2016 (10) TMI 528 - AT - Income Tax

Sale of land - nature of land - agricultural land - jurisdiction of municipality - Held that - From the record we found that the land so sold by assessee was not within the jurisdiction of any of the municipality and further the agricultural lands sold are not situated within 8 Km from any of the municipality i.e. Vasai Municipal Council, Navgarh Manikpur Municipal Council, Nalasopara Municipal Council and virar Municipal council. 53 villages were only proposed for notification and the out of these 53 villages only 24 of them came to be notified on from 31st May 2011. Hence the agricultural land situated in village Juchandr remained as a rural area and became an Urban Land only on from 31st May 2011. Vasai Virar Mahanagar Council (VVMC) had finally came into existence vide Final notice dated 31st May 2011 i.e. A.Y. 2012-13. This is further fortified by the fact that the VVMC started collecting taxes in its name only on from the financial year 2011-12 i.e. A.Y. 2012-13. Further as per the revenue records the Juchandra Village is shown as a separate entity till 31.05.2011.It is therefore clear that the impugned agricultural land was not situate within jurisdiction of VVMC during the impugned assessment year. We also find that VVMC was also not a notified municipality during the impugned assessment year, as per last available notification no. 8010(E) dated 6th 1994 as amended by notification no. SO 1302 dated 28th Dec 1999. In fact the Vasai Virar Municipal Corporation is still not notified under Income Tax Act, even as on date since it is not in the list of Municipalities as per last available notification no. 8010(E) dated 6th 1994 as amended by notification no. S.O. 1302 dated 28th Dec 1999, under Income Tax Act. There is no dispute to the fact that at the time of Sale the subject agricultural land is situated in the village Juchandra of Taluka Vasai, the population of which was 5,912 as per the census, so is less than 10,000. We had also gone through the 1st , 2nd , 3rd draft notification dt. 14/09/2006, 03/07/2009 and 05/04/2010 respectively proposing that the Municipal Council of Vasai Virar Mahanagar Palika be constituted. However vide final notification dt. 31/05/2011 the City of Vasai Virar Mahanagar Palika came to be constituted. Since the sale deed pertaining to the subject Agricultural land were executed by assessee between 19/04/2010 to 04/01/2011, the same cannot be said to be non agricultural land during the relevant period. We also found that Vasai-Virar Municipal corporation has started collecting LBT (local body tax) with effect from 1st April, 2011. Even as per the ready reckoner rate for valuation purpose of registration of lands situate in Juchandra village for the years 2008-09, 2010-11 2011-12, we found that the ready reckoners demonstrate that Juchandra was a village having a separate and independent status on and from 2011-12 and is shown as Vasai Virar Mahanagar Palika. The Agricultural land sold were on AS is where IS basis and were forming part of Junchandra village at the time of sale and was not part of Vasai Virar mahanagar Palika as sought to be made out by the AO. In view of the above we do not find any justification in the order of lower authorities for not treating the land sold as Agricultural land thus the AO and CIT(A) was not justified in considering Agricultural land as capital asset under section 2(14) of the Act.

Summary

Issues Involved:
1. Addition of Income
2. Addition as "Long Term Capital Gain"
3. Agricultural Land as Capital Assets under Section 2(14) of the Act
4. Inclusion of Gains from Lands Sold in Previous Assessment Years
5. Adoption of Sale Value as per Section 50C of the Act
6. Adoption of Incorrect Indexation of Cost of Purchase

Detailed Analysis:

1. Addition of Income:
The assessee contested the addition of ?5,71,41,146 to their income by the CIT(A). The AO observed unreported transactions related to immovable property, leading to the addition of profits from 20 sale transactions to the taxable income. The assessee claimed these were agricultural lands and the surplus from their sale was exempt as agricultural income under Sections 2(1A) and 2(14) of the Income Tax Act.

2. Addition as "Long Term Capital Gain":
The CIT(A) treated the surplus from the sale of agricultural land as Long Term Capital Gain, which the assessee argued was incorrect. The AO determined that the lands in question were capital assets and not exempt agricultural income. The AO's stance was that the lands were within the urban area covered by the Vasai-Virar Municipal Corporation (VVMC) and thus taxable.

3. Agricultural Land as Capital Assets under Section 2(14) of the Act:
The AO and CIT(A) considered the agricultural land as capital assets. The assessee argued that the lands were agricultural and located outside the jurisdiction of any municipality, thus not capital assets. The Tribunal found that the lands were not within 8 km of any notified municipality and were not part of the VVMC during the relevant assessment year. Therefore, the lands were not capital assets under Section 2(14).

4. Inclusion of Gains from Lands Sold in Previous Assessment Years:
The assessee argued that gains from lands sold in earlier assessment years were incorrectly included in the current year's income. The Tribunal noted that the sale transactions and possession occurred in earlier years, and only the sale deed was registered in the current year. Thus, these gains should not be included in the current assessment year.

5. Adoption of Sale Value as per Section 50C of the Act:
The assessee contested the adoption of sale value as per Section 50C, arguing that the difference between the actual sale price and the market value was within 10%. The Tribunal referred to the Pune Bench's decision in Rahul Constructions, which allowed a 10% difference between the market and sale value. The Tribunal found merit in the assessee's argument and ruled in their favor.

6. Adoption of Incorrect Indexation of Cost of Purchase:
The assessee argued that the AO adopted the wrong indexation of the cost of purchase, resulting in a higher capital gain. The Tribunal did not find sufficient justification in the AO's approach and ruled in favor of the assessee.

Conclusion:
The Tribunal ruled that the lands sold by the assessee were agricultural lands and not capital assets under Section 2(14). The gains from these sales were exempt from tax. The Tribunal also ruled that gains from previous years' sales should not be included in the current year's income and accepted the assessee's argument regarding the adoption of sale value as per Section 50C. The appeal of the assessee was partly allowed.