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Facts
The appellant, an individual engaged in real estate broking, reported income for AY 2014-15. The AO completed assessment u/s 143(3) and added Rs. 47,46,509, representing the appellant's share of enhanced compensation from land acquired by the Kerala Government, treating it as an 'adventure in the nature of trade'. The CIT(A) upheld this, finding no evidence of agricultural activity and thus classifying the land as non-agricultural. The appellant contends the land was rural agricultural land, making the compensation exempt under Section 10(37) of the Income Tax Act.
Held
The Tribunal dismissed the appeal, holding that the appellant's intention, along with other co-venturers, was to purchase and resell the land for profit, constituting an 'adventure in the nature of trade' and making the land 'stock in trade'. Citing case law and lack of evidence for agricultural activity, the Tribunal concluded that the enhanced compensation was not eligible for exemption under Section 10(37) of the Act.
Key Issues
Whether enhanced compensation received from compulsory acquisition of land is taxable as business profit or exempt under Section 10(37) as agricultural land compensation, and whether the transaction constituted an 'adventure in the nature of trade'.
Sections Cited
143(3), 2(14), 10(37)
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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Inturi Rama Rao & Shri Sandeep Singh Karhail
:Asst.Year 2014-2015 Sri.Mohamed Musthafa Kunnath The Income Tax Officer Chengaana, v. Ward – 2(3) RKP-XII/682, Parakkot Pottayil Kozhikode. House, Feroke, Calicut – 673 631 PAN : AJNPC9794P. (Appellant) (Respondent) Appellant by : Sri.P.Raghunathan, Advocate Respondent by : Smt.Leena Lal, Sr.AR Date of Date of Hearing : 24.03.2025 Pronouncement : 14.05.2025 O R D E R
Per Inturi Rama Rao, AM :
This is an appeal filed by the assessee co-operative society directed against the order of the National Faceless Appeal Centre / Commissioner of Income-tax (Appeals) [“the CIT(A)”] dated 11th June, 2024 for the assessment year 2014-2015.
Briefly, the facts of the case are that the appellant is an individual, engaged in the business of real estate broking and also running a grocery shop at Ramanattukara. The return of income for the assessment year 2014-2015 was filed on 10th June, 2014 disclosing income of Rs.2,43,800. The same was revised on 14th August, 2014, disclosing the same income as in the original return of income, however . Sri.Mohamed Musthafa Kunnath Chengaana. claimed higher refund on account of TDS made by the Land Acquisition Tahsildar amounting to Rs.55,74,400. Against the said return of income, the assessment was completed by the Income Tax Officer, Ward 2(3), Kozhikode (“the AO”), vide order dated 11th August, 2016 passed u/s.143(3) of the Act, at a total income of Rs.50,02,310. While doing so, the AO made an addition of Rs.47,46,509 being the share of enhanced compensation received by the appellant u/s.18 of the Land Acquisition Act, by holding that it is adventure in the nature of trade.
The factual background of the issue is that the land in Ramanattukara comprised in R.S.No. 237/5A of an extent 535.90 cents originally belonged to Al-Ershad Charitable society (REGD). The society on 08-11-2007 entrusted its Chairman, Shri Poonthala Mohammed Kutty to sell the land and it was sold to Shri. Koniyan Abdul Rahiman, Edavaka, Wynad. The appellant along with other eight persons entered into a joint Venture agreement on oral terms, which was subsequently ratified by another agreement dated 27.02.2008 for purchasing the above land for a consideration of Rs. 1,03,16,075. Each venture contributed Rs. 9,50,000 for this purpose. Name of the joint owners are: (i) C.K. Mohammed, Pyar Manzil, Poovannur, P.O. Ramanattukara 673633 (ii) P.P. Shabeer Ali, Pyar Manzil, Poovannur, P.O. Ramanattukara 673633 (iii) E. Subair, Parakkottu Potta House, Feroke PO, Kozhikode- 673631
(iv) A.P. Imbichahammed, Parakkottu Potta House, Feroke PO, Kozhikode-673631 (v) CK.Mohamed Mustaffa, Parakkottu Potta House, Feroke PO, Kozhikode-673631 (vi) M.P. Lohithakshan, Poovannur House, Ramanattukara 673633 (vii) M. Muhammed Haji, Manathanth House,Feroke chanda, Froke Po, Kozhikode-673631 (viii) A.P. Safarudheen, Puthu Parambath House, Poovannur, P.O. Ramanattukara 6736331 (ix)M.Mohammed Ali, Arikalath House, P.O. Ramanattukara 673633 As orally agreed by the co-ventures, an agreement for the above purchase was executed 20.02.2008 between Sri Koniyan Abdurahiman, on the one part and the appellant on behalf of the Co-ventures. An amount of Rs. 83, 00,000 was paid towards the purchase consideration on various dates from 20.02.2008 to 28.02.2009.
