DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, JAIPUR vs. MOTISONS BUILDTECH PVT. LTD., JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES “A”, JAIPUR Jh jes'k lh 'kekZ] ys[kk lnL; ,oa Jh fot; iky jko] U;kf;d lnL; ds le{k BEFORE: SHRI RAMESH C SHARMA, AM & SHRI VIJAY PAL RAO, JM vk;dj vihy la-@ITA No. 1323/JP/2018 fu/kZkj.k o"kZ@Assessment Year: 2016-17 Dy. Commissioner of cuke M/s Motisons Buildtech Pvt. Ltd., Vs. Income Tax, B-9, Vivekanand Marg, Central Circle-2, Jaipur. C-Scheme, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AADCM 8806 C vihykFkhZ@Appellant izR;FkhZ@Respondent jktLo dh vksj ls@ Revenue by : Shri Sanjog Kapoor (CIT-DR) fu/kZkfjrh dh vksj ls@ Assessee by : Shri Vijay Goyal (CA). lquokbZ dh rkjh[k@ Date of Hearing: 19/02/2020 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 20/02/2020 vkns'k@ ORDER PER: R.C. SHARMA, A.M. This appeal by the revenue is directed against the order dated 10/09/2018 of ld. CIT(A)-IV, Jaipur for the 2016-17 in the matter of order passed U/s 143(3) r.w.s. 153A of the Income Tax Act, 1961 (in short, the Act).

2 ITA No. 1323/JP/2018 DCIT Vs. M/s Motisons Buildtech P Ltd. 3. Rival contentions have been heard and record perused. Facts in brief are that during the year under consideration, the assessee sold agricultural land at village Gidani and earned gain of Rs. 3,01,19,198/-. Since the land was not capital assets by virtue of provisions of Section 2(14)(iii) of the Act, the same was claimed to be not taxable. The same fact was also accepted by the A.O. However, the A.O. opined that the gain on sales of the land is taxable under the provisions of Section 115JB of the Act and he charged the tax on this income U/s 115JB of the Act.

“5. I have perused the written submissions submitted by the learned A/R and the order of AO. I have also gone through various judgments cited by the Ld. A/R and those contained in the order of AO. It is seen that the agriculture land so sold by the assessee was not the capital assets by virtue of the provisions of section 2(14) of the Act and this fact is also not disputed by Id. AO also. Thus there remains no dispute that the Profit arising on sale of agricultural land, which does not fall in the category of "Capital Asset" as defined under sec. 2(14) of the Act does not come under the purview of the Income tax Act at all. In this regard it is relevant to mention here that as per explanation (1) of the section 115JB certain amounts are

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required to be reduced from book profit and as per point No. (ii) of list of amounts to be reduced as given in such explanation "the amount of income to which any of the provisions of (section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to the profit and loss account." 5.2 From the above clause in the section itself its very well clears that the legislature itself not intended to tax to the amount u/s 115JB of the Act which is exempt under the Income Tax Act except otherwise specifically provided. Since the agriculture land which is not a capital assets is out of purview of taxability under the Income Tax Act, 1961. Hon'ble Kerala High Court in the case of Karimtharuvi Tea Estates Ltd. and Another vs. DCIR and Others (247 ITR 22), wherein the Hon'ble Kerala High Court after examining the object of section 115JB observed and held as under: 'The object of insertion of section 1151 of the Income Tax Act, 1961, was to ensure levy of minimum tax on what are known as 'prosperous zero-tax companies'. Under the scheme of the section, where the total income of companies as computed under the provisions of the Act, in respect of the previous year relevant to the assessment year, is less than 30 per cent of their book profits, the total income of such companies chargeable to income-tax for the relevant previous year is treated as income equal to 30 per cent of such book profits and is taxed accordingly. It also provides for certain adjustments by way of adding amounts and granting deductions for computing the chargeable income under section 115J (1). Sub-section (2) provides that determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years will have to be made unaffected by the provisions in sub-section (1) of section 115J. The very object of the

4 ITA No. 1323/JP/2018 DCIT Vs. M/s Motisons Buildtech P Ltd. provisions of section 115J is to tax such companies which are making huge profits and also declaring substantial dividends but are managing their affairs in such a way as to avoid payment of income-tax, as a result of various tax concessions and incentives and for that purpose, the taxable income is determined under sub-section (1) of section 115J. An assessee is enabled to claim carry- forward and set-off of losses, unabsorbed allowance, in view of the specific provisions of the Act enabling an assessee to claim. But because of this provision a company will have to pay tax on at least 30 per cent of its book profits. Therefore, what is taxed is not fictional or hypothetical income. Under the law though it is permissible to bring to tax hypothetical income, what is really done under section 115J is not exactly bringing to tax hypothetical income. What is really done is to limit or restrict or curtail deduction, carry-forward and setoff of losses, unabsorbed depreciation, unabsorbed allowance, etc. Ordinarily these deductions are permissible in view of the provisions introduced in the statute by the Parliament and the Parliament is equally competent to take away or restrict or limit such allowances for a definite purpose."

