2021 (8) TMI 904 - AT - Income Tax

Capital Gain on the acquisition of Land - Claim of exemption u/s 10(37) - Agriculture land - whether the acquired Land falls within the purview of 10(37) of the Income Tax Act or not? - HELD THAT - CIT(A) has rightly held that the Land was the land reference u/s 2(14) (iii) of the Act as it is situated within 650 m of the Municipality limit. CIT appeal had rightly held that the Land was acquired by way of compulsory acquisition under National Highway Authority of India act. CIT(A) has wrongly held that the Land was under agricultural use for a period of two years before its acquisition. He was improperly swayed by the compensation order passed granted by the acquisition authorities, giving the compensation by treating the Land as agriculture. There is a distinction between the grant of compensation for the Land at an agriculture rate and cultivation of the Land fortwo years for agricultural purposes before acquisition. The SDM report categorically mentioned that no compensation for standing crops was given to the assessee. No evidence was found that the Land was used for agricultural purposes for two years prior to its acquisition. Capital gain tax would be leviable on the said compensation received as the land would continue to be the capital asset within the meaning of section 45 of the Income Tax Act. In our opinion, the assessee is liable to pay the capital gain tax on the compensation amount received by the assessee on the land that was not under cultivation. Undoubtedly, the Land other than 8 kanal 30 marlas was the capital asset within the meaning of section 2 (14)(iii) read with section 10(37) r/w section 45 of the Income Tax Act and therefore, any capital gain arising to the assessee on the sale of the land land would be the subject matter of the capital gain. Long terms capital gain to the file of the AO, therefore, the pro rata interest earned on compensation received for cultivated and non-cultivated land shall, be calculated by AO, and consequential benefit shall be given to the assessee on compensation received on cultivated land. As we have held, assessee's land partly was urbanized agricultural cultivated Land and remaining as a capital asset. Therefore the assessee would not be entitled to the benefit of section 54B of The Income Tax Act 1961. Appeal of the Revenue is partly allowed.

Issues Involved:
1. Deletion of addition made by the Assessing Officer (A.O.) as Capital Gain on the acquisition of land.
2. Admission of additional evidence by the Commissioner of Income Tax (Appeals) [CIT(A)].
3. Assessment of whether the land in question was used for agricultural purposes.
4. Determination of the correct exemption amount under Section 10(37) of the Income Tax Act, 1961.
5. Request to set aside the order of the CIT(A) and restore the order of the A.O.

Detailed Analysis:

Issue 1: Deletion of Addition as Capital Gain
The Revenue challenged the CIT(A)'s order, which deleted the addition of ?7,48,60,293 made by the A.O. as Capital Gain on the acquisition of land. The A.O. had concluded that the land was within the urban limit and thus considered it a capital asset, making the compensation received taxable as capital gain. The CIT(A) disagreed, holding that the land was used for agricultural purposes and thus exempt under Section 10(37) of the Income Tax Act, 1961.

Issue 2: Admission of Additional Evidence
The Revenue argued that the CIT(A) erred in admitting additional evidence without appreciating that the A.O. had provided multiple opportunities to the assessee to furnish evidence. The CIT(A) considered the additional evidence, which included certificates from the Revenue Authority and Khasra Girdawari records, to support the claim that the land was used for agricultural purposes.

Issue 3: Agricultural Use of the Land
The A.O. had relied on a report from the SDM stating that no crops were standing on the land at the time of the award, suggesting it was not used for agricultural purposes. The CIT(A) found that the land was used for agricultural purposes based on certificates and Khasra Girdawari records, which showed cultivation of crops like wheat and pulses. The Tribunal noted that only part of the land (8 Kanal 30 Marla) was under cultivation, not the entire land (22 Kanal 15 Marla).

Issue 4: Correct Exemption Amount Under Section 10(37)
The CIT(A) granted total exemption under Section 10(37), but the Tribunal found that only the compensation for the cultivated portion of the land (8 Kanal 30 Marla) should be exempt. The remaining compensation should be taxed as capital gain. The Tribunal directed the A.O. to compute the compensation accordingly and provide the exemption only for the cultivated portion.

Issue 5: Request to Set Aside CIT(A)'s Order
The Tribunal partially allowed the Revenue's appeal, remanding the matter back to the A.O. with specific directions to segregate the compensation for the cultivated and non-cultivated portions of the land and tax them accordingly. The Tribunal also directed the A.O. to compute the pro-rata interest earned on the compensation and provide consequential benefits to the assessee.

Conclusion:
The Tribunal modified the CIT(A)'s order by segregating the land into cultivated and non-cultivated portions. The compensation for the cultivated portion was exempt under Section 10(37), while the compensation for the non-cultivated portion was taxable as capital gain. The Tribunal remanded the matter back to the A.O. to compute the tax liability accordingly. The assessee's cross-objection was dismissed as infructuous.

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