Thirumala Venkateshwara Estates and Agencies, Bangalore v. DCIT, Bangalore

ITA 553/BANG/2010 | 2006-2007
Pronouncement Date: 28-07-2010 | Result: Allowed

Appeal Details

RSA Number 55321114 RSA 2010
Assessee PAN AXACT1961W
Bench Bangalore
Appeal Number ITA 553/BANG/2010
Duration Of Justice 3 month(s) 9 day(s)
Appellant Thirumala Venkateshwara Estates and Agencies, Bangalore
Respondent DCIT, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 28-07-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 28-07-2010
Date Of Final Hearing 08-07-2010
Next Hearing Date 08-07-2010
Assessment Year 2006-2007
Appeal Filed On 19-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE DR. O.K NARAYANAN VICE PRESIDENT AND SMT. P MADHAVI DEVI JUDICIAL MEMBER ITA NO.553 /B ANG/2010 (AS ST. YEAR - 2006-07) THIRUMALA VENKATESHWARA ESTATES AND AGENCIES NO.911 BARTON CENTRE NO.84 M.G ROAD BANGALORE-560 001. . APPELLANT VS. THE DY. COMMISSIONER OF INCOME-TAX CIRCLE-1(1) BANGALORE. . RESPONDENT APPELLANT BY : SHRI K.R PRADEEP AND SHRI B.K MANJUNATH CHAR TERED ACCOUNTANTS RESPONDENT BY : SMT. PREETHI GARG COMMISSIONER O F INCOME-TAX O R D E R PER DR. O.K NARAYANAN VICE PRESIDENT THIS IS AN APPEAL FILED BY THE ASSESSEE FOR THE AS SESSMENT YEAR 2006-07. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) - I AT BANGALO RE DATED 11/03/2010. THE APPEAL ARISES OUT OF THE ASSESSMEN T COMPLETED U/S 143(3) OF THE INCOME-TAX ACT 1961. ITA NO.553/B/10 2 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL ESTATE AND CONSTRUCTION. THE RETURN FOR THE IMPUGNED ASSESSME NT YEAR WAS FILED DECLARING A TOTAL INCOME OF RS.37 10 085/-. 3. THE ASSESSEE HAD SOLD A PROPERTY CONSISTING OF L AND AND BUILDING IN THE PREVIOUS YEAR RELEVANT TO THE ASSES SMENT YEAR UNDER APPEAL. THE PROPERTY IS LOCATED AT 16/1 MUSEUM RO AD BANGALORE. THE PROPERTY WAS SOLD ON 6.2.2006 FOR A CONSIDERATI ON OF RS.6 CRORES. THE ASSESSEE TREATED THE GAINS ARISING OUT OF THE A BOVE SALE AS LONG TERM CAPITAL GAINS. THE LONG TERM CAPITAL GAINS WO RKED OUT BY THE ASSESSEE CAME TO RS.41 77 891/-. THERE WAS A LOSS R EPORTED IN THE OTHER BUSINESS CARRIED OUT BY THE ASSESSEE TO THE E XTENT OF RS.4 67 806/-. THUS THE ASSESSEE HAS RETURNED A TO TAL INCOME OF RS.37 10 085/- FOR THE ASSESSMENT YEAR UNDER APPEAL . 4. THE ASSESSING OFFICER IN THE COURSE OF ASSESSMEN T PROCEEDINGS DISCUSSED THE ISSUE IN A DETAILED MANNER IN PAGES 2 TO 4 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER POINTED OU T THAT THE PROPERTY WAS TREATED BY THE ASSESSEE AS A CAPITAL ASSET AND IT WAS FOR THIS REASON THE LONG TERM CAPITAL GAINS WERE OFFERED BY THE ASS ESSEE FOR TAXATION. THE ASSESSING OFFICER OBSERVED THAT IT COULD NOT BE DONE. RATHER HE ITA NO.553/B/10 3 HELD THAT THE PROPERTY AT THE TIME OF SALE WAS IN THE NATURE OF STOCK-IN- TRADE OF THE ASSESSEE. 