2015 (4) TMI 331 - AT - Income Tax

Profit arising from sale of land - business income v/s short term capital gains - same was claimed to be exempt on the ground that the land sold, being an agricultural land, was not a capital asset under S.2(14) of the Act - Held that - In the instant case, at the relevant point of sale of the land in question, the surrounding area was totally undeveloped and except mere future possibility to put the land into use for non-agricultural purposes would not change the character of the agricultural land into nonagricultural land at the relevant point of time when the land was sold by the assessee. It is also an admitted position that the assessee had not applied for conversion of the land in question into non-agricultural purposes and no such permissions were obtained from the concerned authority. In the Revenue records, the land is classified as agricultural land and has not been changed from agricultural land to nonagricultural land at the relevant point of time when the land was sold by the assessee. It is also not in dispute that there was no activity undertaken by the assessee of developing the land by plotting and providing roads and other facilities and there was no intention also on the part of the assessees herein to put the same for non-agricultural purposes at time of their ownership that land. No such finding has been given by the Department. No material or evidence in support of the fact that the assessees have put the land in use for nonagricultural purposes has been brought on record. The nature of the crop and the person who cultivated the land are duly mentioned in the revenue records shows that at the relevant point of time the land was used for agricultural purposes only and nothing is brought on record to show that the land was put in use for non agricultural purposes by the assessees. In view of the decision of the Hon ble High Court in the case of Gopal C. Sharma vs. CIT 1993 (10) TMI 41 - BOMBAY High Court it is also clear that the profit motive of the assessee in selling the land without anything more by itself can never be decisive to say that the assessee used the land for non-agricultural purposes. We may also refer to a decision of the Hon ble Supreme Court in the case of N. Srinivasa Rao vs. Special Court (2006 (3) TMI 727 - SUPREME COURT) where it was observed that the fact that agricultural land in question is included in urban area without more, held not enough to conclude that the user of the same had been altered with passage of time. Thus, the fact that the land in question in the instant case is bought by Developer cannot be a determining factor by itself to say that the land was converted into use for non-agricultural purposes. - as the land sold is not only agricultural in nature but is also situated beyond 12 kms from the limit of a municipality notified by the central govt. Hence, land sold by assessee not being a capital asset, the gain derived there from is not taxable at the hands of the assessee. See Bhavya Commissioner Constructions Pvt. Ltd. case 2014 (9) TMI 85 - ITAT HYDERABAD - Decided in favour of assessee.

Summary

Issues Involved:

1. Whether the land sold by the assessee was agricultural land.
2. Whether the profit from the sale of the land should be treated as business income or capital gains.
3. Applicability and satisfaction of the provisions under Section 153C of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Agricultural Land Status:

The primary issue was whether the land sold by the assessee qualified as agricultural land, which would exempt it from being considered a capital asset under Section 2(14) of the Income Tax Act. The Assessing Officer (AO) argued that the land was not agricultural, citing evidence such as the lack of visible agricultural activity and the statements from the Village Revenue Officer (VRO). The AO also noted that the land was contiguous to urban agglomeration and had been purchased and sold for significant profit, suggesting it was more akin to real estate investment.

In contrast, the assessee provided several pieces of evidence to support the claim that the land was agricultural, including:
- Purchase and sale deeds describing the land as agricultural.
- Pattadar pass book and certificates from the Mandal Revenue Officer (MRO) and Deputy Collector stating the land was agricultural and used for growing crops.
- The land was located beyond 8 kilometers from any notified municipality, specifically Qutubullapur Mandal, which was not part of the Greater Hyderabad Municipal Corporation (GHMC) at the time of sale.

The CIT(A) initially found merit in the assessee's claim but ultimately held that the land was not agricultural based on a detailed analysis of the evidence, including photographic evidence and the lack of agricultural income or expenses reported by the assessee.

2. Nature of Income: Business Income vs. Capital Gains:

The AO treated the profit from the sale of the land as business income, arguing that the transaction was an adventure in the nature of trade. The AO noted that the land was purchased and sold within a short period, and the significant profit indicated an intention to trade rather than hold the land as an investment.

The assessee contended that the land was held as an investment and not as stock-in-trade. The CIT(A) agreed with the assessee, concluding that the profit was in the nature of short-term capital gains rather than business income. The CIT(A) considered several factors, including the lack of developmental activity on the land, the absence of repeated transactions, and the fact that the land was not converted to non-agricultural use before the sale.

3. Applicability of Section 153C:

The assessee challenged the applicability of Section 153C, arguing that the proceedings were initiated without proper satisfaction and based on public domain documents. The CIT(A) did not specifically address this issue in detail, focusing instead on the nature of the land and the income derived from its sale.

Tribunal's Decision:

The Tribunal noted that similar issues had been decided in favor of other assessees in related cases, where the land was deemed agricultural and not a capital asset. The Tribunal found that the facts in the present case were identical to those in the earlier cases and thus followed the same reasoning.

The Tribunal held that the land sold by the assessee was agricultural and situated beyond the prescribed limit of any municipality notified by the central government. Consequently, the profit from the sale was not chargeable to tax as capital gains. The Tribunal also agreed with the CIT(A) that the transaction was not an adventure in the nature of trade, thus rejecting the AO's treatment of the income as business income.

Conclusion:

The Tribunal allowed the assessee's appeal, holding that the land was agricultural and the profit from its sale was not taxable as capital gains. The other issues raised by the assessee became infructuous as the primary issue was decided in favor of the assessee. The order was pronounced on 11th March 2015.