COMMISSIONER OF INCOME TAX Vs. PAI PROVISION STORES

JUDGEMENT

(1.) These three appeals are preferred by the revenue challenging the common order passed by the Tribunal, wherein the claim of the assessee that the income from the sale of the property should be assessed under the head of capital gains and not under the head of income from business, has been upheld.

(2.) These appeals pertain to the assessment years 1996-1997, 1997-1998 and 1999-2000. The assesses is a partnership firm carrying on the business of dealing in grocery items at Mangalore in a rented premises. At the first instance, the partnership firm was consisting of Sri Annappa Pai and Smt. Shoba S Pai. They started the business under the name and style of ''Pai Provision Stores'' from 18.05.1984. The written partnership deed was executed on 05.07.1984. On 17.09.1986, the assessee purchased an immovable property measuring 12.96 Cents with an old building measuring 4657 Sq. feet in area and another land measuring 2.39 Cents containing foundation of building on 24.09.1988. Subsequently, another partnership deed was executed on 18.12.1988 indicating five more persons, who are none other than the sons of T. Annappa Pai. Clause No. 3 of the said partnership deed provided that the business of the partnership shall be that of dealing in all types of grocery and household articles, construction of building for sale or for letting out, acting as Contractors etc. However, it shall be open to the parties to enter into any other business or businesses, allied or otherwise, by mutual consent. Subsequently, the assessee constructed a commercial complex. After such construction, it was let out to various tenants. In the assessment years 1996-1997, 1997-1998 and 1999-2000, the assessee sold few portions of the said property and claimed capital gains This was not accepted by the Assessing Officer. He treated the income as business income. In an appeal, the appellate Commissioner confirmed the said order. Aggrieved by the same, the assessee preferred appeal to the Tribunal.

(3.) The Tribunal, on consideration of the entire material on record, held that the records revealed that the similar instance of claiming capital gains for the assessment year 1993-1994 was accepted by the revenue. After such sale of constructed portion of the property, subsequent sales are effected by the assessee after a lapse of three years. Leaving the said period, which is not accepted as capital gains, the Tribunal was of the view that the subsequent sales have been effected on account of financial problems of the partners, who incurred liability in the construction of residential house. Therefore, the said safe transactions cannot be treated as trading activity. The long gap between the first sale and subsequent sale will itself go to show that investment has been made to meet the capital so as to house business of the assessee in the constructed building. Therefore, the Tribunal accepted the claim of the assessee and accordingly, set aside the order of assessment. Aggrieved by the same, the revenue is before this Court.