2015 (9) TMI 265 - AT - Income Tax

Compensation recived on compulsory acquisition of land - treated as Long term capital gains - whether compensation received is fully exempt u/s 10(37)? - Held that - Decided in favour of the assessee by the order of the Hon ble Gujarat High Court in case of one of the co-owners of the property, Shri Amrutbhai S. Patel 2013 (5) TMI 449 - GUJARAT HIGH COURT wherein held merely because the assessee was not residing close to the land or was also pursuing some other business would not by itself be sufficient to hold that the land was not used for agricultural purposes by the assessee. The Tribunal recorded that in the earlier years, the assessee had declared agricultural income, which was also accepted by the Revenue. - Decided in favour of assessee.

Summary

Issues:
Appeal against order of CIT(A)-6, Ahmedabad; Additional ground of appeal raised under Section 45(5) of the Act; Interpretation of Section 10(37) of the Income Tax Act, 1961; Exemption under Section 10(37) for transfer of agricultural land; Conditions for exemption under Section 10(37); Application of Section 45(5) for capital gains; Tribunal's ruling in favor of assessee.

Analysis:

The case involved three appeals filed by the assessees against the order of CIT(A)-6, Ahmedabad. The assessees raised an additional ground of appeal under Section 45(5) of the Act, challenging the treatment of compensation received on compulsory acquisition of land as long-term capital gains. The issue revolved around the interpretation of Section 10(37) of the Income Tax Act, specifically whether the conditions for exemption were fulfilled in the case of the assessees.

The Hon'ble Gujarat High Court had previously decided a similar issue in favor of an individual, holding that exemption under Section 10(37) was available for agricultural land situated in urban areas under certain conditions. The dispute in this case arose from the CIT(A)'s view that the assessee did not meet the condition of using the land for agricultural purposes personally, as he was involved in business activities and resided far from the land.

The Tribunal, after considering the arguments from both parties, found that the assessee had regularly declared agricultural income and fulfilled the conditions for claiming exemption under Section 10(37). The Tribunal disagreed with the CIT(A)'s interpretation and held that there was no requirement for the assessee to personally carry out agricultural activities on the land, as long as the land was used for agricultural purposes by the assessee or his parent.

The Tribunal's decision was based on the provisions of Section 10(37) which grant exemption from capital gains tax on transfer of agricultural land under specific circumstances. The Tribunal emphasized that the concept of personal cultivation includes cultivation through hired laborers or family members, and the physical presence of the assessee near the land was not a decisive factor in determining agricultural use.

Ultimately, the Tribunal ruled in favor of the assessees, setting aside the lower authorities' orders and allowing the ground of appeal. The appeals of all the assessees were allowed, and the Tribunal dismissed the tax appeal, concluding that no question of law arose in the case.

In summary, the judgment highlighted the importance of fulfilling the conditions specified in Section 10(37) for claiming exemption on the transfer of agricultural land, emphasizing that personal cultivation by the assessee was not a mandatory requirement for availing the exemption.