S.H.MOHAMED NOWFEL,CHENNAI vs. ACIT NON CORPORATE CIRCLE 15(1), CHENNAI

This appeal filed by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals)-15, Chennai dated 29.11.2018 and pertains to assessment year 2010-11.

The assessee has raised the following grounds of appeal:

Brief facts of the case are that the assessee is an individual engaged in the business of real estate has not filed his return of income for the assessment year 2010-11. As per AIR information, assessee and another person has sold immovable property for `4.00 crores. On the basis of the said information, case was reopened under section 148 of the Income Tax Act,1961 (hereinafter referred to as “the Act”) and consequently case has been taken up for scrutiny assessment. During the course of assessment proceedings, it was noticed that the assessee has sold 16 acres and 48 cents of agricultural land at Karani village near Thirukazhugundram in Tamil Nadu for a consideration of `4.00 crores. The said land was purchased on 05.04.2004. The assessee has computed the long term capital gain from sale of agricultural land and claimed exempt on the ground that the impugned land is agricultural land within the meaning of section 2(14) of the Act and all the conditions prescribed thereunder has been fulfilled. The Assessing Officer was not convinced with the explanation of the assessee and according to him, the asset in question although was agricultural land but income derived from the sale of said land cannot be accepted as exempt, because the assessee was engaged in real estate business and he is regularly engaged in buying and selling the lands systematically with a view to make profits. The Assessing Officer was further of the opinion that whatever may be the nature of land but the intentions and actions of the assessee are relevant to determine whether the said lands were purchased with an intention to carry out agricultural operations or to hold as business asset to derive profit. Since the assessee was into real estate business, even though the land in question was agricultural land, the profit derived from the said land was assessable under the head ‘income from business or profession’, accordingly assessed the total profit derived from sale of land under the head ‘income from business or profession’. The assessee carried the matter in appeal before the learned CIT(A), but could not succeed. The learned CIT(A) for the reasons recorded in appellate order dated 29.11.2018 by following the decision of Hon’ble High Court of Madras in the case of CIT Vs. L.S.Manickam (1995) 215 ITR 519 (Madras) held that to decide whether particular income is assessable under the head income from business or is it exempt as agricultural income depends upon the nature of activity carried out and the intentions of the assessee to purchase and sale of land. Since the assessee was into real estate business, the profit derived from sale of land needs to be assessed under the head ‘income from business or profession’ and consequently, there is no error in the findings recorded by the Assessing Officer to make additions. Aggrieved by the order of CIT(A), the assessee is in appeal before us.

We have heard both parties, perused the materials and gone through the orders of authorities below. The solitary question that needs to be answered in the facts and circumstances of the case is whether profit/gain derived from transfer of agricultural land is exempt from tax or which is assessable under the head ‘income from business or profession’. There is no dispute with regard to the fact that impugned land was agricultural land. In fact, the Assessing Officer as well as the CIT(A) have categorically accepted the fact that land in question was agricultural land. However, they proceeded to assess gain to tax under the head ‘income from business or profession’ only for the simple reason that assessee was engaged in real estate business and buying and selling lands systematically to derive profits. In this factual background, we see the reasons given by the Assessing Officer and CIT(A) to arrive at a conclusion that gain derived from sale of land be assessable to tax under the head ‘income from business or profession’ and we find that there is no substance in the reasons given by the lower authorities because there is no bar under the law for a business person to buy land for agricultural purposes. When there is no bar in law for a business person to hold land for agricultural purposes, then merely for the reason that the said person engaged in the business of buying and selling of lands, the profit derived from sale of agricultural land cannot be brought to tax under the head ‘income from business or profession’, more particularly when the nature of land was agricultural land at the time of purchase as well as at the time of sale. Further, the assessee has also filed necessary evidence to prove that impugned land was purchased for the purpose of agricultural operations and also before the date of sale, the said land was used for agricultural purposes, which is evident from the fact that assessee has declared agricultural income for the assessment year 2005-06 and 2006-07. The assessee has also filed necessary Revenue records to prove that nature of land was agricultural land till the date of sale. The assessee has also furnished a letter from Thasildar to prove that agricultural operations were carried out in the impugned lands before the date of sale.

In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 28th October, 2020