TaxTMI 
TaxTMI 
2018 (12) TMI 1756
X X X X Extracts X X X X
X X X X Extracts X X X X
....and in the scrutiny assessment, the AO noted that the assessee in the computation of book profit under section 115JB has reduced an amount of Rs. 2,43,15,546/- on account of gain on sale of agricultural land. The AO noted that during the year under consideration, the assessee sold some land and earned profit of Rs. 2,43,15,546/- thereon which has been claimed as deduction while computing the book profit under section 115JB. However, as per section 115JB, the deduction claimed by the assessee on account of gain on sale of agricultural land is not allowable as it is not an agricultural income covered under section 10(1) of the IT Act. In response, the assessee submitted that the gain on sale of agricultural land is an allowable deduction while computing the book profit under section 115JB. The AO did not accept this contention of the assessee and made this addition of Rs. 2,43,15,546/- to the book profit of the assessee computed under section 115JB for charging minimum alternate tax (MAT). 3. The assessee challenged the action of the AO before the ld. CIT (A) and contended that the gain on sale of agricultural land is an agricultural income and, therefore, the same is an allowable ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....same is not an allowable claim for computation of book profit. 5. On the other hand, the ld. A/R of the assessee has submitted that the AO has accepted the fact that the land in question sold by the assessee was agricultural land beyond the distance of 8 KM from the Municipal limits and, therefore, the gain arising from the sale of said land was accepted as not taxable under capital gains tax in view of the provisions of section 2(14)(iii) of the Act. Thus the gain from sale of rural agricultural land would be in the nature of agricultural income as per section 2(1A) and Explanation-1 to said section. The ld. A/R has submitted that section 2(1A) defines the agricultural income being any rent or revenue derived from land which is situated in India and used for agricultural purpose. Before insertion of Explanation-1 to section 2(1A) by Finance Act, 1989 with retrospective effect from 01.04.1970, all income arising out of sale of agricultural land including urban agricultural land were held to be agricultural income by various Courts including Hon'ble Bombay High Court and Andhra Pradesh High Court in case of Manubhai A. Sheth vs. N.D. Nirgudkar 128 ITR 87 (Bom) and J. Raghottaama R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Act and if the answer to the same is in affirmative, whether it can be excluded while computing book profits under section 115JB of the Act. 7. Recently, the Coordinate Bench in case of ACIT vs. Sunil Bansal (in ITA No. 523/JP/2012 dated 06.11.2018) has dealt with this issue at length examining the various legal authorities on the subject including the decisions relied upon by the ld AR. We therefore deem it appropriate to refer to the said discussion and findings of the Coordinate Bench which are reproduced as under:- "7.2 On the alternative plea that even if the activity of the assessee considered as business, the income derived from sale of the agricultural land is an agricultural income, we find that before going into the said issue whether the sale of agricultural land results in agricultural income or capital gain not liable to tax U/s 2(14)(iii) of the Act, the expression agricultural land itself has to be taken into consideration. The question whether a particular land is agricultural land was first considered by the Constitutional Bench of the Hon'ble Supreme Court in the case of Commissioner of Wealth Tax Vs. Officer in Charge (Court of Wards) 105 ITR 133. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... v. T. Sri Krishna AIR 1944 Mad. 401, that the expression 'agricultural land' should be given the widest meaning. It held that the fact that the land is assessed to land revenue as agricultural land under the State Revenue Law is a strong piece of evidence of its character as an agricultural land. On appeal, a Constitution Bench of this Court held that; (a) Inasmuch as agricultural land is exempted from the purview of the definition of the expression 'assets', it is 'impossible to adopt so wide a test as would obviously defeat the purpose of the exemption given'. The idea behind exempting the agricultural land is to encourage cultivation of land and the agricultural operations. "In other words this exemption had to be necessarily given a more restricted meaning than the very wide ambit given to it by the Full Bench of the Andhra Pradesh High Court", (b) What is really required to be shown is the connection with an agricultural purpose and user and not the mere possibility of user of land by some possible future owner or possessor, for an agricultural purpose. It is not the mere potentiality but its actual condition and intended user which has to be seen for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ter the agreement of sale and even if any agricultural operations were carried on within the said span of four months, - the Bench held - it was evidently in the nature of a stop-gap arrangement. On the date the land was sold, the Bench held, the land was no longer agricultural land which is evident from the fact that the assessee had obtained permission even in August 1966 to convert the said land to non-agricultural purposes." The Hon'ble Bombay High Court in the case of CIT Vs. V.A. Trivedi (supra) has laid down the principle for ascertaining the true character and nature of the land that it must be seen whether it has been put to use for agricultural purposes for a reasonable span of time prior to relevant date and further the land was intended to be put to use for agricultural purpose for a reasonable time period in future. If the principles laid down by the Hon'ble Supreme Court as well as the Hon'ble High Court are to be applied in the facts of the present case then one can safely say that the land purchased by the assessee, who is not an agriculturist for the intention to resale it to the