The Commissioner Of Income-Tax – 19, Mumbai v. Kailash Premnarayan

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.4607 OF 2010 The Commissioner of Income-tax – 19, Mumbai Versus Kailash Premnarayan ..Appellant. ..Respondent. Mr.Suresh Kumar for the appellant.Mr.P.J. Pardiwala, Senior Advocate with Mr.Pankaj Toprani for the respondent. CORAM : J.P. Devadhar &K.K. Tated, JJ. P.C. : DATE : 28[th] September 2011 1.Whether the Income Tax Appellate Tribunal was justified in holding that the arrangement between the assessee and other co-owners with Godrej Properties & Investments Limited (“GPIL” for short) is not a commercial arrangement and, therefore, the income arising from the transaction in question is taxable under the head ‘capital gains’ is the question raised in this appeal. 2.The assessment year involved herein is AY 2004-05. property ad-measuring 1373 square meters known as Indraprastha situated at Santacruz, Mumbai. The said property was an ancestral property purchased in the year 1938 having a constructed bungalow which was being used for residential purposes by the assessee and other family members. 4.The assessee and other co-owners entered into an agreement with GPIL for development of the property, so that each co-owner gets a flat free of cost. As per the agreement, the cost of construction was to be financed by selling some of the flats to be constructed and the remaining flats were to be divided among the co-owners for their residential use. 5.The surplus remaining after financing the cost of construction was offered to tax as long term capital gain. The assessing officer treated the capital gains as adventure in the nature of trade and not as capital gains. 6. On appeal filed by the assessee, the Commissioner of Income Tax (Appeals) set aside the order by holding that the amounts received by the assessee were capital in nature. On appeal filed by the Revenue, the Income Tax Appellate Tribunal has upheld the order of the Commissioner of Income Tax (Appeals). Challenging the order of the Income Tax Appellate Tribunal, the Revenue has filed the present appeal. 7.The argument of the Revenue is that what was sold was different from what was inherited and, therefore, the sale transaction was a commercial transaction. 8.The Income Tax Appellate Tribunal in para-10 of its order after recording detailed reasons has held that the arrangement between the co-owners and GPIL cannot be hold as commercial arrangement, for the simple reason that the piece of land including the bungalow inherited by the co-owners was a capital asset and the nature of the capital asset remained the same even after construction. The Tribunal further held that the sale consideration received by the co-owners was on account of sale of capital asset. 9.In our opinion, the decision of the Tribunal is based on finding of fact. No substantial question of law arises from the order of the Tribunal. The appeal is accordingly dismissed with no order as to costs. (K.K. Tated, J.) (J.P. Devadhar, J.)