[Cites 26, Cited by 0]
Madras High Court
Commissioner Of Income Tax vs Gwl Properties Ltd on 9 January, 2026
Author: Anita Sumanth
Bench: Anita Sumanth
TCA No. 288 of 2011
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 09-01-2026
CORAM
THE HON'BLE DR.JUSTICE ANITA SUMANTH
AND
THE HON'BLE MR.JUSTICE MUMMINENI SUDHEER KUMAR
TCA No. 288 of 2011
Commissioner Of Income Tax
Chennai
..Appellant(s)
Vs
Gwl Properties Ltd
Formerly Gorden Woodroffe Ltd
No.36 Rajaji Salai Ch-01 ..Respondent(s)
Petition filed under Section 260A of the Income Tax Act, 1961 against
order dated 08.12.2010 passed in I.T.A.No.1155/Mds/2010 on the file of the
Income Tax Appellate Tribunal Madras ‘D’ Bench for assessment year 2004-
05.
For Appellant(s): M/s.T.Ravikumar
For Respondent(s): M/s.N.V.Balaji
JUDGMENT
(Judgment of the Court was delivered by Dr.Anita Sumanth J.)
This is an appeal relating to assessment year (AY) 2004-05 filed at the
instance of the revenue as against an order passed by the Income Tax Appellate
Tribunal (in short ‘Tribunal’) on 08.12.2010. The issue that arises for
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consideration is as to whether profit earned by the assessee/respondent on sale
of land should be assessed under the head ‘capital gains’ or under the head
‘business profits’. The question of law admitted on 16.08.2011 is as follows:
Whether on the facts and in the circumstances of the case, the
Income Tax Appellate Tribunal was right in holding that the profit
on sale of lands held by the assessee should be considered under
the head ‘Capital Gains’ only and not as business profits of the
assessee?
2. We have heard the detailed submissions of Mr.T.Ravikumar, learned
Senior Standing Counsel for the appellant/revenue and Mr.N.V.Balaji, learned
counsel for the assessee/respondent.
3. Mr.Balaji would submit that there is no question of law, much less a
substantial question of law that arises for determination in this matter.
Mr.Ravikumar, would assail the impugned order of the Tribunal taking us
through the trajectory that the matter has taken over the years.
4. A return of Income had been filed by the assessee in terms of the
provisions of the Income Tax Act, 1961 (in short ‘Act’), wherein a sum of
Rs.9,87,12,654/- had been offered to tax as capital gain. An intimation had been
issued under Section 143(1) of the Act, but the Assessing Authority was of the
view that the amount ought to have been assessed as business income and hence
reopened the assessment by issuance of notice under Section 148 of the Act.
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5. The assessee was engaged in the activity of manufacturing and trading,
IATA approved cargo agent and customs house agent, and was not carrying on
the business of purchase and sale of properties. Hence, it contested the re-
assessment adopting the stand that any income earned from sale of property
would be assessable only under the head ‘capital gains’ and would have no
incidence of business activity.
6. Per contra, the Assessing Authority noted that property development
figured as a line of activity in the financials. Hence, the consideration of
Rs.10,02,60,000/- for sale of 22.28 acres of land in the relevant financial year
was brought to sale as profits and gains of business.
7. As against the aforesaid conclusion, an appeal was filed by the assessee
before the Commissioner of Income Tax (Appeals), who dismissed the appeal in
the following terms:
6. I have carefully considered the facts of the case and the
submissions of the Id.AR. It is seen that the appellant company is
engaged in the business as IATA approved cargo agents, customs
house agents and property development. Thus one of the main
activities of the appellant company is property development. The
transactions carried out by the appellant is to be examined in the
background of the business the appellant is engaged in. The
Assessing Officer treated the profit on sale of land as business
income because the assessee company has been engaged in the
business of development of property. During the year, it has sold
land of 22.28 acres. The cost as per the books was only Rs.21,769/-
whereas the sale consideration received was Rs.10,02,60,000/-.
After considering the reasons given by the Assessing Officer and
after perusing the details submitted by the Id.AR, I am of the view
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that the Assessing Officer has rightly treated the gain on sale of land
as business income. Merely because the impugned land is shown as
a fixed asset in the balance sheet for A.Ys 2003-04 and 2004-05, that
by itself would not help the appellant in any way. It is now well
settled that the way in which the entries are made by the assessee in
his books of accounts is not determinative of the question whether
the assessee has earned any profit or suffered any loss. What is
necessary to be considered is the true nature of the transaction and
whether in effect, it has resulted in any profit or loss to the assessee.
