Income from Sale of land assessable under Capital Gains and not Business Income: ITAT allows Deduction u/s 54 of income Tax Act [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) set aside the order of Principal Commissioner of Income-Tax (PCIT) and allowed tax deduction under Section 54 of Income Tax Act for income from sale of land assessable under Capital gains and not business income.

The assessee Laxmanbhai Balchanddas Patel had sold non-agricultural land (N.A. land) measuring 2150 square. Meters(Sq. Mtrs) out of 3753 Sq. Mtrs. N.A. land owned by for a consideration of Rs.2,20,11,600/-. This piece of land (3753 sq. mtrs) was purchased in 2006-07 at a cost of Rs. 427835.

Subsequently, the said land was converted into non-agricultural purpose in 2010-11. After converting the entire 3753 sq. mtrs agricultural land into non-agricultural purpose (N.A Land), the assessee have sold 2150 sq. mtr land in 2016-17 for Rs.2,20,11,600/-.

The Assessing Officer allowed assessee’s claim of profit earned from the sale of land as assessable under the head “Capital Gains” and consequently allowed deduction under Section 54EC of the Income Tax Act to the assessee resulting in Nil capital gain being charged to tax.

The PCIT passed an order reversing the assessment order and held the transaction of sale of land to be in the character of an “adventure in the nature of trade/business” on the basis that land sold being converted from agricultural to non-agricultural land by the assessee, the firms in which assessee is a partner are into real estate business and the assessee alongwith his sons has admitted on affidavit.

The Bench comprising of Annapurna Gupta, Accountant Member and Madhumita Roy, Judicial Member referred the case of Venkataswamy Niadu v CIT which it was explained that the purport of the term “adventure in the nature of trade“ as having some but not all characteristics of trade or business,The Apex court in this case held that all surrounding factors needed to be considered for drawing any inference regarding the nature of the transaction.

The Tribunal observed that PCIT has relied only on the fact of conversion of the land sold from agricultural to non-agricultural, as the basis of his finding that the assessee indulged in the activity of sale of land during the year as an adventure in the nature of trade, and has completely given a goby to other conditions and circumstances.

Thus it was held that there is no error in the assessment of AO and allowed deduction under Section 54 of Income Tax Act for Income from sale of land assessable under Capital gains and not business income , and set aside the order of PCIT.

The appeal of the assessee is allowed.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates