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2018 (5) TMI 2132 - AT - Income TaxCorrect head of income - taxability of profits earned on sale of land - Capital gain or business income - assessee s contention that profits are exempt from tax as the land is agriculture land whereas the Revenue s stand is that the sale of land is adventure in the nature of trade and therefore business income - HELD THAT - It is an undisputed fact that assessee along with 6 co-owners had purchased land at Dahegaon which is located beyond 8 kms from any Municipality and the same was sold during the year under consideration. The disclosure of the land in assessee s balance sheet as investments is not in dispute. The Submission of the assessee that the land has been classified in the Revenue records as agricultural land no permission from the concerned authorities has been obtained for transfer for nonagricultural use no plotting/sub plotting of the land has been undertaken by the assessee has not been controverted by Revenue. Submission of the assessee that the produce from the sale of cultivation was disclosed by the assessee that the assessee wanted to start horticulture activities and for which the assessee had approached bank for financial assistance has not been proved to be false. We further find that the assessee s contention of having satisfied of the various parameters spelt out by Hon ble Apex Court in the case Sarifabibi 1993 (9) TMI 10 - SUPREME COURT to hold the land as agricultural land has been met and the contention of the assessee has not been found to be incorrect. We find that in the case of CIT Vs. Dhable Bobde and others 1992 (9) TMI 45 - BOMBAY HIGH COURT assessee an association of persons had purchased agricultural land in October 1966 and sold in January 1967 and had claimed it to be exempt. Revenue treated the transaction to be on adventure in the nature of trade and held it as taxable business come. The Hon ble High Court while deciding the issue in favour of assessee has held that the onus of proving that the land formed part of business asset of the assessee was on Revenue and in the absence of evidence to that effect the presumption was that land was held as capital asset and therefore income on its transfer was not income from business. was held as capital asset and therefore income on its transfer was not income from business. Before us Revenue has not placed any material to prove that the land formed part of business asset of the assessee. Further the contentions of the Ld AR have not been controverted by Revenue. In such a situation we are of the view that the ratio of the decision in the case of Dhoble Bobde and others (supra) would be applicable to the present case. We therefore after relying on the various decisions cited by the assessee are of the view that the AO and Ld.CIT(A) were not justified in treating the profits from sale of land as business income. We therefore set aside the order of Ld.CIT(A) and thus the ground of the assessee are allowed.
Issues Involved:
1. Whether the profit from the sale of rural agricultural land should be treated as business income or as exempt income under the definition of a capital asset. Detailed Analysis: Issue 1: Classification of Income from Sale of Agricultural Land The primary issue in this case is whether the profit from the sale of rural agricultural land should be classified as business income or exempt income under the definition of a capital asset. Facts and Contentions: - The assessee, an individual with income from partnership firms, house property, and other sources, filed a return for AY 2012-13 declaring total income of Rs.11,97,500/-. The case was selected for scrutiny, and the AO determined the total income at Rs.2,53,12,050/- by adding Rs.2,41,14,550/- as income from the sale of agricultural land, treating it as an adventure in the nature of trade. - The assessee contended that the land was rural agricultural land, not a capital asset under Section 2(14) of the Income Tax Act, and thus the profit from its sale should not be taxable. - The AO observed that the assessee had purchased and sold land at various places, indicating a business activity. The land in question was located more than 150 kms from the assessee's residence and was purchased jointly with six other persons, suggesting an intention to make a profit rather than to use it for agricultural purposes. - The AO noted that the land was sold within a short period at a price significantly higher than the purchase price, further supporting the view that the transaction was an adventure in the nature of trade. - The CIT(A) upheld the AO's decision, emphasizing that the land was purchased with the intent to sell at a profit and not for agricultural purposes. The CIT(A) also noted that the project report submitted by the assessee to support the claim of intending to develop a fruit orchard was not credible. Arguments by the Assessee: - The assessee argued that the land was purchased with the intention to develop a fruit orchard, and the sale was necessitated by the inability to secure additional funding from financial institutions. - The land was classified as agricultural in revenue records, and no steps were taken to convert it to non-agricultural use. - The assessee had consistently declared agricultural income in previous years, which was accepted by the Revenue. - The assessee relied on several judicial precedents, including the Supreme Court's decision in Sarifabibi Mohamed Ibrahim Vs. CIT, to argue that the sale of agricultural land should not be treated as an adventure in the nature of trade. Tribunal's Findings: - The Tribunal noted that the land was located beyond 8 kms from any municipality and was disclosed as an investment in the assessee's balance sheet. - The Tribunal found that the Revenue had not disproved the assessee's claim that the land was used for agricultural purposes and that the sale proceeds from the cultivation were disclosed in the return of income. - The Tribunal observed that in the case of two co-owners, the Revenue had accepted the claim of exemption for their share of profit from the sale of the same land. - The Tribunal referred to the Bombay High Court's decision in CIT Vs. Dhable, Bobde, Parose, Kale, Lute & Choudhari, which held that the onus was on the Revenue to prove that the land was a business asset. In the absence of such evidence, the presumption was that the land was a capital asset. - The Tribunal concluded that the AO and CIT(A) were not justified in treating the profit from the sale of land as business income and allowed the appeal of the assessee. Conclusion: The Tribunal held that the profit from the sale of rural agricultural land should be treated as exempt income under the definition of a capital asset and not as business income. The appeal of the assessee was allowed, and the order of the CIT(A) was set aside.
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