The Tax Publishers2021 TaxPub(DT) 0186 (Ahd-Trib)


Section 45

Where agricultural land was purchased by assessee in financial years 1995-96 and 1996-97 and the same was treated as fixed assets and assessee had sold the agricultural land as fixed asset in its balance sheet, then the gain arising therefore was capital in nature.

Capital gains - Sale of agricultural land - AO held the income to be of business in nature -

Assessee had claimed long-term capital gain exemption being profit on sale of agricultural land and long capital gain being profit on sale of agricultural land. It was noticed that the said profit on sale of agricultural land was derived from 15 transactions of sales during the year. CIT issued notice under section 263 and observed that selling of agricultural land was the business of assessee therefore income of assessee required to be treated as business income in respect of profit arising on sale of land and income from other sources in respect of interest income. In pursuance of the order under section 263, the assessing officer has completed assessment under section 143(3) read with section 263 of the Act on 28th Feb, 2014 stating that as per memorandum of association the main object of the assessee company was that: 'To own, occupy, purchase, sell, deal-in, acquire, hold, hire, possess, exchange, 'lease, license, mortgage, improve, grow, develop, manage, control land and to set up agriculture farms, agriculture house, farm house, orchards, gardens and to carry on the business as agriculturist, farmers, millers, gardeners, cultivators, planters, processors in connection with the agricultural and farming activities.' The Commissioner (Appeals) has also stated that the Hon'ble Supreme Court in the case of Sultan Brothers has held that the intention of the assessee is to decide the nature and character of the income and merely because memorandum of association contains words 'purchase and sale' does not mean that appellant is dealing in land. Further, the memorandum also contains the work ' to own and to set up agricultural farm' which has been ignored by the assessing officer. The Commissioner (Appeals) has also referred a number of cases by the different Commissioner (Appeals) in which land in the same vicinity of the assessee has been held to be agricultural land was passed without proper examination or inquiry of the claim made by the assessee. Held: On perusal of material it was observed that agricultural land was purchased by the assessee in financial year 1995-96 and 1996-97 and the same was treated as fixed assets. Correctness of facts was demonstrated from the audited accounts of the assessee for the financial year 2007-08 and from the findings of CIT(A) in the appellate order. Assessee had sold the agricultural land as fixed asset in its balance sheet. After perusal of the assessment order, it was observed that without specifically controverting the relevant material and claim of the assessee, AO simply on the basis of memorandum of association had held that income derived from purchase and sale was a business income.


FAVOUR : Against the assessee.

A.Y. : 2008-09



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