2017 (7) TMI 690 - AT - Income Tax

Benefit of section 10(37) - nature of land sold - exemption of capital gains arising from the transfer of agricultural lands in the hands of individual or HUF - nature of receipt in the hands of the assessee - Held that - Admittedly, the assessee has received the compensation in his capacity as a member of the society and not as an agriculturist, therefore, assessee cannot get the benefit of section 10(37) which exempts capital gains arising from the transfer of agricultural lands in the hands of individual or HUF. The amount received by assessee has to be taxed as capital gains and not under the head income from other sources because assessee had parted with the membership of society. As rightly held by ld. CIT(A), however, the indexation is to be allowed with reference to the dates of payments made by assessee towards deposit of ₹ 40,000/-. Appeal of the assessee is partly allowed.

Issues Involved:
Assessment of compensation received by the assessee for agricultural land and its taxability under the Income Tax Act, 1961.

Detailed Analysis:

1. Factual Background:
The assessee, working as a Manager at Reserve Bank of India, declared salary income and interest income in the relevant assessment year. The Assessing Officer observed a sum of ?4,00,000 received by the assessee through an account payee cheque and a declaration of deposit for allotment of farm house land amounting to ?40,000.

2. Initial Claim and Response:
The assessee initially claimed that the compensation received was exempt from tax as it was for agricultural land beyond municipal limits. However, the Assessing Officer raised concerns regarding the lack of evidence establishing the validity of the land transfer and the nature of the compensation.

3. Assessing Officer's Observations:
The Assessing Officer treated the compensation as taxable under "income from other sources" due to the failure to prove the valid transfer of assets, lack of evidence on compensation distribution, and the incomplete execution of conveyance deeds.

4. Legal Provisions and Exemption Criteria:
The Assessing Officer highlighted the requirements for claiming exemption under Section 10(37) of the Income Tax Act, specifying that the exemption for capital gains on agricultural land is available only to individuals or Hindu Undivided Families, not to societies.

5. CIT(A) Decision and Appeal:
The CIT(A) partially allowed the appeal, acknowledging the agricultural nature of the land acquired by the society but emphasizing the lack of evidence on agricultural operations. The CIT(A) noted that the compensation received by the assessee was taxable as capital gains, allowing indexation benefits from the relevant payment dates.

6. Final Decision and Conclusion:
The Tribunal upheld the taxability of the compensation as capital gains, not income from other sources, due to the nature of the society's membership transfer. The Tribunal agreed with the CIT(A) on allowing indexation benefits and dismissed certain grounds while partially allowing the appeal.

In conclusion, the Tribunal's judgment clarified the tax treatment of compensation received for agricultural land, emphasizing the importance of meeting the statutory requirements for claiming exemptions under the Income Tax Act.

← Previous Next →