2016 (3) TMI 46 - AT - Income Tax

Taxing Agricultural lands - Land-in-question treated as asset under the Wealth Tax Act - Held that - So long as the lands are agricultural in nature, the same cannot be treated as capital asset in view of the provisions of Wealth Tax Act. Section 2(ea) of Wealth Tax Act defines asset in relation to assessment year commencing on 1st April, 1993 in which urban land is included as an asset. Explanation 1(b) defines urban land means, land situated in any area which is comprised within the jurisdiction of a municipality etc within a distance of not being more than 08 KMs from the local limits of a municipality etc. However, proviso has been amended by the Finance Act, 2013 w.e.f. 01-04-1993 so as to state but does not include land described as agricultural land in the records of the Government and used for agricultural purposes . This indicates that even if a land is situated within 08 KMs of a town or municipality as specified, if such land is classified as agricultural land in the records of the Government and used for agricultural purposes, it cannot be treated as an asset for the purpose of WT Act. In fact the ground raised by the Revenue is not maintainable in the sense, that linking of agricultural income to agricultural land is not required and therefore, Ld. CIT(A) is not bound to do that exercise which is not prescribed by the Act. It is the AO who should have examined these matters at the time of assessment and should have verified whether the land is classified as agricultural land or not? Then, the question of agricultural operations comes into picture. As seen from the assessment order, AO has not even discussed, why he is treating the agricultural land as asset , and how the provisions of the Act apply. As can be seen from the above, the land is classified as agricultural land and agricultural operations were also being carried on. Since the land-in-question cannot be treated as asset under the Wealth Tax Act, we do not see any reason to interfere with the order of the CIT(A) - Decided against revenue Addition on the valuation of buildings other than self occupied buildings - whether CIT(A) deleted the addition without linking the income from house property? - Held that - When assessee is offering the rental income from the buildings and those properties which are not to be included as assets were included without any discussion by the AO, we are of the opinion that Ld. CIT(A) has correctly examined and deleted the addition, which cannot be made at the first instance. Since the issue is examined in detail by the Ld. CIT(A), we do not see any reason to disturb the findings. - Decided against revenue

Summary

Issues Involved:
1. Taxability of agricultural lands.
2. Valuation of buildings other than self-occupied buildings.

Issue-wise Detailed Analysis:

1. Taxability of Agricultural Lands:

The primary issue revolves around whether the agricultural lands held by the assessee should be treated as taxable assets under the Wealth Tax Act. The Assessing Officer (AO) treated these lands as taxable assets, while the Commissioner of Income Tax (Appeals) [CIT(A)] deleted these additions, leading to the Revenue's appeals.

- Assessment Year (AY) 2009-10 (WTA No. 19/Hyd/2015): The AO included various lands shown as agricultural in the net wealth, treating them as capital assets. The CIT(A) deleted the addition, noting that the AO did not provide any reasons for treating these assets as capital assets and that the lands were classified as agricultural lands with agricultural operations carried out. The Tribunal upheld the CIT(A)'s decision, stating that as long as the lands are agricultural in nature, they cannot be treated as capital assets under the Wealth Tax Act. The Tribunal emphasized that linking agricultural income to agricultural land is unnecessary and that the AO should have verified the classification of the land during the assessment.

- AY 2007-08 (WTA No. 15/Hyd/2015): Similar to the previous case, the AO treated agricultural lands as taxable assets, adding Rs. 31,77,538 to the net wealth. The CIT(A) deleted the addition, noting the lack of reasons from the AO and confirming the lands' agricultural nature. The Tribunal upheld this decision, reiterating that agricultural lands cannot be treated as capital assets under the Wealth Tax Act.

- Other Appeals (WTA Nos. 16, 17, 18, 20, and 21/Hyd/2015): The facts and issues in these appeals were similar to the above cases. The Tribunal consistently upheld the CIT(A)'s decisions, dismissing the Revenue's grounds and confirming that agricultural lands cannot be treated as capital assets under the Wealth Tax Act.

2. Valuation of Buildings Other Than Self-Occupied Buildings:

The second issue concerns the valuation of buildings owned by the assessee, other than self-occupied buildings. The AO increased the value of these buildings by 25% and added it to the net wealth without providing any discussion or justification.

- AY 2009-10 (WTA No. 19/Hyd/2015): The AO added the value of various buildings owned by the assessee to the net wealth. The CIT(A) deleted the addition, noting that the buildings were leased out or under construction and thus could not be considered assets for wealth tax purposes. The Tribunal upheld this decision, emphasizing that the AO did not provide any discussion or justification for the addition and that the CIT(A) correctly examined and deleted the addition.

- AY 2007-08 (WTA No. 15/Hyd/2015): Similar to the previous case, the AO added the value of various buildings to the net wealth. The CIT(A) deleted the addition, noting that the buildings were leased out or under construction and thus could not be considered assets for wealth tax purposes. The Tribunal upheld this decision, reiterating that the AO did not provide any discussion or justification for the addition.

- Other Appeals (WTA Nos. 16, 17, 18, 20, and 21/Hyd/2015): The facts and issues in these appeals were similar to the above cases. The Tribunal consistently upheld the CIT(A)'s decisions, dismissing the Revenue's grounds and confirming that the buildings in question could not be considered assets for wealth tax purposes.

Conclusion:

In all seven appeals, the Tribunal upheld the CIT(A)'s decisions, dismissing the Revenue's grounds. The Tribunal confirmed that agricultural lands cannot be treated as capital assets under the Wealth Tax Act and that the buildings in question could not be considered assets for wealth tax purposes. The Tribunal emphasized the need for the AO to provide proper discussion and justification for any additions made to the net wealth.