2019 (4) TMI 265 - AT - Income Tax

Levy of capital gains tax on sale of land - nature of land sold - capital asset - agricultural land by the revenue department and as per the deed of purchase and sale made by the appellant - land could not be used for large scale agricultural operations - entitlement to claim the exemption u/s.10(1) - HELD THAT - AO has not made any addition on account of the rejection of the assessee s claim of agricultural income. The assessee owned more than 90 acres of land is also not disputed. A perusal of the Assessment Order clearly shows that the AO has examined the VAOs of the various villages wherein the assessee properties are situated. As noticed that the said VAOs were not provided for cross-examination to the assessee. A perusal of what has been extracted by the AO in respect of the VAO statements recorded clearly shows that as per the revenue records, the said lands were agricultural lands during the relevant period. The examination of the VAOs has also brought out the fact that the agricultural operations had been done on the said lands. How the AO draws the conclusion that the lands were left barren after purchase by the assessee is not coming out of the Assessment Order. It is also an admitted fact that the said lands are beyond 8 kms from the nearest Municipality. Thus, clearly, the said lands do not fall within the purview of the definition of capital asset under Income Tax Act. Once, the revenue records clearly shows that the said lands are agricultural lands and it is also noticed that the agricultural operations have been done on the said lands, just because, the assessee has not been able to generate desired agricultural income from the said lands and the assessee had sold the said lands within one year of its purchase, would not change the character of agricultural land to a non-agricultural land. This view of ours is supported from the principles laid down in the case of M.S.Srinivasa Naicker 2007 (1) TMI 149 - MADRAS HIGH COURT as also the decision in the case of Ashok Kumar Rathi 2018 (1) TMI 277 - MADRAS HIGH COURT . This being so, we are of the view that what has been sold by the assessee is an agricultural land and consequently the assessee is entitled to claim the benefit of exemption u/s.10(1) - Decided in favour of assessee.

Summary

Issues involved:
- Appeal against Commissioner of Income Tax (Appeals) order
- Classification of land as agricultural for capital gains tax purposes
- Claim of exemption under section 10(1) of the Income Tax Act

Analysis:
1. Appeal against Commissioner of Income Tax (Appeals) order:
- The appellant filed an appeal against the Order of the Commissioner of Income Tax (Appeals)-14, Chennai, for the AY 2008-09.
- Grounds raised included the incorrectness of the order, levy of capital gains tax on sale of land classified as agricultural, and failure to recognize the land as not a capital asset under section 2(14)(iii) of the Income Tax Act.
- The appellant argued that the land was initially purchased as agricultural land, shown as such in revenue records, and located beyond municipal limits, supporting the claim for exemption under section 10(1) of the Act.

2. Classification of land as agricultural for capital gains tax purposes:
- The appellant, a HUF, purchased agricultural land and conducted agricultural activities on it before selling it to a property developer.
- Despite doubts raised by the Assessing Officer (AO), evidence showed agricultural operations were conducted on the land, as per revenue records and VAO statements.
- The AO denied exemption under section 10(1) on the grounds of lack of evidence of agricultural activities, sale to a real estate developer, and setting up a SEZ.
- The Tribunal noted that revenue records classified the land as agricultural, agricultural operations were performed, and the land was located beyond 8 kms from the nearest Municipality, meeting the criteria for exemption under section 10(1).

3. Claim of exemption under section 10(1) of the Income Tax Act:
- The Tribunal overturned the CIT(A) order and directed the AO to grant the appellant the benefit of exemption under section 10(1) for the sale of agricultural lands.
- Relying on precedents and principles established by the jurisdictional High Court, the Tribunal held that the inability to generate desired agricultural income or selling the land within a year of purchase does not change the land's agricultural classification.
- The Tribunal emphasized that as long as the land was initially agricultural, used for agricultural activities, and met the statutory requirements, the appellant was entitled to claim the exemption under section 10(1) of the Act.

In conclusion, the Appellate Tribunal ITAT Chennai allowed the appellant's appeal, setting aside the CIT(A) order and directing the AO to grant the appellant the benefit of exemption under section 10(1) for the sale of agricultural lands.