5.3 Thus, the legislature never intended to bring tax in such events which otherwise are not taxable at all under the provisions of the Act and such a provision cannot be so interpreted so as to tax any capital receipt. It is also relevant to refer the decision of a special bench in the case of Sutlej Cotton Mills vs. ACIT (Spl. Bench), (1993) 45 ITD 22, wherein it was held that particular receipt which is admittedly not an income cannot be brought to tax under the deeming provision of section 115J as it defies the basic intention behind introduction of provision of section 115J. It needs to be first determined, whether the amount of profit from sale of agricultural land which is not capital assets u/s 2(14) of Income Tax Act is taxable under the normal provisions of the Income Tax Act, 1961 or not. It is axiomatic

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that under the Income Tax Act only those receipts which are in the nature of income can alone be subject to tax and such a nature of income should fall within the charging section as provided under the Act. All the receipts by an assessee would not necessarily be deemed to be income of the assessee for the purpose of income tax and the question whether the particular receipt is income or not will depend upon the nature of the receipt as well as the scope and effect of the relevant taxing provision. It was never the intention of the legislature that any receipts which is not taxable as per within the income tax provision or not reckoned as part of net profit as per the profit & loss account as per Companies Act can be brought to tax as a book profit. This has been held so by Spl. Bench in case of Sutlej Cotton Mills Ltd. vs. ACIT (supra) and by Cochin Bench of ITAT in the case of ACIT vs. Nilgiri Tea Estate Ltd., (supra) wherein the Tribunal held that, an item of income which does not come within the purview of the Income Tax cannot be subjected to tax under any other provision of the Act. 5.4 Taking into consideration the facts and circumstances of the case and case laws relied on (supra) I am of the view that the profit from sale of agricultural land, which is not a "Capital Asset", cannot be included for the purpose of computing book profit u/s 115JB of the Act. Thus the appeal of the assessee on this ground stands allowed.” 5. Against the above order of the ld. CIT(A), the revenue is in further appeal before the ITAT.

6 ITA No. 1323/JP/2018 DCIT Vs. M/s Motisons Buildtech P Ltd. 6. We have considered the rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by the lower authorities in their respective orders as well as cited by the ld. AR and ld. DR during the course of hearing before us in the context of factual matrix of the case i.e. taxability of exempted gain on sale of agricultural land. From the record, we found that the assessee is a private limited company incorporated on 19-01-2004. The assessee filed its regular return u/s 139(1) on 17-10-2016 declaring loss of Rs. 20,14,959/-. The assessment of the assessee in pursuance to proceedings initiated as a result of search action was completed by the AO vide his order dated 30.12.2017 and the assessment was made at returned loss. During the year under consideration the assessee sold agricultural land at village Gidani and earned gain of Rs. 3,01,19,198/-. Since the land was not capital assets by virtue of provisions of section 2(14)(iii) of the Act, thus the same was not taxable. The same fact was also accepted by the AO. However, the AO opined that the gain on sales of the land is taxable under the provisions of section 115JB of the Act and he charged the tax on this income u/s 115JB of the Act.

7 ITA No. 1323/JP/2018 DCIT Vs. M/s Motisons Buildtech P Ltd. 7. By the impugned order, the ld. CIT(A)held that profit from sale of agriculture land which is not a "Capital Asset" cannot be included for the purpose of computing book profit u/s 115JB of the Act. The agriculture land so sold by the assessee does not fall into category in item (a) or item (b) of sub clause (iii) of section 2(14) as this land was situated more than 17 KM from municipal limit, therefore by virtue of definition of agricultural income given under section 2(1A) read with Explanation 1, the income arising from the transfer of this land is agricultural income.

a) Sub-clause (2) of the first Explanation to Section 115JB. provides a downward adjustment of the profits as revealed from the books of accounts, to that income, to which any of the provisions of Sections 10, 10A, 10B, 11 or 12 applies. b) Section 10 (1) of the Act granted an exemption for agricultural income under the Income Tax Act. Hence, if any portion of the profits as reflected in the books of accounts relates to agricultural income, then there is a clear exemption provided under Section 10. In view of the exemption under Section 10, any revenue from

8 ITA No. 1323/JP/2018 DCIT Vs. M/s Motisons Buildtech P Ltd. agricultural land would have to be reduced from the profits in computing the 'minimum alternate tax' (MAT) under Section 115JB.