[Sutlej Cotton Mills v CIT 116 ITR 1(SC)]. Similarly, the Hon’ble
Bombay High Court in the case of CIT vs Mogul Lines Ltd 46 ITR
590(Bom) has held that the matter of taxability would not be decided
on the basis of entries which the assessee might make in its accounts
but is to be decided in accordance with the provisions of law. The
Hon’ble Supreme Court in the case of Karanpura Development
Company Ltd. V CIT, 44 ITR 362(SC) held that the substance of the
transaction should prevail over the form. Further, the Supreme
Court in CIT v Vikram Cotton Mills, 169 ITR 597(SC) held that
whether income is from business or from investments depends on
various factors including conduct of the parties. It is seen from the
details filed by the assessee for the A.Y 2003-04 and 2004-05 that it
has substantial free hold land. It has been selling land regularly
which is evident from the schedule of fixed assets submitted for the
year ended on 31.3.03, 31.3.04 & 31.3.05. Thus, the activity of the
appellant is real, substantial, regular and organized. Hence, it
would constitute business income for the purpose of the Act.
Reference may be given to the decision of the Hon’ble Supreme
Court in the case of CIT vs Distributors (Baroda) Pvt. Ltd. 83 ITR
377 (SC) for the above proposition. In view of the above factual
position and judicial authorities, I am of the considered opinion that
the profit on sale of land is to be assessed under the head “Profits
and gains of business”. Accordingly, the addition made by the
Assessing Officer is sustained and the appeal is dismissed.’
8. In further appeal before the Tribunal, the assessee reiterated its claim,
which found favour with the assessee. The Tribunal noticed the position that the
assessee had been amalgamated with one Shaw Wallace Properties Limited
(Shaw Wallace/SWPL/Company) by orders passed by the company division of
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the Madras High Court on 07.03.2002 and 29.04.2002. Assets including land
and apartment had been taken over by the assessee and were reflected in the
balance sheet.
9. In the financial year relevant to the present year, the assessee had sold
22.2 acres of land at Pallavaram (subject property), and returned the capital
gains thereupon to tax. The Tribunal was of the view that the sale did not give
rise to business income, as the subject property was not part of the portfolio of
business assets of the assessee.
10. Referring to the judgment of the Supreme Court in Raja J.
Rameshwaar Ro V. CIT1 and of the Karnataka High Court in CIT V.
B.Narasimha Reddy2, the Tribunal culled out the principles to determine
whether the transaction was an adventure in the nature of trade. The parameters
set out in those decisions to determine the nature of a transaction are its volume,
frequency, continuity and regularity.
11. In the present case, the subject land had been acquired many years
ago by the assessee as industrial land and had been reflected in the financials of
the company as such, without any development. Taking advantage of the boom
in property prices, the assessee decided, in the financial year relevant to the
42 ITR 179 (SC)
150 ITR 347
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subject assessment year, to sell the subject land in the same state in which it had
been lying with it.
12. Hence, the question of the assessee having been involved in regular
business activity of sale and purchase of land or development of land did not
arise. Being of such a view, the Tribunal allowed the appeal as against which,
the present Tax Case (Appeal) has been filed by the Department.
13. Mr.Ravikumar would reiterate the findings of the Assessing Officer
and CIT(A), drawing attention to the fact that the activity of property
development figured in the financials of the company as well as in the
Memorandum and Articles of Association. He has relied on the following
decisions rendered in the context of emphasizing the parameters to be applied in
determining whether consideration from sale of property should be assessed
under the head capital gains or business.
1.Badridas Daga v. Commissioner of Income-tax3
2.Karanpura Development Co. Ltd. v. Commissioner of Income Tax4
3.Commissioner of Income Tax v. Mogul Line Ltd.5
4.Commissioner of Income-tax v. Distributors (Baroda) (P.) Ltd.6
5.Commissioner of Income Tax v. Vikram Cotton Mills Ltd.7
[1958] 34 ITR 10 (SC)
[1962] 44 ITR 362 (SC)
[1962] 46 ITR 590 (Bom)
[1972] 83 ITR 377 (SC)
[1988] 169 ITR 597 (SC)
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14. In the present case, the amalgamated company, Shaw Wallace, was
primarily engaged in the business of property development. We had called for
the financials of the assessee for AY 2001-02 to 2005-06 and the same have
been furnished. Drawing attention to the same, Mr.Balaji would submit that the
assessee maintains two portfolios, one comprising properties under the head
‘investments’ and the second, under the head ‘freehold assets’. The subject
property falls in the latter.
