2022 (3) TMI 830 - AT - Income Tax

LTCG - whether assessee s land is agricultural land or not? - Distance from the the municipal limits - Whether agricultural land sold is not a capital asset within the meaning of section 2(14) of the Act, and hence no Capital Gains is chargeable to tax? - FMV determination - adopting the cost of acquisition as on 1/4/1981 - Fair Market Value (FMV) as on 01- 04-1981 to be taken as cost of acquisition - HELD THAT - We note that there is no dispute regarding sale consideration agreed/received by the assessee. Only issue of disagreement between the assessing officer and the assessee is the FMV as on 01-04-1981 to be taken as cost .of acquisition. As in the case of Akash Deep Farms Pvt. Ltd 2016 (9) TMI 918 - ITAT AHMEDABAD for the AY.2009-10, on identical and similar facts, whereby the issue relating to agricultural land sold was not treated a capital asset, within the meaning of section 2(14) of the Income Tax Act. The disputed issue whether the distance for identifying geographical location of the agricultural land is to be taken by road or by aerial and whether the municipal limits enhanced by the State Government is to be considered as starting point or it has to be taken from notification issued by the Central Government dated 06.01.1994 etc., have been discussed and adjudicated. The Coordinate Bench held that notification issued on 06.01.1994 by the Central Government is to be considered and therefore the Coordinate Bench has decided the issue in favour of the assessee. We find no reason to interfere in the said order of the Coordinate Bench, therefore, respectfully following the binding precedent of the Coordinate Bench in case of Akash Deep Farms P. Ltd. (supra), we delete the addition made by the Assessing Officer on account of Long Term Capital Gain (LTCG). - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the agricultural land sold is a "capital asset" within the meaning of section 2(14) of the Income Tax Act, 1961.
2. Determination of the Fair Market Value (FMV) as on 01-04-1981 for calculating the Long Term Capital Gain (LTCG).

Issue-wise Detailed Analysis:

1. Capital Asset Definition:
The primary issue was whether the agricultural land sold by the assessee qualifies as a "capital asset" under section 2(14) of the Income Tax Act, 1961, and hence subject to capital gains tax. The assessee contended that the land was agricultural and situated in a rural area, beyond the municipal limits as defined in the relevant notification dated 06-01-1994, and thus should not be considered a capital asset.

The notification specified that the distance from the municipal limits should be measured from the limits as they existed on the date of the notification. The land in question was beyond 8 kilometers from the Surat Municipal Corporation limits as of the notification date. The Tribunal upheld this argument, referencing several judicial precedents, including decisions from the Ahmedabad, Jaipur, and Indore Benches of the ITAT and the Karnataka High Court, which supported the assessee's position.

The Tribunal concluded that the land sold was not a capital asset as per the definition in section 2(14) and thus not liable for capital gains tax.

2. Fair Market Value (FMV) Determination:
The second issue involved the determination of the FMV of the land as on 01-04-1981 for calculating the LTCG. The assessees had adopted an FMV of ?380 per square meter based on a valuation report by a government-approved valuer. However, the Assessing Officer (AO) found this value to be excessively high compared to sale instances from the Sub Registrar, which ranged between ?1.98 to ?2.14 per square meter.

The AO referred the matter to the District Valuation Officer (DVO), who estimated the FMV at ?42.60 per square meter. The AO issued a show-cause notice to the assessee and subsequently adopted the DVO's valuation, resulting in a significant addition to the taxable income.

Upon appeal, the CIT(A) partially allowed the appeal, enhancing the FMV from ?42.60 to ?200 per square meter. However, the assessee further appealed to the Tribunal, arguing that the land should not be considered a capital asset and thus not subject to capital gains tax.

The Tribunal, referencing the decision in the case of Akash Deep Farms Pvt. Ltd., upheld the assessee's argument that the land was not a capital asset. Consequently, the addition made by the AO on account of LTCG was deleted.

Conclusion:
The Tribunal allowed the appeals filed by the assessees, holding that the agricultural land sold was not a capital asset within the meaning of section 2(14) of the Income Tax Act, 1961, and thus not liable to capital gains tax. The Tribunal also found that the FMV determined by the AO was not applicable as the land itself was not subject to capital gains tax. The decision in the lead case was applied mutatis mutandis to the other appeals, resulting in the deletion of the additions made by the AO.