Profit from sale of agricultural land is not book profit in Section 115JB

By | September 8, 2015

Q Whether Profit from sale of agricultural land would be included for purpose of computing book profit under section 115JB ?

Profit from sale of agricultural land would not be included for purpose of computing book profit under section 115JB

Profit arising on sale of agricultural land, which does not fall in the category of “Capital Asset” as defined under sec. 2(14) of the Act does not come under the purview of the Income tax Act at all. For example, the profit arising on sale of personal effects is not exigible to Income tax Act. In the similar manner, the profit arising on sale of agricultural land, which is not a Capital asset, is also not exigible to Income tax. Hence, in our view, an item of income which does come under the purview of Income tax cannot be subjected to tax under any of the provisions of the Act.

IN THE ITAT COCHIN BENCH

Assistant Commissioner of Income-tax, Circle-1, Kottayam

v.

Nilgiri Tea Estate Ltd.

N.R.S. GANESAN, JUDICIAL MEMBER
AND B.R. BASKARAN, ACCOUNTANT MEMBER

IT APPEAL NO. 37 (COCH.) OF 2014
[ASSESSMENT YEAR 2008-09]

JUNE  6, 2014

ORDER

B.R. Baskaran, Accountant Member – The appeal filed by the Revenue is directed against the order dated 06-11-2013 passed by the Ld. CIT(A)-IV, Kochi and it relates to the assessment year 2008-09.

2. The solitary issue urged in this appeal is whether the Ld. CIT(A) was justified in holding that the profit on sale of agricultural land need not be included for computing profit u/s. 115JB of the Act.

3. The facts relating to the above said issue are stated in brief. The assessee filed its return of income for the year under consideration declaring loss of Rs. 69.42 lakhs under normal provisions of the Act and the negative book profit of Rs. 27.21 lakhs u/s. 115JB of the Act. The Assessing officer noticed that the assessee had sold agricultural land located at Peerumade, which formed part of Stag Brook estate, and has realised a profit of Rs. 1,01,00,424. Though the above said profit was shown in the Profit and Loss account, yet the assessee excluded the same while computing the book profit under section 115JB of the Act, by placing reliance on the decision rendered by the Co-ordinate Bench of Cochin Tribunal in the case of Harrisons Malayalam Ltd. v. Asstt. CIT[2009] 32 SOT 497. However, the Assessing officer took the view that the assessee cannot so exclude the above said profit, since it has been duly declared in the profit and loss account and further, the provisions of section 115JB did not provide for excluding it for the purpose of computation of book profit. The Assessing officer also took the view that the gain arising on sale of agricultural land cannot be considered as agricultural income u/s. 2(1A) of the Act and hence, cannot be treated as an exempted income u/s. 10(1) of the Act. Accordingly, the AO included the profit on sale of agricultural land in the book profit computed by the assessee.

4. In the appellate proceedings, the Ld. CIT(A) deleted the above said addition by placing reliance on the decision rendered by the Cochin Bench of ITAT in the case of Harrisons Malayalam Ltd. (supra).

5. Before us, the Ld. DR placed strong reliance on the assessment order and submitted that the profit realized on sale of agricultural land cannot be considered as agricultural income and hence, cannot be excluded from the computation of profit u/s. 115JB of the Act.

6. On the contrary, the Ld. AR submitted that the Co-ordinate Bench of the ITAT in the assessee’s own case in I.T.A. No. 377/Coch/2010 relating to the assessment year 2007-08 vide its order dated 29-02-2012 held that the profit arising on sale of agricultural land is not includable in the computation of book profit u/s. 115JB of the Act.

7. We have heard the rival contentions and perused the record. There is no dispute between the parties that the impugned agricultural land is not a “Capital Asset” in terms of sec. 2(14)(iii) of the Act, i.e., the same is not located within the municipal limits or within the notified limits. As submitted by the Ld. AR, we notice that, an identical issue has been decided in favour of the assessee by the Co-ordinate Bench of the ITAT in the assessee’s own case relating to the assessment year 2007-08 (referred supra). For the sake of convenience, we extract below the operating portion of the above said order passed by the Tribunal.

“3. We have heard the parties, and perused the material on record. The Revenue’s stand is that profit or loss on the disposal of an asset is to be duly incorporated in the Profit & Loss Account of a company prepared in accordance with Parts II & III of Schedule VI to the Companies Act, 1956, the net profit per which is to be adopted by it for computing the ‘book profit’ under the MAT provisions, including s. 115JB. As such, there is no basis for excluding the profit derived on the sale of its agricultural land by the assessee. Further, there is no question of the same being exigible for deduction on account of sec. 10 of the Act, which makes no reference to the said income. The assessee, on the other hand, relies on the decision by the tribunal in the case of Harrisons Malayalam Ltd. v. Asstt. CIT [2009] 32 SOT 363 (Cochin), per which the said profit has been held as not liable to book profit tax u/s. 115JB. The Revenue, however, prefers with its view as the matter has been, as stated, carried by it in appeal before the hon’ble high court. The tribunal has, in rendering its said decision, relied on the decisions by the apex court in the case of Singhai Rakesh Kumarv. Union of India [2001] 247 ITR 150 and CIT v. All India Tea & Trading Co. Ltd. [1996] 219 ITR 544 (SC), holding that the income arising on the transfer of agricultural land is not exigible to capital gains tax, being in the nature of agricultural income. Firstly, as such, there is complete parity of facts, so that we find no reason to take a different view of the matter. Secondly, the Revenue’s objection is technical in nature inasmuch it concedes that the income is otherwise not chargeable to tax under the regular provisions of the Act. The provisions of Chapter XII-B of the Act do not, in our view, operate to extend the scope of `total income’ per section 5 on which the charge to tax u/s. 4 is attracted, but is only toward providing an alternative basis for computing the same. Reference by the ld. CIT(A) to the Circular No. 550 by the Board in this regard is in our view apposite; the receipt being admittedly a capital receipt. We therefore following the decision by the tribunal in the case of Harrisons Malayalam Ltd. (supra), delete the inclusion of profit of Rs. 23.69 lakhs on account of sale of agricultural land, admittedly not a capital asset u/s. 2(14), in the computation of book profit u/s. 115JB of the Act. We decide accordingly.”

8. There should not be any dispute that the Profit arising on sale of agricultural land, which does not fall in the category of “Capital Asset” as defined under sec. 2(14) of the Act does not come under the purview of the Income tax Act at all. For example, the profit arising on sale of personal effects is not exigible to Income tax Act. In the similar manner, the profit arising on sale of agricultural land, which is not a Capital asset, is also not exigible to Income tax. Hence, in our view, an item of income which does come under the purview of Income tax cannot be subjected to tax under any of the provisions of the Act. Hence, the Tribunal, in the assessee’s own case referred above, has expressed the following view:-

“The provisions of Chapter XII-B of the Act do not, in our view, operate to extend the scope of `total income’ per section 5 on which the charge to tax u/s. 4 is attracted, but is only toward providing an alternative basis for computing the same.”

Accordingly, we are of the view that the profit from sale of agricultural land, which is not a “Capital Asset”, cannot be included for the purpose of computing book profit u/s 115JB of the Act. Accordingly, we uphold the decision taken by Ld. CIT(A).

9. In the result, the Revenue’s appeal is dismissed.

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