2022 (11) TMI 312 - AT - Income Tax

Nature of land sold - agricultural land sold by the assessee is liable for capital gain tax or exempt from taxation - HELD THAT - As mentioned in the report that the said land was surrounded by a sugar factory and its quarters on north side on the east side Nagiri Nagalapuram road was separating a local milk diary and the land on the west side a land belongs to Ms. A. Preethi using for agricultural activity and on the south side a land with unwanted crops belongs to Eskay Agro Tech Ltd. and other than the sugar factory there was no other industry can be seen near the said land. From the above report that the sugar factory is situated nearer to assessee s land as there is sizeable agricultural activities are carried out and it is clear that it is an agricultural belt as sugar mill was established. Therefore it cannot be said that the land is not an agricultural land. AO came to a conclusion that the land sold to a company was not carrying agricultural operation and therefore the case of the assessee does not fall under the exception provided under section 2(14) of the Act. In our considered opinion the test applied by the AO is not correct. It is for the AO to ascertain as to whether the land sold by the assessee is an agricultural land as per revenue records the assessee has carried agricultural operation or not and it is not for the Assessing Officer to see to whom the land was sold. One more reason stated in the assessment order that subsequent to the sale the land was converted into non-agricultural purposes and thereby the claim of the assessee was denied. Vide order Revenue Divisional Officer has accorded permission for conversion of the agricultural land into non-agriculture purposes which means before sale of the land the land was an agricultural land. Moreover as per the certificate of the Village Revenue Officer the assessee was carrying out agricultural operation. Therefore the AO was not correct in denying the benefit. The observation of the AO that the sale consideration of .1.98 crores for 11 acres is abnormal. The assessee sold his land in acre and it comes to near about .18, 00, 000/- per acre is in our opinion not abnormal. The assessee wanted to sale his land and the purchaser wanted to purchase the land for non-agricultural purposes and therefore the rate at .18 to 20.00 lakhs per acre cannot be said that it is abnormal. Objection raised by the AO that the sale consideration received by the assessee was in the form of equity share. We find that the law does not prohibit in receiving the sale consideration by equity shares whether the sale consideration received by the assessee or not is a material fact to be considered. In this case the assessee has received the sale consideration. Thus the objection of the Assessing Officer is unwarranted. The land sold by the assessee is an agricultural land used for agricultural purposes and entitled for exception provided under section 2(14) of the Act. Accordingly we set aside the orders of authorities below and allow the appeal filed by the assessee.

Summary

Issues:
1. Whether the agricultural land sold is liable for capital gain tax or exempt from taxation.

Analysis:
The appeal pertains to the assessment year 2010-11, where the only effective ground raised by the assessee concerns the tax liability on the sale of agricultural land. The assessee, along with his wife, sold 11 acres of land claiming it as exempt from capital gains tax based on agricultural land status. The Assessing Officer disputed this claim, citing lack of agricultural activity and sale for non-agricultural purposes. The Assessing Officer relied on the judgment in the case of Sarifabibi Mohmed Ibrahim & Ors v. CIT to conclude that the land was non-agricultural due to various reasons like proximity to industries, high sale price, and mode of settlement. The Assessing Officer calculated the capital gains and taxed the amount. The CIT(A) upheld this decision, leading to the appeal before the Tribunal.

The assessee argued that the land was agricultural, supported by revenue records and certificates from local authorities confirming agricultural activities. The Tribunal noted that the land was indeed situated 8 kms away from the municipality and that the assessee had engaged in agricultural activities. The Assessing Officer's reliance on the lack of offered agricultural income for taxation was challenged by the assessee, who explained the income was used for personal consumption. The Tribunal observed that non-taxable income doesn't mandate filing returns. The Tribunal also considered an inspection report indicating agricultural surroundings and rejected the Assessing Officer's reasoning based on the Supreme Court judgment.

The Tribunal found that the land was agricultural, as supported by various certificates and reports. It disagreed with the Assessing Officer's approach, emphasizing that the land's agricultural status should be determined based on actual agricultural activities and not the subsequent use post-sale. The Tribunal deemed the sale price per acre not abnormal and accepted the receipt of equity shares as a valid consideration mode. Consequently, the Tribunal set aside the lower authorities' orders and allowed the appeal in favor of the assessee, concluding that the land sold was agricultural and exempt from capital gains tax.

In conclusion, the Tribunal's detailed analysis focused on establishing the agricultural nature of the land based on actual activities and local certifications, rejecting the Assessing Officer's conclusions and upholding the assessee's claim for exemption from capital gains tax on the sale of agricultural land.