2019 (5) TMI 854 - AT - Income Tax

Long term capital gain - Nature of land sold - agricultural land or capital asset - no object in the Memorandum Articles of Association to purchase agricultural land and to do farming etc - not undertaken any agricultural activities - HELD THAT - Perusal of the map annexed by the retired/reemployed official Jugal Kishore, the distance is 7.8 Kms. plus 50 meters and the distance of road and arerial road is almost in a straight line. Taking into consideration we are inclined to accept the claim of the assessee that the land in question is situated beyond 8 kms. from the municipal limits of Jodhpur Nagar Nigam and, since the land being agricultural property, consequently the sale consideration is exempt from LTCG. Therefore, the appeal of assessee is allowed.

Issues Involved:

1. Determination of whether the land sold by the assessee qualifies as agricultural land.
2. Assessment of the distance of the land from the municipal limits of Jodhpur Nagar Nigam.
3. Evaluation of the land's classification as a capital asset and the applicability of Long-Term Capital Gains (LTCG) tax.

Issue-wise Detailed Analysis:

1. Determination of whether the land sold by the assessee qualifies as agricultural land:

The core issue in this appeal is the classification of the land sold by the assessee. The assessee claimed the land as agricultural, thus exempt from capital gains tax. The Assessing Officer (AO) disagreed, stating that the land did not qualify as agricultural because the assessee had not undertaken any agricultural activities, and the land was surrounded by industrial concerns. The AO acknowledged the Girdwar report indicating sowing of agriculture up to 16.10.2016 but questioned the validity of the claim due to the lack of agricultural activities by the assessee and the nature of the surrounding properties.

The Tribunal noted that the Memorandum of Association of the assessee company included agricultural activities under its objects, contradicting the AO's assertion. Additionally, the Girdwar report and the Patwari's certificate supported the claim that the land was used for agricultural purposes. The Tribunal referred to the case of CIT Vs. Smt. Debbie Alemao, where it was held that the absence of surplus agricultural income does not negate the land's agricultural use.

2. Assessment of the distance of the land from the municipal limits of Jodhpur Nagar Nigam:

The AO challenged the assessee's claim that the land was situated beyond 8 kms from the municipal limits, which is crucial for determining its tax status. The AO's investigation included reports from multiple inspectors and the Patwari. The initial Patwari report stated the land was about 10 kms from the municipal limits, but the AO dismissed this due to the lack of aerial distance measurement.

Subsequent reports by inspectors provided conflicting distances. One inspector reported the land as 9 to 10 kms away, based on Google Maps, while another retired inspector reported an aerial distance of 7 kms. The Tribunal found discrepancies in the AO's reliance on the retired inspector's report, noting that the distance calculations were inconsistent and lacked a scientific basis. The Tribunal emphasized the reliability of the Patwari's certificate and the initial inspector's report, both indicating the land was beyond 8 kms from the municipal limits.

3. Evaluation of the land's classification as a capital asset and the applicability of Long-Term Capital Gains (LTCG) tax:

The AO treated the land as a capital asset and calculated LTCG based on the sale consideration. The assessee contested this, arguing that the land's agricultural status exempted it from LTCG. The Tribunal examined the evidence, including the Patwari's certificate, the Girdwar report, and the Google Map screenshots, which supported the assessee's claim.

The Tribunal concluded that the land was indeed agricultural and situated beyond 8 kms from the municipal limits. Therefore, the sale consideration was exempt from LTCG. The Tribunal criticized the AO's reliance on the retired inspector's report and upheld the assessee's position, allowing the appeal.

Conclusion:

The Tribunal allowed the appeal, determining that the land sold by the assessee was agricultural and situated beyond 8 kms from the municipal limits of Jodhpur Nagar Nigam. Consequently, the sale consideration was exempt from LTCG, and the addition of ?1,66,30,754/- was not sustainable. The Tribunal's decision was based on the consistency and reliability of the evidence provided by the Patwari and the initial inspector, as well as the legal precedents supporting the assessee's claim.

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