Sale of Land cannot be treated as Business Activity even though there is a Higher Volume of Sale Consideration: ITAT [Read Order]

Income Tax Appellate Tribunal (ITAT), Rajkot bench, while allowing the assessees’ appeal, held that the sale of land cannot be treated as business activity for the purpose of levying income tax even though there is a higher volume of sale consideration.

In instant case, the assessee had filed his return of income declaring total income at Rs.9, 48,823/. On scrutiny of accounts, it was revealed to the Assessing Officer that the assessee has derived income from trading in plastic, cotton and steel, also shown profit of Rs.3,52,19,658/- from sale of agricultural land situated at village. This profit has been claimed as exempt on the ground that the said land is not a capital asset within the meaning of Section 2(14) of the Income Tax Act, 1961.

But the AO treated him as a trader in the land and assessed the alleged amount as business income.

The bench comprising of Rajpal Yadav, Judicial Member and N.K. Billaiya, Accountant Member opinioned that the issue, whether gain from sale of agricultural land is to be assessed as a business income or short term capital gain/long term capital gain, is a highly debatable one.

The bench had an opinion that before going through the issue they need to clarify whether assessee is to be termed as involving in the trading of land or to be treated as a simplicitor agriculturist. The first appellate authority by framing three questions, wherein found that the land sold by the assessee was agricultural land. She also accepted that the transaction was not sham or colourable transaction.

The assessee contended that agriculture operations were carried on and they were situated about 20 km from Bhuj. The gain realized on sale of such land was claimed exempt u/s. 2(14) of the I.T. Act.

The bench also noticed the case of Sarnath Infrastructure (P) Ltd. v. ACIT wherein the  issue whether an assessee deserves to be treated as a “trader” or “investor” was considered.

The Tribunal also added that merely if an assessee is getting a higher volume of sale consideration, then it could not be construed that the transaction would take colour of a business transaction.

Finally, the tribunal ordered that allow appeal of the assessee and direct the AO to treat the assessee as an investor in the agriculture land. Entire land sold to be treated as agriculture land and gain on sale of this land is beyond the purview of the capital gain under section 2(14) of the Income tax Act, 1961.