2016 (8) TMI 1210 - AT - Income Tax

Gain arising on sale of agricultural land - gain treated as income from business and applying the provisions of section 50C of the Act - Held that - We find merit in the plea of assessee that where the income is being assessed in the hands of assessee as Income from business , then for computing the said income, the sale consideration as such has to be adopted and after allowing the cost of acquisition of said property, the balance profit / gain is to be assessed in the hands of assessee as Income from business . The provisions of section 50C are to be applied when the income is to be computed under the head Income from capital gains under Chapter IV of the Act. In case the income is being assessed as Income from business , then there is no merit in applying the provisions of section 50C of the Act. See CIT Vs. Thiruvengadam Investments P. Ltd 2009 (12) TMI 48 - MADRAS HIGH COURT The finding of CIT(A) is reversed to the extent of computation of income from business. However, the finding of CIT(A) in assessing the income from gain on sale of agricultural land to be assessed as Income from business is upheld. The Assessing Officer is thus, directed to recompute the income in the hands of assessee after affording reasonable opportunity of hearing to the assessee.- Decided partly in favour of assessee.

Summary

Issues involved:
- Appeals against separate orders of CIT(A)-1, Nashik relating to assessment year 2011-12 under section 143(3) of the Income Tax Act, 1961.
- Computation of capital gain on sale of agricultural land.
- Applicability of section 50C of the Act.
- Assessment of gain as income from business.
- Adjudication on whether section 50C applies when gain is assessed as income from business.

Analysis:

1. Computation of Capital Gain:
The assessee challenged the assessment of gain from the sale of agricultural land as income from business. The Assessing Officer applied section 50C of the Act, adopting the stamp duty valuation for computation. The CIT(A) upheld the assessment as income from business, considering the profit motive due to the location of the land near municipal limits. The assessee contended that agricultural land sold was not a capital asset. However, both authorities rejected this claim.

2. Applicability of Section 50C:
The key issue was whether section 50C could be applied when the gain was treated as income from business. The Tribunal held that once income is assessed as business income, section 50C should not be invoked. Citing a precedent, the Tribunal emphasized that section 50C pertains to determining the full value of a capital asset, which is irrelevant when the property is treated as a business asset. Therefore, the Tribunal reversed the CIT(A)'s finding on the computation of business income but upheld the assessment of gain on the sale of agricultural land as income from business.

3. Judgment Outcome:
The Tribunal partly allowed the appeals, directing the Assessing Officer to recompute the income after providing a hearing to the assessee. The decision in one appeal was deemed applicable to the other due to identical facts and issues. The order was pronounced on August 17, 2016, concluding the proceedings.

This detailed analysis highlights the assessment of capital gain, the application of section 50C, and the differentiation between income from business and capital gains in the context of the sale of agricultural land, providing a comprehensive understanding of the judgment delivered by the Appellate Tribunal ITAT Pune.