5. THE ASSESSING OFFICER HAS DISCUSSED A SERIES OF REASONS JUSTIFYING HIS FINDINGS AS THE PROPERTY SOLD BY THE ASSESSEE WAS STOCK- IN-TRADE. THE FIRST GROUND RELIED ON BY THE ASSESS ING AUTHORITY IS THAT NATURE OF THE BUSINESS CARRIED ON BY THE ASSESSEE W AS CONSTRUCTION OF MULTI STORIED BUILDINGS AND EXPLOITATION OF IMMOVAB LE PROPERTIES AND IF VIEWED IN THAT PERCEPTION THE SALE OF THE IMPU GNED PROPERTY SHOULD BE TREATED AS A TRANSACTION IN THE NATURE OF BUSINE SS. THE SECOND REASON POINTED OUT BY THE ASSESSING AUTHORITY IS TH AT EVEN THOUGH THE ASSESSEE WAS REPORTING BUSINESS LOSS SINCE LONG TIM E THE ASSESSEE HAS NOT LET OUT THE PROPERTY FOR ABOUT NINE YEARS IN TH E PAST EVEN THOUGH THE PROPERTY SITUATED IN A PROMINENT PLACE WHICH CO ULD BE LET OUT EASILY. RELYING ON THE JUDGMENTS OF THE HONBLE SU PREME COURT IN THE CASE OF G VENKATASWAMI NAIDU AND COMPANY VS. CI T 35 ITR 594 AND IN THE CASE OF RAJPUTANA TEXTILES (AGENCIES ) LTD. VS. CIT 42 ITR 743 THE ASSESSING OFFICER HELD THAT KEEPING TH E BUILDING IDLE FOR LONG YEARS WITHOUT LETTING OUT AND THEREBY SACRIFIC ING THE RENTAL INCOME AND SUBSEQUENT SALE OF THE PROPERTY SHOULD B E TREATED AS AN ADVENTURE IN THE NATURE OF TRADE. HE THEREFORE H ELD THAT THE ASSESSEE ITA NO.553/B/10 4 WAS EXPLOITING THE BUILDINGS AND THE SALE CONSIDERA TION SHOULD BE TREATED AS BUSINESS RECEIPTS AND SURPLUS ARISING FR OM THE TRANSACTION SHOULD BE TREATED AS BUSINESS INCOME. ON THE BASIS OF THE ABOVE PROPOSITIONS THE ASSESSING OFFICER DEDUCED THE COS T OF LAND COST OF BUILDINGS AND BROKERAGE FROM THE CONSIDERATION OF R S.6 CRORES AND WORKED OUT THE BUSINESS INCOME AT RS.5 52 71 852/-. 6. THE ABOVE COMPUTATION OF INCOME WAS MADE BY THE ASSESSING OFFICER ON A SUBSTANTIVE BASIS. THE ASSESSING OFFI CER HAS ALSO COMPLETED A PROTECTIVE ASSESSMENT TREATING THE SURP LUS AS SHORT-TERM CAPITAL GAINS ON THE GROUND THAT THE ASSESSEE HAD C LAIMED DEPRECIATION ON THE PROPERTY AND THEREFORE IT COMES U/S 50 OF THE INCOME-TAX ACT 1961. THE ASSESSING OFFICER HAS FURTHER MADE ANOTH ER PROTECTIVE ASSESSMENT TREATING THE PROPERTY AS A CAPITAL ASSET AND THE SURPLUS AS LONG TERM CAPITAL GAINS BUT BY ADJUSTING THE DEDUCT IONS. THE SHORT- TERM CAPITAL GAINS ASSESSMENT AS WELL AS THE LONG-T ERM CAPITAL GAIN ASSESSMENTS WERE MADE BY THE ASSESSING AUTHORITY ON A PROTECTIVE BASIS. 7. THE ASSESSMENT WAS TAKEN IN FIRST APPEAL. THE C IT(A) AGREED WITH THE ASSESSING OFFICER THAT THE SALE OF LAND AN D BUILDING MADE BY ITA NO.553/B/10 5 THE ASSESSEE FOR A CONSIDERATION OF RS.6 CRORES SHO ULD BE TREATED AS A BUSINESS TRANSACTION AND THEREFORE THE ASSESSING OFFICER HAS RIGHTLY TREATED THE SURPLUS AS BUSINESS INCOME. AS THE CIT (A) HAS CONFIRMED TREATING THE SURPLUS AS BUSINESS INCOME HE DECLINE D TO CONSIDER THE PROTECTIVE ASSESSMENTS MADE ON THE BASIS OF SHORT-T ERM AND LONG-TERM CAPITAL GAINS. THE APPEAL WAS THUS DISMISSED. 