Whether sum receivedafter tripartite agreement is to be taxed as capital gains when assessee is engaged in such activity with respect to only one property. YES is the answer.

MUMBAI, MAY 22, 2015: THE issue before the Bench is - Whether sum receivedafter tripartite agreement is to be taxed as capital gains when assessee is engaged in such activity with respect to only one property. YES is the answer.

Facts of the case

The assessee is a manufacturer of textiles. The assessee was allotted a plot of land on lease by CIDCO with a specific condition that the plot must be used for construction of office building only. Therefore, when this agreement was executed and possession was taken the intention was to construct a corporate office. However, for more than 10 years it could not set up a corporate office and, therefore, an application was made to the CIDCO to consider the change of user to residential-cum-commercial complex. The CIDCO granted permission and it was subject to the condition that construction should be done within two years otherwise a penalty would be imposed by CIDCO. Thereafter application was made to the CIDCO for grant of permission to assign these leasehold rights in the plot to the buyer, which was accordingly granted. During assessment, the Revenue held that the gains derived by the assessee from such transaction and which was tripartite in nature was adventure in the nature of trade.

However, the Tribunal following the Supreme court judgement held that the gains derived by the assessee from the transaction was capital gains and not an adventure in the nature of trade.

On appeal, the HC held that,

++ it is in this overall perspective that the Tribunal considered the matter. It applied the relevant tests and as laid down by the Supreme Court in the case of G. Venkataswami Naidu and reaffirmed later. The Tribunal concluded that having regard to these tests, it is clear that a solitary or single transaction may be termed as adventure in the nature of trade even though the assessee, in a normal course, is not engaged in such business. But there is no formula and which can be applied generally. Ordinarily an isolated transaction cannot be the sole criterion to test as to whether it is in the nature of trade or sale of investment. A holistic and overall view of the transaction has to be taken;

++ upon finding that the plot was allotted but could not be utilized by manufacturer of cotton and yarn that the subsequent developments took place. It is only in the year 2005 and for the first time the assignment of leasehold interest took place. It was not a sale or transfer of property by the assessee for a profit but since use could not be made, that initially a conversion permission was sought but even thereafter a utilization of the property for the assessee's purpose did not come through. It is in these circumstances that the assignment with the consent of CIDCO has taken place. Therefore, the Tribunal termed that the amount received pursuant to the tripartite agreement is assessable to tax under the head "Capital Gains" only. The reasons assigned in the order under challenge and particularly that the revenue did not set up a case that the assessee was engaged in such activity in respect of any other piece of land or property that the single or isolated transaction was not termed as an adventure in the nature of trade. To our mind, such conclusion arrived at and consistent with the factual data does not raise any substantial questions of law.

(See 2015-TIOL-1304-HC-MUM-IT)