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2016 (12) TMI 1624 - AT - Income TaxNature of land sold - agricultural land or capital asset - capability to agricultural operations - Held that - CIT(A) has considered the revenue record and noticed that the impugned land has been shown as agricultural land. He has also noticed that there was no material to show that the land was put to non-agricultural purpose. He has noticed that the growing of grass was also an agricultural activity and the revenue records have also shown that the grass has been grown in the impugned land. The Ld CIT(A) has also noticed that the land under consideration has not been found to be barren land incapable for agricultural operations CIT(A) has also addressed the concern raised by the AO that the assessee did not declare any agricultural income in the earlier year. The Ld CIT(A) has placed reliance on certain case law to accept the contentions of the assessee that the agricultural activities did not result in any surplus. We also notice that the Ld CIT(A) has noted that the hill development activity would not alter the character of land. In any case it is the submission of the assessee that the hill development plan has not been executed by the Government so far. The ld CIT(A) has also noticed that the impugned land is located 45 Kms away from the town. Thus we notice that the AO has drawn adverse inferences on the basis of his own reading of records and we notice that the Ld CIT(A) has addressed all of them by drawing support from various case law as well as the documents produced by the assessee. Hence we do not find any reason to interfere with the order passed by Ld CIT(A) on this issue. - Decided against revenue
Issues Involved: Whether the land sold by the assessee qualifies as agricultural land and thus falls outside the definition of a capital asset under Section 2(14) of the Income Tax Act, 1961.
Issue-wise Detailed Analysis: 1. Agricultural Use of Land: The Assessing Officer (AO) contended that the land was not used for agricultural purposes, citing the certificate from the Talati, which stated that the land was barren with only wild grass growing on it. The AO also noted the absence of agricultural income reported by the assessee. The Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, stating that growing grass is an agricultural activity and the land was recorded as agricultural land in the revenue records. The CIT(A) referenced the case of Smt. Manyam Meenakshama Vs CWT, which held that barren land capable of cultivation can still be considered agricultural land unless used for non-agricultural purposes. 2. Revenue Records and Agricultural Income: The AO argued that the absence of reported agricultural income indicated non-agricultural use. The assessee countered with an affidavit stating that agricultural operations were carried out at a subsistence level, with produce consumed by laborers and family, hence no income was reported. The CIT(A) found merit in the assessee's argument, noting that the land was assessed as agricultural in revenue records and that agricultural cess was paid. The CIT(A) cited the case of CIT Vs. Smt. Debbie Alemao, which held that lack of surplus income from agricultural activities does not negate the land's agricultural status. 3. Government Notification and Future Development: The AO pointed to a government notification declaring the area for hill station development as evidence of non-agricultural intent. The CIT(A) rejected this, stating that future development plans do not alter the land's character at the time of sale. The land remained agricultural in revenue records and had not been converted for non-agricultural use. 4. Distance from Municipality: The CIT(A) noted that the land was located 45 km from the nearest municipal council and in a village with a population of approximately 300, thus falling outside the definition of a capital asset under Section 2(14). 5. Legal Precedents: The CIT(A) referenced several legal precedents, including the case of HINDUSTAN INDUSTRIAL RESOURCES LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX, which held that land remains agricultural irrespective of intended industrial use if it was agricultural at the time of purchase and acquisition. The CIT(A) also distinguished the case of Gemini Pictures Circuit P Ltd, noting that the facts were not applicable as the land in question was in a rural area surrounded by agricultural lands. Conclusion: The CIT(A) concluded that the land sold by the assessee was agricultural land, not a capital asset, and thus not liable for capital gains tax. The AO's adverse inferences were addressed with case law and documentation provided by the assessee. The appeal filed by the revenue was dismissed, upholding the CIT(A)'s decision. Order pronounced in the open court on 22nd December, 2016.
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