2022 (7) TMI 989 - AT - Income Tax

Profits arising on sale of lands - nature of land - capital income or business income - subject lands were classified in the revenue record as agricultural lands as per entries in 7/12 extracts of the lands - HELD THAT - As in the light of the fact that the entries in the 7/12 extracts shows that lands were agricultural lands at the time of transfer and the lands have been put to agricultural operations, it can be said that the assessee company had discharged his burden and proved that the lands were agricultural lands - the fact that the purchaser of the lands had used the lands for non-agricultural purpose has no bearing in determining the nature of assets sold by the assessee on the date of sale as held by the Hon ble Madras High Court in the case of M. S. Srinivas Naicker 2007 (1) TMI 149 - MADRAS HIGH COURT Further, in the present case, the seller of the land had not taken any steps which would indicate the intention to exploit the land for non-agricultural use, it is only the buyer of the land who sought the permission for conversion of land into agricultural to nonagricultural on 05.09.2014 which is subsequent to the sale of land by the respondent. Recently the Hon ble Kerala High Court in the case of CIT vs. Cochin Malabar Estates and Industries Ltd. 2022 (2) TMI 1146 - KERALA HIGH COURT after referring to the judgement of the Hon ble Madras High Court in the case of Mansi Finance Chennai Ltd. 2017 (1) TMI 1209 - MADRAS HIGH COURT and MS. Srinivasa Naicker 2007 (1) TMI 149 - MADRAS HIGH COURT Thus, the argument of the ld. CIT-DR that the land was used for non-agricultural purpose by the purchaser of the land has no impact in determining the issue whether the land is agricultural or not at the time of sale. The mere fact that the assessee company made huge amount of profit cannot be ground to treat the profit arising on sale of agricultural land as business income as held by the Hon ble Gujarat High Court in the case of PCIT vs. Heenaben Bhadresh Mehta 2018 (8) TMI 987 - GUJARAT HIGH COURT Thus we are of the considered opinion that the assessee company had brought on record a conclusive proof to infer that the lands sold were agricultural lands. Accordingly, we uphold that the findings of the ld. CIT(A) that the lands sold were agricultural lands. As the statements of directors of the assessee company, do not support the findings of the A.O. that the lands are held as business assets. Therefore, we do not find any illegality or perversity in the findings of the ld. CIT(A) in holding that the profits arising on sale of land cannot be brought to tax as business income or capital gains . Thus, we do not find any merit in the grounds of appeal filed by the Revenue. Hence, the grounds of appeal raised by the Revenue are dismissed.

Issues Involved:
1. Justification of CIT(A)'s allowance of the assessee's appeal.
2. Nature of the sale transaction of the impugned land.
3. Use of the land for agricultural purposes.
4. Relevance of judicial precedents cited by the Assessing Officer.
5. Period of holding the land and its relevance.
6. Validity of the order of the CIT(A).

Issue-wise Detailed Analysis:

1. Justification of CIT(A)'s Allowance of the Assessee's Appeal:
The Revenue contended that the CIT(A) erred in allowing the appeal without appreciating the entire facts of the case. The CIT(A) held that the land in question was agricultural and that the profits arising from its sale could not be taxed as business income. The CIT(A) based this conclusion on several factors, including the classification of the land in revenue records, the agricultural activities carried out on the land, and the long period of holding the land.

2. Nature of the Sale Transaction of the Impugned Land:
The Assessing Officer argued that the sale of the land was an adventure in the nature of trade, motivated by profit. The AO cited the conversion of the land from stock-in-trade to investment and the subsequent sale for a significant profit. However, the CIT(A) and the Tribunal noted that the land was classified as agricultural in the revenue records and had been used for agricultural purposes, thus qualifying for exemption from tax on agricultural income.

3. Use of the Land for Agricultural Purposes:
The Revenue claimed that the land was not used for agricultural purposes, citing minimal agricultural income and the land's location in a residential zone. The CIT(A) and the Tribunal found that the land had been used for agricultural purposes, as evidenced by entries in the 7/12 extracts and the agricultural income declared by the assessee, which was accepted by the Department in earlier years.

4. Relevance of Judicial Precedents Cited by the Assessing Officer:
The AO relied on several judicial precedents to support the argument that the land was not agricultural. However, the CIT(A) and the Tribunal found these precedents inapplicable, noting that the facts of the present case differed. The Tribunal emphasized that the classification of the land in revenue records as agricultural and the agricultural operations carried out on the land were decisive factors.

5. Period of Holding the Land and Its Relevance:
The Revenue argued that the period of holding the land was irrelevant because the assessee was a professional trader in land. The CIT(A) and the Tribunal disagreed, noting that the land had been held for more than 17 years and had been used for agricultural purposes during this period. This long-term holding supported the conclusion that the land was an investment rather than a business asset.

6. Validity of the Order of the CIT(A):
The Tribunal upheld the CIT(A)'s order, finding no illegality or perversity in the decision. The Tribunal concluded that the land was agricultural at the time of sale and that the profits from its sale could not be taxed as business income or capital gains. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s findings and reasoning.

Conclusion:
The Tribunal confirmed the CIT(A)'s decision that the land in question was agricultural and that the profits from its sale were exempt from tax. The Tribunal found that the land had been used for agricultural purposes, classified as agricultural in revenue records, and held for a long period. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order.

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