Agricultural Land Income Exempted from Tax cannot be Added to Book profits us 115 JB of Income Tax Act: Delhi HC

Out of certain specific exempt incomes given under Income Tax Act, 1961, Agricultural Income is one of the most important one. As per Section 10(1) of the Income Tax Act, agricultural income is exempt from income tax and is not included in the total income while calculating tax liability. However, if a taxpayer has non-agricultural income along with agricultural income, the non-agricultural income is taxable according to the income tax slabs. 

Delhi High Court recently dismissed an appeal, stating that income from agricultural land, which is exempt from tax, cannot be included in the book profits when calculating under Section 115JB of the Income Tax Act, 1961. As per Section 115JB, MAT is calculated at the rate of 15% (plus surcharge and Health and Education Cess as applicable) of the taxpayer’s book profit, and as per section 115JB of the Income Tax Act, book profit is calculated.

Issues involved:
Assessee Gomantak Eximis Ltd. stated to have undertaken a sale transaction with respect to a piece of agricultural land along with houses constructed thereon. It was claimed by the assessee that the profit from the sale of that property would be exempt from taxation since it constituted a sale of agricultural land and does not fall within the ambit of Capital Asset. Revenue department argued in favour of applying provisions of Section 115JB in this case.

Facts of the case explained:
The appellant i.e. Revenue department is aggrieved by a previous order of tribunal where tribunal having refused to admit and rule upon certain grounds which were urged with regard to the applicability of Section 115JB of the Income Tax Act, 1961.

The respondent/assessee is stated to have undertaken a sale transaction with respect to a piece of agricultural land along with houses constructed thereon in Assessment Year 2006-07. It was claimed that the profit from the sale of that property would be exempt from taxation since it constituted a sale of agricultural land and would thus not fall within the ambit of the expression ‘capital asset’ as defined by Section 2(14) of the Act. According to learned counsel of the appellent, Section 115JB puts in place a special mode and methodology of assessment based on the book profits of an assessee.

Undisputedly, agricultural income is liable to be excluded from total income as per Section 10(1) of the Act. According to learned counsel, the definition of ‘capital asset’ was also amended pursuant to which the concept of “urban agricultural land” came to be introduced and specifically included within the meaning of the expression ‘capital asset’. 

on the other hand, submitted that the question which is sought to be canvassed by the appellant was rightly not admitted by the Tribunal since undisputedly the aspect of computation and taxation of book profit under Section 115JB had neither been raised before the Assessing Officer(AO) nor was it a ground urged in the appeal as originally preferred. It was the submission of learned counsel that only urban agricultural land and which falls within the ambit of clauses (a) and (b) of Section 2(14)(iii) would fall outside the ambit of revenue derived from land and thus fall outside the scope of agricultural income. It was his submission that since in the present case the land which formed the subject matter of sale was rural agricultural land, the argument which is sought to be canvassed is liable to be negated.

Conclusion:
The HC Bench allowed instant appeal and answered the question framed for their consideration in the negative and in favour of the appellant. The matter was remitted for fresh consideration. The order of Tribunal was set aside stating that since the question was purely legal, tribunal would have been well advised to have accorded an opportunity to respective parties to address their submissions on the merits before proceeding to hold that the same could not be entertained.