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2015 (12) TMI 44 - AT - Income TaxSale of agricultural land - CIT(A) allowing the claim of the assessee that the land sold was agricultural land and profit on sale of land was not liable for tax - intention of the assessees at the time of acquiring the land or interval action by the assessee between the period from purchase and sale of the land - Held that - dverting to the facts of the present case, the land in question is classified in the Revenue records as agricultural land and there is no dispute regarding this issue and actual cultivation has been carried on this land by leasing the same to Shri.D. David and income was declared from this land in the return of income filed by the assessee for the earlier years as agricultural income. It is also an admitted fact that the AO has not brought on record any evidence to show that the agricultural land was used for nonagricultural purposes and the assessee has not put the land to any purposes other than agricultural purposes. It is also an admitted fact that neither the impugned property was subject to any developmental activities at the relevant point of time of sale of the land. The mere circumstances that a property is purchased in the hope that when sold later on it would leave a margin of profit, would not be sufficient to show, an intention to trade at the inception. In a case where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it, the presence of such an intention is a relevant factor and unless it is offset by the presence of other factors it would raise as strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive and it is conceivable that, on considering all the facts and circumstances in the case, the court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. The presumption may be rebutted. In the present case, considering the facts and circumstances of the case it cannot be considered as an adventure in the nature of trade. The intention of the assessee from the inception was to carry on agricultural operations and even there was no intention to sell the land in future at that point of time. It was due to the boom in real estate market came into picture at a later stage, the assessee has sold the land. Merely because of the fact that the land was sold for profit, it cannot be held that income arising from the sale of land was taxable as profit arising from the adventure in the nature of trade. The period of holding should not suggest that the activity was an adventure in the nature of trade. Further, we make it clear that when the land which does not fall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations in such agricultural land and also being specified as agricultural land in Revenue records, the land is not subjected to any conversion as non-agricultural land by the assessee or any other concerned person, transfers such agricultural land as it is and where it is basis, in such circumstances, in our opinion, such transfer like the case before us cannot be considered as a transfer of capital asset or the transaction relating to sale of land was not an adventure in the nature of trade so as to tax the income arising out of this transaction as business income. - Decided in favour of assessee.
Issues Involved:
1. Whether the land sold by the assessee was agricultural land and whether the profit on sale of land was liable for tax. 2. Whether the land was classified as a capital asset under Section 2(14) of the Income Tax Act. 3. Whether the agricultural income declared by the assessee was to be treated as income from other sources. Detailed Analysis: 1. Classification of Land as Agricultural Land: The primary issue revolved around whether the land sold by the assessee was agricultural land and thus exempt from capital gains tax. The Assessing Officer (AO) argued that the land was not used for agricultural purposes for the past eight years, relying on a report from the Tahsildar. However, the Commissioner of Income Tax (Appeals) [CIT(A)] observed that the AO did not dispute the classification of the land as agricultural in revenue records. The CIT(A) also noted that the land was leased for agricultural purposes and agricultural income was declared by the assessee in previous years. Furthermore, the CIT(A) cited the jurisdictional High Court's ruling in M.S. Srinivasa Naicker vs. ITO, which held that the intention of the buyer is irrelevant in determining the character of the land. The CIT(A) concluded that the land retained its agricultural character and thus, the profit from its sale was not taxable as capital gains. 2. Classification of Land as Capital Asset: The AO contended that the land should be treated as a capital asset under Section 2(14) of the Income Tax Act, since it was shown as a fixed asset in the balance sheet. The CIT(A) disagreed, stating that the land was classified as agricultural in revenue records and was used for agricultural purposes. The CIT(A) emphasized that the land was not converted to non-agricultural use and was situated beyond 8 km from any municipal limits, thus not falling under the definition of a capital asset as per Section 2(14)(iii). The CIT(A) relied on the judgment in Sakunthala Vedhachalam Vs Vanitha Manickavasagam, which upheld that agricultural land classified as such in revenue records and meeting other conditions of Section 2(14)(iii) is exempt from capital gains tax. 3. Treatment of Agricultural Income: The AO treated the agricultural income declared by the assessee as income from other sources, arguing that no agricultural operations were carried out on the land. The CIT(A) refuted this, stating that the land was leased for agricultural purposes and agricultural income was declared and taxed in previous years. The CIT(A) held that the agricultural income should be treated as such and not as income from other sources. Conclusion: The Tribunal upheld the CIT(A)'s decision, concluding that the land sold by the assessee was agricultural land and not a capital asset. The profit from the sale was thus exempt from capital gains tax. The Tribunal also agreed that the agricultural income declared by the assessee should not be treated as income from other sources. The appeal by the Revenue was dismissed. Order: The appeal by the Revenue in ITA No.1560/Mds/2015 was dismissed. The order was pronounced on Friday, the 20th day of November, 2015 at Chennai.
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