8. THE ASSESSEE IS AGGRIEVED AND THEREFORE THE SE COND APPEAL BEFORE US. 9. THE GROUNDS RAISED BY THE ASSESSEE IN THIS APPEA L READ AS FOLLOWS: (I) THAT THE ORDERS OF THE AUTHORITIES BELOW IN SO FAR AS IT IS AGAINST THE APPELLANT IS OPPOSED TO LAW FACTS CIRCUMSTANCES NATURAL JUSTICE EQUITY AND ALL OTHER KNOWN PRINCIPLES OF LAW & WITHOUT JURISDICTION. (II) THAT THE TOTAL INCOME COMPUTED AND THE TOTAL TAX COMPUTED IS HEREBY DISPUTED. ITA NO.553/B/10 6 (III) THE FINDINGS REASONS CONCLUSIONS OF THE LEARNED AUTHORITIES BELOW IS PERVERSE IRRATION AL ILLOGICAL AND NOT BASED ON THE FACTS ARISING FROM T HE RECORDS HENCE THE ORDER REQUIRES TO BE QUASHED. (IV) THAT THE LEARNED AUTHORITIES BELOW ON ASSUMPTION SURMISE AND SUSPICION ERRED IN HOLDING THE LAND AND BUILDING AS STOCK IN TRADE AND TAXING THE GAIN AS BUSINESS INCOME. (V) THE LEARNED AUTHORITIES BELOW ERRED IN TAXING A SUM OF RS.6 21 85 075/- AS BUSINESS INCOME . (VI) THE LEARNED AUTHORITIES BELOW ERRED IN ADOPTING THE VALUE OF THE LAND AT RS.5 26 725/- AS AGAINST RS.4 65 46 725/- WHILE DETERMINING THE BUSINESS INCOME. (VIII) THE LEARNED CIT(A) ERRED IN DISMISSING THE FOLLOWING GROUNDS TAKEN BY THE APPELLANT : (A) THE LEARNED AUTHORITIES BELOW ERRED IN REJECTING THE LONG TERM CAPITAL GAINS DETERMINED BY THE APPELLANT ON SALE OF THE LAND AND BUILDING. ITA NO.553/B/10 7 (B) THE LEARNED ASSESSING OFFICER ERRED IN PROTECTIVELY TAXING THE GAINS ARISING FROM SALE OF THE PROPERTY UNDER THE HEAD CAPITAL GAINS. (C) THE LEARNED ASSESSING OFFICER ERRED IN MAKING PROTECTIVE ASSESSMENT ON SALE OF THE LAND AND BUILDING WHEN THERE EXITED ON GROUNDS FOR DOING SO. (D) THE LEARNED ASSESSING OFFICER ERRED IN DETERMINING NET TAXABLE SHORT TERM CAPITAL GAINS OF RS.2 12 51 132/- BY HOLDING THE BUILDING AS SHORT-TERM CAPITAL ASSET U/S 50 & 50A OF THE ACT. (E) THE LEARNED ASSESSING OFFICER ERRED IN DETERMINING THE LONG TERM CAPITAL GAINS ON SALE OF LAND AT RS.3 03 17 364/- AND THE REASONS GIVEN IS UNSUSTAINABLE AND UNTENABLE IN LAW. (VIII) THE APPELLANT DENIES THE LIABILITIES FOR INTEREST U/S 234A B & C OF ACT. FURTHER PRAYS THAT THE INTEREST IF ANY SHOULD BE LIVED ONLY A RETURNED INCOME. ITA NO.553/B/10 8 (IX) NO OPPORTUNITY HAS BEEN GIVEN BEFORE THE LEVY OF INTEREST U/S 234A B AND C OF THE ACT. (X) WITHOUT PREJUDICE TO THE APPELLANTS RIGHT OF SEEKING WAIVER BEFORE APPROPRIATE AUTHORITY THE APPELLANT BEGS FOR CONSEQUENTIAL RELIEF IN THE LEVY OF INTEREST U/S 234A 234B AND 234C. 10. SHRI K.R PRADEEP THE LEARNED CHARTERED ACCOUNT ANT APPEARED AND ARGUED THE CASE ALONG WITH SHRI B.K MANJUNATH THE LEARNED CHARTERED ACCOUNTANT. 11. THE CONTENTION OF THE CHARTERED ACCOUNTANT IS T HAT THE PROPOSITIONS RELIED ON BY THE ASSESSING AUTHORITY T O TREAT THE TRANSACTION AS A REGULAR BUSINESS TRANSACTION DO NO T HAVE ANY SUPPORT FROM THE FACTS AND CIRCUMSTANCES OF THE CASE. HE C ONTENTED THAT THE ENTIRE CASE HAS BEEN BUILT UP BY THE ASSESSING AUTH ORITY ON THE BASIS OF IMAGINATIVE HYPOTHESIS. 