Subsequently, the said land was acquired by the Government of Kerala for setting up of KINFRA Knowledge Park at Ramanattukara as per Notification No.465 dated 27.02.2009. The seller had given registered power of attorney in favour of the purchaser to receive the compensation for the said land. The land acquisition compensation was initially awarded on 16th July, 2010 and the possession of the land was taken over on 12.10.2010. The share of profit of the appellant was shown in the return of income for the assessment year 2011-2012, however, the purchaser on being dissatisfiable with the above . Sri.Mohamed Musthafa Kunnath Chengaana. compensation awarded, filed an application demanding enhanced compensation before the Principal Sub Court of Kozhikode. The Hon’ble High Court enhanced the compensation vide judgment dated 12th April, 2013, and awarded an amount of Rs.8,54,37,161. The State Government, however, filed an appeal before the High Court against the judgment. However, the Land Acquisition Officer released 50% enhanced compensation after deducting TDS and the appellant’s share of 1/9th of Rs.47,46,504 was brought to tax as business profit of the appellant, by the AO.
Being aggrieved by the above order, an appeal was filed before the CIT(A), contending that the rural agricultural land does not come under the purview of “Capital Asset” as defined under the provisions section 2(14) of the Act, hence, the enhanced compensation cannot be taxed as per Income-tax Act, as it is the accretion to value of land and interest therein form part of the compensation. The CIT(A), on due consideration of the submission made by the appellant, held that the subject land is not an agricultural land as there was no evidence on record that there was no actual tilling of the land two years prior to the sale. The CIT(A) further proceeded to hold that the provisions of RFCTLARR Act have no application, as the compensation was received much before the said Act came into existence.
Being aggrieved, the appellant is in appeal before us, in the present appeal. The learned Counsel for the assessee submits that the subject land which was acquired by the Government of Kerala as an agricultural land and the enhanced compensation received by the . Sri.Mohamed Musthafa Kunnath Chengaana. assessee is not liable to tax in view of the provisions of section 10(37) of the Act. He further submits that the subject land which was acquired by the Government of Kerala is rural agricultural land as per certificate issued by the Village Officer, Ramanattukara. As per certificate dated 8th April, 2014, which was produced before the first appellate authority. Thus, he submits that the enhanced compensation received by the appellant is not liable to tax.
On the other hand, the learned Sr.DR submits that the orders passed by the lower authorities require no interference.
We heard the rival submissions and perused the material available on record. The short issue that arises for our consideration is whether the enhanced compensation received by the appellant in terms of arbitration award given by the Principal Sub-Court of Kozhikode is taxable or not. Before, we dwell into this issue, it is necessary for us to give a finding as to the true nature of the subject land, which were acquired by the Government of Kerala. From the statement of facts narrated above, it is clear that the appellant had entered into agreement along with other eight persons to develop this property. The appellant along with other eight persons had entered into an agreement with the sellers and it is mutually agreed to share the profits as per the terms stipulated in the said agreement. These facts would clearly establish that the subject land was purchased by the appellant along with eight other persons with an intention to resale the same for profit, which constitute “an adventure in the nature of trade”. Therefore, it is clearly a stock in trade as held by the Hon’ble Kerala High Court in the case of Ashok . Sri.Mohamed Musthafa Kunnath Chengaana. Kumar v. CIT (2018) 89 taxmann.com 145 (Kerala), following the judgment of the Hon’ble Bombay High Court in the case of (1994) 209 ITR 946 (Bom.) and also there is no evidence on record to show that the appellant had carried out any agricultural activity on the subject land. Therefore, the compensation received by the appellant is not eligible for exemption under the provisions of section 10(37) of the Act. Therefore, we do not find any merit in the appeal filed by the assessee.
In the result, the appeal filed by the assessee stands dismissed.
Order pronounced on this 14th day of May, 2025.