2017 (12) TMI 1637 - AT - Income Tax

Sale of the land - agricultural land - capital asset u/s 2(14) - sale of the land was not for agricultural purpose but for construction of flats - whether a particular land sold is agricultural land or not is to be determined as per the definition provided in Sec.2(14)(iii)? - Held that - When the facts in the assessee s case are examined in line with the provisions of Sec.2(14)(iii) it shows that the nearest Taluk being Chinglepet Taluk Kancheepuram District and the village Taiyur shows that a population of only 7609 and the distance from the Chinglepet is 23.5 kms and the distance from Kancheepuram is 64.1 kms. A perusal of the Chitta & Adangal shows the names of the assessee and the Kist having been paid as agricultural land and the Village Administrative Officer certified as specifying both single crop and double crop. The assessee has placed such substantial evidences and this is not rebutted by the AO in respect of the nature of the land as to whether it is agricultural or not? AO has read into only the Sale Agreements and no other documents. Admittedly the assessee is entitled to sell his land for the best possible price that can be generated but if the nature of the land is agriculture the same cannot be brought under the definition of capital asset for the purpose of levying long term capital gains. Further what has been sold by the assessee is not converted lands. This being so in the present case as it is noticed that the land sold by the assessee is agricultural land we are of the view that the same is not giving rise to any long term capital gains in the hands of the assessee. The findings of the CIT(A) and the AO on this issue stands reversed. - Decided in favour of assessee.

Summary

Issues:
- Appeal against the Order of the Commissioner of Income Tax (Appeals) for the AY 2007-08.
- Determination of whether the land sold by the assessee is agricultural land or not as per Sec.2(14)(iii).
- Assessment of long term capital gains on the sale of land by the assessee.

Analysis:
1. Appeal against CIT(A) Order:
The appeal was filed by the assessee against the Order of the Commissioner of Income Tax (Appeals) for the AY 2007-08. The assessee had not admitted any capital gains for the said year, leading to a re-opening of assessment. The contention was that the land sold by the assessee, along with others, to M/s.Vijayshanti Builders Ltd. was agricultural land, supported by various documents like Chitta & Adangal, Village Administrative Officer certificates, and receipts. The AO treated the sale as liable for long term capital gains based on clauses in the Sale Agreement. The CIT(A) confirmed the assessment, leading to the appeal.

2. Determination of Agricultural Land:
The crucial issue revolved around whether the land sold by the assessee qualified as agricultural land under Sec.2(14)(iii). The section defines agricultural land and specifies criteria based on population and distance from municipalities. The assessee provided substantial evidence, including Chitta & Adangal records, to establish that the land was agricultural. The population of the nearest Taluk was low, and distances from urban areas were significant. The Tribunal noted that the character of the land sold should be determined based on legal definitions, not the eventual use by the purchaser. The AO's focus on clauses in the Sale Agreement was deemed insufficient to override the evidence presented by the assessee. Consequently, the Tribunal held that the land sold was agricultural and not subject to long term capital gains.

3. Assessment of Capital Gains:
The dispute also involved the assessment of long term capital gains on the sale of the land. The AO argued that various clauses in the Sale Agreement indicated a non-agricultural purpose for the land sale. However, the Tribunal emphasized that if the nature of the land was agricultural, it could not be treated as a capital asset for capital gains taxation. The absence of expenditure claimed for agricultural operations by the assessee and the clauses permitting certain activities by the purchasers did not alter the fundamental nature of the land. The Tribunal overturned the findings of the CIT(A) and the AO, ruling in favor of the assessee and allowing the appeal.

In conclusion, the Tribunal's decision highlighted the importance of legal definitions in determining the nature of land for tax purposes, emphasizing the need for substantial evidence to establish the agricultural character of the land sold.