2015 (5) TMI 1204 - AT - Income Tax

Assessee's land investment not business, gains exempt from tax

The Tribunal upheld the CIT(A)'s decision, confirming that the assessee's transactions were investments in agricultural land, not business activities. The ... Characterization of income - profit from sale of land - assessee was engaged in the business of real estate development - whether asset referred was agricultural land? - As per DR there was no agricultural activity on the said land and assessee is in the real estate business individually or through companies - HELD THAT:- It is a fact that the assessee purchased a land in individual capacity from Shri Sitaram Meena and Shri Ramu Jat as agricultural land on agreement to sale. Thereafter the assessee had sold this land to GFFR on agreement to sale as per Section 2(47) of the Act. The NA was got done by GFFR in both the cases. Thereafter land was transferred to M/s Grass Field Fire Capital Developers Pvt. Ltd. The land was beyond 8 kms from the municipal limit which has not been controverted by the ld DR as well as by the ld Assessing Officer. The ld CIT(A) had given detailed findings on it. The assessee claimed this gain on transfer of these lands as exempted. As the use as per land revenue record was agricultural land. Thereafter GFFR has disclosed the income on transfer of this land to M/s Grass Field Fire Capital Developers Pvt. Ltd.. The assessee had purchased these lands for investment not for trading. The frequency of transactions showed that the assessee was not in trading of land. The land transaction of village Khatwad was not even pertained to year under consideration. Therefore, we confirm the order of the ld CIT(A). - Decided against revenue. Issues Involved:1. Deletion of addition of Rs. 1,20,52,755/- on account of business profit from the sale of land.2. Determination of whether no capital gain was chargeable as the asset referred to was agricultural land.Issue 1: Deletion of addition of Rs. 1,20,52,755/- on account of business profit from the sale of landThe Revenue appealed against the deletion of Rs. 1,20,52,755/- added by the AO as business profit. The AO observed that the assessee, a Chartered Accountant and director in various companies, purchased lands in his individual capacity and sold them at significantly higher prices shortly after purchase. The AO treated the surplus as business income, arguing that the assessee was engaged in real estate activities, as indicated in the sale deeds. The AO considered the lands as stock in trade due to the short holding period and the nature of transactions.The CIT(A) allowed the assessee's appeal, noting that the assessee had been consistently investing in land since FY 1989-90 and held a portfolio of lands valued at Rs. 3,92,49,208/- as of 31/03/2008. The CIT(A) emphasized that the assessee did not maintain a personal capital account or balance sheet and derived income from salary and consultancy, not from real estate development in a personal capacity. The CIT(A) held that the transactions did not constitute business activities but were investments, as the land was not subdivided or developed before sale. The CIT(A) also noted that the land was agricultural and beyond 8 km from municipal limits, thus not a capital asset under Section 2(14)(iii) of the Act.Issue 2: Determination of whether no capital gain was chargeable as the asset referred to was agricultural landThe AO argued that the assessee was not performing any agricultural activities and had not shown any agricultural income in the return. However, the CIT(A) concluded that the land was agricultural as per revenue records and situated beyond 8 km from municipal limits, making it exempt from capital gains tax under Section 2(14)(iii). The CIT(A) pointed out that the conversion of land use was done by the company (GFFR) after purchase, and the expenses were borne by the company, not the assessee. The CIT(A) relied on judicial precedents to support the view that land transactions do not automatically constitute trading ventures.Conclusion:The Tribunal upheld the CIT(A)'s decision, confirming that the assessee's transactions were investments in agricultural land, not business activities. The Tribunal noted that the land was beyond 8 km from municipal limits, and the conversion to non-agricultural use was done by the purchasing company. The Tribunal agreed with the CIT(A) that the assessee's intention was investment, not trading, and the gains were exempt from capital gains tax. The appeal of the Revenue was dismissed.Order Pronounced:The appeal of the Revenue is dismissed. Order pronounced in the open court on 29/05/2015.