2015 (10) TMI 1275 - AT - Income Tax

Addition under the head profit and gains of business as against the claim of agricultural income claimed to be exempt by the assessee - CIT(A) delted the addition - Held that - In the similar facts and circumstances the Hon ble Delhi High Court in the case of Hindustan Industrial Resources Ltd. Vs. ACIT (2009 (1) TMI 1 - HIGH COURT DELHI ) observed that the assessee purchased agricultural land with an intention to use the land for industrial purposes. No agricultural activity was carried on that land by the assessee. The land was acquired by the competent authority under land acquisition Act for planned development of industry. The award passed in the acquisition proceedings also shows that the land was agricultural land. Now, the issue is that as the assessee has never used the said land for agricultural purposes and the land was intended to be used for industrial purposes, both by the assessee as well as by the acquiring authority, can it be said that it is an agricultural land and therefore, gain on transfer thereof is exigible to tax. The Hon ble High Court observed that the intention does not alter the character and nature of the land. Further the fact that the assessee did not carry out any agricultural operations and did not also result in any conversion of the agricultural land into an industrial land. There is no material to show that any industrial activity or any operation for setting up of industry was actually carried out on the said land so as to change its character from agricultural to industrial. It is the character of the land at the time of sale that is relevant and not the purpose for which it was purchased by the assessee or from the assessee. Therefore, it was held that the land retained its character as agricultural and therefore, not liable for capital gains tax. We do not find any good reason to interfere with the findings of the Commissioner of Income Tax (Appeals) that the land was acquired by the assessee as investment and not as stock in trade of business and the transaction of holding the land for above 14 months before sale cannot be treated as business transaction of the assessee. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the income from the sale of land should be treated as agricultural income exempt from taxation or as business income.

Issue-wise Detailed Analysis:

1. Assessing Officer's Observations:
The Assessing Officer noted that the assessee firm, which came into existence on 04/11/2006 with the objective of real estate development, sold land purchased in the financial year 2006-07 in the year relevant to the assessment year. The firm did not carry out any agricultural operations on the land, nor did it show any related expenditure or receipts. The land's market price increased sixfold within 14 months, indicating a commercial angle. The Assessing Officer cited precedents from the Hon'ble Rajasthan High Court and the Hon'ble Madhya Pradesh High Court, concluding that the land was not used for agricultural purposes and the profit from its sale was not agricultural income but business income.

2. Commissioner of Income Tax (Appeals) Decision:
The Commissioner of Income Tax (Appeals) overturned the Assessing Officer's decision, highlighting several key points:
- The land was classified as agricultural in land revenue records and was more than 8 km away from municipal limits.
- The land was held as an investment, not as stock-in-trade, and was sold due to the inability to carry out agricultural operations.
- The land was sold to a mining company, which had no connection to agriculture.
- The Commissioner relied on the jurisdictional High Court's decisions, concluding that the transaction was not a business venture and the income was non-taxable agricultural income.

3. Departmental Representative's Argument:
The Departmental Representative supported the Assessing Officer's order, emphasizing the lack of agricultural activity and the nature of the transaction as a business venture.

4. Authorized Representative's Argument:
The Authorized Representative of the assessee argued that the land was agricultural as per land records and was held as an investment. They provided affidavits from agricultural laborers and cited decisions from the Hon'ble Bombay High Court, asserting that the profit from the sale of the land was non-taxable agricultural income.

5. Tribunal's Findings:
The Tribunal reviewed the facts and found:
- The land was classified as agricultural in government records and was situated beyond 8 km from the nearest municipality.
- There was no evidence of non-agricultural use before the sale.
- The land was disclosed as an investment, not stock-in-trade.
- The land could not be used for purposes other than agriculture due to its classification and location.

6. Legal Precedents:
The Tribunal referred to the Hon'ble Delhi High Court's decision in Hindustan Industrial Resources Ltd. vs. ACIT, which held that the character of the land at the time of sale is relevant, not the intended use or actual agricultural activity.

Conclusion:
The Tribunal confirmed the Commissioner of Income Tax (Appeals) decision, concluding that the land was an investment and the transaction was not a business venture. The income from the sale of the land was deemed non-taxable agricultural income. The appeal of the Revenue was dismissed.

Order:
The appeal of the Revenue is dismissed. The order was pronounced in court on 8.9.2015.