15. He places reliance on Circular No.4 of 2007 issued by the Central
Board of Direct Taxes (CBDT/Board) to carve out a distinction between shares
held as investments and those held as stock-in-trade. He relies on the following
judgments to support his arguments:
(i) Commissioner of Income-tax v. Dalmia Jain & Co. Ltd.8
(ii) Principal Commissioner of Income Tax-19, Mumbai v. Jogani and
Dialani Land Developers and Builders9
(iii) Commissioner of Income-tax v. Kasturi Estates (P.) Ltd.10,
Principal Commissioner of Income-tax
(iv) Vadodara-1 v. Gujarat Fluorochemicals Ltd.11
(v) Commissioner of Income Tax v. Kishan House Builders
Association12
(vi) Commissioner of Income-tax v. Sutlej Cotton Mills Supply Agency
Ltd.13
(vii) Commissioner of Income-tax v. National Finance Ltd.14
[1972] 83 ITR 438 (SC)
[2020] 117 taxmann.com 140 (SC)
[1966] 62 ITR 578 (Madras)
[2020] 120 taxmann.com 433 (Gujarat)
[2020] 117 taxmann.com 687 (Karnataka)
[1975] 100 ITR 706 (SC)
[1962] 44 ITR 788 (SC)
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(viii) Commissioner of Income-tax, Alwar v. Hazarilal Goyal15
16. Hence, he would submit that there is no infirmity in the order of the
Tribunal, which had taken note of all relevant facts in proper perspective, and
no referable question of law thus arises for consideration in this appeal.
17. The facts in this case are more or less admitted, and we recapitulate
the same to the extent to which they it is relevant. The assessee was
incorporated on 23.12.1924 and the Memorandum contains inter alia, the
following, as a main object:
The objects for which the Company is established are :-
.......
(j) To buy, sell and deal in land or buildings for any estate or interest
whatsoever or options, rights or easements over the same.
(k) To acquire and undertake the whole or any part of the business,
goodwill property assets and liabilities of any person or persons, firm
or company carrying on any business which this Company is
authorized to carry on or engage in or possessed of property suitable
for the purposes of this Company.
(l) To purchase, take on lease or in exchange hire or otherwise acquire
any real or personal property or any rights or privileges which the
Company may think necessary or convenient for the purposes of any of
its business and in particular any land buildings, easements,
machinery, plant and stock-in-trade.
18. The assessee had amalgamated, by an order passed by the Company
Division of this Court, with Shaw Wallace. The effective date of amalgamation
was 30.09.2001. The financials for FY 2000-01, i.e. year ending 31.03.2001
[2019] 108 taxmann.com 224 (Rajasthan)
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(pre-amalgamation) contain a statement of fixed assets as follows, that includes
freehold assets:
Schedules to Consolidated Accounts
4. FIXED ASSETS
Description GROSS BLOCK DEPRECIATION NET BLOCK
of Assets At Cost/Additio Deletio As atAs atAddition For theDeletions As atAs atAs at 31st
st st st st
Revaluation ns ns 31 1 s Year 31 31 March
as at 1st March April March March 2001
April 2001 2002 2001 2002 2002
Goodwill 233 233 0 0 233 233
Patents &47 47 47 47 0 0
Designs
Freehold (a) 150,964 4,584 155,548 0 0 155,548 150,964
Land
Buildings (b) 37,704 1,768 26,344 13,128 8,500 225 6,964 1,761 11,367 29,204
Plant &(c) 52,146 51,623 523 33,400 156 33,114 442 81 18,746
Machinery
Misc.Equip 4,643 407 0 5,050 2,900 9 409 1,444 1,874 3,176 1,743
ments
Furniture, 3,500 2,402 2,273 3,629 1,776 0 290 1,410 656 2,973 1,724
Fittings &
Equipments
Vehicles 50 50 37 3 40 10 13
Total 249,287 9,161 80,240 178,208 46,660 9 1,083 42,932 4,820 173,388 202,627
(a) Includes Rs19,02,30 thousands added on Revaluation in 1985 and 1993
(b) Includes Rs.2,43,52 thousand added on Revaluation in 1993
(c) Inclues Rs.2,42,06 thousands added on Revaluation in 1983 and 1993.
