Return from a Development Agreement in favour of land owner is capital gain

Cause Title : Commissioner Of Income Tax, Kolkata Iv, Kolkata Vs. M/s. Machino Techno Sales Ltd., ITA/160/2011, Calcutta High Court

Date of Judgment/Order : 20/02/2023

Corum : The Hon’ble Justices T.s. Sivagnanam And Hiranmay Bhattacharyya

Citied: 

Background

Some lands were purchased by the assessee during 1985/1990 and the said land and factory shed was used by the assessee as its workshop and was shown as capital asset in its balance-sheet. The purchase prices were debited by the assessee under the head ‘land account’. On 13th November, 1994 the assessee entered into a development agreement with the developer under which the assessee in exchange of the land in question was entitled to get 45% of the constructed area and the remaining portion of the land and shed continued to be used by the assessee for its own workshop purchase. 

The Revenue Dept. treated income of the owner/assesee from the Development Agreement as of income from business which was rejected by the Income Tax Appellate Tribunal who treated the same as capital gain. Hence this appeal.

Judgment

The High Court observed that there is no evidence to show that the lands in question was intended for resale or was converted into stock-in-trade. On the other hand, the assessee used as capital asset for its business purposes and continued to show the land as capital asset even after 1994. Thus, the Tribunal agreed with the assessee that there was no intention on the part of the assessee to enter into an adventure in the nature of trade to deal in the land as its business.

Under the circumstances, the High Court found no grounds to interfere with the order passed by the learned Tribunal.