INCOME TAX ACT, 1961

Section 14

Head of income - Business income or Capital Gain - Profit on sale of land -

Assessee engaged into the business of acquiring and sale of plot and colonizers sold certain piece of land and claimed that resulting profit being in the nature of capital gain was exempt under section 54F. AO treated the same as business income on the ground that land was treated as stock-in-trade in assessee's books. Assessee challenged this on the ground that land held for thirteen years had always been shown at cost while in stock-in-trade it is always at cost or market price, whichever is lower. Also agricultural income derived out of land had been accepted by the revenue. Assessee also took plea that the land had been sold only on account of notice received from revenue department to surrender the land as it was an encroachment on the Gaon Sabha Land. Held: The period of holding for 13 years could not be considered to treat the land as investments as it was not the case that all the unsold stock-in-trade should have always been treated as investments. Further, assessee has been continuously treating the land as closing stock in the books of account and argument of assessee that since land was always valued at cost, did not give any credence to treat them as capital asset. Even in closing stock or stock-in-trade, the valuation is always at lower of market price or the cost price. There was no proof that cost price had gone down so as to take it at a lower price. Further, deriving of agricultural income from a land does not necessarily entitle it to be an investment or for that matter to be an agricultural land in accordance with section 2(14) and section 2(14)(iii) eligible for exemption not being a capital asset. Also, assessee's Memorandum and Articles of Association proved that assessee was primarily into business of purchase and dispose of land and plots. Even, notice taken plea of by assessee was issued in the year 1997, hence, could not be given any relevance with regard to determination of the issue. Hence, on going through the Memorandum and Articles of Association, conduct and business affairs of assessee, and on perusal of books of account of assessee, it could not to be said to be an income arising out of capital gains and had been rightly treated as business income.

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2011-12

INCOME TAX ACT, 1961

Section 40(a)(ia)

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