High price of land no reason tax it as business income when its class remained Krishi bhumi

High price of land sold no reason tax it as business income when its class remained Krishi bhumi

In a recent judgment, ITAT has held that land sold can not be treated business income when its class not changed from Krishi bhumi and not changed to commercial land . Merely because land was sold at higher price cannot be a base to change the head of income to business income 

ABCAUS Case Law Citation:
ABCAUS 3947 (2024) (04) ITAT

Important Case Laws relied upon:
Smt. Indramani Bai v. Additional CIT (1993)0 700 taxman 67
Dalmia Cement Ltd. vs. CIT (1976) 105 ITR 633
CIT vs. Sutlej Cotton Mills Supply Agency P. Ltd. (1975) 100 ITR 706

In the instant case, the assessee had challenged the order passed by the CIT(A) in upholding the income arising from sale of short term capital asset i.e. land as income from business.

The assessee derived his income from profit and remuneration from partnership firm and sale of land. The case was selected under scrutiny though CASS. Accordingly, notice u/s 143(2) was issued and served upon the assessee. Further, notice u/s 142(1) along with questionnaire were issued.

The Assessing Officer (AO) noted that the assessee had purchased an immovable asset being land in the period under consideration. The AO further noted that one part of land purchased was sold after 43 days of purchase and other part of the land was sold within less than 2 years of purchase.

The AO noted that the land had been sold within a very short span of time after purchase. This clearly indicated that there was no intention of holding the land as investment, Rather the same was bought with an intention to further sell it at a profitable price. Secondly, from analysing the previous history of the assessee it was seen that in the assessee was frequently engaged in the business of purchase and sale of land.

Further, the AO noted that the assessee had regularly earned remuneration from a partnership firm engaged in the business of real estate transactions. This clearly indicated that the assessee was very familiar with the trading of real estate. The sale under consideration in the personal capacity had been carried out by the assessee was an extension of the business acumen developed from his dealing as a partner in the firm whose prime business was real estate trading. The business knowledge has been put to use to engage in real estate trading in his personal capacity and earn profit.

Thus, the AO held that the assessee regularly engaged in such transactions and hence these form a part of the usual business of the assessee on which he had wrongly claimed capital gains. The AO therefore, treated profit/loss arising out of this activity as in the nature of business income.

Before the Tribunal the assessee submitted that the assessee submitted that the decision on the change of head of income by the lower authority was not correct and even the change of head has not resulted any more tax to the revenue.

The Tribunal observed that the AO while disallowing the expenditure on improvement noted that there was no change in the effective structure of land i.e. “Krishi bhumi” thus, when the effective structure of the assets was not changed and the intention of the assessee to hold that Krishi bhumi was not doubted.

Thus, the Tribunal opined that when the class of the asset was not changed, merely because it was sold at higher price cannot be a base to change the head of income and even when there was no effective difference in tax rate.

The Tribunal held that there was no reason to charge the impugned income under the head business and the same is required to be taxed under the capital gain as offered by the assessee.

Download Full Judgment ABCAUS 3947 (2024) (04) ITAT Click Here >>

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