19. The financials for FY 2001-02, that is, year ending 31.03.2002, (post-
amalgamation) contain a detailed note on the scheme of amalgamation and the
financial position of the assessee after integration of the financials and assets of
Shaw Wallace that reads as under:
31-03-2002
B.NOTES ON CONSOLIDATED ACCOUNTS
xi) A Scheme of Amalgamation of M\s Shaw Wallace
Properties Limited (SWPL) and M\s Gordon Woodroffe
Limited (GWL) was filed before the Hon'ble High Courts of
Madras and Calcutta on the 30th November 2001 and
4thDecember 2001 respectively. The appointed date for the
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31-03-2002
th
scheme is 30 September 2001.
Pursuant to the order dated 6thDecember 2001 passed by
the Hon'ble High Court of Madras, a meeting of the Equity
Shareholders of GWL was held on the 10 thJanuary 2002,
when the scheme was unanimously approved by the
shareholders. Pursuant to the order dated 6thDecember
2001, passed by the Hon'ble High Court of Calcutta, a
meeting of Equity Shareholders, Preference Shareholders
and Debenture holders of SWPL was held on the 7 th
January 2002, when the scheme was unanimously approved
by the stake holders. The High Courts of Madras and
Calcutta were pleased to sanction the scheme by their
order dated 7th March 2002 and 29th April 2002
respectively which were filed with the Registrar of
Companies at Tamilnadu, Chennai and at West Bengal,
Kolkata on the 26th March 2002 and 12thJune 2002
respectively and thus 12thJune 2002 is the Effective Date
for the purpose of Amalgamation. The scheme although
effective from the appointed date shall become operative
from the Effective Date, being the last of the dates on which
the certified copies of the orders of the Hon'ble High
Courts of Madras and Calcutta confirming the petitions are
filed with the respective Registrar of Companies at
Tamilnadu, Chennai and West Bengal at Kolkata
Based on the sanctioned scheme of amalgamation the
following assets and liabilities of SWPL as at the appointed
date and as reduced by the provisions considered
necessary, Income and expenditure for the period from the
appointed date till the year end have been included in the
accounts of GWL as at 31st March 2002
Particulars Assets Liabilities
Inventories 9,788
Sundry Debtors 8,195
Cash and bank balances 9,805
Loans and advances 1,86,926
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31-03-2002
Current liabilities & provisions 1,05,430
.......
xvi) Quantitative particulars of trading items
Particulars Purchase/ Sales Closing
Acquisition stock
Land for development 7,500-1 No - 7,500-1 No
Apartments 2,288-9 Nos 297-1 No 1,991-8 Nos
.......
20. The financials from year ending 31.03.2002 onwards would show that
the assessee has maintained two portfolios, one in respect of freehold assets
(current assets), and the other, as investments. There is no dispute on the
position that the subject land is part of the Freehold land in the statement
extracted below, that has been part of the current assets of the assessee, lying
with it, we are told, for over 7 decades.
Schedules to Accounts
4. FIXED ASSETS
Description GROSS BLOCK DEPRECIATION NET BLOCK
of Assets At Cost/Additio Deletio As atAs atAddition For theDeletions As atAs atAs at 31st
st st st st
Revaluation ns ns 31 1 s Year 31 31 March
as at 1st March April March March 2002
April 2002 2003 2002 2003 2003
Goodwill 233 233 0 0 0 0 233
Patents &47 47 0 47 47 0 0 0
Designs
Freehold (a) 155,548 5,500 150,048 0 0150,048 155,548
Land
Buildings (b) 8,523 6,522 2,001 1,712 91 1,071 732 1,269 6,811
Plant &(c) 523 523 0 442 25 467 0 0 81
Machinery
Misc.Equip 2,685 20 2,665 1,558 87 20 1,625 1,040 1,127
ments
Furniture, 1,415 552 1,967 601 180 781 1,186 814
Fittings &
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Equipments
Vehicles 50 50 40 2 42 8 10
Total 169,024 552 12,845 156,731 4,400 0 385 1,605 3,180 153,551 164,624
Previous 2,46,325 4,772 82,073 169,024 46,658 9 665 42,932 4,400 164,624 199,667
Year figures
(d) Includes Rs.1,503.47 Lacs added on Revaluation in 1985 and 1993
(e) Includes Rs.55.06 Lacs added on Revaluation in 1993
21. In addition, Schedule 6 in the financials for FY 31.03.2002 onwards
under the head ‘Inventories’ reads as follows:
As at 31st March As at 31st
2003 March 2002
6.INVENTORIES
At cost or net realisable
value:
Land for development 7,500 7,500
Apartments 408 1,991
-------------- --------------
……….. 7,908 9,491
22. There is no category of assets under the head ‘investments’ in the
financials for year ending 31.3.2001, prior to amalgamation. This category of
assets is found only in the financials for year ending 31.03.2002 onwards and
according to the assessee, only the assets that devolved upon it post
amalgamation with Shaw Wallace are classified as ‘investments’.
