2017 (6) TMI 341 - AT - Income Tax

Sale of land - nature of land - authorities below justification in treating the agricultural land as business asset - use of land - Held that - It is decided proposition of law that the use of land for agricultural activities is not a relevant factor for determining the nature of land as Agricultural in nature. However, the fact cultivation of medicinal plants on the land suggests the intention of the assessee. In this case, assessee gave the required details on the purchase and sale transaction, details of the buyer, details of the 7/12 extracts showing the details of crop grown (medicinal plants) in the said lands, details of original intention to use the said land for growing the medicinal plants, reasons for sale etc., whereas the Assessing Officer merely disbelieved the assessee and Assessing Officer does not bring any iota of evidence to the records to substantiate his disbelief. In our view, the onus has shifted to the side of the Revenue/Assessing Officer. It is settled legal proposition in law that, for holding a particular transaction as an Adventure in the nature of Trade , the intention of the assessee at the time of purchase of land is a crucial factor. Subsequent genesis of intention, which led to the sale transfer of land, does not help the Assessing Officer to hold a particular transaction as the transaction as an Adventure in the nature of Trade . It is the case of genesis of intention to trade the asset subsequent to the timing of purchase of land. Therefore, we are of the opinion, despite the assessee s background as businessman, this particular transaction is outside the scope of an Adventure in the nature of Trade. Thus, the core issue raised by the assessee in the appeal stand allowed in favour of the assessee.

Issues Involved:
1. Assessment of gains from the sale of agricultural land as business income.
2. Classification of agricultural land as a business asset.
3. Applicability of the term "Adventure in the nature of trade" to the sale of agricultural land.
4. Exemption eligibility under section 2(14)(iii) of the Income Tax Act.
5. Validity of agricultural operations conducted on the land.

Detailed Analysis:

1. Assessment of Gains from Sale of Agricultural Land as Business Income:
The core issue was whether the gains from the sale of agricultural land amounting to ?58,21,520/- should be assessed as business income. The assessee contended that the land was agricultural and should not be treated as a business asset. The Assessing Officer (AO) determined the profit on the sale of land at Bhivari and treated it as business income, arguing that the purchase and sale were intended for profit. The CIT(A) upheld this view, emphasizing the significant profit made in a short period, indicating a commercial intent.

2. Classification of Agricultural Land as a Business Asset:
The assessee argued that the land should not be classified as a business asset under the facts and circumstances of the case. The CIT(A) concluded that the assessee, with a business background, had a commercial intent at the time of purchasing the land, thus treating it as a business asset. The Tribunal, however, noted that the land was located 60-70 km from Pune Municipality and was used for cultivating medicinal plants, as evidenced in revenue records, indicating agricultural use rather than a business asset.

3. Applicability of "Adventure in the Nature of Trade":
The AO and CIT(A) applied the concept of "Adventure in the nature of trade" to the sale of agricultural land. The Tribunal highlighted that the intention to resell at the time of purchase is crucial in determining whether a transaction is an adventure in the nature of trade. It found that the assessee's intent was initially agricultural, and the decision to sell was influenced by external pressures and adverse conditions. Hence, the transaction did not qualify as an adventure in the nature of trade.

4. Exemption Eligibility under Section 2(14)(iii):
The assessee claimed exemption under section 2(14)(iii) of the Income Tax Act, which excludes agricultural land from the definition of capital assets. The Tribunal observed that the land was used for agricultural purposes, and the assessee provided sufficient evidence, such as 7/12 extracts and details of medicinal plant cultivation. The AO failed to provide contrary evidence. Therefore, the Tribunal ruled that the land sale was exempt from tax under section 2(14)(iii).

5. Validity of Agricultural Operations Conducted on the Land:
The AO disputed the agricultural operations on the land, while the assessee provided evidence of medicinal plant cultivation. The Tribunal found that the revenue records supported the assessee's claim of agricultural use. It emphasized that the primary onus was on the assessee, who provided necessary details, shifting the burden of proof to the AO, who did not substantiate his disbelief with evidence.

Conclusion:
The Tribunal concluded that the assessee's transaction of selling agricultural land did not constitute an adventure in the nature of trade. It ruled that the gains from the sale were exempt from tax under section 2(14)(iii) of the Income Tax Act. The appeal was partly allowed in favor of the assessee. The Tribunal also noted that no addition was made in the assessments of other co-owners, supporting the assessee's case.

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