2001 (8) TMI 291 - AT - Income Tax

Summary

Issues Involved:
1. Determination of capital gains on the sale of land.
2. Characterization of the land as agricultural or non-agricultural.
3. Cost of acquisition of the land.
4. Applicability of section 54E of the Income-tax Act for investment in specified bonds.

Issue-wise Detailed Analysis:

1. Determination of Capital Gains on the Sale of Land:
The Revenue challenged the order of the Commissioner of Income-tax (Appeals) [CIT(A)], which did not sustain the capital gains determined by the Assessing Officer (AO) on the sale of land. The CIT(A) followed the decision of the A.P. High Court in Markapakula Agamma v. CIT [1987] 165 ITR 386, which was deemed distinguishable by the Revenue. The Tribunal upheld the CIT(A)'s view that the land's ownership rights were conferred upon the assessee without payment of any consideration, thus no capital gains arose for tax purposes. The Tribunal also referenced the Supreme Court's decision in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294, which held that no capital gains tax is applicable if there is no cost of acquisition.

2. Characterization of the Land as Agricultural or Non-Agricultural:
The assessee contended that the land was agricultural, evidenced by agricultural operations, pahanies, and certificates from Revenue Authorities, and situated beyond 8 km from municipal limits. The CIT(A) and AO, however, characterized the land as non-agricultural, meant for commercial exploitation. The Tribunal noted the evidence provided by the assessee, including pahanies and certificates, which established the agricultural nature of the land and that it was located beyond 8 km from the municipal limits. The Tribunal concluded that the land was agricultural and thus not a capital asset for capital gains tax purposes under section 2(14)(iii) of the Income-tax Act.

3. Cost of Acquisition of the Land:
The assessee argued that the land was acquired without any cost, as ownership rights were conferred by virtue of the A.P. (Telangana) Tenancy and Agricultural Lands Act, 1950, and the A.P. (Telangana) Abolition of Inams Act, 1955. The Tribunal agreed, stating that the payment of Rs. 1,272 to the RDO was for formal recognition of pre-existing rights, not for acquisition. The Tribunal emphasized that the cost of acquisition must be fair and just, which Rs. 1,272 did not represent. The Tribunal upheld the CIT(A)'s decision that no capital gains tax was applicable due to the absence of any cost of acquisition.

4. Applicability of Section 54E of the Income-tax Act for Investment in Specified Bonds:
The assessee contended that investments made in specified bonds under section 54E should be considered for capital gains computation. However, since the Tribunal concluded that no capital gains arose due to the absence of cost of acquisition, this issue became moot.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision that no capital gains tax was applicable due to the absence of cost of acquisition. The Tribunal also dismissed the assessee's cross-objection as infructuous, given the resolution of the primary issues. The Tribunal's decision was based on detailed examination of the relevant laws, evidence presented, and precedents set by higher judicial authorities.