2017 (8) TMI 1301 - AT - Income Tax

Surplus arising out of the sale of agricultural land being treated as business income - nature of land - capital asset - beyond 8 kms. from the municipal limits - AO considered the transaction in the nature of adventure in the nature of trade - Held that - The intention of the owners to do agricultural operation in the subject land is clear from the attendant facts and they had returned agricultural income for various assessment years preceding the impugned assessment year. They were having certificates issued by the competent authorities showing that the land was agricultural. No doubt the Ld. CIT(A) has relied on various judgments for supporting his conclusion that the subject land could not be considered as agricultural and sale therefrom gave rise to business income. However almost all of these judgments including that of the Hon ble Apex Court in the case of Sarifibhai Mohamed Ibrahim vs. CIT and others (1993 (9) TMI 10 - SUPREME Court) and in the case of Smt. Asha George vs. ITO (2013 (1) TMI 545 - KERALA HIGH COURT) were examined by this Tribunal in the case of M.J. Thomas (2014 (10) TMI 353 - ITAT COCHIN). Hon ble Madras High Court in the case of Shakuntala Vedachalam vs. Vanitha Manickavasagam (2014 (9) TMI 3 - MADRAS HIGH COURT) has also held that classification of land in revenue records was clearly indicative of the nature of the land. In the circumstances we are of the opinion that the subject land could only be considered as agricultural. Since it was situated beyond 8 kms. from the municipal limits sale thereof would not result in any capital gains. Surplus could not have been treated as income from business since assessee had not ventured into the business of real estate. For the very same reason we are of the opinion that the agricultural income returned by the assessee could not have been added to the total income since it was exempt u/s. 10(1) of the Act. - Decided in favour of assessee.

Issues Involved:
1. Levy of interest under sections 234B and 234D of the Income Tax Act.
2. Treatment of surplus from the sale of agricultural land as business income.
3. Denial of the claim of agricultural income.

Detailed Analysis:

Issue 1: Levy of Interest under Sections 234B and 234D
The assessee contested the levy of interest under sections 234B and 234D of the Income Tax Act. These grounds were noted to be consequential in nature and were not the primary focus of the appeal.

Issue 2: Treatment of Surplus from Sale of Agricultural Land as Business Income
The primary contention was whether the surplus from the sale of agricultural land should be treated as business income. The assessee, a company incorporated with the primary objective of real estate business, declared a 'nil' income and claimed the surplus from the sale of agricultural land as exempt.

The Assessing Officer (AO) treated the surplus as business income, arguing that the land sold was purchased and sold within a short period (16 months), indicating an adventure in the nature of trade. The AO also noted that the company’s main objective was real estate business, and thus, the surplus should be considered under 'Income from business.'

The assessee argued that the land was held as a fixed asset, situated beyond 8 km from the municipal area, and was used for agricultural purposes, evidenced by the presence of 85 coconut trees and a certificate from the Agricultural Officer. The assessee contended that the land was purchased and sold as agricultural land without any changes, and the Memorandum of Association allowed agricultural activities as incidental to its main object.

The CIT(A) upheld the AO's decision, stating that there was no evidence of agricultural operations, and the land was sold quickly, indicating a business intent. The CIT(A) found the Agricultural Officer's certificate insufficient and noted that the assessee's main object was real estate business, thus treating the surplus as business income.

Issue 3: Denial of Claim of Agricultural Income
The AO also denied the claim of agricultural income of ?1,80,200, treating it as business income. The CIT(A) supported this view, noting the absence of evidence for agricultural operations and the quick sale of land.

Tribunal's Decision:
The Tribunal analyzed the facts and found that the assessee's main income sources were from interest, commission, dividend, and agriculture, not real estate. The land was held as a fixed asset, not stock-in-trade, indicating it was not purchased for real estate business. The Agricultural Officer's certificate and the presence of coconut trees supported the claim of agricultural use. The Tribunal referenced the decision in M.J. Thomas vs. Dy. CIT, noting that agricultural land beyond 8 km from municipal limits should be considered as such, and its sale would not result in capital gains.

The Tribunal concluded that the land was agricultural, and its sale did not constitute business income. The agricultural income was also exempt under section 10(1) of the Act. Thus, the appeal was allowed, and the grounds regarding the treatment of surplus and denial of agricultural income were decided in favor of the assessee.

Conclusion:
The Tribunal allowed the appeal, ruling that the surplus from the sale of agricultural land should not be treated as business income and the agricultural income was exempt under section 10(1) of the Income Tax Act. The levy of interest under sections 234B and 234D was noted as consequential.

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