2012 (4) TMI 672 - AT - Income Tax

Summary

Issues Involved:
1. Whether the land sold by the appellant is agricultural land within the meaning of Section 2(14)(iii) of the Income-tax Act, 1961.
2. Whether the profits from the sale of such land should be treated as business income or exempt income.

Issue 1: Agricultural Land Definition u/s 2(14)(iii)
The appellant argued that the land sold was agricultural land situated beyond municipal limits and thus not a capital asset u/s 2(14)(iii) of the Income-tax Act, 1961. The AO, however, treated the land as non-agricultural based on various judicial decisions and the fact that the land was sold to industrial houses. The CIT(A) upheld the AO's decision, emphasizing that the land was not under cultivation and was sold at a high price to industrial buyers, which indicated a commercial intent. The Tribunal, however, found that the land was classified as agricultural in revenue records, used for agricultural purposes at the time of purchase and sale, and was situated beyond municipal limits. The Tribunal noted that the AO ignored the Tehsildar's report confirming the agricultural status of the land. Therefore, the Tribunal concluded that the land did not fall under the definition of a capital asset u/s 2(14)(iii) and the gains from its sale were not taxable.

Issue 2: Nature of Income
The AO and CIT(A) treated the profits from the sale of the land as business income, citing the appellant's frequent transactions in land and the high profits earned. The CIT(A) noted that the appellant, a Chartered Accountant, purchased and sold land with the intent to profit, which indicated a business activity. The Tribunal, however, found that the land was shown as a fixed asset in the appellant's books, and there was no development or plotting done to enhance its marketability. The Tribunal held that mere frequency of transactions does not conclusively prove a business activity. It relied on judicial precedents that repeated sales of agricultural land do not constitute an adventure in the nature of trade. Consequently, the Tribunal ruled that the profits from the sale of the land were not business income but exempt income.

Conclusion:
The Tribunal allowed the appeals, ruling that the land in question was agricultural land and not a capital asset u/s 2(14)(iii), and the profits from its sale were not taxable as business income. The Tribunal's decision was based on the agricultural classification of the land in revenue records, the lack of development for resale, and the appellant's intent to use the land for agricultural purposes.