Taxability of Profit on sale of agricultural land if taxpayer have taken permission for conversion of land but not carried on any developmental activity

Head of income—Business income or capital gains–Profit on sale of agricultural land–Assessee having taken permission for conversion of land but not having carried on any developmental activity

Conclusion: Where the land was used for agricultural purpose and later the assessee divided the land into plots after making conversion and sold these plots then the income from sale of such plots was to be assessed as income from capital gains.

The assessee owned agricultural land and he had applied for conversion of agricultural land into non-agricultural purposes which was approved.  The above agricultural land was remained as agricultural land till 31-3-2008. It was submitted that proposal for lay out as well as approval by concerned authorities were made subsequent to 31-3-2008 and the assessee cultivated the land till 31-3-2008 as agricultural land and the said agricultural land was divided into plots after the receipt of approval from the Town Planning Authority subsequent to 31-3-2008. The assessee stated to have incurred certain company towards conversion charges, fees, travellings of land, cost of soil, transport charges and labour charges etc., and the assessee had sold the converted plots during the year under consideration in nine documents.

It is held that Assessee carried on agricultural activity till 31-3-2008 and subsequently sold the land in plots. Though assessee had taken permission for conversion of land for plotting into various units, however, no evidence was brought on record by AO that assessee had carried on any developmental activity. Assessee had not incurred any other expenditure except for payment of conversion fees, transport charges, labour charges, etc., and therefore, income had to be taxed as capital gains, but not business income.

Decision: In assessee’s favour.

Relied: CIT v. Suresh Chand Goyal (2008) 298 ITR 277 (MP) : 2008 Tax Pub(DT) 470 (MP-HC) and B. Narasimha Reddy v. ITO (12994) 49 TTJ 329 (Hyd-Trib) : 1993 Tax Pub(DT0 980 (Hyd-Trib), Dy. CIT v. B. Venu Madhav in ITA No. 82/Hyd./2015, dt. 24-4-15.

Income Tax Act, 1961, Section 54F

Capital gains—Deduction under section 54F–Allowability–Commencement of construction before transfer of original asset

Short Oerview  Assessee was eligible for deduction under section 54F, even if construction was commenced before transfer of capital asset and was completed construction within the period provided in 54F.

Assessee claimed exemption under section 54F towards investment made in construction of house. AO rejected assessee’s claim on the ground that construction of house was commenced prior to transfer of original asset, i.e. land.

It is held that  Though construction of house was commenced prior to transfer of original asset, however, construction was completed within 3 years from the sale of land. To claim exemption under section 54F the Act does not prescribe any condition as to date of commencement of construction of house property which may even commence before date of transfer of original asset, accordingly, assessee was entitled for deduction under section 54F.

Decision: In assessee’s favour.

Followed: C. Aryama Sundaram v. CIT (2018) 407 ITR 1 (Mad.) : 2018 TaxPub(DT) 5246 (Mad-HC), CIT v. Bharri Mishra (2014) 41 Taxmann.com 50 (Del) : 2014 TaxPub(DT) 1636 (Del-HC), CIT v. HK. Kapoor (Deed.) (1998) 234 ITR 753 (All) : 1998 TaxPub(DT) 0736 (All-HC)