2014 (11) TMI 773 - AT - Income Tax

Assessment of gains on sale of agricultural land - Whether the CIT(A) was justified in confirming the assessment of gain arising on sale of agricultural land as business Profit by rejecting the claim of the assessees that the same is not liable for taxation Held that - CIT(A) has proceeded on a new line of thought and concluded that there was no purchase or sale of land and further held that it was a simple case of giving advance in the course of business activity - the business activity of the assessees is not giving of advances - Even if it is considered to be so, for a moment, the advance should be returned back by the same person who had received the advance - If the assessee had not acquired interest in the land, there was not necessity for the Mumbai SEZ Ltd to enter into MOU with the assessee. The tax authorities have proceeded to assess the income as business income of the assessee on wrong understanding of facts - they were influenced by the fact that the assessees have sold the lands within a period of one year from the date of purchase - the tax authorities have not brought any material to show that these assessees had intention to hold the agricultural lands as their trading asset, which would have warranted the gain arising on their sale as business income - They have also not brought any material to contradict the submissions made by the assessees - these assessees were constrained to sell the lands to Mumbai SEZ Ltd in view of the notification issued by the State Government within one year from the date of purchase - these assessees were constrained to sell the lands and there is nothing on record to show that they intended to sell the lands within short period from the date of their purchase - the AO himself have accepted the fact that the lands were agricultural lands and they will not fall in the category of Capital asset as defined u/s 2(14) of the Act - the tax authorities are not justified in treating the gains arising on transfer of land as business profits the order of the CIT(A) is set aside and AO is directed not to assess the gains arising on sale of lands as business profits Decided in favour of assessee.

Summary

Issues involved:
Whether the Ld CIT(A) was justified in confirming the assessment of gain arising on sale of agricultural land as "business Profit" by rejecting the claim of the assessees that the same is not liable for taxation.

Detailed Analysis:

1. Issue of Classification of Gain from Sale of Agricultural Land:
The main issue in the case was whether the gain arising from the sale of agricultural land should be classified as "business profit" or not. The assessees argued that they purchased the land for investment purposes and not for trading. They highlighted that the lands were used for agricultural activities by agriculturists, and the companies had no history of engaging in real estate activities. The assessing officer, on the other hand, concluded that the intention of the assessees was to hold the land as "stock in trade" due to the short holding period and lack of agricultural activities by the assessees themselves.

2. Interpretation of Objective of Companies and Intentions of Assessees:
The tax authorities based their decision on the assumption that the assessees were engaged in real estate business activities. However, the assessees presented that their companies had different objectives, such as providing services, farming, or investing in shares and securities. The assessing officer's observation that one of the assessees had previous activities of land purchase and sale was disputed by the assessees as contrary to the facts.

3. Lack of Material Evidence and Contradictory Observations:
The tax authorities failed to provide material evidence supporting their conclusion that the assessees intended to hold the agricultural lands as trading assets. The assessees' contentions regarding the compulsion to sell the lands to Mumbai SEZ Ltd due to government notifications were not contradicted with concrete evidence. The assessing officer's acceptance that the lands were agricultural and not capital assets further weakened the argument for classifying the gains as business profits.

4. Decision and Conclusion:
After a thorough review of the facts and contentions presented, the tribunal concluded that the tax authorities did not substantiate the intention of the assessees to treat the lands as trading assets. The lack of evidence supporting the business profit classification led to the decision to set aside the Ld CIT(A)'s orders and direct the assessing officer not to assess the gains from the sale of the lands as business profits. Consequently, all the appeals filed by the assessees were allowed.

This detailed analysis of the judgment showcases the critical issues, arguments presented, and the tribunal's decision based on the interpretation of facts and legal provisions involved in the case.