23. The land for development has thus been identified as a separate block
of assets distinct and different from the freehold land, which is the original asset
base of the assessee comprising fixed assets purchased over the years.
24. We see no necessity to integrate the two, as such integration would be
contrary to the treatment that has been accorded by the assessee, both in the
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accounts as well as by conduct. The Department has not raised any suspicion in
regard to the accounts of the assessee.
25. To reiterate, the accounts reveal that the assessee holds fixed assets,
including freehold land, being land purchased over the years and held as is,
without any development. Post amalgamation with Shaw Wallace, it acquired
parcels of land which it held as a separate inventory, under the head
‘investments’.
26. The subject land admitted, falls within the category of fixed assets
held by the assessee for several decades. The Department does not dispute the
factual position that the assessee had engaged in similar sales for the year prior
to, and post the present assessment year, viz., for AY 2003-04 and 2005-06 as
well.
27. For AY 2003-04, the return filed by the assessee offering the sale
consideration under the head ‘capital gains’ has been accepted in the assessment
made under scrutiny vide order dated 28.02.2006. The Assessing Authority has
dealt with the sale of two sheds at Ambattur Industrial Estate bearing Nos.A9
and D18 and the sale consideration of those properties at Rs.50.00 lakhs and
45.00 lakhs respectively.
28. He had put forth a proposal for adopting the valuation of the
Registering Authority at Konnur which was countered by the assessee seeking
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reference to the valuation cell. Ultimately, the assessment was completed
adopting the fair market value as set out in the valuation report of the Valuation
Officer. Hence, this is not an issue that has passed muster in a routine manner,
but one where the Assessing Authority has specifically applied his mind,
finding the classification by the assessee and the tax treatment thereof,
acceptable.
29. For A.Y.2005-06 as well, the assessee had treated the sale
consideration likewise, as capital gain. Though it had received an adverse order
from the first appellate authority, it succeeded before the Tribunal, as against
which T.C.(A)No.1033 of 2015 had been filed by the revenue, that came to be
dismissed as withdrawn on 02.12.2024 on account of low tax effect.
30. Circular No.4/2007 dated 15.06.2007 issued by the CBDT makes a
distinction between shares held as stock-in-trade and as investment, and the
different tax treatment to be accorded to the two categories, and supports the
present case. The relevant portion reads thus:
Section 28(1) of the Income –Tax Act, 1961 – Business – Income-
Chargeable As –Distinction Between Shares Held as Stock-in-
Trade and Shares held as Investments – Tests for such a
Distinction
CIRCULAR NO. 4/2007, DATED 15-6-2007
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The Income Tax Act, 1961 makes a distinction between a "capital
asset" and a "trading asset".
2. Capital asset is defined in Section 2(14) of the Act. Long-term
capital assets and gains are dealt with under Section 2(29A) and
Section 2(29B). Short-term capital assets and gains are dealt with
under Section 2(42A) and Section 2(42B).
3. Trading asset is dealt with under Section 28 of the Act.
4. The Central Board of Direct Taxes (CBDT) through Instruction
No.1827 dated August 31, 1989 had brought to the notice of the
assessing officers that there is a distinction between shares held as
investment (capital asset) and shares held as stock-in-trade (trading
asset). In the light of a number of judicial decisions pronounced
after the issue of the above instructions, it is proposed to update the
above instructions for the information of assessees as well as for
guidance of the assessing officers.
