2016 (5) TMI 1517 - AT - Income Tax

Capital gain on sale of agricultural land - date of transfer u/s 2(47)(v) - AO has alleged the transfer of the subject land took place only after conversion of the land use u/s 90-B of Land Revenue Act and therefore the same is taxable as capital asset - HELD THAT - An application is required to be made to the relevant authorities for land conversion where the appellant holding land for agricultural purposes intend to develop such land for housing commercial institutional semi-commercial industrial cinema or petrol pump purposes or for the purposes of multiplex units infrastructure projects or tourism projects or for such other community facilities or public utilities purposes as may be notified. Therefore what need to be seen is whether the appellant has moved an application for land conversion as specified under section 90-B(3) of the land Revenue Act for the above specified purposes or not. As per JDA order no. 52/2007 dated 29.5.2007 placed on record it is stated that the appellant has moved an application under section 90-B(3) in respect of land bearing khasra Nos. 370 situated in village Vimalpura Tehsil Sanganer District Jaipur for converting the said land into farm houses. On perusal of the JDA s order it is stated therein that in the village area constructing farm houses is permissible and there is no need for land conversion and accordingly the appellant s application for surrender of agricultural land was accepted by JDA u/s 90-B(6) whereby the land shall vest with JDA with effect from date of passing of such order. Similarly there is another order of JDA bearing order no. 21/2007 dated 26.04.2007 in respect of land bearing khasra Nos. 371 situated in village Vimalpura Tehsil Sanganer District Jaipur for converting the said land into farm houses. The ld AR has submitted during the course of hearing that JDA has issued similar orders in respect of other parcels of lands whereby the appellant has applied for conversion of agricultural land into farm houses and it was ordered by JDA that there is no need for land conversion for farm houses. The Revenue has not brought any evidence to controvert the above orders of JDA. Appellant has moved an application for land conversion under section 90-B of land Revenue Act for conversion of agricultural land into farm houses and as per the orders of the JDA constructing farm houses is permissible on agriculture land and there is no need for land conversion. Given that there is no conversion of agriculture land as confirmed by JDA being the appropriate authority under land Revenue Act what has been transferred by the appellant continues to be the agriculture land. Undisputedly the said agricultural land in question is lying in an area beyond 8 Kms. of the municipal limits. Once it is held that the agriculture land has been transferred which is lying in an area beyond 8 Kms. of the municipal limits it is of no consequence from tax point of view whether the date of transfer should be the date of agreement to sell i.e 02.04.2007 or the registration of the sale deeds of various parcels of land done on 28.04.2007 and on subsequent dates falling within the same financial year as the agriculture land will fall outside the definition of capital asset under Sec. 2(14)(iii) of the Act and we are not inclined to examine the same and other related grounds raised by the Revenue as the same have become infructious. Impugned agricultural land not being a capital asset under Sec. 2(14)(iii) of the Act provisions of section 45 of the Act are not attracted in the instant case and hence the sale consideration on transfer of agriculture land cannot be brought to tax. - Decided against revenue

Issues Involved:
1. Deletion of addition on account of capital gains.
2. Determination of the material date of transfer of land.
3. Characterization of land as agricultural or non-agricultural.
4. Applicability of Section 2(47) and Section 2(14)(iii) of the Income Tax Act, 1961.
5. Validity of the sale agreement and possession date.
6. Impact of land conversion under Section 90B of the Rajasthan Land Revenue Act, 1956.

Detailed Analysis:

1. Deletion of Addition on Account of Capital Gains:
The Revenue challenged the CIT(A)'s decision to delete the addition of Rs. 1,26,63,199/- made by the AO on account of capital gains. The AO had brought the transaction to tax, arguing that the land sold was no longer agricultural after conversion under Section 90B. The CIT(A) deleted the addition, holding that the land was agricultural and not a capital asset under Section 2(14)(iii).

2. Determination of the Material Date of Transfer of Land:
The CIT(A) determined that the material date of transfer was 02.04.2007, the date of the sale agreement. The AO argued that the transfer occurred when the sale deeds were registered after land conversion. The CIT(A) relied on Section 2(47)(v) and Section 53A of the Transfer of Property Act, which recognize the transfer upon the possession and part performance of the contract.

3. Characterization of Land as Agricultural or Non-Agricultural:
The AO contended that the land ceased to be agricultural after conversion under Section 90B. The CIT(A) and the Tribunal found that the land remained agricultural, supported by the JDA's orders stating no need for conversion for farmhouses. The land was beyond 8 Kms from municipal limits, satisfying the conditions under Section 2(14)(iii).

4. Applicability of Section 2(47) and Section 2(14)(iii) of the Income Tax Act, 1961:
The CIT(A) and the Tribunal applied Section 2(47)(v), which includes transfer by part performance under Section 53A of the Transfer of Property Act. The Tribunal held that the transfer occurred on 02.04.2007, when possession was given. The land was agricultural, not a capital asset under Section 2(14)(iii), and thus exempt from capital gains tax.

5. Validity of the Sale Agreement and Possession Date:
The CIT(A) and the Tribunal accepted the sale agreement dated 02.04.2007 as valid. The possession and control were transferred to the buyer on this date, making it the material date of transfer. The AO's emphasis on the registration date was found irrelevant for determining the transfer date under Section 2(47)(v).

6. Impact of Land Conversion under Section 90B of the Rajasthan Land Revenue Act, 1956:
The Tribunal examined the JDA's orders, which confirmed that constructing farmhouses did not require land conversion. The land remained agricultural, and the conversion under Section 90B did not change its character. The Tribunal concluded that the land transferred was agricultural, exempting it from capital gains tax.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, confirming that the land was agricultural and not a capital asset under Section 2(14)(iii). The transfer date was 02.04.2007, and the land's character remained agricultural despite the Section 90B conversion. The appeal by the Revenue was dismissed, and the addition of Rs. 1,26,63,199/- was deleted.

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