I-T - Surplus generated by agriculturist on sale of his agri land is no basis to deny exemption u/s 2(14) and treat sale consideration as business income: HC
By TIOL News Service
AHEMDABAD, JULY 16, 2018: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether profits yielded by agriculturist on sale of his agriculture land, is no basis to deny exemption u/s 2(14) and treat the sale consideration as business income. YES IS THE VERDICT.
Facts of the case:
The assessee, an individual, had filed his return declaring total income at Rs.3,49,630/-. During the course of assessment, the AO observed that assessee had sold three pieces of lands to one M/s.Coastal Gujarat Power Ltd. for an amount of Rs.1,21,72,438/- and had claimed exemption u/s 2(14). However, the AO treated the income arising out of sale of lands as business income, on the ground that assessee was doing business of sale and purchase of land and the transactions were "adventure in the nature of trade". The AO denied the exemption u/s 2(14) mainly because subject land was sold to the company for industrial purpose and there was a steep rise in the profit.
On appeal, the FAA held that the purchase and sale transaction in respect of one piece of land, was not "an adventure in the nature of trade". However, he upheld the decision of AO as far as sale of other two lands were concerned. On further appeal, the ITAT directed the AO to treat the profit of Rs.1,20,21,138/- earned by assessee on sale of agriculture land as exempt u/s 2(14).
High Court held that,
++ it is required to be noted that the issue in the present appeal is whether the ITAT is right in directing the AO to treat the profit of Rs.1,20,21,138/- earned by assessee on sale of agriculture land as exempt u/s 2(14) or not. The AO treated the profit earned by assessee on sale of agriculture lands as business income and not as capital gain on sale of agriculture lands, which is exempt from tax u/s 2(14) r/w/s 45 of the Act. From the order passed by AO, it appears that AO has treated the profit of Rs.1,20,21,138/- earned by assessee from sale of agriculture lands as business income mainly on the grounds that (i) the land was sold to the company, which used the said land for industrial purpose; (ii) that there was a steep rise in the profit and (iii) that the lands were sold within a short span of time. However, it is not in dispute that as such, what was sold by the assessee was agriculture land. In the revenue record also, lands were shown as agriculture lands. It is also required to be noted that the agriculture lands in question were sold by assessee after a period of approximately 15 to 16 months from purchase. Therefore, as such, it cannot be said that the agriculture lands were sold within a short span of time. It is also required to be noted that the assessee is an agriculturist and also belongs to family of agriculturists. Therefore, as the assessee sold the agriculture lands and therefore, claimed exemption u/s 2(14) on the profit earned on sale of agriculture lands, Section 2(14) is required to be referred;
++ on plain reading of Section 2(14), if the "agriculture land" as mentioned in Section 2(14)(iii) is sold, the assessee shall be entitled to claim exemption on profit earned on sale of agricultural land as per Section 2(14) r/w/s 45, unless it is established that the transaction carried out was "adventure in the nature of trade" and the profit thus required to be taxed as business income. On appreciation of evidence, the Tribunal has specifically observed and held that the transaction carried out by the assessee was not "adventure in the nature of trade" and therefore, profit earned was not required to be taxed as business income. As observed, the land was sold as an agricultural land. What was the intention of the purchaser cannot be the determinative factor to treat the profit earned by assessee on sale of agriculture land as business income. Similarly, merely because for whatever reason, the assessee has earned sufficient huge amount of profit also cannot be a ground to treat the profit earned by the assessee on sale of agriculture land as business income. Under these circumstances, the Tribunal has not committed any error in directing the AO to treat the profit of Rs.1,20,21,138/- earned by assessee on sale of agriculture land as exempt u/s 2(14).
(See 2018-TIOL-1345-HC-AHM-IT)
