2009 (12) TMI 929 - AT - Income Tax

Agricultural land or capital asset u/s 2(14) - Conversion of the agricultural land for non-agricultural residential purpose - survey u/s.133A - whether the land sold by the assessee was agricultural in nature or not - HELD THAT - Assessee has produced certificate from the competent authorities that during these years assessee had used the land for growing ragi. In the absence of contrary evidence, the evidence adduced by the assessee coupled with the Village Accountant's certificate, we have to come to a reasonable presumption that the assessee's assertion that the land was used for some kind of agricultural activity, is to be accepted. It is not disputed that in the revenue records, the entry is not changed, it continues as agricultural land. According to the revenue, the intention and purpose of the sale is for the use of Tibetan Childrens' Village for the setting up of educational institutions and other related purposes. According to the assessee, the land in his hands had retained the agricultural character till the date of sale, for the reason that the assessee was doing agricultural activity. We have hereinabove mentioned that the department had estimated the agricultural income for 2004-05 and estimated the agricultural income of the group. Therefore, it is difficult to come to the conclusion that in the hands of the assessee, the character of the land had changed. Merely because the original owners had made application to change the character of the land from agricultural to non-agricultural and certificate was issued to that effect. Even for the revenue, there is no case that the land has been used for the intended purpose. The previous owner made an application for conversion, obtained the permission, but with the condition that the land should be used for the intended purpose within two years, otherwise the original character of the land, i.e., agricultural nature, would be restored. Then the assessee or the subsequent purchased has to pay penalty and make a further application to obtain permission to revive the land for intended purpose. The assessee has not done this even according to the revenue. This was done by the subsequent purchaser i.e., Tibetan Childrens' Village, which compels to conclude that what the assessee held at the time of sale was agricultural land. It is true the facts is on border line, but the evidence produced before us in the form of RTC showing agricultural income etc., is in assessee's favour. Secondly, In the instant case of the assessee also what was paid by the assessee was agricultural revenue. The non-agricultural revenue was paid by the subsequent purchaser after making an application for the second time to revive the nature of the land, which is evidenced by the letter which was written to the Secretary, Manchanayakanahally Gram Panchayat by the Tibetan Childrens' Village. In the result, appeal by the assessee on this ground is allowed.

Issues Involved:
1. Determination of the nature of the land (agricultural or non-agricultural) at the time of sale.
2. Applicability of capital gains tax on the sale of the land.
3. Validity of the conversion order and its implications.
4. Consideration of lease rental income.
5. Admissibility of additional evidence in the appellate proceedings.

Detailed Analysis:

1. Determination of the Nature of the Land:
The primary issue was whether the land sold by the assessee was agricultural or non-agricultural at the time of sale. The assessee argued that the land, despite being converted for non-agricultural purposes, continued to be used for agricultural activities, as evidenced by RTC records and certificates from the village accountant. The Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) (CIT(A)) initially held that the land was non-agricultural due to its conversion and the absence of substantial evidence of ongoing agricultural activities. However, the Tribunal found that the land retained its agricultural character based on RTC records, lack of actual non-agricultural use, and the fact that the land was sold in terms of survey numbers rather than residential plots.

2. Applicability of Capital Gains Tax:
The AO had assessed the sale proceeds as capital gains, arguing that the land was non-agricultural at the time of sale. The Tribunal, however, concluded that the land was agricultural, thus exempt from capital gains tax under Section 2(14) of the Income Tax Act. The Tribunal relied on the evidence of agricultural use and the lack of any substantial non-agricultural development on the land.

3. Validity of the Conversion Order:
The conversion orders stipulated that the land must be used for the intended non-agricultural purpose within two years, failing which the order would become null and void. The Tribunal noted that the land was not used for non-agricultural purposes within the stipulated period, and therefore, the conversion order lapsed, reverting the land to its original agricultural status. This was further supported by the Assistant Commissioner's statement and the fact that no renewal application was made by the assessee.

4. Consideration of Lease Rental Income:
The AO had added lease rental income to the assessee's income based on a lease agreement. The assessee contended that the lease agreement was not acted upon, and no income was received. The CIT(A) upheld the AO's addition due to the lack of evidence from the assessee. The Tribunal found no rebuttal to the CIT(A)'s findings and upheld the addition of lease rental income.

5. Admissibility of Additional Evidence:
The Revenue argued that the CIT(A) admitted additional evidence without giving the AO an opportunity to examine it. The Tribunal found that the evidence submitted by the assessee, such as letters from the Tibetan Children's Village, were not new but supportive of the existing records. Therefore, the Tribunal dismissed the Revenue's appeal on this ground.

Conclusion:
The Tribunal allowed the appeals by the assessees, concluding that the land was agricultural at the time of sale and exempt from capital gains tax. The appeal by the Revenue was dismissed, upholding the CIT(A)'s findings in favor of the assessees. The Tribunal's decision was based on the cumulative evidence of agricultural use, the lapse of the conversion order, and the nature of the land as recorded in government documents.

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