12. THE LEARNED CHARTERED ACCOUNTANT ARGUED THAT TH E PROPERTY SOLD WAS A LONG TERM ASSET AND THEREFORE SURPLUS ARISI NG OUT OF THE TRANSACTION WAS TREATED BY THE ASSESSEE AS LONG TER M CAPITAL GAINS STRICTLY IN THE LIGHT OF THE LAW APPLICABLE THERE T O. IN ORDER TO ITA NO.553/B/10 9 SUBSTANTIATE THE ABOVE ARGUMENT THE LEARNED CHARTE RED ACCOUNTANT RELIED ON THE FOLLOWING FEATURES OF THE CASE : 1) IT IS NOT THE CASE THAT THE BUILDING WAS NOT LE T OUT IN THE PAST. THE BUILDING WAS NOT LET OUT ONLY FOR THE LAST NINE YEARS. IT COULD NOT BE LET OUT FOR T HE REASON THAT THERE WERE NUMBER OF PRACTICAL HITCHES AND SUITABLE TENANTS WERE NOT AVAILABLE TO TAKE SUCH HU GE PROPERTY ON RENT. NON-LETTING OUT THE PROPERTY FOR THE LAST NINE YEARS WAS ONLY A CO-INCIDENCE AND NOT A PURPOSIVE ACT OF THE ASSESSEE. THIS IS VERY CLEAR FROM THE FACTS THAT PRIOR TO THE LATEST NINE ASSESSMENT YEARS THE PROPERTY WAS LET OUT FOR A LONG PERIOD. 2. THE RENT COLLECTED BY THE ASSESSEE FOR A LONG PERIOD ON LETTING OUT THE PROPERTY WAS RETURNED BY THE ASSESSEE FOR INCOME-TAX PURPOSES AS INCOME FROM HOUSE PROPERTIES. THE RENT WAS NEVER RETURNED AS BUSINESS INCOME. THE INCOME-TAX DEPARTMENT ALSO ASSESSED THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY. HE HAS RELIED ON THE JUDGMENT OF THE ITA NO.553/B/10 10 HONBLE KARNATAK HIGH COURT IN THE CASE OF CIT VS. BHOOPALAM COMMERCIAL COMPLEX AND INDUSTRIES PVT. LTD 262 ITR 517 WHERE COURT HAS HELD THAT THE ASSESSEE HAS TO BE VIEWED AS OWNER OF THE COMMERCIA L COMPLEX FOR THE PURPOSE OF SEC.22 WHEN THE ASSESSE E IS RECEIVING INCOME FROM LETTING OUT OF COMMERCIAL COMPLEX AND THE RENT WAS DERIVED BY THE ASSESSEE IN ITS OWN RIGHT. 3) THE SALE OF THE LAND AND BUILDING WHICH WERE EARLIER LET OUT FROM WHICH INCOME WAS ASSESSED AS INCOME FROM HOUSE PROPERTY CANNOT BE TREATED AS BUSINESS INCOME FOR THE REASONS THAT ONE OF THE OBJ ECTS OF THE ASSESSEE FIRM WAS TO EXPLOIT IMMOVABLE PROPERTIES AND CARRY ON REAL ESTATE BUSINESS AND CONSTRUCTING OF COMMERCIAL COMPLEXES. BECAUSE OF THIS ENABLING RECITAL IN THE PARTNERSHIP DEED HIGHLIGHTING THE OBJECTIVE OF THE ASSESSEE FIRM IT IS NOT POSSIBLE TO HOLD THAT DISPUTED TRANSACTION WAS A BUSINESS TRANSACTION. IN SUPPORT OF THE ABOVE PROPOSITION THE LEARNED CHARTERED ACCOUNTANT RELIE D ITA NO.553/B/10 11 ON THE JUDGMENT OF THE HONBLE HIGH COURT IN THE CA SE OF D.R PUTTANA AND SONS PVT. LTD. 162 ITR 468 WHERE THE COURT HELD THAT THE INCOME FROM HOUSE PROPERTY COULD NOT BE TREATED AS BUSINESS INCOME RELYING ON MEMORANDUM OF ASSOCIATION OF ASSESSEE COMPANY AND THE OBJECTS DESCRIBED IN THE MEMORANDUM OF ASSOCIATION WERE NOT RELEVANT FOR DETERMINING THE NATURE OF SUCH INCOME. 