While dismissing the appeal, the Bombay High Court has observed that Income from Sale of Agricultural land will attract Income Tax as the assessee was dealing in the sale of properties.
The Appellant Afonzo Real Estate developers had acquired agricultural land at Cavelossim admeasuring 28,200 sq.mtrs. vide a Deed of Exchange dated 15.08.1990. This land along with another property admeasuring 2,525 sq.mtrs., was sold by the appellant to Headway Resorts Line Pvt. Ltd. Company for total consideration of `1,69,20,000/-.
The appellant filed return of income on 30.01.2008 for the Assessment Year 2007-08 declaring a total income of `1,57,069/-, claiming deduction to the extent of `1,69,20,000/- inter alia on the ground that the amount received towards the sale of the properties were assessable as long term capital gains which were entitled to be deducted in terms of Section 54E and 54EC of the Income Tax Act, 1961.
The Counsel of the Appellant contended that the business of the appellant-assessee was to develop properties into plots or by constructing buildings and thereafter engage in the real estate business. He submits that the fact that the agricultural land was purchased in the year 1990 and the same was not even converted suggests that the appellant-assessee was not carrying on any business in relation to such property. He submits that on the basis of a single transaction of this nature, it could not have been held that the appellant-assessee was carrying on business in selling and purchasing properties. He submits that there is absolutely no material on record to establish that the appellant-assessee was engaged in the business of selling and purchasing agricultural properties and therefore, the ITAT, was not at all right in recording a finding that the proceeds from sale constitute income from a business.
The High Court was considering the question of whether the proceeds from the sale of the properties can be regarded as income from business or not?
Relying on the decision in Narain Swadeshi Weaving Mills, the division bench comprising of Justice M.S Sonak and Justice Nutan D. Sardessai observed that, “the issue was whether the lease rent could be treated as business profits liable to excess profits tax. In this fact situation, the Hon’ble Apex Court held that such lease could not be described as the business of the assessee firm and lease rent would therefore not qualify as business income. These facts, offer no parallel whatsoever to the fact situation in the present case”.
