Classic Commercial Services Pvt. Ltd. v. ITO

INCOME TAX ACT, 1961

--Business income --Chargeability Sale of agricultural land.--Assessee purchased agricultural land and carried out basic activities like fencing, securing, etc. All the lands were continued to be used or agricultural purposes by agriculturists, who retained the income arising therefrom. The AO noticed that directors of assessee companies were engaged in the business of development of lands and presumed that companies had purchased the impugned land for developing them. Further, assessee had held the land for less an a year. As the State Government had not purchased these lands on compulsory acquisition, instead these assessees had sold them voluntarily to the authority for SEZ purposes and further they themselves did not carry on any agricultural activity thereon. Hence, the intention of the assessees was to hold these lands as 'Stock-in-trade' only and accordingly, the profit realized on their sale was liable to tax as business income. CIT(A) upheld the finding of AO. Held: The tax authorities had not brought any material to show that these assessees had intention to hold the agricultural lands as their trading asset, which would have warranted the gain arising on their sale as business income. They had also not brought any material to contradict the submissions made by the assessees. It was also seen that these assessees were constrained to sell the lands to Mumbai SEZ Ltd., in view of the notification issued by the State Government within one year from the date of purchase. Thus, it was seen that these assessees were constrained to sell the lands and there was nothing on record to show that, in fact, they intended to sell the lands within short period from the date of their purchase. It was also noticed that the AO himself had accepted the fact that the impugned lands were agricultural lands and they will not fall in the category of 'Capital asset' as defined under section 2(14). Under these set of facts, the tax authorities were not justified in treating the gains arising on transfer of land as business profits.

Income Tax Act, 1961, Section 28

Distinguished:Rachchodbhai Bahijibhai Patel v. CIT (1971) 81 ITR 446 (Guj), M.S. Srinivasa Naicker v. ITO (2007) 292 ITR 481 (Mad) and ITO v. Rani Ratnesh Kumari (1980) 123 ITR 343 (All)

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2007-08

IN THE ITAT MUMBAI G BENCH

SUBSCRIBE FOR FULL CONTENT