The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) held that Transactions and Commissions on agricultural lands would be considered business income if the company’s Memorandum of Association mentions activities related to such transactions as its objectives.
In this recent ruling, the revenue had filed an appeal against the order passed by the Commissioner of Income Tax(Appeals) [CIT(A)], National Faceless Appeal Centre ( NFAC ) for the assessment year ( AY ) 2011-12, dated 04.02.2024. The order was passed in favour of the assessee V Real Estate(India) Pvt.Ltd.
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The assessee company is engaged in real estate development and filed its return of income on 29.09.2011, declaring a total loss of ₹86 lakhs. This was revised later, and the assessee claimed a loss of ₹21 lakhs. The case was selected for scrutiny, and during the assessment, the assessee was asked to furnish reasons for the revision in the return of income and its allowability.
Тhe аssessee purchаsed lаnd in Gota, Ahmedаbаd, in 2008 for ₹1.57 crorе аnd sold it in 2010 for ₹2.03 crorе to Mr. Bharat Тhakkar, with аn agrееmеnt to rеpurchаsе it for ₹2.5 crorе. Аfter рaying аn advаnce оf ₹50 lahks, the dеal wаs cаncelled in March 2011 аs Mr. Тhakkar failed to рrovide a clear title. Тhe аssessee received a refund оf ₹50 lahks аnd ₹65 lakh аs compensаtion. Тhis compensаtion, arising in 2010-11AY, wаs included in the rеvisеd return filed in 2012, rеducing a loss of ₹21.11 lakh.
The Assessing Officer ( AO ) disagreed with the assesssee’s submissions and held that since the original return was processed under section 143(1) of the Act on 15.01.2012, it was considered to be beyond the specified period provided under the Act. The AO, in its order passed under Section 143(3) of the Act, concluded that the main object of the assessee company does not contain any clause regarding conducting business concerning agricultural land. The AO held that the transactions entered into by the assessee regarding agricultural lands cannot be termed as business transactions.
The AO computed the gain of Rs.2Cr on the sale of the properties and treated the same as the assessee’s income under the head ‘income from other sources’ under section 56(1) of the Act. The AO also disallowed various expenses claimed by the assessee.
The CIT(A), in an appeal by the assessee, held that the AO misguided himself to infer that the company’s object does not permit the action of the assessee in acquiring agricultural land, and this was proved using relevant clauses of the Memorandum and Articles of Association of the company. The CIT(A) ordered that the transactions made by the assessee and the commission received by the assessee on the agricultural land be treated as business income, and, therefore, the AO’s treatment of such income as income from other sources was held to be incorrect.
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Aggrieved by order of the CIT(A) in support of the assessee, the revenue approached the ITAT, where, after considering both sides, it was held that having considered the relevant clauses of the Memorandum of Association on the main object and incidental/ancillary object of the assessee, the CIT(A) was correct to conclude that the transactions done by the assessee in the agricultural lands were in the course of its business activity according to the objects of the company. ITAT further held that the the transaction related to the compensation will also amount to business income. The addition made under Section 56 of the Income Tax Act was deleted.
The two-member bench, consisting of Om Prakash Kant ( Accountant Member ) and Sandeep Singh Karhail ( Judicial Member ), upheld the order passed by the CIT(A) regarding the allowance for expenditure and treating the revised income as a valid return. As a result, the appeal by the revenue was dismissed.
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