2014 (9) TMI 1263 - AT - Income Tax

Gain on sale of agricultural land - nature of land - business income or long term capital gains as exempt from tax - HELD THAT - We are in agreement with the inference drawn by the lower authorities that assessee has failed to substantiate that any agricultural activity was genuinely carried out on the said land during the period it has been held by the assessee. Be that as it may, the aforesaid circumstances are enough to deduce that the motive of the assessee to acquire the land in question was not to undertake cultivation or any other agricultural operations on the said land. The aforesaid inference gets strengthened by the fact that other than the lands in question, there is no material to show that the assessee was holding agricultural lands in past for the purpose of undertaking agricultural activities. We are unable to accept the plea of the assessee that the intention of the assessee to purchase the impugned agricultural lands was to undertake agricultural operations. On the contrary, the manner in which assessee has undertaken acquisition of lands, which are adjacent to each other, by way of multiple acquisitions and thereafter sold the same on proximate dates to the buyer, who is also a land developer, tantamounts to undertaking a trading activity and therefore surplus on such sale is liable to be taxed as a business income. The factum of the assessee having bought and sold an agricultural land which does not fall within the definition of capital assets in terms of section 2(14)(iii) of the Act does not mitigate the taxability of the surplus arising on its sale as business income because the facts and circumstances of the case show that assessee has indeed undertaken trading of agricultural lands. The activity of trading in agricultural lands as stock-in-trade definitely is assessable as business income. We are inclined to uphold the orders of the authorities below treating the surplus on sale of land at village Pusane as a business income. - Decided against assessee.

Summary

Issues Involved:
1. Taxability of profits earned on the sale of agricultural lands.
2. Classification of the surplus as business income or long-term capital gains.
3. Liability of the assessee to pay interest under sections 234B and 234C of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Taxability of Profits Earned on the Sale of Agricultural Lands:
The primary issue revolves around whether the surplus of Rs.1,99,02,720/- earned by the assessee from the sale of agricultural lands constitutes taxable business income or is exempt as long-term capital gains. The assessee claimed the surplus as capital gains exempt from tax under section 2(14)(iii) of the Income-tax Act, arguing that the agricultural lands do not qualify as "capital assets" due to their location beyond 8 kilometers from municipal limits and the village population being less than ten thousand. However, the Assessing Officer and the CIT(A) treated the transactions as trading activities, thereby taxing the surplus as business income.

2. Classification of the Surplus as Business Income or Long-term Capital Gains:
The controversy hinges on whether the transactions of purchasing and selling agricultural lands by the assessee are to be considered as business activities or investments. The assessee purchased approximately 18 acres of agricultural land in Pusane village between 2002 and 2006 and sold it in 2007 to a real estate developer. The CIT(A) upheld the Assessing Officer's view, concluding that the transactions were trading activities based on several factors:
- The assessee was a builder and developer with a history of land development and trading activities.
- The lands were acquired piecemeal for consolidation and future sale to earn higher profits.
- The assessee was not an agriculturist, and the motive behind the transactions was profit-making rather than agricultural use.
The tribunal found that the assessee's claim of agricultural activity was unsupported by evidence, and the sale patties provided were found to be bogus. The tribunal agreed with the lower authorities that the assessee's activities constituted trading in agricultural lands, thus taxable as business income.

3. Liability to Pay Interest Under Sections 234B and 234C:
The assessee contested the liability to pay interest under sections 234B and 234C of the Income-tax Act. However, since the tribunal upheld the classification of the surplus as business income, the liability to pay interest under these sections was also affirmed.

Conclusion:
The tribunal concluded that the surplus of Rs.1,99,02,720/- earned from the sale of agricultural lands by the assessee was rightly classified as business income by the lower authorities. The assessee's appeal was dismissed, and the orders of the lower authorities were affirmed. The tribunal also referenced a similar case (Shri Krishnakumar K. Goyal) to distinguish the present case, noting the lack of evidence supporting the assessee's claim of agricultural activity or holding agricultural lands for investment purposes. The decision was pronounced in open court on 15th September 2014.