2013 (11) TMI 1265 - AT - Income Tax

Nature of Agricultural Land Capital asset or not Profits from sale was capital gains or not - Held that - Both the authorities below have not given any clear finding - even if it was treated as an agricultural land but as same was within the distance of 8 kms. from the local limits of the municipal corporation, same was a capital asset within the meaning of Sec.2(14)(iii)(b) of the Act and liable for the capital gain tax. Whether the A.O. was justified in assessee the profits/gain on the sale of the land under the head business - Held that - The assessee had failed to prove that the land in question was beyond distance of 8 kms. from the local limits of Pimpri Chinchwad Municipal Corporation (PCMC) - The distance was to be considered on the basis of the approach road. Whether if assets under the head capital gain where the said land was to be treated as a capital asset - So far as the treatment of the gain/profit on the sale of the land is concerned, the Ld. CIT(A) accepted the contention of the assessee that the sale of the plot of the land cannot be treated as an adventure in the nature of the trade and same is to be assessed under the head capital gain. The Ld. CIT(A) has recorded that it was the sole transaction of purchase of immovable property and it was in the nature of the investment. The Ld. CIT(A) therefore held that the same is to be treated as gain/profit was assessable under the head capital gain and not as a business income . There was no clear finding on this issue by the Ld. CIT(A) - At the same time, the Ld. CIT(A) held that the A.O. had obtained the certificate from the Assistant Director of Town Planning and as per the said letter, the land in question was situated within 8 kms. the local limits of the Pimpri Chinchwad Municipal Corporation - The Ld. CIT(A) also declined to admit the evidence in the nature of certificate from Kamgar Talathi of Maan under rule 46A - nothing was brought on record why and how the assessee was prevented from producing the said evidence before the A.O. The Ld. CIT(A) rejected the claim of the assessee that the land in question was beyond the distance of the 8 kms. the local limits of the municipal corporation. Whether transaction of the sale of the land was adventure in the nature of the trade and profit/gain on the sale was assessable as a business income under the head profits & gains of business and profession Held that - Assessee had sold the land but only to one party - So far as the Sakal Papers Pvt. Ltd., the second buyer was concerned the land was in fact sold by W.B. International Pvt. Ltd - the transaction of the land cannot be treated as an adventure in the nature of the trade and the Ld. CIT(A) had rightly held that the gain is to be assessed under the head capital gain and not as a business income . The Ld. CIT(A) also took a note of the fact that there was no other transaction entered into by the assessee and the land was retained almost for the 5 years - The Ld. CIT(A) referred to the decision of the Hon ble High Court of Bombay in the case of CIT Vs. Lakshmi Surgical Pvt. Ltd. 1992 (11) TMI 49 - BOMBAY High Court - the sale of the land cannot be treated as an adventure in the nature of the trade and he was not justified in treating the profit/gain on the sale of the land as business income .

Summary

Issues Involved:
1. Whether the land in question is a capital asset within the meaning of section 2(14)(iii) of the Income-tax Act.
2. Whether the profits arising from the sale of the land should be treated as capital gains or business income.

Detailed Analysis:

1. Whether the land in question is a capital asset within the meaning of section 2(14)(iii) of the Income-tax Act:

The core issue revolves around whether the land sold by the assessee qualifies as a "capital asset" under section 2(14)(iii) of the Income-tax Act. The assessee argued that the land was agricultural and situated beyond 8 kms from the municipal limits, thus not a capital asset. However, the Assessing Officer (A.O.) obtained a certificate from the Assistant Director of Town Planning, confirming that the land was within 8 kms from the Pimpri Chinchwad Municipal Corporation (PCMC) limits.

The assessee admitted to the A.O. that the land was a capital asset due to a bona fide mistake, acknowledging that the distance from PCMC limits was overlooked. The A.O. concluded that the land was indeed a capital asset and taxed the profit from its sale.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the A.O.'s decision, rejecting the additional evidence (a certificate from Kamgar Talathi) provided by the assessee, which claimed the land was beyond 8 kms from the municipal limits. The CIT(A) emphasized that the certificate from the Assistant Director of Town Planning was more reliable and that the assessee had admitted the mistake during the assessment proceedings.

The Tribunal agreed with the CIT(A), noting that the certificate from the Assistant Director of Town Planning was a competent authority's certification and the assessee failed to disprove it. The Tribunal also found the certificate from Kamgar Talathi to be general and not supported by a proper map, thus not aiding the assessee's case.

2. Whether the profits arising from the sale of the land should be treated as capital gains or business income:

The A.O. treated the profit from the sale of the land as business income, considering the transaction as an adventure in the nature of trade. The assessee contended that the land was purchased as an investment and held for five years, and the sale was a solitary transaction, not indicative of a trading activity.

The CIT(A) accepted the assessee's argument, holding that the sale of the land was not an adventure in the nature of trade but an investment, thus the profit should be assessed under "capital gains" and not as "business income." The CIT(A) noted that the land was held for five years, and there was no systematic trading activity.

The Tribunal supported the CIT(A)'s view, stating that the land was held as an investment and sold after five years, with no evidence of organized trading activity. The Tribunal concluded that the profit from the sale should be assessed as capital gains.

Conclusion:

The Tribunal dismissed both the appeals of the assessee and the revenue, upholding the CIT(A)'s decision that the land was a capital asset within the meaning of section 2(14)(iii) and that the profit from its sale should be assessed as capital gains, not business income.