Sale of Rural Agricultural land into residential plots
This query is : Resolved
18 January 2024
Sir One Agriculturist no other income except Agricultural income had sold his rural agricultural land into residential plots over period of 3 years to maximize his sale value . Since there is no adventure in sale (Income from Business other than this sale) is it treated as Exempted Income or to be treated as Income from business.
19 January 2024
The market value of the land on conversion date is exempt from tax.
The excess value sold after converting the land will be business income.
The excess value sold after converting the land will be business income.
02 February 2024
Sir Thanks for your valuable reply and the excess value sold can be treated as Exempted income since he is purely agriculturist and to maximize his sale of agricultural land by sold as plot only one time and he is not a business man and there is no adventure in business income . Is there any case laws supporting to this agriculturist to save tax and once again thanks
.
.
03 February 2024
It's only business income for sale of plots.
03 February 2024
Sir thanks and please confirm Selling of own land after plotting it out in order to secure a better price is not in the nature of trade or business, more so when the land was gifted to the assessee. There is nothing on record to show that the land was purchased for the purpose of selling into plots. [CIT v Suresh Chand Goyal (2007) 209 CTR 410 (MP)]. sir, this case is suitable to my case please suggest
23 July 2025
This is a classic and often debated issue in tax law: **whether income from sale of agricultural land converted into residential plots by an agriculturist is business income or exempt agricultural income**.
Let's break down the key points based on your discussion and relevant legal principles:
---
### 1. Basic Tax Position on Agricultural Income and Land Sale
* **Agricultural Income** under Section 10(1) of the Income Tax Act is exempt from tax.
* Sale of **rural agricultural land** is generally exempt from capital gains tax if it qualifies as agricultural land as per the law.
* However, **conversion of agricultural land into residential or commercial plots and subsequent sale** may attract income tax as business income or capital gains.
---
### 2. Facts from Your Query
* The agriculturist has no other income except agricultural income.
* Over 3 years, he sells his **rural agricultural land converted into residential plots**.
* The intention is to maximize sale value, not to carry on business or adventure in the nature of trade.
* The land was gifted, not purchased with a business motive.
---
### 3. Legal Position and Case Law
* **Market value of land at the date of conversion** (i.e., when agricultural land is converted to residential plots) is generally considered exempt from tax as agricultural income or capital gains.
* However, **the excess sale value over the market value at conversion is considered business income**, because plotting and selling residential plots is a commercial activity.
* If the land was **not purchased for the purpose of resale or business**, and the owner is an agriculturist selling his own land without adventure in the nature of trade, the sale might be treated as a **capital asset sale**, not business income.
---
### 4. Relevant Case Law You Mentioned:
* **CIT v Suresh Chand Goyal (2007) 209 CTR 410 (MP)**
This case supports the view that selling own land after plotting it to get a better price **is not necessarily a business activity**, especially if:
* The land was gifted, not purchased for sale.
* There was no clear evidence of business intention or adventure in the nature of trade.
---
### 5. Important Observations:
* Courts have held that **mere plotting or subdividing the land and selling is not always a business activity**, especially for an agriculturist.
* The **intention behind acquisition** and **nature of activity** are key factors.
* If the land is converted and sold purely for maximizing price without regular business activities, it may still be treated as **capital gains** or exempt agricultural income.
---
### 6. Practical Implications:
| Scenario | Tax Treatment |
| ---------------------------------------------------- | ----------------------------------------------------------------------------------------- |
| Land sold as agricultural land (rural) | Exempt agricultural income |
| Land converted to residential plots + sold | Business income (excess over market value at conversion) |
| Land gifted + plotted + sold (no business intention) | Capital gains or exempt income depending on facts (supported by CIT v Suresh Chand Goyal) |
---
### Summary:
* The **initial agricultural land value** (market value at conversion) is exempt.
* The **excess over that value** could be business income if the activity is a business.
* However, if land was gifted and sold without intention of trade/adventure, the case law (CIT v Suresh Chand Goyal) supports treating it as **non-business income**.
---
### Would you like me to help with:
* Drafting an argument or tax submission based on this case law?
* Summarizing key judgments and authorities for a legal opinion?
* Exploring other relevant case laws or sections of the Income Tax Act?
