2012 (10) TMI 710 - AT - Income Tax

Whether agricultural land sold during the year of purchase is eligible to cover under the exception of capital assets u/s 2(14)(iii) Whether income earn from transfer of such land is, exempt from the provision of capital gain or consider as income from trading - Held that - Following the decision in case of Gemini Pictures Circuit Private Ltd.(1996 (3) TMI 8 - SUPREME COURT) No agriculture operation was carried out, immediately sale after purchase, situated at the main road near the city from all these facts the intention of the assessee was not to put to the land for agricultural use and accordingly, it was not used for agriculture purpose by the assessee as well as even by the purchaser, who is a builder, then the Sec 2(14)(iii) would not apply in the case of the assessee. Therefore, nature of transaction of purchase and sale rightly held as trading. Appeal decides in favour of revenue

Summary

Issues:
Whether the gain on sale of agricultural land at Nagpur is exempted from tax under section 2 (14) (iii) of the IT Act.

Analysis:
The case involved an appeal by the revenue against the order of the CIT(A) for the assessment year 2008-09 concerning the tax exemption on the gain from the sale of agricultural land in Nagpur. The Assessing Officer initially treated the income as business income due to the short holding period between purchase and sale of the land. On appeal, the CIT(A) held that the land qualified for tax exemption under section 2 (14) (iii) as it was recorded as agricultural land in revenue records and remained so in the following year.

The revenue contended that the intention of the assessee was not agricultural use, as evidenced by the quick sale to a builder for non-agricultural purposes. They argued that the surrounding developed area indicated a commercial intent. The assessee, on the other hand, presented evidence of agricultural activities on the land and challenged the Assessing Officer's findings.

The tribunal considered various factors to determine the nature of the transaction, including the intention at the time of purchase, actual use of the land, location, and surrounding circumstances. They cited legal precedents emphasizing the importance of the real use of the land in determining its character as agricultural. Ultimately, the tribunal agreed with the Assessing Officer's classification of the income as business income, overturning the decision of the CIT(A).

In conclusion, the tribunal allowed the appeal of the revenue, holding that the transaction of purchase and sale was rightly treated as trading income by the Assessing Officer. The decision was based on the totality of facts and circumstances indicating a commercial and profit-driven nature of the transaction, leading to the denial of tax exemption under section 2 (14) (iii) of the IT Act.