2016 (8) TMI 1458 - AT - Income Tax

Character of land - gain on sale of land - agricultural land or capital asset - land was compulsorily acquired by NHAI - HELD THAT - The plot of land was situated in Dongargaon that the assessee had filed copies of registered sale deed along with copy of 7/12 extract, that the land in question was categoriesed as agricultural land in the revenue record. In these circumstances, in our opinion, the FAA was justified in holding that the land in question was agricultural land. It is also a fact that the plot of land was compulsorily acquired by the Government and was purchased as agricultural land. The certificate dated 23-08-2013 of Gram Adhikari Dongargaon states that plot of land was an agricultural land since it was purchased till the date of compulsory acquisition. AO himself has admitted referring to the 7/12 extracts. that land in question was agricultural land in the earlier assessment years. In our opinion, the character of land would not change automatically in subsequent years until and unless the same is used for some other purposes There is nothing on record to show that the land was not used for agricultural purposes. The AO has not brought on record to prove the fact that agricultural land was converted into non agricultural land or that the assessee had applied for such conversion. The AO had referred to the aerial distance to determine the distance of plot of land from the Municipal limits. The Circular No. 7/215 (supra)clearly stipulates that distance between the Municipal limits and agricultural land had to be measured having regard to the shortest road distance. Sale of agricultural land cannot be treated as an advenctur as the land was compulsorily acquired by NHAI. The plot of land, acquired by the assessee was an agricultural land and, therefore, was out of ambit of taxability. It was not liable for charging under the capital gains/business profit. - Decided in favour of assessee

Summary

Issues:
1. Nature of the plot of land sold by the assessee.
2. Taxability of the gain on acquisition of land.
3. Classification of the land as agricultural for tax purposes.
4. Treatment of the profit arising from the sale of the plot of land as business income.

Issue 1: Nature of the plot of land sold by the assessee
The Assessing Officer (AO) found that the assessee had acquired a plot of land and claimed the surplus amount as income from business, subsequently exempting it under the Act. The AO challenged this, stating that the land was not considered a capital asset and directed the assessee to explain the exemption claimed. The AO held that the gain on land acquisition was taxable, computed the business income from the transfer of the land, and determined the profit at the declared amount.

Issue 2: Taxability of the gain on acquisition of land
The AO concluded that the gain on land acquisition was fully chargeable to tax and that the provisions of section 115JB were applicable as the land was within the 8 km radius. The AO computed the business income of the assessee from the land transfer at the declared amount, emphasizing the taxability of the gain.

Issue 3: Classification of the land as agricultural for tax purposes
The First Appellate Authority (FAA) considered the evidence provided by the assessee, including certificates and documents supporting the claim that the land was agricultural and situated beyond 8 km from the Municipal limits. The FAA relied on specific cases and held that the land was indeed agricultural, deleting the addition made by the AO and ruling in favor of the assessee.

Issue 4: Treatment of the profit arising from the sale of the plot of land as business income
During the hearing, the Departmental Representative (DR) argued that the profit from the land sale should be assessed as business income, while the Authorized Representative (AR) supported the FAA's decision. The Tribunal found that the land was categorized as agricultural in the revenue record, supported by certificates and documents. The Tribunal also emphasized that the land was compulsorily acquired by the Government and purchased as agricultural land, endorsing the FAA's decision and dismissing the appeal filed by the AO.

In conclusion, the Tribunal upheld the FAA's ruling that the land was agricultural and not subject to taxability, deciding the effective ground of appeal against the AO and dismissing the appeal.