2019 (4) TMI 776 - AT - Income Tax

Taxability of Capital gain - land sold was agricultural land and fall under capital asset? - agricultural income from land accepted - AO treating the land as urban land and bring the long term capital gains to tax - HELD THAT - Khasra revealed that there was standing crop of wheat and jwar on the land at the time of transfer. AO in the order u/s 143(3)/148 had accepted the agricultural income of the assessee - there is no explanation as to how the mutation could have taken place in the Revenue record if the land was put to commercial use as on the date of sale. Merely because the land was near the area said to be developed as industrial by 2021, without any notification from the competent authority, it cannot be said that the land in question loses its character and status of being an agricultural land. It is not the case of the Revenue that any competent government had issued any notice changing the nature of land from rural agricultural land in order to apply the provisions u/s 54B of the Act. Having accepted the agricultural income of the assessee and having possession of the record at the time of passing the order u/s 147/143(3) of the Act, it seems that the learned AO failed to appreciate the fact that unless and until a competent Government issues a notification or the conversion of the use of land takes place, land with standing crop whose mutation had taken place in the Revenue record, cannot be said to be a non agricultural land. - Decided against revenue

Summary

Issues:
1. Nature of land sold - Agricultural or Urban
2. Taxability of capital gains

Nature of land sold - Agricultural or Urban:
The case involved the sale of ancestral agricultural land by the assessee and co-owners. The Assessing Officer (AO) issued a notice based on information about cash deposits and sale proceeds. The assessee claimed that the cash deposit was from the sale of agricultural land and submitted relevant documents. The AO made an addition to the income, which was challenged in appeal. The CIT(A) considered documents like Jot Chakbandi and Khasra, indicating agricultural activities on the land. The AO's remand report stated the land was not agricultural, but the assessee argued otherwise, providing evidence of agricultural use. The CIT(A) concluded that the land was agricultural based on the records and accepted agricultural income, thus ruling out capital gains tax.

Taxability of capital gains:
The Revenue contended that the land was in an industrial area as per the Master Plan, making it urban land. They argued for capital gains tax under Section 54B as the land was not reinvested in agricultural land. The assessee countered, stating the Master Plan did not change the land's legal status and it was used for agriculture at the time of sale. The Tribunal examined the evidence, noting standing crops and the absence of a government notification changing the land's nature. Upholding the CIT(A)'s decision, the Tribunal dismissed the appeal, ruling the land was agricultural and not subject to capital gains tax.

In conclusion, the Tribunal upheld the CIT(A)'s findings, emphasizing the importance of legal notifications in changing land use status and the presence of agricultural activities on the sold land. The decision highlighted the significance of documentary evidence and the lack of government notifications altering land status. The appeal was dismissed, affirming the non-taxability of capital gains on the sale of the agricultural land.