M/S. COCOON RESORTS PVT. LTD.,,CHENNAI vs. ITO, CORPORATE WARD - 1 (3),, CHENNAI

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) -1, Chennai, dated 29.03.2019 and pertains to assessment year 2012-13.

Sh. R. Vijayaraghavan, the Ld.counsel for the assessee, submitted that the only issue arises for consideration is whether the long term capital gains arising on transfer of agricultural lands can be included while computing book profit under Section 115JB of the Income-tax Act, 1961 (in short 'the Act'). According to the Ld. counsel, the Assessing Officer as well as the CIT(Appeals) found that the lands transferred by the assessee are not agricultural lands, therefore, the capital gain arising out of transfer of the said lands is liable for taxation. The Ld.counsel further submitted that all these lands were agricultural lands. Due to Tsunami in December, 2004, all the lands were affected. Due to Tsunami, salt layers were deposited on the lands which prevented the assessee from cultivating the lands. Therefore, according to the Ld. counsel, the lands were not cultivable. On a query from the Bench, the Ld.counsel submitted that it is not the business of the assessee to cultivate the lands.

Referring to the copies of patta and adangal extracts, which are available in the paper-book, the Ld.counsel for the assessee submitted that the lands were classified as “wet lands” and “dry lands”. The Ld.counsel submitted that dry lands can also be cultivated, therefore, the observation of both the authorities below that the lands in question are not agricultural lands is not correct.

We heard Shri AR.V. Sreenivasan, the Ld. Departmental Representative also. According to the Ld. D.R., the business of the assessee is real estate and to establish and run resorts. Cultivation is not the business of the assessee. Even though the assessee claims that the lands were unfit for cultivation due to Tsunami effect, according to the Ld. D.R., the assessee has made no attempt to cultivate the lands. Referring to the order of the CIT(Appeals), the Ld. D.R. submitted that the lands were classified as dry lands by the State Revenue Department and not as agricultural lands. On a query from the Bench, when the business of the assessee is real estate and not cultivation, why the profit on sale of lands was not assessed as business income? The Ld. D.R. submitted that the Assessing Officer treated the income as capital gain and not as agricultural income. According to the Ld. D.R., the lands in question are dry lands which were not subjected to cultivation at any point of time. Therefore, according to the Ld. D.R., the profit on sale of lands has to be assessed under the head “capital gains”.

We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that the business of the assessee is real estate and establishing and running of resorts. When the business of the assessee is real estate and to establish resorts, prima facie, the intention at the time of acquisition of the property was to do business with the lands acquired. In case, the assessee intended to do cultivation even though the cultivation is not the business of the assessee-company, it is for the assessee to establish the same by producing necessary material evidence. In this case, no evidence was produced by the assessee. Even though the Assessing Officer as well as the CIT(Appeals) found that the lands in question are dry lands, the copies of adangal extracts and patta clearly indicate that the major portion of the lands were wet lands. When the State Revenue Department has classified the lands as wet lands, there should be a natural irrigation facility. In other words, the source of irrigation shall be from the nearby tank. Some of the lands were classified as dry lands. No doubt, all the dry lands were not subjected to cultivation. However, there is every possibility for cultivation of dry lands provided there was source of irrigation. In old days, dry lands were also used to be cultivated utilizing the rain water. Nowadays dry lands are being cultivated through artificial source of irrigation from well/borewell. Therefore, it is for the assessee to establish that the dry lands were also used for cultivation.

In this case, the assessee claims that the lands in question were affected very badly due to Tsunami in December, 2004 and thereafter they were not subjected to cultivation at all. The fact remains that the major portion of the lands in question were wet lands. Therefore, both the authorities below are not correct in saying that the lands in question are dry lands and not agricultural lands.

There was no classification of lands as agricultural lands in State Revenue Department. The classifications in the State Revenue Department are dry land, wet land, kudiyuruppu, nattham, meichal porumbokku, kaalvai porumbokku, etc. There was no classification as agricultural land as such in the State Revenue Department. Therefore, the observation of the CIT(Appeals) that the lands were not classified as agricultural lands is not correct.

Now coming to sale of lands after plotting as housing site, this fact was not examined by the authorities below. The copies of encumbrance certificates said to be obtained from Registration Department with regard to sale of lands by the assessee indicate that the entire lands were plotted one acre plot each and it was sold to purchasers. Even though there was reference as agricultural land with regard to nature of land, in the schedule it was shown as plot. Therefore, it is necessary to examine whether the assessee has prepared layout to develop the lands into housing / farm lands and thereafter it was sold to various purchasers. It also needs to examine whether the profit on sale of such lands is business income or capital gain and thereafter the Assessing Officer shall examine whether the profit on sale of such lands has to be taken into account while computing book profit under Section 115JB of the Act or not.

Since these facts were not examined by the Assessing Officer as well as the CIT(Appeals), this Tribunal is of the considered opinion that the matter needs to be remitted back to the file of the Assessing Officer. Accordingly, orders of both the authorities below are set aside and the entire issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall re- examine the matter in the light of the observation made hereinabove and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee.

In the result, the appeal filed by the assessee is allowed for statistical purposes.