The Bangalore Bench of Income Tax Appellate Tribunal ( ITAT ) has held that income from transfer of agricultural land is not business income and eligible for tax exemption.
The Appellant’s case was subjected to an action u/s 153A of the Act in connection with search proceedings in the group case of Sri K Muniraju and others. Accordingly, the search was conducted on Appellant u/s.132. AO treats the net consideration received on the sale of agricultural land as business income though the assessee has declared agricultural income, which is exempt income u/s.2(14) of the Act. During the course of search proceedings, it has found some documents, and based on that the AO has initiated the proceedings u/s. 153A.
The appellant submitted that the land was always an investment and not at all converted into stock in-trade. The character of the land in the hands has not changed. There is no material on record to show that he carried on activities of buying and selling of land in a systematic manner so as to justify the action of the AO in treating the activities of the appellant as adventure in the nature of trade. The land was sold by him in acreage and not by making plots.
The Tribunal observed that the land in question is classified in the Revenue records as agricultural land and there is no dispute regarding this issue and actual cultivation has been carried on this land and income was declared from this land in the return of income filed by the assessee for the earlier years as agricultural income. It is also an admitted fact that the AO has not brought on record any evidence to show that the agricultural land was used for nonagricultural purposes and the assessee has not put the land to any purposes other than agricultural purposes. It is also an admitted fact that neither the impugned property was subject to any developmental activities at the relevant point of time of sale of the land.
Further observed by the Tribunal that mere circumstances that a property is purchased in the hope that when sold later on it would leave a margin of profit, would not be sufficient to show, an intention to trade at the inception. In a case where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it, the presence of such an intention is a relevant factor and unless it is offset by the presence of other factors it would raise as strong presumption that the transaction is an adventure in the nature of trade.
The Coram of Sri Chandra Poojari and Smt. Beena Pillai, has held that “the land which does not fall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations in such agricultural land and also being specified as agricultural land in Revenue records, the land is not subjected to any conversion as non-agricultural land by the assessee or any other concerned person, transfers such agricultural land as it is and where it is basis, in such circumstances, in our opinion, such transfer like the case before us cannot be considered as a transfer of capital asset or the transaction relating to sale of land was not an adventure in the nature of trade so as to tax the income arising out of this transaction as business income. Accordingly, the ground of appeal raised by the assessee is allowed”.
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