2011 (6) TMI 766 - AT - Income Tax

Summary

Issues Involved:

1. Nature of Landholdings
2. Taxability of Gain on Sale of Land
3. Assessment of Income as Business Profits or Long-Term Capital Gains

Summary:

Nature of Landholdings:
The primary issue was whether the land sold by the assessees was agricultural land. The assessees, co-owners of land in village Karoran, Mohali, claimed the land was agricultural and not liable to capital gains tax. The Assessing Officer (AO) obtained a notification from the Principal Secretary to Govt. of Punjab, which declared Karoran village as land for urban usage/non-agricultural activities. The AO also recorded the statement of the Patwari, who confirmed that the land was within the jurisdiction of the Notified Area Committee and was used for residential purposes. However, the CIT(A) concluded that the land was agricultural based on the Girdhawari records and the fact that it was part of a notified forest area where only agricultural activities were permissible.

Taxability of Gain on Sale of Land:
The second issue was whether the gain from the sale of the land was taxable. The AO assessed the gain as business income, treating the transaction as an adventure in the nature of trade. The CIT(A), however, held that the land was agricultural and the gain should be assessed as long-term capital gains. The Tribunal upheld the CIT(A)'s decision, stating that the land was agricultural and not a business asset. However, it also held that the gain was taxable as long-term capital gains since the land fell within the definition of a capital asset u/s 2(14) of the Income Tax Act, being within one kilometer of PGIMER, Sector 12, Chandigarh, and the urban usage notification was announced before the sale.

Assessment of Income as Business Profits or Long-Term Capital Gains:
The AO treated the income from the sale of land as business profits, while the CIT(A) treated it as long-term capital gains. The Tribunal upheld the CIT(A)'s decision, stating that the land was agricultural and the gain should be assessed as long-term capital gains. The Tribunal also noted that in the case of one co-owner, Ms. Leena Sandhu, the gain was returned as long-term capital gains and accepted by the AO.

Conclusion:
The appeals filed by the Revenue were dismissed, and the Cross Objections filed by the assessees were also dismissed. The appeals filed by the assessees were partly allowed, directing the AO to assess the gain as long-term capital gains. The Tribunal's decision applied mutatis mutandis to all co-owners involved in the case.