2014 (10) TMI 662 - HC - Income Tax

Liability to pay capital gains tax or not Agricultural land or not - Assessee acquired rights vis-a-vis an item of immovable property of agricultural land Held that - The rights were acquired by the assessee through MOU, dated 25.12.1993 vis-a-vis the property - the Tribunal rightly found that the possession of the property was delivered in favour of the person, who joined the transaction - Those facts in turn brought about transfer within the meaning of Section 2(47)(v) of the Act - Therefore, the assessee has acquired a right to transfer the same atleast from the point of view of income tax - The sale proceeds to the extent of the share of the asseessee would certainly answer the description of capital gains - However, the classification of the land as the one of agricultural in nature, exempts the assessee from the obligation to pay the capital gains tax AO did not undertake the required amount of discussion vis-a-vis the nature of rights, which the respondent had acquired through the MOU and parted with other documents - notwithstanding the expressions used either by the assessee or by the officers and authorities under the Act, they are in relation to an item of immovable property and that property in turn is an agricultural land thus, there was no merit in the appeal Decided against revenue.

Summary

Issues:
Assessment of taxable income from transfer of agricultural land, Commissioner's exercise of powers under Section 263 of the Income Tax Act, Tribunal's reversal of Commissioner's order, Classification of land as agricultural for exemption from capital gains tax.

Analysis:
The respondent declared taxable income for the assessment year 1995-96, claiming profit from the transfer of agricultural land acquired through a Memorandum Of Understanding (MOU) and subsequently sold to a company. The Assessing Officer initially accepted the claim, but the Commissioner of Income Tax invoked Section 263 of the Act, alleging failure to tax the income earned by the respondent. The Commissioner revised the assessment, bringing certain sums to tax. The Tribunal, however, allowed the appeal filed by the respondent, leading to the Revenue's appeal under Section 260-A of the Act.

The Revenue contended that the Tribunal erred in reversing the Commissioner's order, arguing that the respondent did not become the owner of the agricultural land and therefore should be liable to pay tax on the income earned. The Tribunal found that the respondent acquired rights through the MOU, which constituted a transfer within the meaning of Section 2(47)(v) of the Act. The Tribunal also noted that the land was classified as agricultural, exempting the respondent from capital gains tax.

While the Tribunal opined that the Commissioner's exercise of power under Section 263 was unnecessary, the High Court disagreed, noting that the income of the respondent could be traced back to the transfer of agricultural land. The Court found no grounds in the appeal and dismissed the I.T.T.A., upholding the classification of the land as agricultural and the consequent exemption from capital gains tax.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the transfer of agricultural land through the MOU and the exemption from capital gains tax due to the nature of the property. The appeal by the Revenue was dismissed, and no costs were awarded in the matter.