IT : Where assessee, a co-operative society, was having office and godown and it after obtaining permission demolished said office and godown and constructed shops at that site and sold such shops to individual purchasers, income earned on sale of shops formed business income
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[2013] 33 taxmann.com 331 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax - II
v.
Sabarkantha District Co-op. Purchase and Sales Union Ltd.*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 306 OF 2013†
APRIL 8, 2013
Section 28(i), read with section 56, of the Income-tax Act, 1961 - Business income - Chargeable as [Construction/sale of commercial complex] - Assessment years 2006-07 and 2007-08 - Assessee, a co-operative society, was engaged in business of purchase and sale of agricultural implement, etc. - It was having office and godown - After obtaining permission from Registrar of Co-operative Societies, it demolished office and godown and constructed shops at that site and sold such shops to individual purchasers - Assessing Officer treated profit earned on sale of shops as income from other sources as against business income claimed by assessee - Tribunal noticed that construction and sale of shops was only with a view to earn profit by assessee and, accordingly, concluded that income in question should be treated as business income - Whether Tribunal was justified in its view - Held, yes [Paras 7 and 8] [In favour of assessee]
FACTS
| ■ | The assessee, a co-operative society, was engaged in the business of purchase and sale of agricultural implements, seeds, fertilizer, trading and processing in agricultural and non-agricultural items, etc. for its members and others. It was having an office and godown. After obtaining permission from the Registrar of Co-operative Societies, it demolished the office and godown and constructed shops at that site and sold such shops to individual purchasers. It claimed the profit earned on sale of shops as business income contending that (i) the activity of construction was started to reduce accumulated losses, and (ii) it had developed shopping complex in the previous years relevant to assessment years 2006-07 and 2007-08. | |
| ■ | The Assessing Officer treated the income generated from sale of shops as income from other sources. | |
| ■ | The Tribunal held that the income in question should be treated as business income. | |
| ■ | On appeal to High Court: |
HELD
| ■ | The assessee had, after appropriate permission from the Registrar of Co-operative Societies, developed two plots of land by demolishing the office and godown and constructed shops and such shops were sold. This was purely commercial activity and was aimed at reducing the assessee's losses. Proper resolution was also passed by the assessee before undertaking such an activity. The Tribunal noticed that the construction of the commercial complex and the sale of shops was done with the sole intention of engaging itself into a commercial activity and the construction and sale of shops was only with a view to earn profit to increase the revenue. [Para 7] | |
| ■ | Such being the bundle of fact, the Tribunal committed no error in coming to the conclusion that the income in question should be treated as business income. [Para 8] |
Mrs. Mauna M. Bhatt for the Appellant.
ORDER
Akil Kureshi, J. - Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal (for short "the Tribunal") dated 30.11.2012 raising following question for our consideration:-
"Whether the Appellate Tribunal has substantially erred in directing the Assessing Officer to treat Rs.54,15,530/- as business income and set off against business loss without appreciating the fact that the nature of business of the assessee as mentioned in Co.No.8(a) of Audit Report in Form 3(1) that "Purchase & sale of Agriculture implements, Seeds, Fertilizer, Pesticides for members, etc. Trading and Processing in Agricultural & Non-agricultural items for members and others and to render the saving bank facilities to its members?"
2. Issue pertains to a sum of Rs.54.15 lakhs (rounded off), which the Tribunal directed the Assessing Officer to treat as business income and consequently to permit set off against the business losses.
3. Revenue's stand is that the assessee was engaged in the business of purchase and sale of agricultural implements, seeds, fertilizers and pesticides for its members and in treating and processing agricultural and non-agricultural items for the members.
4. The assessee was having an office with open land at Vijaynagar and a godown along with open land at Bhiloda. The assessee is a cooperative society. After obtaining permission from District Registrar, Cooperatives, for construction of commercial complex, at the aforesaid sites, demolished office and godown at the respective places and constructed shops and sold such shops to individual purchasers.
5. The Assessing Officer believed that any income generated from sale of shops should be treated as income from other sources and not assessee's business income. The assessee contended that the activity of construction was started to reduce accumulated losses. The assessee had developed shopping complex at Vijaynagar in the previous year relevant relevant to assessment year 2006-07 and at Bhiloda in the previous year relevant to assessment year 2007-08. The assessee had, therefore, claimed profit on sale of shops as business income.
6. When the issue ultimately reached the Tribunal, the Tribunal ruled in favour of the assessee making following observations:-
"The factual matrix of the case is that the assessee is a cooperative society which is engaged in the business of purchase, sale of agricultural implements, seeds, fertilizer, trading and processing in agriculture and non-agriculture items etc. The assessee was having office with open land at Vijaynagar and godown with open land at Bhiloda. After obtaining permission from District Registrar Co-operative societies, Himatnagar for construction of commercial complex, the assessee started the activity of developer and organizer in A.Y. 2006-07 pursuant to which it demolished its office (at Vijaynagar) and godown at Bhiloda) and constructed shops and sold the shops. The activity of the construction was started by the assessee to reduce the accumulated losses. The assessee developed shopping complex at Vijaynagar in A.Y.2006-07 and at Bhiloda during A.Y. 2007-08. The profit on sale of shops was reflected as business income and the sale of shops was considered as business income by the A.O. while framing order under Section 143(3). The fact that the assessee owned land and had carried forward losses from business is not disputed by the Revenue. The assessee had passed the necessary resolution, its meeting is also on record and the same is not in dispute. In the present case the sole intention of the assessee to construct the commercial complex and sale the shops appears to be with the intention of engaging itself into a commercial activity and in the nature of business. The intention of assessee to construct and sell the shops with a view to earn profits has not been doubted by the Revenue. The assessee had constructed commercial complex and constructed shops. While framing the original assessment under Section 143(3) of 28-09-2007, the income from sale of shops was considered as business income. These facts have not been controverted by the Revenue by bringing any contrary material on record. The dispute therefore in the present case is whether the income earned from activity of sale of shops commenced by the assessee during the year is to be considered as "business income" or "income from other sources".
7. Having heard learned counsel for the Revenue and having perused the documents on record, we notice that the respondent assessee being a cooperative society, had, after appropriate permission from the District Registrar of Cooperatives, developed two plots of land by demolishing the office and godown and constructed shops and such shops were sold. This was purely commercial activity and was aimed at reducing the assessee's losses. Proper resolution was also passed by the cooperative society before undertaking such an activity. The Tribunal noticed that the purpose of construction of the commercial complex and the sale of shops was done with the sole intention of engaging itself into a commercial activity and the construction and sale of shops was only with a view to earn profit to increase the revenue. The Tribunal recorded that the facts that the assessee owned the land and had also accumulated losses was not in dispute.
8. Such being the bundle of facts, in our opinion, the Tribunal committed no error in coming to the conclusion that the income in question should be treated as a business income. No question of law arises. Tax Appeal is dismissed.
SKJRegards
Prarthana Jalan
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