2015 (4) TMI 1280 - AT - Income Tax

Gain on sale of land - capital gain or business income - HELD THAT - Assessee is an agriculturist and did not carry on any business. The land was purchased as agricultural land way back in 1979. Agricultural operations were carried on for more than 20 years and the land was inherited by Assessee which is in the process of development. Necessary permission for conversion of land in to residential plots was sought by Assessee's mother and just because Assessee stepped into his mother's shoes, it cannot be considered that Assessee is in the business of purchasing and selling of plots, whereas, Assessee has only sold inherited land, therefore, intention to purchase for business was absent. Though, it may not be entirely relevant but we cannot ignore the fact that the sale proceeds/capital gains were invested in approved bonds, (NABARD Bonds) and were not invested in any business. Taxable as capital gains - Decided against the Revenue.

Summary

Issues:
Revenue's appeal against CIT (A) order regarding characterization of income from land sale as capital gains or business income for A.Y 2005-06.

Analysis:
1. Background: The appeal by Revenue challenges the CIT (A) order on the nature of income from land sale for A.Y 2005-06, contending that the land sale should be treated as business income, not capital gains as held by the AO.

2. Factual Scenario: The assessee declared a total income for A.Y 2005-06, offering capital gains on land sale and claiming exemption u/s 54EC by investing in NABARD bonds. The AO reopened assessment based on A.Y 2006-07 findings, deeming the land sale activity as an adventure in nature, thus treating the income as business income.

3. Judicial Review: The CIT (A) allowed the assessee's appeal, citing a Tribunal order for A.Y 2006-07. The Revenue appealed to the ITAT Hyderabad challenging this decision.

4. Legal Analysis: The Tribunal referred to the Supreme Court's stance on 'adventure in the nature of trade,' emphasizing factors like the purchaser's intent, improvement of commodity quality, and repeated transactions. Notably, the Tribunal highlighted that the assessee, an agriculturist, had not engaged in any business activities, the land was held for agricultural purposes for over 20 years, and the sale proceeds were reinvested in NABARD bonds, not business ventures.

5. Decision: Considering the consistent approach with a prior decision for A.Y 2006-07, the Tribunal upheld the CIT (A) decision, dismissing the Revenue's appeal and affirming the characterization of income from land sale as capital gains for A.Y 2005-06.

6. Conclusion: The Tribunal's verdict, aligning with the earlier ruling, maintained that the income derived from the land sale should be treated as capital gains, given the absence of business intent, long-term agricultural use, and reinvestment in non-business avenues. The appeal by the Revenue was thus dismissed, upholding the CIT (A) order.