2013 (11) TMI 1591 - AT - Income Tax

Addition made on account of sale of agricultural land by holding that the impugned transaction cannot be categorized as adventure in the nature of trade or business - Held that - The assessee had entered into an agreement with the promoter of the land, who has expertise in the business of developing and marketing residential plots, to market his land, in order to realize maximum sale consideration for the sale of his agricultural land. By virtue of the agreement, the assessee has agreed to sell his agricultural land to the promoter at a cost of ₹ 30 lakhs by agreeing to certain conditions laid down by the promoter to suit his business requirements. The actual business of developing and marketing the land is conducted by the developer and the profit from the same is realized by him. The assessee s stake in the entire transaction is only the sale consideration of his agricultural land for ₹ 30 lakhs. Once the amount of ₹ 30 lakhs is received by the assessee, balance entire sale consideration of the remaining land will be appropriated by the promoter. In these circumstances, the assessee s role in the whole transaction is only that of a seller of the agricultural land and for realizing his sale consideration of ₹ 30 lakhs. Therefore, we are of the considered view that the assessee has only sold his agricultural land at a sale consideration of ₹ 30 lakhs which is not liable to capital gain tax because the land in question is not a capital asset by virtue of section sec.2(14)(iii) of the Act. Hence, we do not find any hesitation to confirm the order of the ld. CIT(A) and also the views expressed by him in his order. Accordingly this appeal is held against the Revenue

Summary

Issues:
1. Whether the addition of Rs. 21,32,000 on account of the sale of agricultural land should be categorized as business income.
2. Whether the sale of agricultural land qualifies as an adventure in the nature of trade or business.
3. Whether the agreement between the assessee and the promoter constitutes a business activity.

Issue 1:
The Revenue appealed against the order of the Commissioner of Income Tax (A)-VIII, challenging the addition of Rs. 21,32,000 as business income from the sale of agricultural land. The Assessing Officer (AO) treated the transaction as a trade activity based on various grounds, including sub-division of land, agreement with a promoter, and sale deed execution. However, the Commissioner held that the land sold was exempt under section 2(14)(iii) of the Act and not assessable as business income.

Issue 2:
The Commissioner ruled in favor of the assessee, stating that the agricultural land sold was not an asset under section 2(14)(iii) and the profit from the sale was not taxable as business income. The Commissioner highlighted that the land was not converted into non-agricultural land and the sale was not categorized as an adventure in the nature of trade. The absence of development or conversion by the assessee supported the conclusion that the transaction did not constitute a business activity.

Issue 3:
During the appeal, the Revenue argued that the assessee converted the agricultural land into stock-in-trade and marketed residential plots, constituting a trade adventure. However, the assessee contended that the land remained agricultural until the sale, located outside a panchayat, and not converted for commercial purposes. The agreement with the promoter aimed at maximizing revenue from the land sale, indicating a strategic sale rather than a business activity. The Tribunal affirmed the Commissioner's decision, emphasizing that the assessee's role was limited to selling the land and receiving the sale consideration, not engaging in a business venture.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the Commissioner's decision to delete the addition of Rs. 21,32,000 as business income from the sale of agricultural land. The judgment clarified that the transaction did not qualify as an adventure in the nature of trade or business, as the assessee's involvement was limited to selling the land without engaging in commercial development or trade activities.