…………
10. CBDT also wishes to emphasise that it is possible for a tax payer
to have two portfolios, i.e., an investment portfolio comprising of
securities which are to be treated as capital assets and a trading
portfolio comprising of stock-in-trade which are to be treated as
trading assets. Where an assessee has two portfolios, the assessee
may have income under both heads i.e., capital gains as well as
business income.
11. Assessing officers are advised that the above principles should
guide them in determining whether, in a given case, the shares are
held by the assessee as investment (and therefore giving rise to
capital gains) or as stock-in-trade (and therefore giving rise to
business profits). The assessing officers are further advised that no
single principle would be decisive and the total effect of all the
principles should be considered to determine whether, in a given
case, the shares are held by the assessee as investment or stock-in-
trade.
31. The same methodology as accepted in regard to shares, would equally
be applicable to the present case as well, where a clear and categoric distinction
has been made between assets held as investments and as freehold land.
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32. The error committed by the CIT(A) is in not noting that the assessee
had sold off only a portion of those parcels of land that were held by it as fixed
assets, and in respect of which there had been no development. The
classification as a capital asset, was not merely on the ground of the accounting
treatment, but also in the manner of holding of the asset, and the intention and
conduct of the assessee over the years.
33. That apart, he erred in stating that the assessee had engaged in such
sales in a routine and regular manner. There is no evidence to support such a
conclusion. The aforesaid errors in fact have been corrected by the Tribunal, the
highest fact finding body, and the relevant observations and conclusion of the
Tribunal are as follows:
4.1We are unable to appreciate the Revenue's case in the instant
appeal. As would be apparent, it has not been able to even make up its
mind as to the nature of the assessee's impugned transaction. While
the AO, as well as the Id. CIT(A) consider the impugned sale as a
business transaction in view of the company being in the real estate/
property development business, engaging in regular, systematic and
organized activity, constituting a business, the Id. DR would contend it
to be a single transaction, though in the nature of trade, and which
only implies absence of any pre-existing business. We find it as
neither, but a case of plain sale by the assessee of its capital asset/s.
However, before we dilate on our reasons leading to the said
conclusion, we may clarify that there is no dispute or divergence of
opinion as regards the law in the matter, which stands amply
elucidated by the higher courts of law, to some of which reference has
been made by the Revenue. The matter is purely factual, as held by the
hon'ble Karnataka high court in the case of CIT vs. B.Narasimha
Reddy (supra), as under:
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"To, determine whether a transaction is an adventure in the
nature of trade, the court in each case has to determine the
nature of the transaction, its volume, frequency, continuity and
regularity and there is hardly any abstract rule, principle or test
for application. No individual or single fact can be taken as
decisive in finding out the correct character of the transaction.
The cumulative effect of all the facts and circumstance has to be
taken into consideration for the said purpose."
4.2 If there is a systematic activity, the inference of 'business' and,
consequently, of the income arising there-from as being business
income, is unmistakable, even as, without doubt, a single venture
could also be invested with the attribute of, and thus, be in the nature
of a trading transaction. In the present case, firstly, the assessee has
not undertaken any land development business till the end of the
relevant year, though has acquired land toward the same on the take
over of a company in that business. The land sold was acquired as an
industrial land, and stands sold as such, i.e., without undertaking any
development activity thereon. All that, as we see it, the assessee has
done is to realize its capital assets), as in the past, and as acceded to
by the Id. AR, even in future. How could that attribute it with a
character of trade or business, passes our comprehension? True, the
assessee struck a deal with two Developer(s), and was well aware that
its land presented a suitable housing site, and may, rather would,
have bargained for a good price: But then, is it not entitled to fetch a
proper price for its asset? And would that alter the character of the
amount realized? These are the questions that arise from the
Revenue's stand. In our emphatic view, the answer is clearly 'yes' and
no' for the two questions respectively. Realizing a proper or even a
better price, as where one is cognizant or aware of the future
prospects of his capital asset, without anything more, would not in any
manner lend it with the character of a business or trade. It is for the
purchaser, who is to buy the asset for his business, assuming business
risk, to see what price he can offer; a deal/bargain always represents
a balance or trade off between conflicting interests, representing
supply and demand. In fact, this is not even the Revenue's case, and
there is no finding that the assessee had struck the deal at a higher
value, and our observations are aimed at meeting the ld. DR’s
contention with respect to the assessee being well cognizant and
aware of the commercial potential of its asset, and which could well
be true. That the assessee acted prudently, extracting a good price for
its capital asset, qua which there is no ground as such, would be,
nevertheless, of no moment, and would only impact the price and,
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thus, the gain that the assessee stands to realize on its transfer. This
would also meet the ld. DR's claim of the land having been sold as an
urban land (and not as an industrial land); the same being of no
consequence as the income would in either case be assessable only as
capital gains.
