The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has held that exemption on Income from the sale of non-agricultural land is not allowable on failure to fulfil twin conditions for not being a capital asset.
Shri Manish Ambalal Patel, the appellant challenged the action of revenue in not accepting the assesses claim of income from the sale of land being exempt u/s 10 of the Act, and on the contrary treating the income earned as business income of the assessee, being earned in the course of adventure likethe businessconducted by the assessee
The AO conducted a detailed inquiry during the course of assessment proceedings and found as a matter of fact that the assessee along with two other persons viz. Shri Ajay Shah and Sh.Ambalal B. Patel had acquired a block of land to sell the same to a company viz. KEC International Ltd. (KECIL)was on the lookout for a suitable block of land for setting up industries in & around the city of Baroda.
The assessee along with his associates thereafter facilitated the purchase of this land by KECIL by first acquiring them from the original land owners, and thereafter transferring them to KECIL and in the process completing all necessary formalities required for the smooth acquisition of the land by KECIL which included converting the agricultural lands into non-agriculture land, since the laws of the State of Gujarat prohibited acquisition ofagricultural land by persons other than non-agriculturalists.
The AO held that the entire exercise of the assessee along with his associates tantamount to adventure-like trade being undertaken with theprimary purpose of making gains from the acquisition of a block of land and sale of the same to KECIL. The profits earned from the said transaction were heldto betaxable under the head “income from business” Further, the AO disallowed all expenditure so incurred by the assesseeby invoking provisions of section 40A(3) of the Act. The order of the AO was upheld by the CIT(A).
It was observed by the ITAT that thedistance of landfrom the Municipal limit is wholly irrelevant for determining whether the asset qualifies as a “capital asset” or not as per section 2(14) of the Act, since as per the said section only agricultural land situated beyond the specified municipallimits do not qualify as capital assets.
The twin conditions of the land being agricultural land and land being situated beyond a specified limit from the municipal boundary,both have to be fulfilled for the asset to qualifyas not being a capital asset. The ITAT observed that the asset was not agricultural land, since the assesses fails to fulfil the criteria of being an agricultural land fornot qualifying as a capital asset.
Smt Annapurna Gupta, accountant member and Smt. Suchitra Kamble, judicial member viewedthat capital gain derived from the sale of the land wasexempt from tax as the asset sold did not qualify as a capital assetand section 40A(3) of the Act did not apply.
The ITAT held that the income from the sale of the landwas not exempt as it was not agricultural land and dismissed the assessee’s appeal.
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