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2015 (3) TMI 146 - AT - Income TaxShort term capital gain - compulsory acquisition of agricultural land - Held that - Both the authorities below have misdirected themselves in reaching to the conclusion that the land acquired by the GIDC is a capital asset in view of the fact that the area in which the land situated is notified by the appropriate authority as a development area. Both the authorities below have failed to consider the nature of the land prior to acquisition and notification by the appropriate authority. It has to be borne in mind that the correct test that has to be applied is whether on the date of the sale the land was agricultural land or not. Because after the sale the purchaser was going to put the land to non-agricultural use, it does not mean that the land had ceased to be agricultural land at the date of sale. The crucial date for the purpose of finding out the character of the land is the date of sale and the question that has to be asked is whether on the date of sale the land was agricultural land or not. However, we find that what has weighed with the Tribunal, inter alia, is the fact that after the sale the purchaser was going to use the land for non- agricultural purposes and it is in the light of what was going to happen in future that the Tribunal held that the land was non- agricultural in character at the relevant time. It must be borne in mind, as was held by this Court in Chhotalal Prabhudas vs. CIT (1978 (10) TMI 35 - GUJARAT High Court), that if the land is actually used for agricultural purposes as indicated in Manilal Somnath's case (1976 (3) TMI 41 - GUJARAT High Court) or by the Supreme Court in Begumpet Palace's case (1976 (8) TMI 2 - SUPREME Court), at least, prima facie it can be said to be land which is either actually used or ordinarily used or meant to be used for agricultural purposes. If it is actually used at the relevant date for agricultural purposes and there are no special features, as for example, a building site being actually used as a stop-gap arrangement for agricultural purpose, it would be agricultural land. Potential use of the land as nonagricultural land is totally immaterial. Entries in the record of rights are good prima facie evidence regarding land being agricultural and if the presumption raised either from actual user of the land or from entries in revenue records is to be rebutted, there must be material on the record to rebut the presumption. The approach of the factfinding authorities, namely, the IT authorities and the Tribunal, should be to consider the question from the point of view of the presumption arising from entries in the record of rights or actual user of the land and then consider whether that presumption is dislodged by the presence of other factors in the case. The orders of the authorities below are set aside and the matter is restored back to the file of AO for de novo assessment. The AO is hereby directed to verify the documents as furnished by the assessee in support of its claim that the land was agricultural before acquisition and decide this issue in the light of the ratio laid down by the Hon ble Jurisdictional High Court in the cases of CIT vs. Siddharth J.Desai (1981 (9) TMI 48 - GUJARAT High Court) and Gordhanbhai Kahandas Dalwadi vs. CIT (1980 (10) TMI 56 - GUJARAT High Court). - Decided in favour of assessee for statistical purposes.
Issues Involved:
1. Addition towards short-term capital gain on compulsory acquisition of agricultural land. 2. Consideration of land as a capital asset under section 2(14) of the Income Tax Act. 3. Timing of the transfer of agricultural land. 4. Exemption under section 10(37) of the Income Tax Act. Detailed Analysis: 1. Addition towards short-term capital gain on compulsory acquisition of agricultural land: The Assessee contended that the land acquired by the Government of Gujarat was agricultural land and not a capital asset as per section 2(14) of the Income Tax Act. The land was situated outside the municipal limits and was used for agricultural activities until its acquisition. The Assessing Officer (AO) added Rs. 57,10,250/- as short-term capital gain, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. 2. Consideration of land as a capital asset under section 2(14) of the Income Tax Act: The AO and CIT(A) considered the land as a capital asset based on a notification by the Government of Gujarat, which designated the area for GIDC purposes. The CIT(A) noted that the land fell within a notified area and thus did not qualify as rural agricultural land. The Assessee argued that the land was located 32 km from the municipal limits and had a population of less than 3,000, making it non-capital as per section 2(14)(iii)(b). 3. Timing of the transfer of agricultural land: The CIT(A) determined that the land was transferred in the financial year 2008-09 when the Assessee received Rs. 64,10,250/- as advance payment. The CIT(A) relied on Section 45(4) of the Income Tax Act, which states that capital gains arise in the year compensation is first received. The Assessee argued that the actual acquisition occurred in FY 2010-11, and thus, the transfer should be considered in AY 2011-12. 4. Exemption under section 10(37) of the Income Tax Act: The Assessee claimed exemption under section 10(37), which exempts capital gains from the compulsory acquisition of agricultural land used for agricultural purposes for at least two years before the transfer. The CIT(A) found that the Assessee had not used the land for agricultural purposes for two years immediately preceding the transfer, as the land was purchased on 11/03/2008 and transferred on 15/02/2009. Tribunal's Decision: The Tribunal found that both the AO and CIT(A) had misdirected themselves by not considering the nature of the land before acquisition and the notification by the appropriate authority. The Tribunal cited the Gujarat High Court's decisions in Gordhanbhai Kahandas Dalwadi vs. CIT and CIT vs. Siddharth J. Desai, which emphasized the importance of the land's status as agricultural at the time of sale. The Tribunal set aside the orders of the authorities below and restored the matter to the AO for de novo assessment. The AO was directed to verify the documents furnished by the Assessee and decide the issue in light of the High Court's rulings. Conclusion: The appeal of the Assessee was allowed for statistical purposes, and the case was remanded to the AO for a fresh assessment considering the nature of the land before acquisition and the relevant judicial precedents.
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