Issue of Capital Gain Tax on Sale of Agricultural Land not in use for agricultural purpose
Case & Judgment in Brief :
– Issue of Capital gains & Capital assets
– Land sold by assessee whether agricultural land or not
– Assessee-company was engaged in business of real estate and finance.
– AO observed that assessee had sold agricultural land admeasuring 43 acres and 29 guntas.
– AO observed that assessee had earned a profit on such sale and has shown as income in the P&L A/c. AO issued show cause notice to assessee to explain as to why the said income should not be brought to tax, assessee stated that the said agricultural land was located in a drought-prone area and therefore, the assessee company could not derive any agricultural income from the said agricultural lands. Since assessee had not utilized the proceeds from sale of agricultural land, it should be treated as assessee’s business income.
– Assessee had not carried on any agricultural activity nor had it converted the said agricultural land into non-agricultural land.
– Undisputedly, assessee had sold the land as it is, i.e., in the same status of agricultural land to the vendee for a sale consideration in acre.
– Contention of the assessee that the land did not lose its character of being agricultural land at the time of sale.
– Since the location of the land is beyond 8 kms. from the Municipal area, it did not become a capital asset under section 2(14).
– Further, AO himself had held land to be agricultural land and thus not a ‘capital asset’, but since assessee was engaged in the business of real estate, he held the income from such sale of land to be business income.
Therefore, appeal of assessee was accordingly allowed & the profit was not made taxable.