Case Law Details

Case Name : Principal CIT Vs Heenaben Bhadresh Mehta (Gujarat High Court)
Appeal Number : R/Tax Appeal No. 672 of 2018
Date of Judgement/Order : 26/06/2018
Related Assessment Year : 2009-10
Courts : All High Courts (4316) Gujarat High Court (370)

Principal CIT Vs Heenaben Bhadresh Mehta (Gujarat High Court)

on plain reading of Section 2(14) of the Act, if the “agriculture land” as mentioned in Section 2(14)(iii) is sold, the assessee shall be entitled to claim exemption on profit earned on sale of agricultural land as per Section 2(14) read with Section 45 of the Act, unless it is established and proved that the transaction carried out was “adventure in the nature of trade” and the profit thus required to be taxed as business income. On appreciation of evidence, the learned Tribunal has specifically observed and held that the transaction carried out by the assessee was not “adventure in the nature of trade” and therefore, profit earned was not required to be taxed as business income. The aforesaid is the finding recorded by the learned Tribunal on appreciation of evidence.

As observed hereinabove, the land was sold as an agricultural land and in fact, what was sold was agriculture land. What was the intention of the purchaser cannot be the determinative factor to treat the profit earned by the assessee on sale of agriculture land as business income. Similarly, merely because for whatever reason, the assessee has earned sufficient huge amount of profit also cannot be a ground to treat the profit earned by the assessee on sale of agriculture land as business income.

Under the circumstances and on the facts and circumstances of the case, the learned Tribunal has not committed any error in directing the Assessing Officer to treat the profit of Rs.68,18,800/- earned by the assessee on the sale of agriculture land as exempt under Section 2(14) of he Income Tax Act.

FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT

1. Feeling aggrieved and dissatisfied with the impugned judgment and order dated 06.12.2017 passed by the learned Income Tax Appellate Tribunal, Rajkot Bench, Rajkot in ITA No.259/Rjt/2014 for Assessment Year 2009-10, by which the learned Tribunal has allowed the appeal preferred by the assessee and has directed the Assessing Officer to treat the profit of Rs.68,18,800/- earned by the assessee on the sale of agriculture land as exempt under Section 2(14) of he Income Tax Act by holding that the proceeds from sale of land is to be treated as income from capital gain, the Revenue has preferred the present Tax Appeal with the following proposed questions of law:-

“Whether the Appellate Tribunal has substantially erred in law in holding that the proceeds from sale of land is to be treated as income from capital gain?”

2. Facts leading to the present appeal in nutshell are as under:-

2.1 The assessee filed her return of income for Assessment Year 2009-10 showing total income at Rs.1,53,440/-; that during the course of assessment proceeings, the Assessing Officer notice that the assessee has shown profit of Rs.68,18,800/-, claiming to be from sale of agriculture land; that the same profit of Rs.68,18,800/- was claimed as exempt from tax on the ground that the land is not capital asset within the meaning of Section 2(14) of the Income Tax Act and as such, gain is not liable to tax under Section 45 of the Act; that the said land was purchased by the assessee’s father on 28.03.2008 for Rs.54,000/- and the same was gifted to the assessee by her father on 02.09.2008, where stamp duty of Rs.59,100/- was paid taking the market value of the land at Rs.12,00,000/-; that the said land was then sold by the assessee to M/s.SPG Infrastructure Ltd., Mumbai for Rs.70,00,000/- and that the Assessing Officer rejected the claim of the assessee of exempt profit mainly on the ground that the land in question was sold to an industrial unit and had potential to be used for industrial purpose and therefore, the same was held as business profit and the Assessing Officer made addition of Rs.68,18,800/- and assessed the income at Rs.69,72,237/-.

2.2 Feeling aggrieved and dissatisfied with the  above, the assessee preferred appeal before the learned CIT (Appeals). The learned CIT (Appeals) dismissed the said appeal and confirmed the addition made by the Assessing Officer and rejected the claim of the assessee of exempt profit on sale of land.