4) EVEN THOUGH THE ASSESSEE HAD INITIALLY PROVIDED FOR DEPRECIATION ON THE BUILDING IN ITS BO OKS OF ACCOUNT NO CLAIM OF DEPRECIATION WAS MADE IN TH E COMPUTATION OF TAXABLE INCOME. IT IS EVIDENT FROM T HE FACT THAT THE RENTAL INCOME WAS ASSESSED AS INCOME FROM HOUSE PROPERTY NO SUCH DEPRECIATION COULD BE CLAIMED. SUBSEQUENTLY THE ASSESSEE FIRM STOPPED THE PRACTICE OF PROVIDING DEPRECIATION IN THE ACCOUNTS. THE ASSESSEE WROTE BACK THE DEPRECIATION PROVIDED I N THE BOOKS OF ACCOUNT EARLIER. IT IS VERY CLEAR FRO M THE FACTS AND CIRCUMSTANCES SUPPORTED BY EARLIER ASSESSMENT ORDERS THAT DEPRECIATION WAS NEVER CLAIM ED ITA NO.553/B/10 12 AND ALLOWED IN THE CASE OF BUILDING AND IT WAS NEVE R TREATED AS BUSINESS ASSET OF THE ASSESSEE FIRM. IT IS FURTHER TO BE SEEN THAT THIS PARTICULAR LAND AND BU ILDING WAS ALWAYS SHOWN AS AN ITEM OF FIXED ASSETS IN THE BALANCE SHEET OF THE ASSESSEE FIRM. 5) AS THE ASSESSEE HAS NOT CLAIMED ANY DEPRECIATION WITH REFERENCE TO THE LAND AND BUILDIN G THERE IS NO LAW TO TREAT THE TRANSACTION AS THE ONE COMING UNDER THE PURVIEW OF SEC. 50 OF THE INCOME- TAX ACT 1961 WHICH ENABLES THE ASSESSING AUTHORITY TO COMPUTE SHORT-TERM CAPITAL GAINS. 6) THE ADJUSTMENTS IN THE PROTECTIVE ASSESSMENT OF LONG TERM CAPITAL GAIN MADE BY THE ASSESSING AUTHORITY WERE ONLY SUPERFICIAL AND WITHOUT ANY BAS IS. 13. THEREFORE THE LEARNED CHARTERED ACCOUNTANT SU BMITTED THAT THE SUBSTANTIVE ASSESSMENT AS WELL AS THE PROTECTIVE CO MPUTATIONS ARE UNTENABLE AS THE FACTS AND CIRCUMSTANCES DO NOT SUP PORT THE PROPOSITIONS MADE BY THE ASSESSING AUTHORITY EVEN I N A DISTANT MANNER. ITA NO.553/B/10 13 THE ASSESSEE HAS TREATED THE SAID PROPERTY AS CAPIT AL ASSET AND THE INCOME WAS ASSESSED AS HOUSE PROPERTY INCOME AND DE PRECIATION WAS NOT CLAIMED AND THERE WAS NO MOTIVE OF BUSINESS IN SELLING OUT THAT PROPERTY AND IN SUCH CIRCUMSTANCES THE ASSET SOLD WAS CAPITAL ASSET AND THE SURPLUS AROSE OUT OF THE TRANSACTIONS SHOUL D BE RIGHTLY ASSESSED AS LONG-TERM CAPITAL GAINS. 14. SMT. PREETI GARG THE LEARNED COMMISSIONER OF I NCOME-TAX APPEARING FOR THE REVENUE RELIED ON THE DETAILED O RDERS PASSED BY THE LOWER AUTHORITIES. 15. THE LEARNED COMMISSIONER RELYING ON THE JUDGMEN TS OF THE HONBLE SUPREME COURT IN THE CASES OF SHRI VENKATAS WAMI NAIDU AND COMPANY AND RAJPUTANA (AGENCIES) (CITED SUPRA) ARGU ED THAT KEEPING THE IMMOVABLE PROPERTY READY FOR EXPLOITING IN A FAVOURABLE MARKET IS A BUSINESS PROPOSITION AND AT ANY RATE TH E SALE OF PROPERTY MADE BY THE ASSESSEE FIRM SHOULD BE TREATED AS AN A DVENTURE IN THE NATURE OF TRADE AND THEREFORE THE ASSESSING AUTHO RITY HAS RIGHTLY TREATED THE SURPLUS AMOUNT AS BUSINESS INCOME OF TH E ASSESSEE. ITA NO.553/B/10 14 16. THE LEARNED COMMISSIONER ARGUED THAT THE ASSESS EE HAD KEPT THE PROPERTY VACANT FOR A LONG PERIOD OF NINE YEARS WITH THE SOLE OBJECT OF SELLING THE PROPERTY AT THE APPROPRIATE TIME WH ICH ITSELF POINTS OUT THAT