INCOME TAX ACT, 1961

Section 14

Heads of income - Business income or Capital gains - Land purchased by assessee engaged in property development - Land whether converted to capital stock

Assessee was engaged in the business of property development. He sold land and claimed that he purchased land for business purposes only. Assessee claimed that there was change in licensing policy prescribed by City Corporation, and assessee came to know that built-up area originally planned could not be constructed. Thus, according to assessee, he converted his business asset into capital asset and sold same. AO alleged that sale of land was chargeable as business income and computed profit after deducting cost of acquisition and amount paid to tenants to vacate said land. Held: In case of execution of project of construction of multistoried apartment, it is the trade practice to bear the rent paid by tenants who are going to be allotted flats in the proposed building and further, those expenses are usually claimed against revenue generated from the said project only. Thus, question of claiming the rent so paid as deduction against other income of the assessee did not arise, since they were project specific expenses. Uncontroverted fact was that intention of assessee, at time of purchase of land, was to hold same as business asset only, which was evident from purpose for which land was purchased. There was no material to show that assessee really converted business asset into capital asset. Character of land was to be considered as 'business asset' only and consequently, profit arising on its sale was required to be assessed as business income only.