2023 (5) TMI 1270 - AT - Income Tax

Nature of land sold - Treatment to Gain on sale of land - assessee cannot cultivate the land or incapacitated to do so - agricultural land or capital assets u/s 2(14) - land as classified in the revenue records - difference of opinion among the Members of the Bench - third member appointment - AM decided the issue in favour of the assessee - As argued l and is barren and devoid of any irrigation - HELD THAT - Case of the land of the assessee satisfies the most of conditions laid down by the Hon ble Supreme Court in Smt. Sarifabibi Mohammed Ibrahim vs. CIT 1993 (9) TMI 10 - SUPREME COURT that major chunk of land (9.08 acres) in the land revenue records is classified as Lagvadi Yogya Shetra which means cultivable land and the land is admittedly subjected to payment of land revenue.The land has been recorded in the land revenue records as agricultural land and the same was never been put to any alternative use. The land is ordinarily used for agricultural purposes and it is not the case of the department that it has ever been used or intended to be Zo ted Yor non-agricultural purposes. Since the land is situated in hill area and there was no direct source of irrigation, therefore, agriculture produce, under the circumstances, cannot be in proportionate to the land area. However, that fact cannot, in any manner, be said to affect the nature of the land being an agricultural land . Lands in hilly areas are generally dependent upon rain waters for irrigation purposes. It is not the case of the Revenue that the assessee has ever applied to the concerned authorities for the change of land user.Though, it has been alleged that as per the revenue records for many years that no agricultural activity has been carried out at major chunk of the land, however, the assessee, in this respect, has explained that vegetables and other minor millets grown are not mentioned in the revenue records of the land situated in Raigad District. Merely because of certain reason, whatever it may be, if an assessee cannot cultivate the land or incapacitated to do so, that will not change the nature of the land from agricultural to non-agricultural especially when there is no change of user of the land. The land is not situated in a developed area. The physical characteristics surrender situations and use of the land in adjoining area as held by the CIT(A), indicate that the land was an agricultural land. The land has not been developed by plotting an providing roads and other facilities. There was no previous sale of land for non-agricultural use. The price of the land sold does not show that it was shown at a high price or that price was not proportionate to the price of the agricultural land in the area.The land has been specifically mentioned in the revenue record as cultivable land and there is no mention that the land is a barren land. The vacant or fallow land does not mean that it is a barren land. There is no condition prescribed under the provisions of section 2(14(iii) of the Act that active agricultural activity should be there at the relevant time of sale of the land, rather, the only condition prescribed is that it must be classified as agricultural land. Order of Third member- Land sold by the assessee being agricultural land not falling within the definition and scope of capital asset, cannot be subjected to capital gain tax. Therefore, agree with the view of the Id. AM. In view of the majority opinion, we hold that the land sold by the assessee is an agricultural land and hence the gain arising therefrom cannot be subjected to Capital gains tax. Appeal filed by the Revenue is dismissed.

Summary

Issues Involved:
1. Whether the CIT(A) erred in deleting the addition of Rs. 5,33,16,625/- made on account of Long Term Capital Gains.
2. Whether the land in question was agricultural land and did not fall within the ambit of "capital assets" under section 2(14)(iii) of the Income Tax Act, 1961.

Summary:

Issue 1: Deletion of Addition by CIT(A)
- The CIT(A) deleted the addition of Rs. 5,33,16,625/- made by the Assessing Officer (AO) on account of Long Term Capital Gains (LTCG).
- The AO had initially added this amount, contending that the land sold by the assessee was not agricultural land and thus fell under "capital assets" requiring taxation.
- The CIT(A) disagreed with the AO, concluding that the land was indeed agricultural and not subject to LTCG tax.

Issue 2: Classification of Land as Agricultural Land
- The AO argued that the land was barren and devoid of agricultural activities, thus qualifying as a capital asset.
- The CIT(A) and the assessee provided evidence including 7/12 extracts, nokarnama, and agricultural cess receipts to establish the land's agricultural status.
- The CIT(A) noted that the land was classified as agricultural in revenue records and had been used for agricultural purposes, despite some portions being barren temporarily to regain fertility.
- The CIT(A) also highlighted that the land was beyond 8 km from the nearest municipal limits, fulfilling the criteria under section 2(14)(iii).

Judicial Member's View:
- The Judicial Member partially accepted the AO's view, stating that only a small fraction of the land (0.98 acres) could be considered agricultural, while the rest should be treated as capital assets.
- The Judicial Member emphasized the lack of consistent agricultural activity and the barren nature of the land as per physical verification reports.

Accountant Member's View:
- The Accountant Member disagreed, supporting the CIT(A)'s comprehensive evaluation.
- He pointed out that the land was classified as agricultural in revenue records, agricultural cess was paid, and there was no intent or action to convert the land for non-agricultural use.
- The Accountant Member also referenced relevant case laws, including decisions from the Hon'ble Bombay High Court, supporting the classification of the land as agricultural despite temporary non-use.

Third Member's Decision:
- The Third Member, agreeing with the Accountant Member, concluded that the land sold by the assessee was agricultural land and did not fall within the definition of a capital asset.
- The Third Member emphasized that the land's classification in revenue records, payment of agricultural cess, and lack of conversion for non-agricultural use were critical factors.
- The Third Member also noted that the land's temporary non-use for agriculture did not change its fundamental nature as agricultural land.

Final Order:
- Based on the majority opinion, the Tribunal held that the land sold by the assessee was agricultural land and the gains from its sale could not be subjected to capital gains tax.
- The appeal filed by the Revenue was dismissed.

Conclusion:
- The Tribunal concluded that the land in question was agricultural and did not qualify as a capital asset under section 2(14)(iii) of the Income Tax Act, 1961.
- The deletion of the LTCG addition by the CIT(A) was upheld, and the Revenue's appeal was dismissed.