Harniks Park (P) Ltd. v. ITO

INCOME-TAX ACT, 1961

--Head of income --Business income or agricultural income Profit on sale of agricultural land----Assessee was engaged in agricultural operations on land and land was specified as agricultural land in Revenue records. The land was not subjected to any conversion as non-agricultural land and was sold as it was. In such circumstances, transaction relating to sale of land was not an adventure in the nature of trade so as to tax the income arising out of sale as business income. The land also did not fall under the provisions of section 2(14)(iii) and therefore, no capital gain tax could be charged on sale of that land.--During the year under consideration, assessee had sold its agricultural land and shown profit from sale of land as agricultural income. AO noticed that assessee had not furnished any details including evidences for the claim of agricultural expenses. It had not furnished any proof for sale of agricultural produce. In absence of such details and further evidences in that regard, he noted that claim of assessee regarding use of such land for agricultural purpose could not be accepted. Further, referring to the huge amount claimed towards land development expenses and administrative expenses, he was of the view that main activity of assessee was 'commercial', rather than agricultural. AO further referred to the enquiry report furnished by the Inspector of Income Tax, wherein he had mentioned that the entire area was under real estate boom. AO was of the opinion that amount received on sale of land was nothing but on account of adventure in the nature of trade and therefore, he treated profit arising on sale of land as income from business. CIT(A) confirmed the order of AO. Held: The land was held by assessee as capital asset from the date of purchase till the date of sale. It was evidenced by the entries reflected in the balance sheet of assessee. Assessee reflected the same in the balance sheet as a fixed asset instead of stock-in-trade. It had carried on agricultural operations and claimed income as well expenditure. Assessee had not taken any permission from the Government for making plots, as it never had any intention to make the land into plots and carry on real estate business in respect of the land. The land was already classified as agricultural land in the Revenue records and assessee carried on agricultural activities in the said land, which was confirmed by Village Revenue Officer. Non-production of evidence for agricultural expenditure which was actually incurred could not make an agricultural land a non-agricultural one. The land development expenditure incurred was not related to the land that was sold. No evidence in support of the fact that asssessee had put the land in use for non-agricultural purposes had been brought on record. Merely because of the fact that land was sold for profit, it could not be held that income arising from sale of land was taxable as profit arising from the adventure in the nature of trade. Admittedly, the agricultural land was outside the municipal limits of Hyderabad Municipality and that also 8 kms away from outer limits of that Municipality, it did not come within the purview of section 2(14)(iii) and hence, same could not considered as capital asset and no capital gain tax could be charged on sale of that land. Accordingly, income arising out of sale of agricultural land was to be treated as agricultural income and exempted from income-tax.