c) Agricultural income as defined under Section 2(1A) inter alia takes within its ambit "any rent or revenue derived from land, which is situated in India and is used for agricultural purposes"

d) Explanation-1 of Section 2(1A) however specifically excludes any income derived from transfer of land, referred to in item (a) & (b) of Section 2(14)(iii) from the definition of revenue derived from land. But the assessee's land does not fall under the item (a) & (b) of Section 2(14) (iii) therefore, restriction provided in Explanation-1 of Section 2(1A) is not application for the case of the assessee. The Explanation- I divided the land into two categories (i) which falls under the item (a) & (b) of section 2(14)(iii) or may say urban agricultural land and (ii) which are outside the item (a) & (b) of section 2(14)(iii) or may say rural agricultural land. The Explanation-1 says that income arising from transfer of land under category (1) above shall not be treated as revenue derived from land for the purpose of section 2(1A). But this restriction is not application for the lands under category (ii) above, therefore, in view of the provisions of section 2(IA). Clause (a), the income derived from transfer of such land should be treated as

9 ITA No. 1323/JP/2018 DCIT Vs. M/s Motisons Buildtech P Ltd. revenue derived from land for the purpose of section 2(1A).

e) The income arising on the transfer of agricultural land is not taxable, being in the nature of agricultural income. The provisions of Chapter XII-B of the Act do not, operate to extend the scope of 'total income' scope of which has been defined under section 5 on which the charge to tax u/s. 4 is attracted, but is only toward providing an alternative basis for computing the same. The receipt is being admittedly as capital receipt.

f) The AO has accepted the fact that the land in question sold be the assessee was agricultural land beyond the distance of 8 KM from the Municipal limits and, therefore, the gain arising from the sale of said land was accepted as not taxable under capital gains tax in view of the provisions of section 2(14)(iii) of the Act. Thus, the gain from sale of rural agricultural land would be in the nature of agricultural income as per section 2(1A) and Explanation-1 to said section.

(i) ACIT V/s Nilgiri Tea Estate Ltd. IT APPEAL NO. 37 (COCH.) of 2014 AY 2008-09. (ii) ITAT Kolkata in the case of M/s Satlej Cotton Mills Ltd V/s ACIT 045 ITD 022

10 ITA No. 1323/JP/2018 DCIT Vs. M/s Motisons Buildtech P Ltd. (iii) Visakhapatnam Bench of ITAT in the case of Agri Gold Foods & Farm Products Ltd. ITA No. 451/Vizag/2012. 10. However, the decision of the ITAT, Jaipur Bench in the case of ACIT Vs Sunil Bansal in ITA No. 523/JP/2012 is distinguishable in so far as in this case on the facts of the case. The ITAT has held that the land in question was capital asset and is not exempt from the preview of section 2(14)(iii) of Income Tax Act. The Assessing Officer did not accept this contention of the assessee and noted that the assessee has purchased these lands in his own names and individual capacity and thereafter sold the same to the company i.e. M/s Grass Field Fire Capital Developers Pvt. Ltd. and M/s Grass Field Fire Land Developers Pvt. Ltd. by executing separate sale deeds. Since there are series of transactions of purchases' as well as sales, therefore, the Assessing Officer treated the activity of purchase and sale of land by the assessee as business of the real estate, accordingly, the surplus earned by the assessee from the sale of the land was treated by the Assessing Officer as business income and assessed to tax. However, in the instant case before us, the AO has accepted that the assessee sold an agricultural land which does not come under the preview of section 2(14)(iii) of the Act.

11 ITA No. 1323/JP/2018 DCIT Vs. M/s Motisons Buildtech P Ltd. 11. In the case of ITO Vs Krish Home Pvt. Ltd. in ITA No. 390/JP/2018 as decided by the Jaipur Benches of the ITAT, we observe that in this case the ITAT has followed its earlier decision in the case of Sunil Bansal and held in para 8 as under:-

"8. Following the above decision, in the instant case, the assessee company is in the business of real estate development including purchase and sale of land where the sole purpose of purchase of the land is to sell the same to third parties or to carry out non-agricultural development activities. The AO has also given a finding that the assessee has incurred expenditure on conversion charges on the pieces of land which have been sold during the year which shows clearly the future use of land for non-agriculture purposes and the said finding remain uncontroverted before us. The land in question thus loses its character as agriculture land and any gain arising on sale of such land cannot be regarded as agriculture income exempt under section 10(1) of the Act." The facts of the instant case are different. The assessee held the agricultural land for more than 9 years as investment and this land was situated in rural area more than 17 Km away from Municipal Limit. This land was used for agricultural purpose and considering the location of this land, in near future it cannot be used for non- agricultural purposes. The AO himself has accepted that the land is an agricultural land out of definition of capital assets.

12 ITA No. 1323/JP/2018 DCIT Vs. M/s Motisons Buildtech P Ltd. 12. In view of the above facts and circumstances, we do not find any infirmity in the order of the ld. CIT(A) for holding that the gain arising from sale of agricultural land cannot be taxed U/s 115JB of the Act. The detailed finding so recorded by the ld. CIT(A) after applying judicial pronouncements are as per the material on record which do not require any interference on our part. Hence, we uphold the same.

Order pronounced in the open court on 20th February, 2020.

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