2024 (8) TMI 273 - AT - Income Tax

LTCG computation - gains on sale of the agriculture land - capital asset u/s 2(14) - deduction u/s 54B - assessee could not furnish documentary evidence regarding cost of acquisition of agricultural land sold by him, AO calculated long term capital gains by taking cost of acquisition as Nil - AO has not accepted the partial Investment made by the Assessee in the purchase of Agricultural land in the name of his wife HELD THAT - We find that there is no restriction in assessee pleading before the CIT(A) by way of an alternate ground that the land sold being an agriculture land falls outside the definition of a capital asset u/s 2(14)(iii) and the sale proceeds arising from the sale thereof cannot be brought to tax. The same being a legal ground and infact emerging from the findings of the AO where the AO has held that even though the land is an agricultural land, the same falls within the municipal limits of Mohali and thus exigible to tax. In the instant case, the assessee has submitted the necessary documentation issued by the Competent authorities that the agriculture land at Village Raipur Khurd was not situated within the jurisdiction of municipality of Mohali as per Government notification dated 28/01/2014 and secondly, the assessee has also submitted that the population of Village Raipur Khurd was 907 persons as per latest published Census of Punjab 2011 which is less than the prescribed threshold of 10000 persons as so provided in the statue. We thus find that both the conditions are cumulatively satisfied in the instant and the agriculture land so sold qualify for exclusion and cannot be classified as capital asset in terms of section 2(14)(iii)(a) of the Act. As given that population of Village Raipur Khurd was 907 as per latest census, even as per section 2(14)(iii)(b), one of the essential conditions of population exceeding the threshold is not satisfied and the subject agriculture land will stand excluded and cannot be classified as capital asset. In light of the same, long term capital gains on sale of the agriculture land, being not a capital asset cannot be brought to tax and the addition so made is hereby directed to be deleted. Ground no. 1-3 are allowed in favour of the assessee.

Summary

Issues Involved:
1. Whether the agricultural land sold by the Assessee qualifies as a capital asset under Section 2(14) of the Income Tax Act.
2. Whether the certificate from competent authorities confirms the land as agricultural land per the Income Tax Act.
3. Whether the population of the village where the land is located affects its classification as a capital asset.
4. Eligibility for benefit under Section 54B of the Act for land purchased in the name of the Assessee's wife.
5. Consideration of submissions made during the hearing.

Issue-wise Detailed Analysis:

1. Classification of Agricultural Land as Capital Asset:
The Assessee contended that the agricultural land sold was not a capital asset as per Section 2(14) of the Income Tax Act, 1961. The AO held that the land was within the municipal limits of Mohali and thus a capital asset liable to long-term capital gains tax. The Assessee provided certificates from local authorities stating the land was outside municipal limits and used for agricultural purposes. The Tribunal noted that both conditions under Section 2(14)(iii)(a) and (b) were satisfied: the land was outside municipal limits and the population was less than 10,000. Therefore, the land did not qualify as a capital asset, and the gains from its sale were not taxable.

2. Validity of Certificates from Competent Authorities:
The Assessee submitted certificates from the Patwari, Tehsildar, Sarpanch, Namberdar, and Town Planner confirming the land's agricultural use and location outside municipal limits. The CIT(A) dismissed these certificates, claiming they did not conform to the definition of agricultural land under the Income Tax Act. The Tribunal, however, found these certificates reliable and sufficient to establish that the land was agricultural and outside the municipal limits, thus not a capital asset.

3. Population of the Village:
The Assessee argued that the village's population was less than 1,000, as evidenced by the latest census data. The Tribunal agreed, noting that the population was indeed 907, which is below the threshold of 10,000 as specified in Section 2(14)(iii). Therefore, the land was not a capital asset, and the sale proceeds were not taxable.

4. Benefit under Section 54B for Land Purchased in Wife's Name:
The Assessee claimed a deduction under Section 54B for land purchased in his wife's name. The AO and CIT(A) denied this benefit, citing precedents where courts held that the benefit under Section 54B is not available for land purchased in the name of a third party, including the taxpayer's spouse. The Tribunal upheld this view, referencing judgments from the Punjab & Haryana High Court, which clarified that the new asset must be in the Assessee's name to qualify for the benefit under Section 54B.

5. Consideration of Submissions:
The Assessee argued that the submissions made during the hearing were not properly considered. The Tribunal found that the CIT(A) had indeed considered the submissions but had dismissed them based on the interpretation of the law and the evidence provided. The Tribunal, however, found merit in the Assessee's arguments regarding the classification of the land and allowed the appeal in part.

Conclusion:
The Tribunal concluded that the agricultural land sold by the Assessee was not a capital asset under Section 2(14) of the Income Tax Act, and thus, the gains from its sale were not taxable. The benefit under Section 54B was rightly restricted to the land purchased in the Assessee's name. The appeal was partly allowed, with the Tribunal directing the deletion of the addition made by the AO regarding the long-term capital gains.