2018 (1) TMI 401 - HC - Income Tax

Sale of land - whether the sale consideration was liable to be treated as business income of the appellant under Section 28 or being the sale of an agricultural land, the appellant was entitled to be exempted from capital gains tax under Section 45? - Held that - It is an undisputed fact that the appellant had purchased agricultural land on 16-08-2006 while he was still a Non-resident Indian and thereafter he did not do any agricultural operations on that land. After retaining it for about two years, he sold it to St.Antony s Timber Depot, Chevoor. In the meanwhile, he had also levelled the land by expending a sum of ₹ 1,75,000/-. Admittedly, he did not obtain the permission of the RBI under Section 47 of the Foreign Exchange Management (Acquisition & Transfer of Immovable Property in India) Act, 1999, which prohibits acquisition of agricultural land by an NRI. The fact that he had levelled the land and enhanced its saleability is also an indication of his intention to resell the land even when he purchased it. He had made huge profits consequent to the sale and therefore undoubtedly the transaction amounts to adventure in the nature of trade . The profit which he made out of this sale would therefore be chargeable to tax under the head income from business .

Summary

Issues:
1. Whether the sale consideration should be treated as business income or exempted from capital gains tax as agricultural land.

Analysis:
The appellant, a non-resident Indian, purchased agricultural land in 2006, did not engage in agricultural activities, and sold the land after two years. The assessing officer considered the transaction an "adventure in the nature of trade," bringing it under the head "income from business." The appellant challenged this assessment, claiming exemption from taxation as agricultural land. The key legal question was whether the sale consideration should be treated as business income under Section 28 of the Income Tax Act or exempted from capital gains tax under Section 45 of the Act.

The appellant argued that no capital gains accrued as the land was intended for agricultural use upon his return from abroad. However, the court found that the appellant did not cultivate the land, did not obtain required permissions, and enhanced its saleability by leveling it, indicating an intention to resell. The court held that the transaction amounted to "adventure in the nature of trade," making the profit taxable as "income from business." The court upheld the assessment orders, confirming the validity of treating the sale as business income.

In conclusion, the court dismissed the appeal, emphasizing that the appellant's actions indicated a profit-making intention, making the transaction taxable as business income. The court found no errors in the assessment orders and upheld the decision to tax the profit from the land sale.