2011 (10) TMI 618 - AT - Income Tax

Sale of land - addition by treating the sale of agricultural land to be capital asset u/s 2(14)(iii)(b) on the ground that it was within the distance of 8 kms from Municipal limits and thereby levying short term capital gains tax on the same - Held that - In the remand report, the Assessing Officer submitted that as per the report received by him from the Divisional Engineer, Highways Department, Coimbatore, the agricultural land in question was 8.112 kms away from the municipal limits of Coimbatore municipality. In view of this, the ld. CIT(A) deleted the addition by observing that agricultural land in question was not a capital asset. Before us, the ld. D.R. could not point out any error in the order of the ld. CIT(A). In the absence of any material brought before us to show that agricultural land in question was a capital asset within the meaning of section 2(14) of the Act, we do not find any good reason to interfere with the order of the ld. CIT(A). It is confirmed. Ground of appeal of the department is dismissed.

Summary

Issues Involved:
1. Whether the agricultural land in question is a capital asset within the meaning of section 2(14)(iii)(b) of the Income-tax Act, 1961.
2. Whether the distance from the municipal limits to the land in question was correctly measured.
3. Whether the sale of the agricultural land should be treated as short-term capital gain.
4. Whether the assessee could produce evidence for expenses such as sales commission and other charges.
5. Whether the intention of the assessee was to utilize the land for agricultural purposes or for real estate development.

Detailed Analysis:

Issue 1: Capital Asset Definition under Section 2(14)(iii)(b)
The primary contention revolves around whether the land sold by the assessee qualifies as a capital asset under section 2(14)(iii)(b) of the Income-tax Act, 1961. The Revenue argued that the land is within 8 kms from the limits of Coimbatore Corporation, thus falling under the definition of a capital asset. However, the assessee contended that the land is situated beyond 8 kms from the municipal limits, supported by a certificate from an Approved Chartered Engineer. The CIT(A) and ITAT both concluded that the land was beyond 8 kms based on the remand report from the Divisional Engineer, Highways Department, confirming the distance as 8.112 kms. Hence, the land does not qualify as a capital asset.

Issue 2: Measurement of Distance
The accuracy of the distance measurement was critical. The assessee provided evidence, including a Chartered Engineer's certificate, stating the land was more than 8 kms from the municipal limits. The Assessing Officer initially measured the distance as 7.6 kms but did not specify the exact survey number. Upon remand, the Divisional Engineer confirmed the distance as 8.112 kms. The CIT(A) personally verified the distance and found it to be more than 8 kms. Thus, the measurement by the Divisional Engineer was accepted, validating the assessee's claim.

Issue 3: Short-Term Capital Gain
The Revenue treated the profit from the sale of the land as short-term capital gain, arguing that the land was a capital asset. The assessee challenged this, asserting the land was agricultural and beyond the 8 km limit. Given the confirmation that the land was not a capital asset, the CIT(A) directed the deletion of the addition made by the Assessing Officer. The ITAT upheld this decision, dismissing the Revenue's appeal.

Issue 4: Evidence for Expenses
The Revenue claimed the assessee failed to produce evidence for expenses such as sales commission and other charges amounting to Rs. 17,38,000/-. This issue was not elaborately discussed in the judgment, indicating it was not a focal point of contention once the primary issue of the land being a capital asset was resolved.

Issue 5: Intention of Land Use
The Revenue argued that the land was sold to a builder-promoter, suggesting the assessee's intention was not agricultural use. The assessee countered, stating the land was purchased for agricultural purposes, and the sale was prompted by a beneficial offer. The CIT(A) accepted the assessee's explanation, noting the absence of any habitual buying and selling of land by the assessee, indicating no intention of real estate business. The ITAT agreed with this conclusion.

Conclusion:
The ITAT confirmed the CIT(A)'s order, concluding that the agricultural land in question was not a capital asset under section 2(14)(iii)(b) as it was situated more than 8 kms from the municipal limits. Consequently, the profit from the sale could not be treated as short-term capital gain. The appeal of the Revenue was dismissed.