company as per their predetermined plan loses its character the moment the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the land was not cultivated for a period of four years prior to its sale coupled with its location, the price at which it was sold do outweigh the circumstances appearing in favour of the appellants' case. The aforesaid facts do establish that the land was not an agricultural land when it was sold. The appellants had no intention to bring it under cultivation at any time after 1965-66 certainly not after they entered into the agreement to sell the same to a Housing Cooperative Society. Though a formal permission under section 65 of the Bombay Land Revenue Code was not obtained by the appellants, yet their intention is clear from the fact of their application for permission to sell it for a non-agricultural purpose under section 63 of the Bombay Tenancy Agricultural Lands Act. We are, therefore, of the opinion that the High Court was right in holding that the said land was not an agricultural land at the time of its sale and that the income arising from its sale was not exempt from the capital gains tax. The appeals, accordingly, fail and are dismissed. No costs." It was considered by the Hon'ble Supreme Court that the assessee entered into an agreement to sell the lan....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Joshi [1993] 202 ITR 1017 . The thrust of the argument of the learned counsel for the assessee is that the fact that the land was lying vacant and not used for cultivation for several years was not of any legal consequence. The learned counsel for the assessee submitted that the Court must presume that the vacant land continued to be 'agricultural land' in nature and character once it was shown that the land was assessed to land revenue as an agricultural land. The learned counsel for the assessee relied upon the last two paragraphs from the judgment of Chandurkar, J. as his Lordship then was from H.V. Mungale's case (supra) wherein it was observed that unless the land was allowed to be converted for non-agricultural purpose by the order of Collector under the provisions of the Land Revenue Act, the initial presumption to the effect that the land was agricultural in nature would continue to operate. To some extent, some of the observations appear to be in conflict with the view now taken by the Supreme Court in Smt. Sarifabibi Mohmed Ibrahim's case (supra). It is far too obvious to us that the view taken by the Supreme Court in Sarifabibi Mohmed Ibrahim's case....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he agricultural operations on the lands in question clearly established the intended future use for non-agricultural purpose. Therefore, in facts and circumstances of the present case and applying the test as laid down by the Hon'ble Supreme Court and the Hon'ble Bombay High Court we have no hesitation to hold that the land in questions does not fall under the exclusion clause (iii) of Section 2(14) of the Act being the agricultural land. Accordingly, the profit earned by the assessee of sale of such land cannot be regarded as exempt income U/s 2(14) or as an agricultural income in terms of definition U/s 2(1A) of the Act. The ld AR of the assessee has given much emphasis on the explanation to Section 2(1A) of the Act and also relied upon the decision of Hon'ble Bombay High Court in the case of Manubhai A. Seth Vs N.D. Nirgudkar, Second ITO as well as decision of Hon'ble Andhra Pradesh High Court in the case of J. Raghottama Reddy Vs ITO (supra). Since these decisions were based on the fact that the lands were undisputedly agricultural lands, therefore, once we hold that the land in questions cannot be regarded as agricultural land as the same loses its character of agricul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The said Explanation clearly declares that the revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in section 2(14)( iii)(a) or (b). The upshot of the same is that income derived from sale of such agricultural lands cannot be treated as 'agricultural income'. Thus, the whole basis of the decision has been lost and, therefore, the order under appeal cannot be sustained and deserves to be set aside. 4. Shri Dhruv Mehta pointed out that by an artificial definition introduced into the Act what is agricultural income cannot be treated otherwise. He also sought to explain the scheme of the entries in the different lists of the Constitution in support of his contention. 5. The learned counsel for the appellants pointed out that under article 366(1) of the Constitution 'agricultural income' has the same meaning as defined under enactments relating to income-tax. There is divergence of opinion amongst the High Courts as to the effect of section 2(14)(iii ) as amended by the Finance Act, 1970, and hence the Parliament introduced the Explanation by the Finance Act, 19....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ces of the case, we hold that the income arising on sale of the lands in question is not exempt from income tax either as a capital gain U/s 2(14)(iii) or as an agricultural income U/s 2(1A) of the Act. This issue is decided against the assessee and in favour of the revenue." 8. Following the above decision, in the instant case, the assessee company is in the business of real estate development including purchase and sale of land where the sole purpose of purchase of the land is to sell the same to third parties or to carry out non-agricultural development activities. The AO has also given a finding that the assessee has incurred expenditure on conversion charges on the pieces of land which have been sold during the year which shows clearly the future use of land for non-agriculture purposes and the said finding remain uncontroverted before us. The land in question thus loses its character as agriculture land and any gain arising on sale of such land cannot be regarded as agriculture income exempt under section 10(1) of the Act. 9. Further, in the books of account, the assessee has shown this income as profit on sale of agriculture land being capital gains and not as agricultur....