2005 (3) TMI 46 - HC - Income Tax

Sale of land capital gain - Whether, the assessees land could be termed as agricultural land? - The subject land has been purchased by a sister concern of Leela Beach Resort and as noted by the learned Income-tax Appellate Tribunal, the memorandum and articles of association of the said company show that its main object is to do agricultural operations. The learned Income-tax Appellate Tribunal has also taken note of the fact that the subject land fell in the C.R. Zone and being so, it will not be possible to be put to any construction activity. In our view the learned Income-tax Appellate Tribunal was right, in coming to the conclusion that the subject land was agricultural and the sale of the same did not invite the payment of capital gains tax appeal dismissed

Issues Involved:
1. Classification of the land as agricultural land.
2. Applicability of capital gains tax on the sale of the land.
3. Evaluation of evidence and findings by lower authorities.
4. Application of legal tests for determining agricultural land status.
5. Jurisdiction of the High Court under section 260A of the Income-tax Act, 1961.

Detailed Analysis:

1. Classification of the Land as Agricultural Land:
The primary issue was whether the land sold by the assessees could be termed as agricultural land. The assessees contended that the land was agricultural, having coconut and cashew plantations. The Assessing Officer, however, held that the land was "barad" in nature and not capable of agricultural operations, noting the absence of regular agricultural activities and the high sale price indicative of non-agricultural land.

2. Applicability of Capital Gains Tax:
The assessees did not declare capital gains on the sale of the property. The Assessing Officer issued a notice under section 143(2) of the Act, determining that the assessees were liable to pay tax on long-term capital gains. However, the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal (ITAT) found the land to be agricultural, thus not subject to capital gains tax. The ITAT concluded that the land was agricultural based on the documentary evidence and the surrounding facts.

3. Evaluation of Evidence and Findings by Lower Authorities:
The Commissioner of Income-tax (Appeals) conducted an inspection and partially accepted the assessees' claim, treating 2/3rds of the land as agricultural. The ITAT, however, fully accepted the assessees' claim, relying on affidavits, land revenue receipts, and the agricultural classification in revenue records. The ITAT criticized the Commissioner for not adequately considering the evidence and for his personal inspection findings.

4. Application of Legal Tests for Determining Agricultural Land Status:
The Supreme Court's decision in Sarifabibi Mohmed Ibrahim v. CIT laid down 13 tests to determine whether land is agricultural. These tests include the classification in revenue records, actual use for agriculture, income from agricultural operations, and the physical characteristics of the land. The ITAT applied these tests and found that the land met the criteria for being classified as agricultural. The High Court noted that the ITAT's findings were based on a cumulative consideration of all relevant facts and were not perverse.

5. Jurisdiction of the High Court under Section 260A:
The High Court emphasized that under section 260A, it could only interfere if there was a substantial question of law. The court referenced several judgments, including Santosh Hazari v. Purushottam Tiwari, which defined a substantial question of law. The court concluded that the ITAT's findings were factual and not subject to interference under section 260A, as they were not perverse or unsupported by evidence.

Conclusion:
The High Court dismissed the Revenue's appeals, upholding the ITAT's decision that the land sold by the assessees was agricultural and not subject to capital gains tax. The court found no substantial question of law warranting interference, as the ITAT had correctly applied the legal tests and evaluated the evidence. The parties were left to bear their own costs.

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