The Jaipur bench of the Income Tax Appellate Tribunal, on Thursday held that the sale of agricultural land after developing the same into different plots is subject to tax as ‘Business Income’ under the provisions of the Income Tax Act, 1962.
The assessee, in the instant case, had developed 23 plots in his agricultural land and sold the same to different people. In the returns, the assessee disclosed the said income as Capital Gains. However, the Assessing Officer, while completing assessment proceedings, invoked section 50C of the Income Tax Act by adopting DLT rate.
On appeal, the first appellate authority found that the income received by Assessee is chargeable to tax under the head ‘Profit and Gains from Business and Profession’ since the nature of the activity is ‘adventure in the nature of trade’.
On the second appeal, upholding the order of the CIT(A), the Tribunal noted that the nature of land had gone irreversible change from agricultural to residential plots.
The bench also said that “However, the provisions of Section 45(2) of the Act provides that the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.”
Accordingly, the matter was sent back to the files of the first appellate authority to give effect to the provisions of Section 45(2) of the Income-tax Act.
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