The Rajkot Bench of Income Tax Appellate Tribunal (ITAT) has held that the receipt from conversion of agricultural land into Non-Agricultural purpose would be treated as business income.
Naresh Kantilal is an individual engaged in the business of Trading of timber. His return was taken for scrutiny The assessee purchased a piece of land on 06.02.2014 and within six days thereafter on 12.02.2014, the assessee sold the very same land to Agarwalla Teak International Pvt. Ltd. (ATIL). The assessee had shown the gain on sale of land in his capital account, however not declared in the Return of Income as the same was an agricultural land, exempt from taxation under Section. 2(14)(iii) of the Income Tax Act1961.
The assessee explained that the land sold was agricultural land not being a capital asset and was also exempted under Section 2(14)(iii) of the Act, therefore not offered any capital gains. Though the land was sold on 12.02.2014 but registered only on 30.12.2015 after converting the land into non-agriculture land, since the buyer ATIL was not a farmer in Gujarat. Further in the Income Tax Return for the Assessment Year 2016-17, the assessee shown Short Term Capital Gain on the sale of above land and paid appropriate taxes proposing to tax the same transaction again would amount to double taxation, which was not permissible under law and therefore requested to accept the returned income.
The A.O. treated the transaction as Short-Term Capital Gain and charged to tax for the Assessment Year 2014-15 and demanded tax.
Mr. Chetan Agarwal appearing for the assessee submitted that the impugned order must be set aside as the physical ownership of the land was transferred on 31.12.2015 during the Assessment Year 2016-17 and not in the Assessment Year 2014-15, as determined by the Assessing Officer which was based on the agreement of sale dated 06.02.2014.
B.D. Gupta appearing for the Revenue submitted that though the agreement of sale entered on 12.02.214, the entire sale consideration was received by the assessee and possession also given to the purchaser.
The Bench of Annapurna Gupta, (Accountant Member) and T.R. Senthil Kumar, (Judicial Member) dismissed the appeal observing that “the documents clearly proves that the assessee has no intention of carrying out any agricultural activity in the land. Further it clearly proves that the assessee converted the agricultural land into non-agricultural purpose and sold it to M/s. ATIL.”
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