The ITAT bench comprising Pramod Kumar (AM) and S. S. Godara (JM) recently confirmed that the sale consideration on agricultural land after its conversion to non-agricultural Land constitutes business income and therefore, section 50C of the Income Tax Act, 1961 cannot be applicable to such cases.
In the instant case, the assessee, M/s. Navratna Group is engaged in the activities of purchasing and selling lands, building and construction of such buildings and the land in question being agricultural land it will take time to get it converted into non-agricultural land and M/s.Navratna Group is not entitled to purchase agricultural land. It was also agreed that after getting such land converted to non-agricultural, land has to be transferred or conveyed to M/s.Navratna group party.
The Assessing Officer made addition in respect of short term capital gains by invoking Section 50C, while completing proceedings u/s.143(3) of the Income Tax Act, 1961.
All these above mentioned facts leads AO into a conclusion that the said land is not a capital asset in the hands of the assessee and accordingly, the income shown by the assessee as capital gains is not acceptable.
The AO, on verification concluded that the assessee has acted as a facilitator in the entire transaction for and on behalf of Navratna Group; all the lands have been purchased with the funds provided by Navratna Group to the assessee and accordingly the amount received is treated as business income of appellant and additions have been made.
The counsel for revenue contended that AO had rightly invoked Section 50C of the Act before making the impugned short term capital gains addition. ITAT relied in case of Jayantibhai C. Patel (supra) admittedly holds that income derived from sale agricultural land after its conversion to a non-agricultural parcel amounts to an adventure in the nature of business and trade resulting in business income.
Finally tribunal held that CIT (A)’s findings under challenge treating the assessee to have derived business income instead of capital gains and also added that revenue fails to dispute that the Section 50C of the Act does not apply in the instant case.
Subscribe Taxscan Premium to view the Judgment
