DCIT, CHENNAI vs. A.V.THOMAS LEATHER & ALLIED PRODUCTS LTD., CHENNAI

Both the appeals of the assessee and Revenue are directed against the same order of the Commissioner of Income Tax (Appeals)-1, Chennai, dated 05.08.2015 and pertain to assessment year 2012-13. We heard both the appeals together and disposing of the same by this common order.

Dr. Milind Madhukar Bhusari, the Ld. Departmental Representative, submitted that the assessee-company sold agricultural land measuring 15.14 acres at Keezhakottaiyur and Mambakkam Village for a total consideration of `56,24,95,297/- to M/s Smart Value Homes Limited, Mumbai. The assessee claimed the profit on sale of the land as exempt under Section 2(14) of the Income-tax Act, 1961 (in short 'the Act'). By considering the exorbitant price for which the land was sold, and the buyer being a person who deals in real estate, the Assessing Officer found that the gain arising out of the sale of the land cannot be treated as sale of agricultural land. In fact, the Assessing Officer placed his reliance on the judgment of Apex Court in Sarifabibi Mohamed Ibrahim v. CIT (70 Taxman 301). On appeal by the assessee, the CIT(Appeals) found that the use of the land by the buyer cannot be a determining factor to decide the nature of land in the hands of the assessee. Placing reliance on the judgment of Madras High Court in Sri M.S. Srinivasa Naicker v. ITO (292 ITR 481), the Commissioner found that the land in question is agricultural land.

On the contrary, Sh. T. Banusekar, the Ld. representative for the assessee, submitted that admittedly, 15.54 acres of land was sold by the assessee for a total consideration of `56,24,95,297/- to M/s Smart Value Homes Limited, Mumbai. Referring to the copy of Village account No.2, otherwise known as Adangal, which is available at pages 29 to 34 of the paper-book, the Ld. representative submitted that the land was classified as agricultural land and the same was subjected to cultivation. The assessee has also returned agricultural income in regular course. It is not the case of the Assessing Officer that the land is not subjected to cultivation. The only objection of the Assessing Officer is that the assessee sold the land at an exorbitant rate and the purchaser is a real estate dealer. Placing reliance on the judgment of Madras High Court in Sri M.S. Srinivasa Naickar (supra), the Ld. representative submitted that on identical set of facts, the Madras High Court examined the issue. The case before the Madras High Court is that the assessee cultivated the land; the adangal register showed that the land was agricultural land wherein the assessee carried on agricultural operation till the date of sale of the land. The purchaser applied for conversion of the land into industrial plot. Therefore, the Assessing Officer found that the land in question was agricultural only. Since the intention of the purchaser is to convert the agricultural land into industrial plot, the land in question cannot be construed as agricultural land. In those factual circumstances, the Madras High Court found that the land is classified as agricultural land and the agricultural operations were carried by the assessee.

The Ld. representative for the assessee has also placed his reliance on the judgment of Madras High Court in Sakunthala Vedachalam v. Vanitha Manickavasagam (2014) 369 ITR 558 and submitted that when the land was classified as agricultural land in revenue records and which was evidenced by the adangal, the same has to be treated as agricultural land. The High Court further found that prior to the date of sale, it may not be necessary to carry out the agricultural operations.

The Ld. representative for the assessee has also placed reliance on the decision of Cochin Bench of this Tribunal in Harissons Malayalam Ltd. v. ACIT (2009) 32 SOT 497 and submitted that the amount of income to which the provisions of Section 10 of the Act applies, if any such amount is credited to the Profit & Loss account, shall be reduced from the book profit for the purpose of Section 115JB of the Act. Referring to Section 10(1) of the Act, the Ld. representative submitted that in computing the total income of a previous year of any person, agricultural income shall not be included therein. Referring to the copy of circular issued by CBDT in No.550 dated 1st January. 1990, a copy of which is available at page 59 of the paper-book, the Ld. representative submitted that capital gains arising from the transfer of the agricultural land will not constitute “revenue” within the meaning of Section 2(1A)(a) of the Act. The Ld. representative further submitted that the profit on sale of agricultural land constitutes agricultural income as observed by the CBDT in the above circular.

We have considered the rival submissions on either side and perused the relevant material available on record. The Assessing Officer found that the assessee has sold the land in question for an exorbitant price of `56,24,95,297/- to M/s Smart Value Homes Limited, Mumbai, a real estate dealer. Therefore, the Assessing Officer rejected the claim of the assessee for exemption as agricultural income. The fact that the land is classified as agricultural land is not in dispute. It is also not in dispute that the assessee has returned agricultural income year after year. The adangal extract, which is available at pages 29 to 34 of the paper- book, clearly shows that the land in question was subjected to agricultural operation. Therefore, it was obvious that the land is an agricultural land. Therefore, the profit arising out of such land has to be treated as agricultural income as found by the Apex Court in Singhai Rakesh Kumar (supra) and All India Tea and Trading Co.

Now coming to the assessee’s appeal, the only contention of the assessee is while computing book profit under Section 115JB of the Act, the agricultural income cannot form part of book profit. The Ld. representative for the assessee placed his reliance on the decision of Cochin Bench in Harrisons Malayalam Ltd. (supra) and contended that the amount of income to which the provisions of Section 10 of the Act applies, such amount, if credited to the Profit & Loss account, shall be reduced from the book profit for the purpose of Section 115JB of the Act. The Ld. representative further found that in computing the total income of previous year of any person, agricultural income shall not be included therein. In this case also, it is an admitted fact that the land in question is an agricultural land and the assessee was carrying on agricultural operation. Therefore, as discussed earlier, the profit on sale of the land has to be treated as agricultural income. Therefore, if any such income is credited to the Profit & Loss account, the same has to be reduced from the book profit while computing income under Section 115JB of the Act. Therefore, this Tribunal is unable to uphold the order of the CIT(Appeals) on this issue. By following the order of Cochin Bench of this Tribunal in Harrisons Malayalam Ltd. (supra), the orders of the lower authorities are set aside. The Assessing Officer is directed to reduce the profit on sale of agricultural land from the book profit for the purpose of computing income under Section 115JB of the Act.

In view of the above discussion, the appeal of the Revenue is dismissed. However, the appeal of the assessee is allowed.