INCOME TAX ACT, 1961

Section 2(14)

Capital gains - Definition of 'capital asset' - Sale of agricultural land alleged to be assessed as 'Income from business or profession' because assessee was engaged in real estate business -

Assessee sold a land which was agricultural land. AO accepted the fact that land in question was agricultural land. However, AO proceeded to assess gain to tax under the head 'Income from business or profession' only for the simple reason that assessee was engaged in real estate business and buying and selling lands systematically to derive profits. The solitary question that needed to be answered was whether profit/gain derived from transfer of agricultural land was exempt from tax or was assessable under the head 'Income from business or profession'. Held: When there is no bar in law for a business person to hold land for agricultural purposes, then merely for the reason that the said person engaged in the business of buying and selling of lands, the profit derived from sale of agricultural land cannot be brought to tax under the head 'Income from business or profession', more particularly when the nature of land was agricultural land at the time of purchase as well as at the time of sale. Assessee also filed necessary evidence to prove that land was purchased for the purpose of agricultural operations and also before the date of sale, the said land was used for agricultural purposes, which was evident from the fact that assessee declared agricultural income for previous assessment. Land in question was agricultural land and was used for agricultural purposes till the date of sale. Accordingly, there was no substance in the reasons given by lower authorities below to bring to tax gain derived from sale of land under the head 'income from business or profession'.

REFERRED : CIT v. L.S. Manickam & Anr. (1995) 215 ITR 519 (Mad) : 1995 TaxPub(DT) 756 (Mad-HC).

FAVOUR : In assessee's favour.

A.Y. : 2010-11

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