By TIOL News Service

JODHPUR, DEC 13, 2017: THE issue is - Whether income arising from sale of agricultural land will be taxable as business income, in case the assessee's business activity as per the MoA constitutes investment, sale & purchase of land including agricultural land. YES is the answer.

Facts of the case

The assessee filed its return for the A.Y 2015-16, which consisted of business income, short term capital gain and long term capital gain. Consequently, the ACIT issued notice stating therein that they had reasons to believe that assessee's income chargeable to tax for said A.Y had escaped assessment and asked them to deliver a return in the prescribed form before the expiry of 30 days from the service. The assessee submitted their objections to the notice, which was however dismissed. While praying for setting aside the impugned notice and objections, the assessee's counsel submitted that no reasons were recorded for issuing the notice. Further, their main object was to carry on agricultural, horticultural etc. and other objects of the MoA were secondary in nature. The agricultural land purchased by assessee could not be said to be its stock in trade. The land in question was classified as agriculture land in revenue record and after its purchase, actual cultivation was carried out by assessee for raising grass for grazing cattles free of cost and there was no intention on the part of assessee to put the land for non-agricultural purpose. The Assessee's counsel further observed that merely because the land in question was sold for profit, it could not be held that the income arising from its sale was taxable as business income and not capital gain. It was further alleged that the ACIT had rejected the objections in a mechanical manner by holding that the intention of assessee to sell the land would be considered at the time of assessment proceedings by taking into account the history of transaction, other business activities, mode of finance and other circumstantial evidence.

On Writ, the HC held that,

++ it is seen that the assessee had requested the ACIT to provide reasons for issuing the notice, who immediately gave reasons for issuing the notice u/s 148. The assessees were informed that, "during the survey of M/s. Akash Amar Agrotech Pvt. Ltd., certain documents were impounded for further investigation. From the perusal of the said documents & post survey investigations, it is noticed that the assessee company has sold land in the financial year 2009-10 to various entities. The assessee company’s Return of Income for the relevant year has shown Agricultural Income of Rs.3,38,250/- in lieu of sale of the agricultural land which has been claimed as exempt income by it. It is noted from the available records, and material impounded during the survey, that the assessee company is involved in the business of sale and purchase of land. The investment, sale & purchase of the entity is also of land including agricultural land." Moreover, it is not disputed that as per the MoA, one of the objects to be pursued by the Company on its Incorporation is also purchase, sell, acquire, get convert, develop, improve, hold with absolute or limited rights or on lease, sub lease or otherwise and to erect, construct, build, demolish, reerect, alter, repair, furnish, maintain land, including agricultural land, building, farm houses, residential flats, commercial complexes..." The AO observed that the entity sells and purchases land, including agricultural land, as one of the main objects of the assessee company for which it was formed which is a business activity of the assessee company;

++ even in the averment with regard to whether any incriminating material was found during the course of surveys or not, it was submitted that evidence related to huge amount of tax evasion, stamp duty evasion, violation of Land Ceiling Acts and other laws, falsification of facts in registered sale deeds, and evidences related to vast quantum of benami properties was found during the course of surveys. With a further information that Income Tax Department, Jaipur, Rajasthan issued show cause notices to as many as 31 apparent benamidaars and their associated beneficial owners who are the sister concerns of assessee under the provisions of the Prohibition of Benami Property Transactions Act, and has provisionally attached such benami properties. Thus, in the opinion of this Court, there was sufficient reason for the authorities to believe that there may be escapement of income.

(See 2017-TIOL-2550-HC-RAJ-BENAMI)