2.3 On an appeal, the learned Tribunal has allowed the said appeal preferred by the assessee and has directed the Assessing Officer to treat the profit of Rs.68,18,800/- earned by the assessee on the sale of agriculture land as exempt under Section 2(14) of he Income Tax Act.

2.4 Feeling aggrieved and dissatisfied with the impugned judgment and order dated 06.12.2017 passed by the learned Income Tax Appellate Tribunal, Rajkot Bench, Rajkot in ITA No.259/Rjt/2014 for Assessment Year 2009- 10, the Revenue has preferred the present Tax Appeal with the following proposed questions of law:-

 “Whether the Appellate Tribunal has substantially erred in law in holding that the proceeds from sale of land is to be treated as income from capital gain?”

3. Mrs. Mauna Bhatt, learned Counsel has appeared on behalf of the appellate-Revenue.

4. It is vehemently submitted by Mrs.Bhatt, learned Counsel appearing on behalf of the Revenue that in the facts and circumstances of the case, the learned Tribunal has materially erred in directing the Assessing Officer to treat the profit of Rs.68,18,800/- earned by the assessee on sale of agriculture land as exempt under Section 2(14) of the Income Tax Act.

4.1 It is vehemently submitted by Mrs.Bhatt, learned Counsel appearing on behalf of the Revenue that the learned Tribunal has not properly appreciated the fact that the land was purchased by the purchaser for industrial purpose and therefore, the same could not have been treated as agriculture land and therefore, profit arising out of sale of such land was not required to be exempted under Section 2(14) of the Income Tax Act as claimed by the assessee.

4.2 It is further submitted by Mrs.Bhatt, learned Counsel appearing on behalf of the Revenue that even considering the fact that the lands were sold by the assessee within a short span of time and earned sufficient large amount of profit, the learned Tribunal ought to have treated and considered the same as capital asset, not liable to be exempted under Section 2(14) of the Income Tax Act.

4.3 It is further submitted by Mrs.Bhatt, learned Counsel appearing on behalf of the Revenue that as the intention of the party was to use the lands for industrial purpose and not agriculture purpose and the lands were sold within a short span of time, by which the assessee earned huge profit, the profit earned by the assessee from sale of the lands is to be assessed as business income and not as capital gain, which is exempt from tax under Section 2(14) of the Income Tax Act read with Section 45 of the Act.

4.4 Making the above submissions and relying upon the decisions of the Hon’ble Supreme Court in the cases of G.Venkataswami Naidu & Co. Vs. Commissioner of Incometax, reported in (1959) 35 ITR 594(SC) and Commissioner of Wealth-Tax, AP Vs. Officer-In-Charge (Court of Wards), Paigah, reported in 1976 (105) ITR 133 and decision of Division Bench of this Court in the case of Commissioner of Income Tax Vs. Minal Rameshchandra, reported in 1987 (167) ITR, 507, it is requested to admit /allow the present appeal.

5. Heard Mrs.Bhatt, learned Counsel appearing on behalf of the Revenue at length.

 6. At the outset, it is required to be noted that the issue in the present appeal is whether the learned Income Tax Appellate Tribunal is right in directing the Assessing Officer to treat the profit of Rs.68,18,800/- earned by the assessee on the sale of agriculture land as exempt under Section 2(14) of he Income Tax Act? The Assessing Officer treated the profit earned by the assessee on sale of agriculture lands as business income and not as capital gain on sale of agriculture lands, which is exempt from tax under Section 2(14) read with Section 45 of the Act.