4.3Secondly, that the assessee is disposing its land on a continuous,
regular basis, as appears to be the case, with the assessee's accounts
itself exhibiting sale transactions for the preceding and subsequent
periods, is again, of little relevance. Would the nature of the
transactions stand to alter if the assessee were to dispose of its assets
at one go? The land(s) are lying unproductive with it for years, if not
decades, and it capitalizes on the opportunity, which its favourable
location, as for a housing site, or on account of a boom in the real
estate market, presented itself. The only 'activity', if it could be so
called, that the assessee can be said to have undertaken for the
purpose, was of being aware of its business environment and
practicing the virtue of patience. The land user would have to be
changed or perhaps may have already been so by the (prospective)
buyers (so as to eliminate any risk on that score), but then that is only
to enable the user of the asset forthe purpose for which it is being
bought, or the purchase contemplated. The continuous selling of its
lands by the assessee would not in any manner imbue it with the
character a business, and to our mind, only represents a conscious
decision by the assessee, being land-rich, to make an exit from its real
estate holdings in view of the favourable market conditions.
4.4We could, rather, understand a controversy arising where the
assessee, having entered the real estate market as a developer, had
instead gone in for purchasing land or developing its existing holding.
Here, again, the question that would arise is whether the gain
attributable to the increase in the market price over decades could be
considered as income of a business which it had entered into a couple
of years ago, i.e., for the period for which the business was non-
existent. The law, per section 45(2), takes care of such a situation, so
that the fair market value of the capital asset on the date of its
conversion into stock-in-trade (of the business), would,
notwithstanding the fact that there has been no transfer' per se, be
deemed as the consideration arising to the assessee on such
conversion, liable to capital gains tax on the sale/transfer of the stock-
in-trade, while the said consideration becomes the deemed cost at
which the stock in trade of the business is acquired. In the instant
case, on the other hand, the asset continues to be held as a capital
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asset, and neither do we find any challenge by the Revenue on this
aspect; it invoking the charge of capital gains only on the actual sale,
and at the sale/transfer price, which again is. not disputed. As afore-
stated, the assessee has not yet commenced its' land development
business, and sold its land under reference as such, i.e., without
undertaking any development activity thereon.
4.5Under the given facts and circumstances, we find no merit in the
Revenue's case and, therefore, vacating the findings by the authorities
below, we uphold the assessee's impugned claim/s, so that the entire
income arising to it would stand to be assed under the head capital
gains' on the transfer of a long term capital asset, as per law. separate
order is being passed qua the assessee's stay petition in view of our
said decision, so that no demand obtains for being stayed. We decide
accordingly.
5. In the result, the assessee's appeal is allowed, and its stay
application is dismissed as infructuous.
34. The above findings of fact have attained finality as no question has
been raised by the Revenue challenging the same. In light of the fact that the
accounting methodology followed by the assessee as well as the surrounding
facts and circumstances has been accepted by the Revenue, we see no infirmity
in the order of the Tribunal.
35. In fact, one might even conclude that in the light of the above
discussion, no substantial, referrable question of law arises for consideration.
However, since the question of law has already been admitted, we answer the
same in favour of the assessee, and adverse to the Revenue. In light of the
discussion above, we see no necessity to discuss the cases cited by the parties.
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36. This Tax Case (Appeal) is dismissed. No costs.
(A.S.M.,J.) (M.S.K.,J.)
09-01-2026
Index: Yes/No
Speaking/Non-speaking order
Neutral Citation: Yes/No
SL
To
Gwl Properties Ltd
Formerly Gorden Woodroffe Ltd No.36 Rajaji Salai
Ch-01
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DR.ANITA SUMANTH J.
AND
MUMMINENI SUDHEER KUMAR J.
SL
09-01-2026
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