1993 (10) TMI 41 - HC - Income Tax

Acquisition Proceedings, Adventure In The Nature Of Trade, Agricultural Income, Agricultural Land, Capital Gains, Income Tax Act

Summary

Issues Involved:

1. Intention of the assessee at the time of purchase of the land.
2. Whether the land was agricultural land.
3. Evidence before the Tribunal regarding the land being agricultural.
4. Classification of lease rent under 'Business' or 'Other sources'.
5. Classification of profit from sale of land as revenue or capital account.

Issue-wise Detailed Analysis:

1. Intention of the Assessee at the Time of Purchase:

The Tribunal held that the intention of the assessee at the time of purchase was to trade in the land rather than hold it as an investment. The court did not separately address this issue as it was covered under the analysis of whether the profits were taxable as business income or capital gains.

2. Whether the Land was Agricultural Land:

The central question was whether the reference lands were "agricultural lands" on the date of transfer. The Tribunal, following the Supreme Court's judgment in Smt. Sarifabibi Mohmed Ibrahim v. CIT [1993] 204 ITR 631, concluded that the lands were not agricultural. Factors considered included:
- The land was situated in a heavy industrial zone.
- It had not been used for agricultural purposes for several years prior to the transfer.
- The land was transferred to business entities for non-agricultural purposes.

The court upheld the Tribunal's finding, emphasizing that the nature and character of the land had changed, and the land was not used or intended to be used for agricultural purposes at the time of transfer.

3. Evidence Before the Tribunal:

The court examined whether there was evidence to support the Tribunal's finding that the land was not agricultural. The Tribunal had considered various factors, including the non-use of the land for agriculture, its location in an industrial zone, and its transfer to non-agriculturists for non-agricultural purposes. The court found that these factors provided sufficient evidence to support the Tribunal's conclusion.

4. Classification of Lease Rent:

The court addressed whether the lease rent was assessable under 'Business' or 'Other sources'. It concluded that the lease rent should be classified under 'Other sources', aligning with the nature of the income derived from leasing the land.

5. Classification of Profit from Sale of Land:

The Tribunal initially classified the profit from the sale of land as business income, considering it an adventure in the nature of trade. However, the court disagreed, holding that the transactions did not constitute an adventure in the nature of trade. The court emphasized that the assessee had no choice but to complete the sale and claim compensation due to pre-existing commitments and compulsory acquisition proceedings. Thus, the profits were liable to capital gains tax, not business income.

Conclusion:

(i) Question No. 2: Affirmative, in favor of the Revenue.
(ii) Question No. 3: Affirmative, in favor of the Revenue.
(iii) Question No. 4: Lease rent assessable under 'Other sources'.
(iv) Question No. 5: Negative, in favor of the assessee, profits liable to capital gains tax.
(v) Question No. 1: Unnecessary to answer separately, covered by Question No. 5.

The court concluded with no order as to costs.