21 June 2011
a farmer purchase 25 hect. agricultural land on 1-6-2011 and 15-6-2011 by compulsory acquisition govt. take land and paid the compensation to the purchaser.
what is taxability is it business or trading income or Short term capital gain.
22 June 2011
As the period of holding is only 15 days the acquisition does not qualify for exemption under section 10(37) and hence will be taxed as short term capital gain. It would have qualified for exemption if the land was being used for agricultural purposes by such Hindu undivided family or individual or a parent of his during the period of two years immediately preceding the date of transfer.
In this connection I presume that the land qualifies for the definition of agricultural land as per section 2(14)(iii). If the land is not agricultural land within the meaning of above section, then the short term capital gain is clearly applicable.
22 June 2011
You have not given the details of cost price and amount of compensation given against the agricultural land.
As regards user within 15 days of holding it cannot be used for agricultural purpose as to get any crop on any agricultural land it requires minimum 90 days to grow and ready to cut and sale the product. Therefore, it is presumed that the land has not been used for any agricultural operation. Yes if the compensation is inclusive for crop then it can be said that the land is for agricultural purpose.
Anyhow, as the other expert has rightly stated that as the holding period is only 15 days if any extra money by way of gain has been received the same is to be treated as Short Term Capital Gain which will attract tax @ 30.9%. Generally government pays very less amount of compensation and in that case appeal is to be filed against the compensation but if the amount is more than the cost then it is to be offered for the tax purpose. If the assessee does not have any other income then the income up to basic exemption shall not be taxed although he has earned capital gains. In case of appeal has been filed then the capital gain is to be paid on the enhanced compensation as and when received.
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