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2019 (11) TMI 1562 - AT - Income TaxNature of land sold - character of the land - capital asset or agricultural land - assessee claims that the land in question is situated beyond 8 Kms. of the local limits from the municipality and hence cannot be held as a capital asset - HELD THAT - As the land in question is beyond 8 Kms from the nearest municipality and as the conversion of the land for agricultural land to industrial land was done after sale of land, the conclusion could only be that the asset in question is an agricultural land even if there was no agricultural activity on the same. Reopening of assessment u/s 147 - We quash the directions given by the ld. CIT(A) to the Assessing Officer to reopen the assessment of the partnership firm M/s. Shree Annapurna Oil Mills and to tax the long term capital gain in question in the hands of the firm. Hence Ground of the assessee is allowed.
Issues Involved:
1. Whether the land sold was agricultural land or not. 2. Applicability of Section 50C of the Income Tax Act. 3. Jurisdiction of the Commissioner of Income Tax (Appeals) in directing the Assessing Officer to reopen the case of the partnership firm. Detailed Analysis: Issue 1: Whether the land sold was agricultural land or not. The assessee contended that the land sold was agricultural land and thus not subject to capital gains tax. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, concluding that the land was not agricultural based on several factors: - Inspector’s Report: The inspector’s report indicated that the land was converted into industrial land by the purchaser and had no evidence of agricultural activity. - Tests Applied: The AO applied several tests laid down by courts to determine the nature of the land, including its usage, classification in revenue records, and the intention of the owners. - CIT(A) Findings: The CIT(A) listed various tests and concluded that the land was not used for agricultural purposes, was surrounded by industrial units, and was purchased with a profit motive. However, the Tribunal found the following: - Revenue Records: The land was classified as agricultural in revenue records and was situated beyond 8 Kms from the nearest municipality. - Past Usage: The land was used for agricultural purposes in the past, and the conversion to industrial land occurred after the sale. - Case Law: The Tribunal referred to multiple judgments supporting the view that the land retains its agricultural character if it is classified as such in revenue records and is beyond 8 Kms from municipal limits, regardless of its subsequent use by the purchaser. The Tribunal concluded that the land was agricultural and not a capital asset under Section 2(14) of the Income Tax Act, thus exempting it from capital gains tax. Issue 2: Applicability of Section 50C of the Income Tax Act. The AO invoked Section 50C, which pertains to the valuation of capital assets for stamp duty purposes. The CIT(A) upheld this application, stating that the land was not agricultural. The Tribunal, however, did not need to adjudicate this issue in detail since it had already concluded that the land was agricultural and not subject to capital gains tax. Thus, Section 50C was not applicable. Issue 3: Jurisdiction of the Commissioner of Income Tax (Appeals) in directing the Assessing Officer to reopen the case of the partnership firm. The CIT(A) directed the AO to reopen the case of the partnership firm, M/s Shree Annapurna Oil Mills, and tax the capital gains in its hands. The Tribunal found this direction to be beyond the jurisdiction of the CIT(A), as the firm was not a party before him. The Tribunal cited precedents where similar directions by appellate authorities were quashed, emphasizing that the CIT(A)'s powers are confined to the appeal before him and do not extend to issuing directions for reopening assessments of entities not party to the appeal. Conclusion: The Tribunal allowed the appeal of the assessee, concluding that: 1. The land sold was agricultural and not subject to capital gains tax. 2. Section 50C was not applicable. 3. The CIT(A) exceeded his jurisdiction by directing the AO to reopen the assessment of the partnership firm.
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