2018 (5) TMI 1870 - AT - Income Tax

Capital gain - nature of land sold - capital asset - agricultural land - exemption u/s 10 - said land was surrounded by agricultural land and the Arabian Sea - character of the land at the time of sale is a material factor which has to be seen as per the sale deed - HELD THAT - Land revenue shows that it was an agricultural land and some agricultural operation were carried out and simply because assessee had not shown agricultural income that does not mean no agricultural activity was ever carried out; secondly, even at the time of sale the agricultural land, the land continued to be agricultural land and no change of land used was ever sought at the time of sale and now it has also been brought on record that even after the sale also the land remained agricultural land in the hands of the seller and till date land used has not been changed and; lastly, even if land has been sold to a hotelier but if it is not used for commercial purpose even after the sale, then does not make any difference whether a prospective hotelier had purchased a land. All the facts and materials discussed above clearly pointed out that it was clear cut sale of agricultural land, and therefore, any Long Term Capital Gain arisen from sale of such land is to be treated as exempt u/s. 10. We do not find any infirmity in the order of the ld. CIT (A) that the gain on sale of such land cannot be taxed as capital gain. MAT - computation or taxation of book profit u/s. 115JB - HELD THAT - No such grounds were raised in the original grounds of appeal by the Department. Apart from that, once Assessing Officer has not treated the said gain for the purposes of book profit then by way of such ground the issue cannot be raised by the Department. Otherwise also when the income of agricultural land is exempt from tax, then the said exempt income cannot be added to the books profit while calculating the MAT u/s. 115JB. Thus, the said ground raised by the Revenue cannot be entertained and same is dismissed. Receipts on account of compromise agreement and settlement - taxability as capital gain or not? - HELD THAT - Looking to the nature of payment which is on account of compromise agreement and also settlement of withdrawal of cases, it cannot be held that the said amount received by the assessee is on account of sale of agricultural land, and therefore, CIT (A) has rightly held that the said amount cannot be treated as exempt from capital gain tax and accordingly the order of the CIT (A) is confirmed and the grounds raised in the Cross Objection is dismissed.

Issues Involved:
1. Deletion of addition under 'Capital Gain' by the AO.
2. Classification of the land sold by the assessee as Agricultural Land.
3. Determination of tax payable on book profit as per section 115JB.
4. Treatment of compensation received on account of compromise agreement as taxable under capital gain tax.

Detailed Analysis:

1. Deletion of Addition under 'Capital Gain':
The Revenue's appeal contested the deletion of ?9,69,61,307/- determined under 'Capital Gain' by the AO. The land was sold during the AY 2006-07 for ?10.30 crore, and the gain was claimed as exempt under Section 10, arguing it was agricultural land as per Section 2(14)(iii). The AO argued the land was not used for agricultural purposes, citing no agricultural income in the P&L account and the land being sold to a hotelier. The CIT(A) rejected the AO's claim, noting the land was classified as agricultural in revenue records, was beyond 8 km from municipal limits, and no change of land use was permitted.

2. Classification of Land as Agricultural Land:
The AO's objections included the presence of an old structure on the land, lack of agricultural income, and the land's sale to a hotelier. The CIT(A) found the structure was negligible (0.03% of the total area) and the land was used for agricultural purposes, supported by certificates from local authorities and the purchaser's confirmation. The CIT(A) concluded the land was agricultural based on revenue records, lack of non-agricultural use, and the land's location beyond municipal limits.

3. Determination of Tax Payable on Book Profit (Section 115JB):
The Revenue raised an issue regarding the determination of tax payable on book profit under Section 115JB. However, this was neither addressed by the AO nor included in the original grounds of appeal. The CIT(A) dismissed this ground, noting that exempt agricultural income cannot be added to book profit for MAT calculation under Section 115JB.

4. Treatment of Compensation Received on Compromise Agreement:
The assessee's cross-objection challenged the treatment of ?20,00,000/- received as compensation under a compromise agreement as taxable under capital gain tax. The CIT(A) held that this amount, received for termination of an agreement and litigation costs, was not related to the sale of agricultural land and thus, not exempt from capital gains tax.

Conclusion:
The appeal by the Revenue was dismissed, upholding the CIT(A)'s decision that the land was agricultural, and the gains from its sale were exempt from capital gains tax. The cross-objection by the assessee was also dismissed, confirming the taxable status of the ?20,00,000/- received as compensation.

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