventure in nature of trade – Gains
from sale of flats not assessable as business income

The
assessee was holding immovable property since the year 1965. It entered into a
development agreement dated 28/01/1994 in relation to the property with another
company TRAL. The development agreement was followed by a supplementary
agreement dated 19/02/1997 and a memorandum of understanding dated 18/09/2002.
The arrangement between the assessee and TRAL was that a new structure was to
come up in place of the existing one at the cost of the developer and the
assessee was to get 49.29% of the developed property along with an undivided
share of the land in the same proportion, the rest going to the developer. The
Assessing Officer held that the transaction was an adventure in the nature of
trade and the income arising thereon is business income as against the claim of
the assessee that it is a capital gain.

The Commissioner (Appeals) and
the Tribunal reversed the decision of the Assessing Officer and allowed the
claim of the assessee.

In appeal by the Revenue, the
Calcutta High Court upheld the decision of the Tribunal and held as under:

“i)  The assessee’s arrangement with the developer was not a joint
venture agreement and there was no profit or loss sharing arrangement. In the
absence of any evidence that the assessee undertook the business of property
development, the object clause in the memorandum could not be treated to be the
determining factor to conclude that this was a part of the assessee’s regular
business.

ii)   On the same reasoning, reference to property in the corporate name
of the assessee could not make the assessee a property development company.

iii)  The Tribunal as well as the Commissioner (Appeals) had concurrently
found that the transactions of sale of flats did not constitute an adventure in
the nature of trade. The finding was justified.”