If not a continuous activity, sale of land cannot be treated as business income

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12 Jun 2019

This appeal by the revenue is directed against the order dated March 14, 2001, passed by the Income Tax Appellate Tribunal whereby the appeal filed by the department was partly allowed. Two issues were raised before the tribunal. The first issue relates to the computation of profit on the sale of plot which had been assessed by the assessing authority as adventure in the nature of trade whereas the commissioner of income-tax (appeals) directed the same to be taxed under the head “capital gains”.

The assessing officer did not accept her plea and observed that the assesse had sold some parcels of land to different concerns on February 5, 1991 and February 13, 1991 and, therefore, she had a profit motive in acquiring the land and selling the same. He taxed the entire income of Rs. 40 lakhs as income arising from trade. Feeling aggrieved by this order, the assesse filed an appeal before the commissioner of income tax (appeals) who allowed the same by his order dated November 8, 1994, holding that the land had not been purchased by the assesse but the same was acquired by virtue of a will from her late husband. In this view of the matter, the commissioner of income tax (appeals) held that the income earned by the assesse was taxable under the head “capital gains”. Not satisfied with the order of the commissioner of income tax (appeals), the department filed an appeal before the tribunal.

We have heard the learned senior counsel for the department and find no ground to entertain the appeal. the tribunal and the commissioner of income tax (appeals) have both rightly held that the sale of land by the assesse was not in the nature of business because there is no continuous activity. It is true that even a single venture could be regarded as a trade or business but there have to be circumstances which should give rise to such a conclusion. There are no such circumstances existing in the present case. What is necessary is to find out the intention of the assessee at the time of the purchase of land. In the case before us, the land was never purchased by her. She acquired the same on the basis of a will on the death of her husband. She sold the same in parcels because the huge area could not be sold in one go. Such an activity, in our opinion, cannot amount to trade or business within the meaning of the Act. Both the commissioner and the tribunal have followed the correct principles of law and no factual or legal error could be pointed out by the department.

The other issue raised before the tribunal was in regard to the levy of interest under section 234B of the Act. The commissioner of income tax (appeals) directed the assessing officer to charge interest under section 234B of the Act up to the date of determination of income under section 143(1) (a) of the Act. It is settled law that interest is levied under section 234B on the basis of returned income and not on the basis of the assessed income. The tribunal was right in setting aside the finding of the commissioner of income tax in this regard and remanding the case back to the assessing authority for this purpose.