2016 (9) TMI 1002 - AT - Income Tax

Gain from Agricultural Land Sale Classified as Business Income: Tribunal Decision

Dilip Battu Karanjule Versus The Income Tax Officer, Ward 5 (2), Pune

The Tribunal upheld the classification of gain from the sale of rural agricultural lands as business income, considering the quick resale, financing by ... Gain arose on sale of the rural agricultural lands - Held that:- We have no hesitation to hold that the impugned land was purchased with an intention to sell the same to the identified buyers to achieve commercial objectives outright. As noted earlier, section 2(13) of the Act seek to explain the term of ‘business’ by way of inclusive definition. As per section 2(13) expression ‘business’ include not only trade or commerce, etc. but definition further extends to encompass within its ambit an ‘adventure in the nature of trade’. The entire gamut of action of the assessee in engaging in such big ticket land purchase without employing any fund of his own and almost immediate re-sale thereof clearly demonstrates the implicit intention of the assessee that the transaction entered was nothing but an ‘adventure in the nature of trade’ i.e. a business transaction under extended definition of S. 2(13) of the Act. Consequently, profits arising therefrom acquires the character of ‘business income’ chargeable under S. 28 of the Act. We concur with the view of the Assessing Officer and the CIT(A) in bringing the income arising on sale of land under the head ‘business income’. - Decided against assessee. Issues Involved:1. Classification of gain from the sale of rural agricultural lands as Business Income.2. Determination of the agricultural income declared by the appellant.3. Classification of the land as agricultural land based on its cultivation status.4. Frequency and intention behind the sale transactions of agricultural lands.Issue-wise Detailed Analysis:1. Classification of Gain from the Sale of Rural Agricultural Lands as Business Income:The primary issue was whether the gain from the sale of rural agricultural lands should be classified as business income. The appellant, an advocate by profession, claimed that the lands were acquired with the intention of making investments and cultivating them. However, the Assessing Officer (AO) observed that the lands were purchased with borrowed funds and sold within a short span of time, indicating a motive of earning profits rather than holding the land for capital appreciation or agricultural use. The AO treated the profit from the sale as business income under section 28(i) r.w.s. 2(13) of the Income-tax Act, 1961, relying on the decision in DCIT vs. Gopal Ramnarayan Kasat. The CIT(A) upheld this view, stating that the intention of the assessee was never to cultivate the lands but to engage in an adventure in the nature of trade.2. Determination of the Agricultural Income Declared by the Appellant:The appellant declared an agricultural income of Rs. 1,01,845/-. The AO found this income to be too low compared to the appellant's land holdings, suggesting that the appellant was not primarily an agriculturist. The CIT(A) supported this view, noting that the appellant's primary occupation was legal practice and not agriculture.3. Classification of the Land as Agricultural Land Based on Its Cultivation Status:The AO noted that a major portion of the land was classified as 'Pad' (not useful for cultivation), and the remaining portion had 'Jowar' cultivation. The CIT(A) observed that since only part of the land was under cultivation, it could not be classified as agricultural land. The appellant argued that the land was indeed agricultural and located beyond 8 kilometers of the municipal limits, thus exempt from capital gains tax under section 2(14) r.w.s. 45 of the Act.4. Frequency and Intention Behind the Sale Transactions of Agricultural Lands:The AO observed that the appellant had engaged in frequent transactions of agricultural lands, indicating a trading activity rather than investment. The appellant contended that there were only two transactions up to the assessment year in question, proving the intention of holding the lands as investments. However, the CIT(A) noted that the quick resale of the land within one and a half months of purchase, financed entirely by the buyers, indicated a pre-ordained transaction aimed at earning profits.Conclusion:The Tribunal upheld the findings of the AO and the CIT(A), concluding that the transactions were an adventure in the nature of trade, thus taxable as business income. The Tribunal emphasized the sequence of events, the financing of the purchase by the ultimate buyers, and the quick resale as indicators of a commercial motive. The appeal of the assessee was dismissed, and the gain from the sale of the land was classified as business income. The Tribunal did not find it necessary to address the classification of the land as agricultural or otherwise, as the primary issue of the nature of the transaction had been resolved.