2018 (7) TMI 749 - AT - Income Tax

Nature of land sold - Agricultural or capital asset - CIT-S holding that land sold by the assessee was not a capital asset even though it had been declared as a part of industrial area by the Govt. and had in fact been sold as non agricultural land - Held that - Agricultural land which was cultivated by the assessee for agricultural purposes, on being notified by the Govt, the land was sold for industrial purposes The impugned land was sold by the assessee is an agricultural land as it is shown so in the land records and the assessee has given proper explanation about not showing the agricultural income in her return of income due to smallness. In view of this we do not find any infirmity in the order of the ld CIT(A) and we uphold it. Accordingly, appeal of the revenue is dismissed.

Summary

Issues Involved:
Appeal by revenue against CIT(A) order for AY 2010-11 - Classification of land as capital asset - Chargeability of capital gains on sale of agricultural land.

Analysis:
1. The revenue appealed against the CIT(A) order, contending that the land sold by the assessee, previously declared as part of an industrial area, should be considered a capital asset. The revenue argued that the land, though initially agricultural, was later deemed industrial by the government. The AO added the appreciated value of the land to the sale consideration under section 50C of the Act.

2. The CIT(A) held that the land qualified as agricultural based on supporting documentation, including the certificate of Tehsildar and land records. The CIT(A) noted that the land was small and unsuitable for significant agricultural production for market sale. The CIT(A) also highlighted that the land remained classified as agricultural in revenue records, and the assessee had not applied for conversion to non-agricultural use.

3. The ITAT upheld the CIT(A) decision, emphasizing that the land's agricultural status was maintained despite being included in an industrial area. Citing legal precedents, the ITAT ruled that until the sale date, the land was used for agriculture, and the potential non-agricultural use did not alter its character. The ITAT dismissed the revenue's appeal, concluding that the land was correctly considered agricultural, and no capital gains tax was applicable.

4. The ITAT's analysis focused on the land's historical and current use for agricultural purposes, supported by official records and legal interpretations. The judgment clarified that the mere reclassification of the land did not automatically change its nature from agricultural to non-agricultural for tax purposes. The decision underscored the importance of the land's actual use and classification at the time of sale in determining tax liability, ultimately ruling in favor of the assessee's position on the agricultural status of the land.