2019 (8) TMI 45 - AT - Income Tax

Long Term Capital Gain - treating the rural agricultural land as capital asset u/s.2(14) - Nature of land sold - HELD THAT - As per the certificate received from SUDA regarding the distance of land situated within the limit of the SMC we find that impugned land situated within the limit of SMC therefore it is chargeable to long term capital gain. Accordingly this ground of appeal of the assessee is dismissed. Deduction u/s 54B - assessee purchased agricultural land from the sale proceeds - copy of Form No.7/12 which indicates agricultural use of land and submitted that entries in the revenue record are prima facie evidence to indicate that the land in question is agricultural land - use of grass for grassing of the cattle is in the nature of agricultural income - HELD THAT - It was an admitted position that in the area round about there was no building activity. The land was no building activity. The land was not approachable by any road to the residential locality of Navrangpura and other societies to which reference was made by the Appellate Assistant Commissioner in his order in that case. It was further in evidence that neither the assessee nor the person to whom the assessee had sold different plots of land had at any time made any attempt to put the land to non-agricultural use. Therefore we are of the considered opinion that the impugned land on which Ghas is shown as per revenue record was in the nature of agricultural land on which agricultural activities were being carried out in the form of grass and same was irrigated by well . Therefore the assessee is entitled for deduction u/s.54B accordingly this ground of appeal is allowed in the appeal of the assessee.

Summary

Issues Involved:
1. Addition of ?2,42,91,150/- on account of Long Term Capital Gain by treating rural agricultural land as a capital asset under Section 2(14) of the Income Tax Act.
2. Rejection of the deduction claimed to the tune of ?39,53,490/- under Section 54B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of ?2,42,91,150/- on account of Long Term Capital Gain:

The assessee filed a return of income declaring ?2,87,380/-, which was processed under Section 143(1) and selected for scrutiny. The Assessing Officer (AO) noticed the sale of immovable property with the assessee’s share being ?2,43,50,000/-. The assessee claimed exemption of the capital gain under Sections 54B and 54F, asserting that the property was not a capital asset as it was 8 kms away from Surat Municipal Limits. However, the AO referred the matter to Surat Urban Development Authority (SUDA) and Taluk Development Officer, who confirmed that the land was within municipal limits since 20.06.2006. Consequently, the AO taxed the entire gain as long-term capital gain.

On appeal, the CIT(A) observed that the land was within the limits of the Surat Municipal Corporation (SMC) based on SUDA's certificate, dismissing the assessee's claim. The Tribunal upheld this decision, noting that the land was indeed within SMC limits, making it chargeable to long-term capital gain. Thus, this ground of appeal was dismissed.

2. Rejection of the deduction claimed under Section 54B:

The assessee claimed a deduction under Section 54B, asserting that ?39.53 lakhs from the sale proceeds were invested in new agricultural land. The AO initially did not discuss this deduction in the assessment order but later rejected it, stating the capital gains were not utilized through Sections 54B or 54F. The CIT(A) allowed the admission of additional evidence in the interest of justice, observing that the land records (Form No. 7/12) indicated agricultural use. However, the CIT(A) held that the mention of "Ghas/Grass" in the land records did not automatically prove agricultural activities without corroboration, thus denying the deduction.

Upon further appeal, the Tribunal considered the revenue records and the definition of agricultural activity, noting that grass is a biological asset. The Tribunal referred to relevant case laws, including the Hon'ble Supreme Court's definition of agricultural purpose and the Calcutta High Court's decision in Emperor vs. Probhat Chandra Barua, which recognized income from pasturage as agricultural income. The Tribunal concluded that the land was used for agricultural purposes, thus allowing the deduction under Section 54B.

Conclusion:

The appeal was partly allowed. The Tribunal upheld the addition of ?2,42,91,150/- as long-term capital gain, dismissing the assessee's claim that the land was beyond municipal limits. However, the Tribunal allowed the deduction under Section 54B, recognizing the agricultural use of the land as indicated in the revenue records. The order was pronounced in open court on 26.07.2019.