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2024 (7) TMI 1291 - HC - Income TaxMAT computation u/s 115JB - income of agricultural land as exempt from tax - as claimed that the profit from the sale of that property would be exempt from taxation since it constituted a sale of agricultural land and would thus not fall within the ambit of the expression capital asset as defined by Section 2(14) - HELD THAT - As not disputed that the land constituted rural agricultural land and would not fall within the scope of Section 2(14) (iii). Section 2(1-A) came to be amended with retrospective effect from 01 April 1970 and in terms of which agricultural land, though broadly excluded from the definition of a capital asset, was conceptually amended and the statute thereafter for the purposes of exemption restricting the same to rural agricultural land only. According to definition of capital asset was also amended pursuant to which the concept of urban agricultural land came to be introduced and specifically included within the meaning of the expression capital asset . Tribunal appears to have not only refused to admit the additional grounds which was sought to be urged, it also and simultaneously appears to have ruled on the merits of the question which stood raised as read coming to the issue of 115JB as raised in ground no.3, we find that, firstly neither the issue of computation or taxation of book profit u/s. 115JB has been raised by the AO, nor such grounds were raised in the original grounds of appeal by the Department. Apart from that, once AO 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. We are of the opinion that since the question which was raised was purely legal, the Tribunal would have been well advised to have accorded an opportunity to respective sides to address submissions on the merits before proceeding to hold that the same could not be entertained. We, allow the instant appeal and answer the question framed for our consideration in the negative and in favour of the appellant. The order of the Tribunal is hereby set aside.
Issues Involved:
1. Applicability of Section 115JB of the Income Tax Act, 1961. 2. Definition and taxability of income derived from the sale of agricultural land. 3. Admission and adjudication of legal grounds by the Income Tax Appellate Tribunal (ITAT). Issue-wise Detailed Analysis: 1. Applicability of Section 115JB of the Income Tax Act, 1961: The core issue revolves around whether the provisions of Section 115JB, which pertains to Minimum Alternate Tax (MAT) based on book profits, are applicable to income derived from the sale of agricultural land. The appellant's counsel argued that Section 115JB should apply because the income from the sale of agricultural land does not qualify as agricultural income and thus should be included in the book profit calculation. This argument was supported by referencing the Supreme Court's decision in Union of India vs. S. Muthyam Reddy, which clarified that revenue derived from the transfer of agricultural land referred to in Section 2(14)(iii) does not constitute agricultural income. 2. Definition and Taxability of Income Derived from the Sale of Agricultural Land: The respondent/assessee contended that the profit from the sale of rural agricultural land is exempt from taxation as it does not fall within the definition of 'capital asset' under Section 2(14) of the Act. The ITAT had initially agreed with this position, stating that since the income from agricultural land is exempt from tax, it cannot be added to book profits for MAT calculation under Section 115JB. The appellant's counsel countered this by highlighting amendments and judicial interpretations that distinguish between rural and urban agricultural land, arguing that only rural agricultural land is exempt, while urban agricultural land falls within the taxable ambit. 3. Admission and Adjudication of Legal Grounds by the ITAT: The appellant was aggrieved by the ITAT's refusal to admit and adjudicate the grounds related to the applicability of Section 115JB. The ITAT had dismissed these grounds, noting that the issue of book profit computation under Section 115JB was neither raised by the Assessing Officer nor included in the original grounds of appeal. The High Court found this approach problematic, emphasizing that the Tribunal should have allowed the parties to address the merits of the legal question before dismissing it outright. The High Court cited the Kerala High Court's decision in CIT vs. Harrisons Malayalam Ltd., which discussed the interplay between Section 115JB and the amendments to Section 2(1-A), supporting the view that the ITAT should have considered the legal arguments. Conclusion: The High Court concluded that the ITAT erred in not admitting the legal grounds related to the applicability of Section 115JB and in ruling on the merits without proper consideration. The Court allowed the appeal, set aside the ITAT's order dated 15 May 2018, and remitted the matter back to the ITAT for fresh consideration, keeping all rights and contentions of the parties open. Separate Judgments: Not applicable in this case as the judgment was delivered collectively by the bench.
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