2018 (5) TMI 2180 - AT - Income Tax

Addition under the head 'Capital Gain' - nature of land sold - as per AO land sold by the assessee was not Agricultural Land - gain from the sale of land was claimed as exempt u/s 10 on the ground that capital gain has arisen on account of sale of agricultural land, which is not an asset within the meaning of Section 2(14)(iii) - HELD THAT - Land revenue shows that it was an agricultural land and some agricultural operation were carried out and simply because assessee had not shown agricultural income that does not mean no agricultural activity was ever carried out; secondly, even at the time of sale the agricultural land, the land continued to be agricultural land and no change of land used was ever sought at the time of sale and now it has also been brought on record that even after the sale also the land remained agricultural land in the hands of the seller and till date land used has not been changed and; lastly, even if land has been sold to a hotelier but if it is not used for commercial purpose even after the sale, then does not make any difference whether a prospective hotelier had purchased a land. All the facts and materials which has been discussed above clearly pointed out that it was clear cut sale of agricultural land, and therefore, any Long Term Capital Gain arisen from sale of such land is to be treated as exempt u/s. 10. Further in the case of Hindustan Industrial Resources Ltd. 2009 (1) TMI 1 - HIGH COURT DELHI held that if the land in question was agricultural land at the time of purchase by the assessee and also at the time of acquisition, then the said land would clearly be held as agricultural land irrespective of the fact that assessee intended to use the land for industrial purposes and did not carried out any agricultural operations. Even then also no capital gain could be charged on sale of such agricultural land. Similar view has been taken in the case of DLF United Ltd 1984 (11) TMI 28 - DELHI HIGH COURT Thus, in view of our independent appraisal of facts on record and the ratio as culled out from the decision cited by the parties, we do not find any infirmity in the order of the ld. CIT (A) that the gain on sale of such land cannot be taxed as capital gain. MAT u/s. 115JB - As we find that, firstly, neither the issue of computation or taxation of book profit u/s. 115JB has been raised by the Assessing Officer; nor such grounds were raised in the original grounds of appeal by the Department. Apart from that, once Assessing Officer has not treated the said gain for the purposes of book profit then by way of such ground the issue cannot be raised by the Department. Otherwise also when the income of agricultural land is exempt from tax, then the said exempt income cannot be added to the books profit while calculating the MAT u/s. 115JB. Thus, the said ground raised by the Revenue cannot be entertained and same is dismissed. Treatment of amount received from compromise agreement as taxable under capital gain tax - Looking to the nature of payment which is on account of compromise agreement and also settlement of withdrawal of cases, it cannot be held that the said amount received by the assessee is on account of sale of agricultural land, and therefore, ld. CIT (A) has rightly held that the said amount cannot be treated as exempt from capital gain tax and accordingly the order of the ld. CIT (A) is confirmed and the grounds raised in the Cross Objection is dismissed.

Summary

Issues Involved:
1. Deletion of addition under 'Capital Gain' by the AO.
2. Determination of the land as Agricultural Land.
3. Tax payable on book profit as per section 115JB.
4. Treatment of amount received from compromise agreement as taxable under capital gain tax.

Issue-wise Detailed Analysis:

1. Deletion of addition under 'Capital Gain' by the AO:
The Revenue challenged the deletion of Rs. 9,69,61,307/- determined under the head 'Capital Gain' by the AO, arguing that the land sold was not agricultural. The assessee contended that the land was agricultural, supported by various documents including purchase deeds, land revenue records, and certificates from local authorities. The Assessing Officer (AO) argued that the land was not used for agricultural purposes as no agricultural income was declared, and it was sold to a hotelier, indicating a non-agricultural intent. However, the CIT(A) found that the land was consistently classified and used as agricultural, and no change of land use was sought or granted, thus exempting the gain from capital gains tax.

2. Determination of the land as Agricultural Land:
The AO's objections included the presence of an old structure on the land, lack of declared agricultural income, and the land's sale to a hotelier. The assessee rebutted these points, highlighting that the structure was negligible, the land was used for agricultural purposes, and it was situated far from municipal limits. The CIT(A) noted that the land was classified as agricultural in revenue records, and no non-agricultural use was permitted or undertaken. The CIT(A) relied on various judicial precedents, including the Bombay High Court's rulings, to conclude that the land was agricultural and the sale proceeds were exempt from capital gains tax.

3. Tax payable on book profit as per section 115JB:
The AO did not address the issue of book profit under section 115JB, and it was not raised in the original grounds of appeal by the Department. The CIT(A) noted that exempt agricultural income cannot be added to book profits for calculating MAT under section 115JB. Consequently, the ground raised by the Revenue was dismissed.

4. Treatment of amount received from compromise agreement as taxable under capital gain tax:
The assessee received Rs. 20,00,000/- from a compromise agreement, which the AO treated as taxable under capital gains. The CIT(A) upheld this treatment, noting that the payment was for termination of an agreement and litigation costs, not for the sale of agricultural land. The assessee's cross-objection was dismissed, confirming that the amount was taxable under capital gains.

Conclusion:
The appeal of the Revenue was dismissed, and the Cross Objection of the assessee was also dismissed. The CIT(A)'s findings were upheld, confirming that the land was agricultural, thus exempting the gain from capital gains tax, and the amount received from the compromise agreement was taxable under capital gains.