2012 (9) TMI 294 - AT - Income Tax

Profit on sale of agricultural land - income from business OR capital gain - Held that - The main object clause suggests that the assessee s main business is to deal in real estate and the assessee carried on the activity of buying and selling of lands and in each case the land was not subjected to cultivation by the assessee - the argument of the assessee on an assumption the land is fit for agriculture and was used for agriculture purpose by somebody on behalf of the assessee is not acceptable as it is on record that there is a series of transactions by which the assessee bought the land and sold for profit. The land purchased by the assessee in the present case is subject matter of trade and it has purchased at regular intervals and it cannot be considered as investment activity of the assessee. Even after purchasing the agricultural land, the assessee cannot be said to be carrying on any agricultural operation. There were no activities connected with the land. Though the assessee taken a plea that the land was leased for agricultural operations, the evidence brought on record does not suggest that the agricultural operation was actually carried on the said land. Though the assessee shown the land as an investment in the Balance Sheet it cannot change the character of land as stock-in-trade. The entry in the books of account is not conclusive to hold that the assessee has not dealt with in land. The facts of case suggest that the assessee with a sole motive of dealing in land acquired the land and sold the same which can be nothing but adventure in the nature of trade and that the land dealt by the assessee is a stock-in-trade. Unable to appreciate this contention of the assessee that AO accepted the income arising out of sale of such land as income from agriculture in earlier year as each assessment year is a separate unit of assessment and principles of res judicata did not apply to the income-tax proceedings - against assessee.

Issues Involved:
1. Classification of income from the sale of agricultural land as business income or exempted income.
2. Determination of the nature of the land as agricultural or urban.
3. Intention behind the purchase and sale of the land.
4. Applicability of principles of res judicata in income tax proceedings.

Detailed Analysis:

1. Classification of Income from Sale of Agricultural Land:
The primary issue is whether the profit from the sale of agricultural land should be classified as business income or exempted income. The assessee claimed that the profit of Rs. 69,00,224 from the sale of agricultural lands should be exempt from tax. The Assessing Officer (AO) treated this profit as business income, arguing that the lands were purchased with the intention of selling them for profit, thus constituting stock-in-trade rather than capital assets. The AO emphasized that the lands did not yield substantial agricultural income and were dry lands, indicating that the primary intention was not agricultural use but profit from sales.

2. Nature of the Land:
The nature of the land sold was scrutinized to determine if it was indeed agricultural. The assessee provided a certificate from the Tahasildar and details of lease income to support the claim that the lands were agricultural. However, the AO observed that the lands were situated in areas with real estate activities and were classified as urban land in sale deeds. The AO noted that the lands were dry and had not yielded significant agricultural income, suggesting that the agricultural classification was not substantiated by actual agricultural use.

3. Intention Behind Purchase and Sale:
The intention behind the purchase and sale of the land was a critical factor. The AO argued that the frequent purchase and sale of lands indicated a business motive rather than an investment intention. The assessee contended that the lands were purchased as investments and leased out for agricultural purposes, with the lease income being accepted in previous assessments. However, the AO and CIT(A) concluded that the pattern of transactions and the lack of substantial agricultural activity pointed towards a business intention to earn profits from real estate transactions.

4. Applicability of Principles of Res Judicata:
The assessee argued that since the agricultural income claim was accepted in previous assessments and wealth tax returns, the same treatment should be applied for the current year. However, the tribunal held that each assessment year is a separate unit, and the principle of res judicata does not apply to income tax proceedings. The AO is expected to verify facts for each assessment year independently, even if similar issues were decided in earlier years.

Conclusion:
The tribunal upheld the AO's decision to treat the profit from the sale of agricultural lands as business income. It was concluded that the lands were purchased with the intention of selling them for profit, and the transactions were in the nature of business activities rather than capital investments. The tribunal emphasized that the classification of land as agricultural in revenue records and the receipt of lease income were insufficient to prove that the primary intention was agricultural use, especially given the lack of substantial agricultural activity and the surrounding real estate developments. The appeal by the assessee was dismissed, affirming the AO's and CIT(A)'s findings.

← Previous Next →