2018 (7) TMI 753 - HC - Income Tax

Nature of land sold - capital asset or agricultural land - maintainability of appeal - Held that - Right of appeal is not automatic. Right of appeal is conferred by statute. When statute confers a limited right of appeal only in a case which involves substantial questions of law, it is not open to this Court to sit in appeal over the factual findings arrived at by the Appellate Tribunal. In this case, the learned Tribunal arrived at the factual finding that the land in question sold by the respondent assessee was agricultural land. Mr.T.R.Senthil Kumar, emphatically argued that the Assessing Officer arrived at his finding based on the fact that the land in question had been classified in the records of the Sub Registrar Office as revenue land. However, as would appear from the order of the assessment itself, it was classified as agricultural land in the revenue records. Even otherwise, Tribunal had looked into the relevant materials including the revenue records, as also records which indicate that the respondent assessee ran a Nursery. The learned Tribunal was of the view that whether there was agricultural income or not was not relevant. No fault can be found with the reasoning of the learned Tribunal. The fact that there was loss and not income could not have made any difference to the nature and character of the land. No substantial question of law.

Issues Involved:
1. Whether the land sold by the assessee qualifies as agricultural land and hence not a capital asset.
2. Whether the sale proceeds from the agricultural lands are taxable under Section 2(14)(iii) of the Income Tax Act.
3. Whether the absence of evidence of agricultural activity at the time of sale affects the classification of the land.
4. Whether the assessee's lack of declared agricultural income impacts the exemption claim.
5. Whether the purchase of another agricultural land and residential property affects the exemption.

Comprehensive, Issue-Wise Detailed Analysis:

1. Classification of Land as Agricultural Land:
The primary issue was whether the land sold by the assessee was agricultural and thus exempt from being treated as a capital asset. The Tribunal found that the land was classified as agricultural in the Chitta and Adangal records, situated beyond 8 kilometers from the nearest municipality, and the land revenue records supported this classification. The Tribunal also considered an Inspector's Report, which, despite being unsigned, was referenced in the assessment records and indicated agricultural operations were carried on the land. Consequently, the Tribunal concluded that the land met all conditions to be considered agricultural land under Section 2(14)(iii) of the Income Tax Act.

2. Taxability of Sale Proceeds under Section 2(14)(iii):
The Revenue contended that the sale proceeds should be taxable. However, the Tribunal held that since the land was agricultural and did not fall under the exceptions listed in Clauses (a) and (b) of Section 2(14)(iii), it could not be treated as a capital asset. Therefore, the sale did not give rise to capital gains.

3. Evidence of Agricultural Activity:
The Tribunal dismissed the Revenue's argument regarding the absence of evidence of agricultural activity at the time of sale. It emphasized that the classification in revenue records and the Inspector's Report were sufficient to establish the land's agricultural nature. The Tribunal also noted that the assessee operated a nursery, which the Hon'ble Jurisdictional High Court of Madras had previously recognized as an agricultural operation.

4. Declared Agricultural Income:
The Tribunal found that the lack of declared agricultural income did not affect the classification of the land. The Tribunal reasoned that whether there was income or loss from agricultural operations did not alter the nature and character of the land. Thus, the exemption claim was upheld regardless of the absence of declared agricultural income between the relevant assessment years.

5. Purchase of Other Properties:
The Revenue argued that the assessee's purchase of another agricultural land and a residential property in the name of his wife should impact the exemption. However, the Tribunal did not find this argument persuasive or relevant to the classification of the land sold. The Tribunal focused on the compliance with the conditions under Section 2(14)(iii) and upheld the exemption based on the land's classification and location.

Conclusion:
The High Court found that the Tribunal's findings were based on substantial evidence and did not involve any substantial question of law. The appeal was dismissed as the High Court concluded that the Tribunal's decision was correct and there was no legal basis to challenge the factual findings regarding the classification of the land as agricultural. The High Court emphasized that the right to appeal under Section 260A of the Income Tax Act is limited to cases involving substantial questions of law, which were not present in this case.

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