7. From the order passed by the Assessing Officer, it appears that the Assessing Officer treated the profit of Rs.68,18,800/- earned by the assessee from sale of agriculture lands as business income mainly on the grounds that (i) the land was sold to the company, which used the said land for industrial purpose; (ii) that there was a steep rise in the profit and (iii) that the lands were sold within a short span of time. However, it is required to be noted and it is not in dispute that as such, what was sold by the assessee was agriculture land. In the revenue record also, lands were shown as agriculture lands. It is also required to be noted that the agriculture lands in question were sold by the assessee after a period of approximately 15 to 16 months from purchase. Therefore, as such, it cannot be said that the agriculture lands were sold within a short span of time. It is also required to be noted that the assessee is an agriculturist and also belongs to family of agriculturists. Therefore, as the assessee sold the agriculture lands and therefore, claimed exemption under Section 2(14) of the Act on the profit earned on sale of agriculture lands, Section 2(14) of the Income Tax is required to be referred to and reproduced hereunder:-

“2(14) “capital asset” means

xxxxxxxx

but does not include xxxxxxx

(iii) agricultural land in India, not being land situate-

(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand

(b) in any area within the distance, measured aerially,-

(I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or

(II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than  one lakh but not exceeding ten lakh; or.

(III)not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh.

Explanation- For the purposes of this sub-clause, “population” means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;]]”

8. Therefore, on plain reading of Section 2(14) of the Act, if the “agriculture land” as mentioned in Section 2(14)(iii) is sold, the assessee shall be entitled to claim exemption on profit earned on sale of agricultural land as per Section 2(14) read with Section 45 of the Act, unless it is established and proved that the transaction carried out was “adventure in the nature of trade” and the profit thus required to be taxed as business income. On appreciation of evidence, the learned Tribunal has specifically observed and held that the transaction carried out by the assessee was not “adventure in the nature of trade” and therefore, profit earned was not required to be taxed as business income. The aforesaid is the finding recorded by the learned Tribunal on appreciation of evidence.

9. As observed hereinabove, the land was sold as an agricultural land and in fact, what was sold was agriculture land. What was the intention of the purchaser cannot be the determinative factor to treat the profit earned by the assessee on sale of agriculture land as business income. Similarly, merely because for whatever reason, the assessee has earned sufficient huge amount of profit also cannot be a ground to treat the profit earned by the assessee on sale of agriculture land as business income.

10. Under the circumstances and on the facts and circumstances of the case, the learned Tribunal has not committed any error in directing the Assessing Officer to treat the profit of Rs.68,18,800/- earned by the assessee on the sale of agriculture land as exempt under Section 2(14) of he Income Tax Act.

11. Now, so far as the reliance placed upon the decision of the Hon’ble Supreme Court in the case of G.Venkataswami Naidu & Co. (supra) is concerned, considering the facts before the Hon’ble Supreme Court, we are of the opinion that the said decision shall not be applicable to the facts of the case on hand. The Hon’ble Supreme Court was considering Section 2(13) of the Income Tax Act and the definition contained in Section 2(13) fell for consideration before the Hon’ble Supreme Court. The wordings in Sections 2(13) and 2(14) are different. Therefore, the said decision shall not be applicable to the facts of the case on hand.

12. Similarly, decision of the Hon’ble Supreme Court in the case of Commissioner of Wealth-Tax, AP  (supra) also shall not be applicable to the facts of the case on hand. In the said decision, the Hon’ble Supreme Court was considering definition of “agricultural lands” within the meaning of Section 2(e)(i) of the Wealth-tax Act. Considering Section 2(e)(i) of the Wealth-tax Act and Section 2(14) of the Income Tax Act, it appears that the definitions in both the Sections are different and for different purposes. Under the circumstances, this  decision also shall not be applicable to the facts of the case on hand.

13. The decision of the Division Bench of this Court in the case of Minal Rameshchandra (supra) shall also not be applicable to the facts of the case on hand. In the case before the Division Bench, the Division Bench, on facts, held that the assessee was businessman and dealing in land business and he along his mother and brother purchased the land with a view to earn profit and therefore, it was having a characteristics of “adventure”. Therefore, on facts, the said decision shall not be applicable to the facts of the case on hand.

14. In view of the above and for the reasons stated hereinabove, we are of the opinion that in the facts and circumstances of the case, the learned Tribunal has not committed any error in directing the Assessing Officer to treat the profit of Rs.68,18,800/- earned by the assessee on the sale of agriculture land as exempt under Section 2(14) of he Income Tax Act. No substantial question of law arises. Hence, the present appeal deserves to be dismissed and it is accordingly dismissed.

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