The Tax Publishers2020 TaxPub(DT) 4683 (Hyd-Trib)

INCOME TAX ACT, 1961

Section 14

Where assessee-company incorporated with main object to carry on agricultural activities, purchased agricultural land in 2002 and treated the same as capital asset in its books of account but later the assessee transferred the land to developer in terms of JDA and declared resulting profit as long-term capital gain then AO was not justified in taxing the gain as business income on the ground that transaction was adventure in the nature of trade and land constituted assessee's stock-in-trade because events which occurred subsequent to development agreement could not change nature of land into stock-in-trade.

Head of income - Business income or Capital gains - Agricultural land transferred under JDA - Intention of assessee was to carry on agricultural operations

Assessee-company incorporated with main object to carry on agricultural activities, purchased agricultural land in 2002 and treated the same as capital asset in its books of account. In 2005, assessee transferred the land to developer in terms of JDA and declared resulting profit as long-term capital gain. AO taxed the same as business income on the ground that transaction was adventure in the nature of trade and land constituted assessee's stock-in-trade. Held: As intention of assessee was to carry on agricultural operations, therefore, events which occurred subsequent to development agreement could not change nature of land into stock-in-trade and therefore, profit arising from transfer of land under JDA was taxable as capital gain and not as business income. AO was directed to compute income of assessee from transfer of land held by assessee-company as capital asset by way of development agreement and subsequent sale of flats and bungalows received as consideration for such transfer which took the character of stock-in-trade on conversion in the manner and as per the method specified above, relying on provisions of section 45(2).

REFERRED :

FAVOUR : Partly in assessee's favour.

A.Y. : 2008-09 & 2009-10

IN THE ITAT HYDERABAD, 'B' BENCH

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