2016 (10) TMI 1231 - AT - Income Tax

Gains from sale of land - Gain being taxed under the head Income from business and also treating one such sale as not of an agricultural land - Held that - Nature of use of adjacent land was not relevant in deciding the nature of land sold by an assessee. Their lordship had also held that a presumption could never be taken regarding the purpose for which the buyer purchased the land. Lordship also observed that nature of classification of land by the Revenue authorities in the revenue record was of prime importance in determining the nature of land sold by the assessee. Considering the facts and circumstances of the case and also applying the law laid down by Hon ble Jurisdictional High Court in the case of Sakunthala Vedachalam vs. Vanitha Manickavasagam (2014 (9) TMI 3 - MADRAS HIGH COURT) we are of the opinion that lower authorities fell in error in considering the land measuring 4.34 acres at Othakalmandapam sold by the assessee to M/s. Hindustan Educational and Charitable Trust as non agricultural in nature and exigible to capital gains. The said land could not be considered as capital asset by virtue of Sec. 2(14)(iii) of the Act. Assessee was justified in claiming that surplus arising out of sale of land as not exigible to capital gains tax. - Decided in favour of assessee.

Summary

Issues Involved:
1. Classification of gains from the sale of land as "Income from business" vs. "Capital gains."
2. Determination of the nature of the land sold (agricultural or non-agricultural).

Detailed Analysis:

1. Classification of Gains from Sale of Land:
The assessee, engaged in the business of manufacturing and selling transformers, reported gains from the sale of land under "capital gains," while the Assessing Officer (AO) classified these gains as "income from business." The AO's decision was based on a pattern of land transactions by the assessee over several years, suggesting an organized activity aimed at earning profits. The AO highlighted multiple purchases and sales of land, including substantial transactions in previous years, to support the claim that the assessee was in the business of purchasing and selling land.

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, noting the substantial profit from the land sale to a trust where the assessee was the sole trustee. The CIT(A) referenced the judgment in CIT Vs. Gopal Ramnarayan Kasat, indicating that even isolated transactions could be considered adventures in the nature of trade if there was continuity.

However, the Tribunal found that the transactions over several years were sporadic and did not demonstrate an intention to trade in land. The land was held as investments in the balance sheet, and no development or plotting was done by the assessee. The Tribunal concluded that the gains should be classified under "capital gains" and not "income from business."

2. Nature of the Land Sold:
The second issue was whether the 4.34 acres of land sold at Othakalmandapam to a charitable trust was agricultural. The assessee claimed the land was agricultural, supported by revenue records and the classification by the Revenue Department. The AO, however, argued that the land was not used for agricultural purposes and was situated in a developed area, thus non-agricultural. The AO relied on the Apex Court decision in Smt. Saarifabibi Mohamed Ibrahim vs. CIT and the Gujarat High Court decision in CIT vs. Siddartha Desai.

The Tribunal, however, found that the land was classified as agricultural in revenue records and was situated 14 km from Coimbatore Corporation limits. The land was held for over fifteen years, and the assessee had declared agricultural income. The Tribunal referenced the jurisdictional High Court's decision in Mrs. Sakunthala Vedachalam vs. Mrs. Vanitha Manickavasagam, which emphasized the importance of revenue records in determining the nature of the land. The Tribunal concluded that the land was agricultural and not a capital asset under Sec. 2(14)(iii) of the Act, making the gains from its sale non-exigible to capital gains tax.

Conclusion:
The Tribunal allowed the appeal, ruling that the gains from the sale of land should be classified under "capital gains" and recognizing the land sold as agricultural, thus exempting it from capital gains tax. The order was pronounced on October 28, 2016, in Chennai.