2016 (8) TMI 1454 - AT - Income Tax

Characterization of gain on land sold - nature of land sold - agricultural land or capital asset - HELD THAT - Said property was purchased by the assessee on 25-03-2008 for a consideration of ₹ 31,50,000/-. Prior to this date on 10-03-2008 the assessee has received an advance payment of ₹ 5,00,000/- against the sale consideration of ₹ 60,00,000/- for the said property. This fact emerges from the sale deed itself. Assessee had entered into the transaction of sale even before execution of the purchase deed. This amply supports the Revenue s contention that business intention of the assessee was very evident. As rightly noted by the CIT(Appeals) in this context it is important to note that eventually the sale consideration of ₹ 30 lacs was received by the assessee directly from the builders to whom the said land was eventually sold and who plotted the land and sold it in pieces. The assessee was one of the witnesses who signed the sale deed when the land was sold to Rajendra Ramdas Dhore who had later sold 14 plots to one M/s United Builders and Developers for ₹ 15 lacs and 14 plots to Shri Sahebrao Wadekar for ₹ 15 lacs and the sale proceeds totalling ₹ 30 lacs were directly paid to the assessee by these two purchase parties. Further more the assessee has also made application for conversion of the said land for non agricultural land for residential purpose. Thus the assessee was aware of the purpose for which the entire transaction was being entered at the threshold. There is no evidence of any cultivation activity on the said land. The assessee has not disclosed any agricultural activity/income/expenditure on the said land. Rather the facts of the case clearly indicate that the assessee was in the process of converting the land into non agricultural land and he eventually sold for non agricultural activities. Hence agree with the conclusion of the learned CIT(Appeals) that the facts of the case that no agricultural operation being carried out in the said property, the efforts to convert the said land into non agricultural land, taking advance from the eventual purchaser even before the said property had been purchased and being aware all along that the said land will be used for plotting by builders clearly reflects the commercial and profit element in the purchase and sale of the said property. - Decided against assessee.

Summary

Issues Involved:
1. Whether the profit derived from the sale of agricultural land should be treated as business income.
2. Whether the agricultural land was held as a business commodity.
3. Legality of treating the agricultural land as a business commodity.

Issue-wise Detailed Analysis:

1. Profit Derived from Sale of Agricultural Land as Business Income:
The appellant filed a return of income declaring a total income of ?3,97,701/-. During the assessment proceedings, it was noted that the appellant sold immovable property for ?60 lakhs, which was initially purchased for ?31,50,000/-. The profit from this transaction was not shown in the return of income. The appellant argued that only ?5 lakhs were received, and the remaining amount was to be paid by post-dated cheques, which were dishonored. The AO recorded the statement of the purchaser, who confirmed the payment of ?5 lakhs and dishonoring of cheques. However, the AO concluded that the appellant had handed over possession of the property, and the transaction was completed, thus treating the profit as business income.

2. Treatment of Agricultural Land as Business Commodity:
The CIT(Appeals) considered various factors such as the intention of the appellant at the time of purchase, treatment of the land, holding period, actual use, and location. The CIT(Appeals) noted that the appellant received an advance payment before purchasing the property, indicating a business intention. The appellant was also involved in the conversion of the land to non-agricultural land and received the sale consideration directly from builders. The CIT(Appeals) concluded that the appellant had a business motive and not an investment intention.

3. Legality of Treating Agricultural Land as Business Commodity:
The CIT(Appeals) and ITAT referred to the Supreme Court's decision in Sarifabibi Mohmed Ibrahim v. CIT, which emphasized that whether land is agricultural is a question of fact, and several factors must be considered cumulatively. The CIT(Appeals) observed that no agricultural operations were carried out on the land, and the appellant was involved in converting the land for non-agricultural use. The ITAT upheld this view, agreeing that the facts indicated a commercial and profit-driven intention in the purchase and sale of the property.

Conclusion:
The ITAT upheld the CIT(Appeals) order, concluding that the transaction was an adventure in the nature of trade and should be taxed as business income. The appeal filed by the assessee was dismissed. The judgment emphasized the importance of intention, actual use, and surrounding circumstances in determining the nature of the land and the transaction.