2024 (10) TMI 519 - AT - Income Tax

Nature of land sold - agricultural land v/s capital asset - addition treating agricultural land sold to be a Capital Asset allegedly being within the municipal limits which is arbitrary and unjustified - HELD THAT - As the population has been found to be less than the figure of 10 lakh, for which, the second condition to bring the land outside the ambit of agricultural land, is absent. Therefore, in keeping with Pr. CIT-3 Vs Anthony John Pereira 2020 (3) TMI 472 - BOMBAY HIGH COURT as elaborately dealt with by us, we hold that the land sold was agricultural land, not forming part of capital asset , with in the meaning of Section 2(14) of the Income Tax Act. Then, besides the above, it again remains undisputed that in view of Notification (APB 18-22) No. 9447, dated 06. 01.1994, relied on by the assessee all through, the amount received by the assessee is exempt, as rightly contended. This is so, since at the time of receipt of the last payment by the assessee in the year under consideration, Zirakpur was not a Municipality. As is evident from a perusal thereof, which, again has not been denied on behalf of the Department. Too, the Sale Deed clearly mentions that the possession of the land was handed over by the assessee to the purchaser at the site after receipt of the entire amount of payment, before the Joint Sub Registrar, Zirakpur. In this regard, reliance has rightly been placed on the decision of the Hon'ble Supreme Court in the case of CIT Vs Balbir Singh Maini 2017 (10) TMI 323 - SUPREME COURT Therefore, the matter considered from any angle, the order under appeal is found to be unsustainable in law and the same is hereby reversed. The claim of the assessee is found to be justified and it is accepted as such. Assessee appeal allowed.

Issues Involved:

1. Classification of agricultural land as a capital asset.
2. Applicability of the relevant notification for determining municipal limits.
3. Consideration of population figures from the last census.
4. Validity of treating land sale as complete based on an unregistered agreement.
5. Eligibility for deduction under Section 54B of the Income Tax Act.
6. Alleged transfer of possession without evidence.

Detailed Analysis:

1. Classification of Agricultural Land as a Capital Asset:

The primary issue was whether the agricultural land sold by the assessee should be treated as a capital asset. The assessee contended that the land was agricultural and outside municipal limits, thus exempt from capital gains tax under Section 2(14) of the Income Tax Act. The AO, however, treated the land as a capital asset, citing that it fell within municipal limits as per the amended provisions effective from 01.04.2014. The Tribunal found that the land was part of a Gram Panchayat and not within municipal limits at the time of sale, relying on a 2012 notification, thereby not constituting a capital asset.

2. Applicability of Notification for Municipal Limits:

The assessee argued that the 2012 notification, which placed the land outside municipal limits, was applicable. The AO applied a 2016 notification, claiming the land was within municipal limits during the sale. The Tribunal concluded that the 2016 notification was issued after the relevant financial year, and thus, the 2012 notification was applicable, confirming the land was outside municipal limits at the time of sale.

3. Consideration of Population Figures from Last Census:

The assessee maintained that the population of the nearest municipality, Zirakpur, was below the threshold as per the 2011 Census, making the land exempt from being a capital asset. The AO incorrectly used an inflated population figure. The Tribunal emphasized that the population should be as per the last published Census, which was 95,443, not meeting the criteria for the land to be a capital asset.

4. Validity of Treating Land Sale as Complete Based on Unregistered Agreement:

The AO treated the sale as complete based on an unregistered agreement, disregarding the Supreme Court's decision in "CIT Vs Balbir Singh Maini." The Tribunal noted that possession was transferred only after full payment, as per the sale deed, aligning with the Supreme Court's ruling, thus invalidating the AO's stance.

5. Eligibility for Deduction under Section 54B:

The assessee's eligibility for deduction under Section 54B was not adjudicated as it was an alternative ground. Since the primary grounds were accepted, this issue was deemed unnecessary for resolution.

6. Alleged Transfer of Possession Without Evidence:

The AO's finding of possession transfer without evidence was contested. The Tribunal found no basis for this claim, as the sale deed clearly indicated possession transfer post-payment, supporting the assessee's position.

Conclusion:

The Tribunal reversed the order under appeal, finding the assessee's claims justified. The land was not a capital asset, the correct notification and population figures were considered, and the sale was not complete until the registered deed was executed. The appeal was partly allowed, with the main grounds accepted.

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