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Assessment of capital gains on the sale of agricultural land, eligibility for relief u/s. 54B of the IT Act, determination of land as agricultural or not, conditions for exemption under section 54B, taxability of capital gains on agricultural land within municipal limits. Analysis: The case involved the assessment of capital gains on the sale of 5.34 acres of land by a Hindu Undivided Family (HUF) in Arapalayam village. The assessee claimed exemption u/s. 54B of the IT Act by reinvesting the sale proceeds in agricultural land. However, the Income Tax Officer (ITO) deemed the lands not to be agricultural, leading to the assessment of capital gains. The CIT(A) upheld the assessment, prompting the appeal before the tribunal. In the appeal, the assessee argued that despite the lands being fallow due to drought, they were registered as agricultural in revenue records. The revenue contended, citing precedent, that the high sale price and the property being described as Tarisu land indicated a non-agricultural nature. Additionally, a debate arose on the requirement of actual use of the land for agricultural purposes within two years prior to sale for claiming relief u/s. 54B. The tribunal, after considering the arguments, referred to the Supreme Court's stance on determining land as agricultural based on its intended use and connection to agricultural purposes. The evidence showed that the land was classified as agricultural in revenue records and was treated as such in previous assessments. Despite the high sale price and subsequent conversion to house sites, the tribunal found no evidence of the assessee abandoning the intention to cultivate the land. Therefore, the property retained its agricultural character until the sale. Regarding the conditions for relief u/s. 54B, the tribunal rejected the revenue's argument that actual use within two years prior to sale was mandatory. It reasoned that the intent of the provision was to encourage cultivation, and inability to cultivate due to external factors should not disqualify an assessee from relief. The tribunal concluded that the assessee was entitled to relief u/s. 54B. Furthermore, the assessee contended that even if the lands were within municipal limits, the capital gains should still be considered agricultural income based on a Bombay High Court decision. The tribunal agreed, directing the deletion of tax on the capital gains from the sale of the agricultural lands in Arapalayam village. In conclusion, the tribunal allowed the appeal, ruling in favor of the assessee and granting relief from the assessment of capital gains on the sale of agricultural land within municipal limits.
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