THE PROPERTY WAS TREATED AS STOCK-IN-TRADE AND KEPT IN HAND FOR THE PURPOSE OF EXPLOITING THE BEST TIME. SHE THEREFOR E SUBMITTED THAT THE OBJECTS THE CONDUCT AND THE CIRCUMSTANCES OF THE C ASE AND THE NATURE OF THE PROPERTY MAKE OUT A CLEAR CASE THAT THE ASSE SSEE WAS CONTEMPLATING A BUSINESS TRANSACTION AND THE PROPER TY WAS SOLD AS BUSINESS DEAL AND AS SUCH THE PROFIT AROSE FROM TH E TRANSACTION SHOULD BE TREATED AS BUSINESS INCOME OF THE ASSESSEE. 17. THE LEARNED COMMISSIONER SUBMITTED THE CONDUCT OF THE ASSESSEE ACCLAIMED OBJECTS OF THE ASSESSEE FIRM AN D THE CIRCUMSTANCES RELATING TO THE TRANSACTION OF SALE CONSIDERED TOGE THER POINTS OUT THE EXACT NATURE OF THE TRANSACTION EXECUTED BY THE ASS ESSEE. SHE FURTHER RELIED ON THE FACT THAT THE FIRM WAS RE-CONSTITUTED IN THE PAST AND SUBSEQUENT TO THE RE-CONSTITUTION THE PROPERTY OF LAND AND BUILDING WAS CONVERTED FROM CAPITAL ASSET INTO STOCK-IN-TRAD E OF THE ASSESSEE. 18. REGARDING PROTECTIVE COMPUTATIONS OF INCOME TH E LEARNED COMMISSIONER EXPLAINED THAT THE ASSESSEE HAD WORKED OUT ITA NO.553/B/10 15 DEPRECIATION ON THE SAID PROPERTY AND THEREFORE T HE CAPITAL ASSET HAS BECOME DEPRECIABLE IN THE ACCOUNTS OF THE ASSESSEE AND AS SUCH IT IS GOVERNED BY THE PROVISIONS OF LAW CONTAINED IN SEC. 50 AND THE ASSESSING OFFICER HAS RIGHTLY MADE A PROTECTIVE CO MPUTATION TREATING THE SURPLUS AS SHORT-TERM CAPITAL GAINS. 19. ALTERNATIVELY SHE FURTHER SUPPORTED THE COMPUT ATION MADE BY THE ASSESSING AUTHORITY TOWARDS LONG-TERM CAPITAL G AINS. 20. WE HEARD BOTH SIDES IN DETAIL AND CONSIDERED TH E CRUCIAL ISSUES AGITATED IN THE PRESENT APPEAL. THE BASIC FACTS SU RROUNDING THE CASE ARE WITHOUT MUCH DISPUTE. DIFFERENCE AROSE ONLY IN THE CONSIDERING OF THE RELEVANCE OF THOSE FACTS. 21. EXCEPT FOR THE LAST NINE YEARS THE PROPERTY CO MPRISING OF LAND AND BUILDING WAS LET OUT BY THE ASSESSEE FIRM FOR A VERY LONG PERIOD. THUS THE ASSESSEE FIRM WAS EARNING SUBSTANTIAL INC OME BY WAY OF RENT FOR INNUMERABLE ASSESSMENT YEARS IN THE PAST. THE RENTAL INCOME SO RECEIED BY THE ASSESSEE FIRM WAS OFFERED FOR TAXATI ON AS INCOME FROM HOUSE PROPERTY. THIS PROPOSITION WAS ACCEPTED BY T HE ASSESSING ITA NO.553/B/10 16 AUTHORITY AND THE RENTAL INCOME WAS ASSESSED AS IN COME FROM HOUSE PROPERTY. 22. THE ASSESSEE HAS SHOWN THIS PARTICULAR ASSET AS CAPITAL ASSET IN ITS BALANCE SHEET THROUGH OUT THE ENTIRE PERIOD FO R WHICH THE PROPERTY WAS OWNED AND HELD BY THE ASSESSEE. THE PROPERTY W AS NEVER SHOWN AS A CURRENT ASSET OR AS A PART OF STOCK-IN-TRADE O F THE ASSESSEE. EVEN THOUGH THE ASSESSEE FIRM WAS CONSTITUTED AND RE-CO NSTITUTED THOSE DOCUMENTS DO NOT THROW ANY LIGHT OF SUPPORT IN FAVOUR OF THE REVENUE TO HOLD THAT THE ASSESSEE HAD LATER ON CONVERTED T HE ASSET TO STOCK-IN- TRADE. AS A MATTER OF FACT THERE IS NOTHING ON R ECORD TO SUPPORT THE ARGUMENT OF THE REVENUE THAT THE SAID PROPERTY WAS CONVERTED BY THE ASSESSEE FIRM AS AN ITEM OF STOCK-IN-TRADE. IT IS TO BE SEEN THAT THROUGHOUT ITS OWNERSHIP THE ASSESSEE FIRM HAD TRE ATED THIS PROPERTY AS CAPITAL ASSET. 