INCOME TAX ACT, 1961

Section 14

Head of income - Income from Capital gains or Business income - Income from sale of lease of property that was held as investment -

Assessee purchased a land in year 1992, and entered into an agreement of lease in financial year 2002-03. It received some part of sale consideration on date of the agreement and the balance sale consideration was received in installments in the financial years 2002-03, 2003-04 and 2004-05. Further, assessee filed his returns of income for assessment year 2005-06 admitting income arising out of the said transaction as long-term capital gain. However, AO treated the said income as business income. Held: Admittedly, the property in question was acquired by assessee in the year 1992 and it entered into an agreement for sale of lease in financial year 2002-03. Further, the property was not transferred during the financial year 2002-03 as the assessee entered into an agreement for the sale of lease and retained the physical possession of the property. Thereafter, in the accounts up to the year 2004, the property was mentioned as an asset. Thus, it was evident that the assessee did not conduct any activity other than holding the land as investment. Further, the Revenue did not come up with any documentary evidence to suggest that the assessee earned income from the transaction to the land in question during the financial year 2002-03. Hence, the assessee rightly disclosed the income from the property as long-term capital gain, instead of business income.