2019 (1) TMI 220 - HC - Income Tax

Profit on the sale of agricultural land as exempt u/s 2(14) - nature of land sold - profit earned by the assessee on sale of agricultural land as business income - Held that - On appreciation of evidence, Tribunal has specifically observed and held that the transaction carried out by the assessee was not adventure in the nature of trade and therefore, profit earned was not required to be taxed as business income. The aforesaid is the finding recorded by the learned Tribunal on appreciation of evidence. The land was sold as an agricultural land and in fact, what was sold was agricultural land. What was the intention of the purchaser cannot be the determinative factor to treat the profit earned by the assessee on sale of agricultural land as business income. Similarly, merely because for whatever reason, the assessee has earned sufficiently huge amount of profit also cannot be a ground to treat the profit earned by the assessee on sale of agricultural land as business income. Tribunal has not committed any error in directing the Assessing Officer to treat the profit of ₹ 1,20,21,138 earned by the assessee on the sale of agricultural land as exempt under section 2(14) of the Income tax Act. - Decided in favour of assessee

Summary

Issues:
1. Whether the Appellate Tribunal correctly treated the profit earned on the sale of agricultural land as exempt under section 2(14) of the Income-tax Act?
2. Whether the land transaction giving rise to substantial profit in a short period can be considered agricultural land or an adventure in the nature of trade?

Analysis:

Issue 1:
The case involved a dispute regarding the treatment of profit earned from the sale of agricultural land under section 2(14) of the Income-tax Act. The Assessing Officer initially considered the profit as business income due to factors such as the land being sold for industrial purposes, a significant rise in profit, and a short span between purchase and sale. However, it was established that the land sold was agricultural, as confirmed by revenue records. The Appellate Tribunal found that the transaction was not an "adventure in the nature of trade" and thus, the profit was exempt under section 2(14) of the Act.

Issue 2:
The Appellate Tribunal's decision was challenged by the Revenue, arguing that the land was intended for industrial use and the substantial profit earned indicated a trading asset, not agricultural land. The Revenue contended that the profit should be treated as business income, not exempt under section 2(14). However, the Tribunal upheld its decision, emphasizing that the nature of the land sold, not the purchaser's intent, determines the tax treatment. The Tribunal's findings were supported by legal provisions and previous court decisions, distinguishing the case from precedents cited by the Revenue.

In conclusion, the High Court dismissed the Revenue's appeal, affirming the Tribunal's decision to treat the profit from the sale of agricultural land as exempt under section 2(14) of the Income-tax Act. The Court found no error in the Tribunal's analysis and ruled that no substantial question of law arose from the case.