23. WHEN WE CONSIDER THE FACT THAT THE PROPERTY WAS HELD AS CAPITAL ASSET AND RENTAL INCOME ARISING OUT OF LET OUT PROP ERTY WAS OFFERED AND ASSESSED AS INCOME FROM HOUSE PROPERTY IT IS TO BE SEEN THAT THE CONTENTION OF THE ASSESSEE IS CONVINCING AND FORCEF UL THAT THE PROPERTY SOLD BY THE ASSESSEE WAS NOTHING BUT CAPITAL ASSET. THERE CANNOT BE ITA NO.553/B/10 17 ANY ASSESSMENT OF INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY THROUGH THE DEPLOYMENT OF STOCK-IN-TRADE. 24. THERE IS NO SUBSTANCE IN THE FINDING OF THE LOW ER AUTHORITIES THAT THE ASSESSEE HAD CLAIMED DEPRECIATION AGAINST THE P ROPERTY OF LAND AND BUILDING. THIS IS EVIDENT FROM THE ASSESSMENT ORDER ITSELF (PARA 18). THE ASSESSING OFFICER HIMSELF HAS STATED THAT DEPRE CIATION IN THE BOOKS OF ACCOUNTS WERE CLAIMED BY THE ASSESSEE ONLY UPTO 31.3.1992 AND NOT THEREAFTER. FROM THE PREVIOUS YEAR ENDED O N 31.3.93 ONWARDS THE ASSESSEE HAD CLAIMED DEPRECATION ONLY IN RESPEC T OF FIXTURES AND ELECTRICAL FITTINGS. THE ASSESSING OFFICER HIMSELF HAS STATED THAT EVEN THE DEPRECIATION WRITTEN OFF IN THE BOOKS OF ACCOUN T TILL 31.3.92 HAS BEEN WRITTEN BACK BY THE ASSESSEE IN THE YEAR ENDIN G ON 31.3.93. THE COPIES OF COMPUTATION OF INCOME FOR THE PAST ASSESS MENT YEARS FILED BY THE ASSESSEE ALSO SUPPORT THE CASE OF THE ASSESS EE THAT THERE WAS NO CLAIM OF ANY DEPRECIATION IN ANY OF THE ASSESSMENT YEARS IN THE PAST. THEREFORE THE CONTENTION OF THE REVENUE THAT THE A SSESSEE HAD TREATED THE PROPERTY AS A BUSINESS ASSET CLAIMING FOR DEPRE CATION ALLOWANCES IS NOT BASED ON FACT. ITA NO.553/B/10 18 25. THE DECISIONS RELIED ON BY THE LEARNED CA IN TH E CASES OF D.R PUTTANA SONS PVT. LTD. (162 ITR 468) AND BHOOPALAM COMMERCIAL COMPLEX AND INDUSTRIES PVT. LTD (262 ITR 517) CONSI DERED SIMILAR CIRCUMSTANCES AND HELD THAT THE HEAD OF INCOME CAN NOT BE DETERMINED ON THE BASIS OF THE OBJECTS DESCRIBED IN THE MEMORA NDUM OF ASSOCIATION OF AN ASSESSEE COMPANY. THE ASSESSEE F IRM MIGHT BE HAVING A NUMBER OF OBJECTS ELUCIDATED IN ITS PARTNE RSHIP DEED. THE ASSESSEE FIRM BEING PRIMARILY ENGAGED IN THE BUSINE SS OF CONSTRUCTION OF COMMERCIAL COMPLEXES AND REAL ESTATE DOES NOT M EAN THAT EVERY ASSET OWNED AND HELD BY THE ASSESSEE WOULD BE STOCK -IN-TRADE. THE ASSESSEE COULD VERY WELL HOLD IMMOVABLE PROPERTIES AS CAPITAL ASSETS EVEN WHILE THE BUSINESS OF THE ASSESSEE MIGHT BE IN DEALING OF IMMOVABLE PROPERTIES. THEREFORE ONLY FOR THE REAS ON THAT THE ASSESSEE WAS MAINLY ENGAGED IN THE CONSTRUCTION BUSINESS IS NOT A GROUND TO SAY THAT EVERY ASSET HELD BY THE ASSESSEE SHOULD BE TREATED AS PART OF STOCK-IN-TRADE. A DECISION IN THIS REGARD CAN BE M ADE ONLY AFTER EXAMINING