2013 (9) TMI 611 - AT - Income Tax

Nature of Land - purchase and sale to be agricultural land Whether the land sold accrues business income or income under the head capital gain - Held that - The land in question is recorded as agriculture land, in the revenue record, on the date of purchase and sale of the same. The land is assessed to land revenue. The assessee has not taken any step till the date of sale, to convert the agricultural land to non- agricultural purposes and to undertake any improvement project on such land - Cumulative effect of all the material evidences clearly suggests that the land in question is agricultural land and the land does not fall under the definition of capital asset, within the meaning of Section 2(14)(iii) of the Act - The fact that the land was sold to industrialist for setting up industrial units, is of no legal consequence, in determining the nature and character of the land in question. The land remained agricultural land till it was sold to various parties. The future use by the purchaser is also irrelevant and immaterial for the purpose of determination of true character and nature of the land in question. Lands in question do not constitute capital asset within the meaning of Section 2(14)(iii) of the Act. Therefore, surplus realized on sale of such lands cannot be taxed as capital gains u/s 45 r.w. Section 10(37) of the Act. The provisions of Section 10(37) were inserted by the Finance Act 2004 (No.2) w.e.f. 1.4.2005. The revenue merely made an assertion and treated the surplus realized from the sale of rural agricultural lands as business profit, which don t fall u/s 2(14) of the Act. Therefore, having regard to the fact-situation of the present case, relevant record and judicial verdicts, the surplus realized on sale of such land, is not taxable receipts Appeal of the assessee is allowed Decided in favor of Assessee.

Issues Involved:
1. Classification of rural agricultural land beyond municipal limits.
2. Treatment of profits from the sale of rural agricultural land as income from "adventure in the nature of trade."
3. Proper consideration and interpretation of all information/submissions by the Commissioner of Income Tax (Appeals).
4. Addition of interest on Fixed Deposit Receipts (FDRs).
5. Addition of electricity/rent charges received as reimbursement.

Issue-wise Detailed Analysis:

1. Classification of Rural Agricultural Land Beyond Municipal Limits:
The primary issue was whether the land sold by the assessee qualified as agricultural land under Section 2(14)(iii) of the Income-tax Act, 1961. The Assessing Officer (AO) determined that the lands were not agricultural as no agricultural activity was conducted. The AO's decision was based on the assessee's regular buying and selling of lands, which indicated a business activity rather than agricultural use. The CIT(Appeals) upheld this view. However, the Tribunal found that the assessee had provided sufficient evidence, including reports from the Tehsildar and revenue records, showing that the land was used for agricultural purposes. The Tribunal noted that the land did not fall within municipal limits and was classified as agricultural in the revenue records. Thus, the Tribunal concluded that the land was indeed agricultural and not a capital asset under Section 2(14)(iii).

2. Treatment of Profits from Sale of Rural Agricultural Land as Income from "Adventure in the Nature of Trade":
The AO treated the profits from the sale of the land as business income, asserting that the assessee's activities constituted an adventure in the nature of trade. This was based on the frequency of transactions and the significant profits made. The CIT(Appeals) supported this view, emphasizing the intention behind the transactions and the manner in which the lands were sold. However, the Tribunal disagreed, noting that the assessee had shown the lands as fixed assets in the balance sheet and had not developed the land for resale. The Tribunal referenced previous decisions, including the assessee's own case for the assessment year 2007-08, to support its conclusion that the transactions did not constitute a business activity but were capital in nature.

3. Proper Consideration and Interpretation of All Information/Submissions by the Commissioner of Income Tax (Appeals):
The assessee argued that the CIT(Appeals) had erred by not considering all the information and submissions provided. The Tribunal found merit in this argument, noting that the CIT(Appeals) had largely reiterated the AO's findings without adequately addressing the evidence presented by the assessee. The Tribunal emphasized the importance of considering all relevant facts and submissions in reaching a fair decision.

4. Addition of Interest on Fixed Deposit Receipts (FDRs):
The AO added the interest received on FDRs to the assessee's income, treating it as income from other sources. The CIT(Appeals) upheld this addition, referencing the Supreme Court decision in Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs CIT. The Tribunal agreed with this view, noting that the interest income was of a revenue nature and should be taxed accordingly. The Tribunal found no material to show any nexus between the interest received and the interest expended, thus rejecting the assessee's claim that the interest should be netted off against pre-operative expenses.

5. Addition of Electricity/Rent Charges Received as Reimbursement:
The AO added the electricity and rent charges received as reimbursement to the assessee's income. The CIT(Appeals) upheld this addition. The Tribunal found that the assessee had failed to provide sufficient evidence to show that these receipts should be netted off against corresponding expenses. Consequently, the Tribunal upheld the addition, agreeing with the AO and CIT(Appeals) that these receipts should be treated as income.

Conclusion:
The Tribunal allowed the appeals in part, deciding in favor of the assessee on the classification of rural agricultural land and the treatment of profits from the sale of such land. However, it upheld the additions related to interest on FDRs and electricity/rent charges received as reimbursement. The Tribunal emphasized the need for a thorough consideration of all evidence and submissions in reaching a fair decision.

← Previous Next →