2020 (12) TMI 656 - AT - Income Tax

Nature of land sold - assessee computed long term capital gain from sale of agricultural land and claimed exempt on the ground that the impugned land is agricultural land within the meaning of section 2(14) - whether profit/gain derived from transfer of agricultural land is exempt from tax or which is assessable under the head 'income from business or profession'? - HELD THAT - When there is no bar in law for a business person to hold land for agricultural purposes, then merely for the reason that the said person engaged in the business of buying and selling of lands, the profit derived from sale of agricultural land cannot be brought to tax under the head 'income from business or profession', more particularly when the nature of land was agricultural land at the time of purchase as well as at the time of sale - assessee has also filed necessary evidence to prove that impugned land was purchased for the purpose of agricultural operations and also before the date of sale, the said land was used for agricultural purposes, which is evident from the fact that assessee has declared agricultural income for the assessment year 2005-06 and 2006-07. land in question was agricultural land and was used for agricultural purposes till the date of sale. Had it been the case of Assessing Officer that assessee has purchased agricultural land, converted into non-agricultural purposes, formed lay out and then sold, then the question could be different. In this case, the lower authorities have categorically admitted the fact that impugned land in question was agricultural land. Once the land in question was agricultural land, then gain derived from transfer of said land is exempt from tax. Accordingly, there is no substance in the reasons given by the authorities below to bring to tax gain derived from sale of land under the head 'income from business or profession'. Hence, we direct the Assessing Officer to delete the addition made towards the profit derived from sale of land under the head 'income from business or profession'. - Decided in favour of assessee.

Summary

Issues:
Assessment under section 147, Treatment of sale of agricultural land as business income, Jurisdiction of Assessing Officer, Nature of land for tax assessment, Evidence of agricultural activities on land.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals)-15, Chennai, pertaining to the assessment year 2010-11. The primary issue revolved around the treatment of the sale of agricultural land as business income by the Assessing Officer. The Assessing Officer contended that even though the land in question was agricultural, the profit derived from its sale should be assessed under 'income from business or profession' due to the appellant's real estate business activities.

The appellant argued that the land was agricultural beyond the scope of section 2(14) of the Income Tax Act and hence exempt from capital gain tax. The appellant provided evidence, including purchase and sale deeds specifying the land as agricultural, revenue records, and a certificate from the Tahsildar confirming agricultural activities on the land. The appellant contended that there is no legal bar for a businessperson to hold agricultural land for personal use or sale.

The tribunal noted that both the Assessing Officer and the Commissioner of Income Tax (Appeals) acknowledged that the land was agricultural. The tribunal emphasized that the profit from the sale of agricultural land should not be taxed under 'income from business or profession' solely based on the appellant's real estate business activities. The tribunal found no legal impediment for a businessperson to engage in agricultural activities on land held for personal use. As the land was genuinely agricultural and used for such purposes till the sale, the tribunal directed the Assessing Officer to delete the addition made under 'income from business or profession.'

In conclusion, the tribunal allowed the appeal, ruling in favor of the appellant regarding the tax treatment of the profit derived from the sale of agricultural land.