Happy to help!
Let's break down the key points based on your discussion and relevant legal principles:
---
### 1. Basic Tax Position on Agricultural Income and Land Sale
* **Agricultural Income** under Section 10(1) of the Income Tax Act is exempt from tax.
* Sale of **rural agricultural land** is generally exempt from capital gains tax if it qualifies as agricultural land as per the law.
* However, **conversion of agricultural land into residential or commercial plots and subsequent sale** may attract income tax as business income or capital gains.
---
### 2. Facts from Your Query
* The agriculturist has no other income except agricultural income.
* Over 3 years, he sells his **rural agricultural land converted into residential plots**.
* The intention is to maximize sale value, not to carry on business or adventure in the nature of trade.
* The land was gifted, not purchased with a business motive.
---
### 3. Legal Position and Case Law
* **Market value of land at the date of conversion** (i.e., when agricultural land is converted to residential plots) is generally considered exempt from tax as agricultural income or capital gains.
* However, **the excess sale value over the market value at conversion is considered business income**, because plotting and selling residential plots is a commercial activity.
* If the land was **not purchased for the purpose of resale or business**, and the owner is an agriculturist selling his own land without adventure in the nature of trade, the sale might be treated as a **capital asset sale**, not business income.
---
### 4. Relevant Case Law You Mentioned:
* **CIT v Suresh Chand Goyal (2007) 209 CTR 410 (MP)**
This case supports the view that selling own land after plotting it to get a better price **is not necessarily a business activity**, especially if:
* The land was gifted, not purchased for sale.
* There was no clear evidence of business intention or adventure in the nature of trade.
---
### 5. Important Observations:
* Courts have held that **mere plotting or subdividing the land and selling is not always a business activity**, especially for an agriculturist.
* The **intention behind acquisition** and **nature of activity** are key factors.
* If the land is converted and sold purely for maximizing price without regular business activities, it may still be treated as **capital gains** or exempt agricultural income.
---
### 6. Practical Implications:
| Scenario | Tax Treatment |
| ---------------------------------------------------- | ----------------------------------------------------------------------------------------- |
| Land sold as agricultural land (rural) | Exempt agricultural income |
| Land converted to residential plots + sold | Business income (excess over market value at conversion) |
| Land gifted + plotted + sold (no business intention) | Capital gains or exempt income depending on facts (supported by CIT v Suresh Chand Goyal) |
---
### Summary:
* The **initial agricultural land value** (market value at conversion) is exempt.
* The **excess over that value** could be business income if the activity is a business.
* However, if land was gifted and sold without intention of trade/adventure, the case law (CIT v Suresh Chand Goyal) supports treating it as **non-business income**.
---
### Would you like me to help with:
* Drafting an argument or tax submission based on this case law?
* Summarizing key judgments and authorities for a legal opinion?
* Exploring other relevant case laws or sections of the Income Tax Act?
Happy to help!
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
OR add as source on Google news
- Acquisition of a society by a company
- EPF withdrawal before 5 years and Disclosure in ITR-2
- ITC Utilization on vehicle repair
- Clarification on ITR 3: Is Sl. No. 64 required for 44ADA income?
- Transfer of immovable property without consideration
- 2.25 CRORE TRADER, NO CASH TRANSACTIONS,3CD APPLICABLE?
- FORM 115BAC
- Investment guidance for NRI
- Transfer of partnership interest in LLP
- Can ITC be claimed on purchase of housekeeping materials
- UPDATION REQUIRED
- SECTION 44ADA QUERY
- Tax invoice in special case
- GST OFFICER WRONG NOTICE
- "Please ensure that the Total of the Deductions u/s 54F match the same in Table D in Sch CG"
- Composition Dealer GST Annual Return Filing process
- GST on Restaurant service
- Revision under Section 264 in The Income Tax Act, 1961
- TDS under section 195.
- Filing GST Returns after death of proprietor
Trending Online Classes
-
Input Tax Credit, GST refunds and Recovery of refunds- Roadblocks and way outs
CA Nipun Arora03 September 2025 -
GST LIVE Certification Course - 43rd Weekdays Batch(With Govt Certificate)
Industry Expert15 September 2025
OR add as source on Google news
CAclubindia
