In a recent ruling, the Delhi High Court dismissed an appeal, stating that income from agricultural land, which is exempt from tax, cannot be included in the book profits when calculating under Section 115JB of the Income Tax Act, 1961.
The bench consisting of Justice Yaswanth Varma and Justice Ravinder Dudeja found that, firstly neither the issue of computation or taxation of book profit under Section 115JB has been raised by the Assessing Officer, nor such grounds were raised in the original grounds of appeal by the Department..
Apart from that, once the Assessing Officer has not treated the said gain for the purposes of book profit then by way of such ground the issue cannot be raised by the Department. Otherwise also when the income of agricultural land was exempted from tax, then the said exempted income cannot be added to the books profit while calculating the under Section 115JB of the Income Tax Act.
The assessee was essentially aggrieved by the tribunal having refused to admit and rule upon certain grounds which were urged with regard to the applicability of Section 115JB of the Income Tax Act, 1961. The respondent/assessee stated to have undertaken a sale transaction with respect to a piece of agricultural land along with houses constructed thereon in Assessment Year.
The respondent/assessee stated to have undertaken a sale transaction with respect to a piece of agricultural land along with houses constructed thereon in Assessment Year 2006-07.
It was claimed that the profit from the sale of that property would be exempt from taxation since it constituted a sale of agricultural land and would thus not fall within the ambit of the expression ‘capital asset’ as defined by Section 2(14) of the Act
Mr. Meharchandani, representing the appellant / revenue has supported the appeal, however, had proceeded on the following lines. According to counsel, Section 115JB puts in place a special mode and methodology of assessment based on the book profits of an assessee.
Mr. Agarwal, representing the respondent/assessee, on the other hand, submitted that the question which was sought to be canvassed by the appellant was rightly not admitted by the Tribunal since undisputedly the aspect of computation and taxation of book profit under Section 115JB had neither been raised before the Assessing Officer (AO) nor was it a ground urged in the appeal as originally preferred.
It was the submission of counsel that only urban agricultural land which falls within the ambit of clauses (a) and (b) of Section 2(14)(iii) would fall outside the ambit of revenue derived from land and thus fall outside the scope of agricultural income. It was his submission that since in the present case the land which formed the subject matter of sale was rural agricultural land, the argument which was sought to be canvassed was liable to be negated.
The bench allowed instant appeal and answered the question framed for our consideration in the negative and in favour of the appellant. The order of the Tribunal dated 15 May 2018 was hereby set aside. The matter shall, consequently, stand remitted for consideration afresh. Thus, the said ground raised by the revenue cannot be entertained and the same was dismissed.
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