THE RELEVANT FACTS AND CIRCUMSTANCES. IN THE PRESENT CASE THE ASSESSEE HAS SHOWN THE PROPERTY AS ONE OF ITS C APITAL ASSETS UNDER THE HELD FIXED ASSETS IN THE BALANCE SHEET. DEPRE CATION HAS NOT BEEN CLAIMED ON THE ASSET AND RENTAL INCOME HAS BEEN OFF ERED AS HOUSE PROPERTY INCOME. THEREFORE THE PROPOSITIONS MADE OUT BY THE ITA NO.553/B/10 19 ASSESSING OFFICER ON THE BASIS OF OBJECTS OF THE AS SESSEE FIRM DO NOT HOLD IN THE PRESENT CASE. 26. WE FIND THAT THE ASSESSING OFFICER HAS OVER EMP HASIZED THE LOGICAL IMPLICATION OF NON LETTING OF THE PROPERTY FOR A PERIOD OF 9 YEARS BEFORE THE SALE AND MADE IT THE PRE-DOMINANT REASON TO HOLD THAT THE TRANSACTION WAS ONE OF ADVENTURE IN THE NATURE OF TRADE. WE FIND THAT THE PROPOSITION MADE BY THE ASSESSING OFFICER IS RATHER ON PRESUMPTIONS. WHEN THE FACTS OF CASE SPEAK THEMSEL VES THERE IS NO ROOM FOR PROPOSITION BUILT ON PRESUMPTIONS AND ASSU MPTIONS HOW-SO- EVER LOGICAL THEY WOULD BE. 27. THEREFORE IN THE FACTS AND CIRCUMSTANCES OF TH E CASE WE HOLD THAT THE LAND AND BUILDING SOLD BY THE ASSESSEE WAS CAPITAL ASSET AND SURPLUS AROSE OUT OF THAT SALE IS IN THE NATURE OF LONG TERM CAPITAL GAINS AND THE ASSESSEE HAS RIGHTLY OFFERED THE SURP LUS FOR TAXATION AS LONG-TERM CAPITAL GAINS. 28. ON THE QUESTION OF PROTECTIVE COMPUTATION SO F AR AS SHORT-TERM CAPITAL GAINS IS CONCERNED WE HAD ALREADY RECORDED A FINDINGS OF FACT THAT THE ASSESSEE HAD NOT CLAIMED ANY DEPRECIATION IN ANY OF THE ITA NO.553/B/10 20 ASSESSMENT YEARS WHILE OFFERING THE RENTAL INCOME A S HOUSE PROPERTY INCOME. THEREFORE THERE IS NO QUESTION OF SEC. 50 BEING APPLIED AGAINST THE ASSESSEE. OBVIOUSLY THERE IS NO ROOM FOR COMPUTATION OF SHORT-TERM CAPITAL GAINS IN THE PRESENT CASE. 29. REGARDING THE PROTECTIVE COMPUTATION OF LONG TE RM CAPITAL GAINS WE FIND THAT IT WAS ONLY A FACE SAVING COMPU TATION MADE BY THE ASSESSING AUTHORITY WHILE SUBSTANTIVELY TREATING TH E ASSET AS STOCK-IN- TRADE. WHILE TREATING THE SURPLUS AS LONG TERM CAPI TAL GAINS THE ASSESSEE HAS COMPUTED THE LONG TERM CAPITAL GAINS I N A RIGHTFUL MANNER AND ASSESSING OFFICER HAS NOT GIVEN ANY CONVINCING REASON TO DEVIATE FROM COMPUTATION MADE BY THE ASSESSEE FIRM. 30. THEREFORE WE FIND THAT BOTH THE PROTECTIVE COM PUTATIONS MADE BY THE ASSESSING AUTHORITY ARE NOT SUSTAINABLE IN L AW. 31. IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE DIRECT THE ASSESSING OFFICER TO ACCEPT THE COMPUTATION OF LONG TERM CAPITAL GAINS RETURNED BY THE ASSESSEE AND COMPLETE THE ASSESSMEN T ACCORDINGLY. ITA NO.553/B/10 21 32. IN RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON WEDNESDAY THE 28TH DAY OF JULY 2010 AT BANGALORE. SD/- SD/- (P MADHAVI DEVI) (DR. O.K NARAYANAN) JUDICIAL MEMBER VICE PRESIDENT VMS. COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF 7..GF ITAT NEW DELHI. BY ORD ER ASST. REGISTRAR ITAT BANGALORE.