2015 (3) TMI 758 - AT - Income Tax

Sale of land - Assessing Officer held that the land sold by the assessee was not an agricultural land and the activity of purchase and sale of the said land being an adventure in the nature of trade, profit arising therefrom was chargeable to tax in her hands as business income - Held that - Section 2(14)(iii)(b) of the Act covers the situation where the subject land is not only located within the distance of 8 kms from the local limits, which is covered by Clause (a) to section 2(14)(iii) of the Act, but also requires the fulfilment of the condition that the Central Government has issued a notification under this Clause for the purpose of including the area up to 8 kms, from the municipal limits, to render the land as a Capital Asset.In the present case, it is not in dispute that the subject land is not located within the limits of Dasarahalli City Municipal Council therefore, Clause (a) to section 2(14 iii of the Act is not attracted. When the land which does not fall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations in such agricultural land and also being specified as agricultural land in Revenue records, the land is not subjected to any conversion as non-agricultural land by the assessee or any other concerned person, transfers such agricultural land as it is and where it is basis, in such circumstances, in our opinion, such transfer like the case before us cannot be considered as a transfer of capital asset or the transaction relating to sale of land was not an adventure in the nature of trade so as to tax the income arising out of this transaction as business income. As the land sold is not only agricultural in nature but is also situated beyond 12 kms from the limit of a municipality notified by the central govt. Hence, land sold by assessee not being a capital asset, the gain derived there from is not taxable at the hands of the assessee. - Decided in favour of assessee.

Issues Involved:
1. Whether the land sold by the assessee qualifies as agricultural land and thus is exempt from capital gains tax under Section 2(14) of the Income Tax Act, 1961.
2. Whether the profit arising from the sale of the land should be treated as business income or capital gains.

Issue-wise Detailed Analysis:

1. Agricultural Land Exemption under Section 2(14):

Findings by Assessing Officer (AO):
- The AO found that the land sold by the assessee was not agricultural based on several observations, including the lack of visible agricultural activity and supporting evidence such as fertilizer bills and revenue records.
- The AO referenced legal precedents, including the Supreme Court's decision in the case of Sarifabibi (204 ITR 631), to support the conclusion that the land was not agricultural.
- The AO noted that the land was not suited for agricultural use and no agricultural activity was carried out, thus it was a capital asset and not eligible for exemption under Section 2(14).

Assessee's Submissions:
- The assessee argued that the land was agricultural, supported by certificates from the Deputy Collector and MRO, and that it was beyond 8 km from any notified municipality.
- The assessee provided documents like the purchase and sale deed describing the land as agricultural, pattadar pass book, and certificates from local authorities confirming the agricultural nature of the land.
- The assessee rebutted the AO's reliance on evidence from other cases, arguing that it was not relevant to her specific situation.

CIT(A) Findings:
- The CIT(A) identified factors both for and against the assessee's claim of the land being agricultural.
- The CIT(A) concluded that the land was not agricultural, noting that the photographic evidence and the state of the land did not support the claim of agricultural activity.
- The CIT(A) emphasized that the revenue records alone were not conclusive evidence of the land's agricultural status.

Tribunal's Decision:
- The Tribunal referenced a similar case involving adjacent landowners who had successfully claimed their land as agricultural.
- The Tribunal found that the land in question was agricultural in nature and situated beyond the prescribed limit of any municipality notified by the central government.
- The Tribunal held that the land sold by the assessee was not a capital asset under Section 2(14), and thus the profit from its sale was not taxable as capital gains.

2. Treatment of Profit as Business Income or Capital Gains:

Findings by Assessing Officer (AO):
- The AO concluded that the activity of purchasing and selling the land was an adventure in the nature of trade, thus the profit should be treated as business income under Section 28 of the Income Tax Act.
- The AO observed that the coordinated activity among investors in Bhavya Cements Pvt Ltd indicated a systematic business activity aimed at making quick profits from rising real estate prices.

Assessee's Submissions:
- The assessee argued that she was a housewife with no history of real estate business, and the land was acquired as a gift and sold on the same day.
- The assessee contended that the transaction was an isolated instance and did not constitute a business activity.
- The assessee cited legal precedents to argue that the profit motive alone does not convert a transaction into a business activity.

CIT(A) Findings:
- The CIT(A) agreed with the assessee that the profit from the sale of land did not constitute business income but was in the nature of short-term capital gains.
- The CIT(A) noted that the assessee had not engaged in any systematic or organized activity indicative of a business.

Tribunal's Decision:
- The Tribunal upheld the CIT(A)'s decision, noting that the transaction did not possess the attributes of an adventure in the nature of trade.
- The Tribunal emphasized that the assessee's intention at the time of acquiring the land was not to trade, and the land was held for more than two years before being sold.

Conclusion:
The Tribunal allowed the appeal, holding that the land sold by the assessee was agricultural and not a capital asset under Section 2(14), and thus the profit from its sale was not taxable as capital gains. Additionally, the Tribunal agreed that the transaction did not constitute business income.

← Previous Next →