Case Law Details
Mahaveer Yadav Vs ITO (ITAT Jaipur)
Where assessee converted agricultural land into state stock of residential plots then the assessee was liable to pay tax as per section 45(2). The fair market value of the asset on the date of conversion as reduced by the cost of acquisition is required to be assessed under the head Capital gains in the year(s) the stock-in-trade was sold/transferred. Further, sales realization of the stock-in-trade over such fair market value was required to be assessed as Business income.
In the instant case, we find that after the death of his father, the assessee had inherited his share of ancestral agriculture land. We have already held above that such inheritance is in his individual capacity and not in capacity of his HUF. Thereafter, the assessee had taken a series of steps whereby he has developed the agricultural land into 34 smaller plots, developed access road within the plotted land and sold to individual purchasers as residential plots over a period of 3 years. As per assessee’s own submissions dated 23.03.2015 available at APB 14-17, it has been stated by the assessee before the AO that “the development of plots took about 12 months and completed at the end of financial year 2009 and gravel road developed”. There is report of the Inspector on record who has visited the place on 19.3.2015 and has given a finding that about 40-50 residential houses have already been built where people are staying, roads have been laid down, a hospital by name of Shyam Hospital is running on one of the plots, a school by name of little star school is also running on one of the plots and the whole area has been developed as a residential colony. The said findings of the Inspector remain unrebutted before us. The Stamp duty authorities have also recognized the plotting as residential plots which is very much evident from the registered sale deeds and the stamp duty paid on such sale of residential plots. All these facts taken together shows clearly that the assessee has taken affirmative steps and actions where he has converted his agricultural land into residential stock-in-trade of his business of selling the plots of land for earning profit. The very nature and purpose of the agriculture land has been changed and we agree with the findings of the ld CIT(A) that such change is an irreversible change where very nature and purpose of the land has been changed from agriculture to residential. It is not a case that the buyers have acquired agriculture plots and subsequently changed it to residential use. In this case, the assessee itself has developed residential plots and then sold it to individual buyers. Therefore, we affirm the findings of the AO that by such plotting of land, the agriculture land has been converted into stock-in-trade (in form of residential plots) of assessee’s business. The development of residential colony and said conversion has happened by assessee’s own admission during financial year 2009 and the intent of the assessee has thus been demonstrated through his own actions. The fair market value of the asset on the date of conversion as reduced by the cost of acquisition is required to be assessed under the head “capital gain” in the year(s) the stock-in-trade is sold/transferred. Further, sales realization of the stock-in-trade over such fair market value is required to be assessed as “business income”. During the year under consideration, it is an admitted position that 15 plots have been sold for a consideration of Rs 54,93,100. Therefore, the taxability arising on conversion of agricultural land into stock-in-trade to the extent it has been sold during the year, arises during the impunged assessment year. The matter is accordingly set-aside to the file of the AO to determine the capital gains in accordance with the provisions of section 45(2) as well as business income on sale of such plots.
FULL TEXT OF THE ITAT JUDGMENT
This is an appeal filed by the assessee against the order of ld. CIT(A)-22, Alwar dated 07.02.2017 for Assessment Year 2011-12 wherein the following grounds of appeal are taken:-
Please become a Premium member. If you are already a Premium member, login here to access the full content.
Was the land owner not required to obtain any prior permission from any competent authority for such conversion of agricultural land into residential ?