2016 (3) TMI 1118 - AT - Income Tax

Addition made on account of capital gain worked out by assessee on account of sale of agricultural land - nature of land - Held that - In the present case the purchaser of the property was a company by name M/s. Olympia Infra Tech (P) Limited which is a registered company under the Companies Act 1956. The property sold is situated in Navalur which is a suburb in Chennai it is situated in Kanchipuram Districtt Tamil Nadu located south of the city of Chennai along the Old Mahabalipuram Road. Navalur is located between Sholinganallur and Siruseri and is around 6 kms. from Sholinganallur and comes under Thirporur taluk. The place was once a village but with the advent of Information Technology Companies and the rapid development of the Old Mahabalipuram it has become a bustling suburban. Navalur is an upcoming residential area with many number of Flats coming up mostly professionals from Information Technology companies renting and buying apartments. As detailed above the property sold by the assessee is in the midst of development activities being carried out by builders in promoting housing/ Information Technology corridors and no agricultural activities were being carried out either by the assesse nor by others in that area the property is described as a mango grove as per the copy of the sale deed/patta chitta adangal produced. In view of the same the sale price received for the property has increased manifold which a normal agricultural land will not fetch. The price is in accordance with the development activities and changes happening in the nature of the land from agricultural to that of housing. If we consider the above facts and circumstances of the present case as a whole and an overall view is to be taken in deciding whether the land was an agricultural land we would come to a conclusion that the property cannot be considered as Agricultural land though the circumstance that the land is classified as Agricultural in the revenue records and the Village Panchayat President Navallur has certified that the land is away from municipality. In our view the other circumstances pointed out above outweighs all of the circumstances in favour of the Revenue and on the basis of those circumstances we are inclined to conclude that the property was not an agricultural land as there is no proof carrying on agricultural activities in the said land.

Issues Involved:
1. Classification of land as agricultural land.
2. Applicability of capital gains tax on the sale of the land.
3. Determination of the nature and character of the land at the time of sale.
4. Evaluation of evidence for agricultural operations.
5. Relevance of market conditions and sale price in determining the nature of the land.
6. Consideration of judicial precedents and applicable legal tests.

Issue-wise Detailed Analysis:

1. Classification of Land as Agricultural Land:
The primary issue was whether the land sold by the assessee was agricultural land and thus exempt from capital gains tax under Section 2(14) of the Income Tax Act. The CIT(A) had directed the AO to delete the addition made on account of capital gain, classifying the land as agricultural. However, the Revenue contended that the land was not used for agricultural purposes and was sold at a price indicating non-agricultural use.

2. Applicability of Capital Gains Tax:
The Revenue argued that the land, although classified as agricultural in revenue records, was not used for agricultural purposes and thus should not be exempt from capital gains tax. The CIT(A) had erred in exempting the land based on its classification alone without considering the actual use and intention.

3. Determination of the Nature and Character of the Land at the Time of Sale:
The Tribunal examined whether the land was used for agricultural purposes at the time of sale. The land was sold to a company engaged in real estate and construction, indicating non-agricultural use. The Tribunal noted that the sale price was significantly higher than the purchase price, suggesting that the land was valued for its potential for development rather than agricultural use.

4. Evaluation of Evidence for Agricultural Operations:
The assessee claimed that the land was used for agricultural purposes, supported by its classification in revenue records and the existence of coconut trees. However, the Tribunal found no evidence of actual agricultural activities, such as expenses incurred or agricultural income reported. The burden of proof was on the assessee to establish that the land was used for agriculture, which was not sufficiently demonstrated.

5. Relevance of Market Conditions and Sale Price in Determining the Nature of the Land:
The Tribunal considered the significant increase in the land's value and its location in a rapidly developing area. The sale to a non-agriculturist for a high price indicated that the land was not intended for agricultural use. The Tribunal applied the tests laid down by the Supreme Court in Sarifabibi Mohmed Ibrahim v. CIT, considering factors such as the land's classification, actual use, and surrounding development.

6. Consideration of Judicial Precedents and Applicable Legal Tests:
The Tribunal referred to the Supreme Court's decision in Smt. Sarifabibi Mohmed Ibrahim v. CIT, which provided 13 tests to determine whether land is agricultural. The Tribunal found that the land did not meet these criteria, particularly regarding its use and the nature of the sale. The Tribunal also considered the decision of the Co-ordinate Bench in the case of ITO Vs. Shri Aboobucker, which supported the Revenue's position.

Conclusion:
The Tribunal concluded that the land was not agricultural and thus subject to capital gains tax. The appeal by the Revenue was allowed, and the cross-objections filed by the assessee were dismissed. The Tribunal emphasized that the classification of land in revenue records alone was insufficient to establish its agricultural nature without evidence of actual agricultural use. The decision was pronounced on March 24, 2016, in Chennai.

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