2016 (9) TMI 1063 - AT - Income Tax

Treatment of sale of land as agricultural land - nature of land - Held that - In the present case, it is an admitted fact that the impugned land property is situated beyond 8 Kms of the Municipal Corporation limit of Chennai. The land is situated in a distance of 15 Kms from the nearest municipality/Panchayat i.e. Sriperumpudur Taluk, Kancheepuram District, Chennai and population of the village is around 3,000 as per the relevant census. The assessee also declared agricultural income from the said property and the same was assessed as agricultural income more specifically in assessment under consideration also. The AO accepted the agricultural income declared from said property at ₹ 65,300/- for assessment year 2010-11. Further, the land was classified as agricultural land in the Revenue records also. The property was also sold by the assessee as agricultural land only and the impugned land was never converted by assessee for any non-agricultural purpose. The land retained character of agricultural land only. Being so, in our opinion the above land is to be treated as agricultural land only and sale of said land cannot go rise to any taxable capital gains and it is to be considered as agricultural land in terms of Sec.2(14)(iii)(b) of the Act and Ld.CIT(A) has taken a correct view to hold that the said land is an agricultural land and in our opinion that the judgement relied upon by ld.A.R in the case of Mr.N.Jayamurugan (2016 (6) TMI 518 - ITAT CHENNAI) is squarely applicable to the facts of the case and we have no hesitation in confirming the order of CIT(A). - Decided against revenue.

Issues Involved:
1. Treatment of sale of land as agricultural land.
2. Evidence of carrying out agricultural activities.
3. Classification of land in revenue records.
4. Applicability of capital gains tax on the sale of the land.

Detailed Analysis:

1. Treatment of Sale of Land as Agricultural Land:
The primary issue is whether the land sold by the assessee qualifies as agricultural land under Section 2(14) of the Income Tax Act, thereby exempting it from capital gains tax. The assessee claimed that the land sold was agricultural and thus not a capital asset. The Commissioner of Income Tax (Appeals) [CIT(A)] supported this claim, but the Revenue contested this decision, leading to the appeal.

2. Evidence of Carrying Out Agricultural Activities:
The Revenue argued that the assessee did not provide sufficient evidence of agricultural activities on the land. The agricultural income declared was minimal (?50,000/- and ?65,300/-), which the Revenue contended was disproportionate to the land's size and value. The Assessing Officer (AO) noted that the land was purchased for ?1,97,61,000/- and sold within two years for ?5,31,02,160/-, suggesting that the land was not intended for agricultural use.

3. Classification of Land in Revenue Records:
The land was classified as agricultural in the revenue records, and the assessee declared agricultural income from it. The CIT(A) observed that the land was beyond 8 km from the municipal limits, situated in a village with a population of around 3,000, and retained its agricultural classification without any conversion for non-agricultural purposes.

4. Applicability of Capital Gains Tax on the Sale of the Land:
The AO treated the transaction as a transfer resulting in taxable capital gains, computing the short-term capital gain at ?2,73,47,160/-. The CIT(A), however, ruled that the land was agricultural and thus not a capital asset. The Revenue cited various judgments, including cases where lands in similar circumstances were deemed non-agricultural and subject to capital gains tax.

Judgment Analysis:
The Tribunal examined the facts and various judicial precedents to determine whether the land was agricultural. It considered factors such as the classification of the land in revenue records, actual agricultural use, and the nature of the sale transaction. The Tribunal noted that the land was sold to a commercial entity, M/s. Grundfos Pumps India Pvt. Ltd., and was located in a developing area, which typically indicates non-agricultural use.

The Tribunal also referred to the Supreme Court's decision in Smt. Sarifabibi Mohmed Ibrahim v. CIT, which laid down several tests to determine the nature of the land. These tests include the classification in revenue records, actual use for agricultural purposes, and the proportion of agricultural income to the investment in the land.

In the present case, the Tribunal found that the land, though classified as agricultural, did not meet the criteria for exemption from capital gains tax. The sale price and the nature of the buyer suggested that the land was not intended for agricultural use. The Tribunal concluded that the land was not agricultural and upheld the AO's decision to tax the capital gains.

Conclusion:
The Tribunal dismissed the appeal of the Revenue, confirming that the land sold by the assessee was agricultural and thus exempt from capital gains tax. The Tribunal relied on the classification in revenue records, the distance from municipal limits, and the declared agricultural income to support its decision. The judgment underscores the importance of comprehensive evidence and the specific facts of each case in determining the nature of the land for tax purposes.

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