2012 (6) TMI 596 - AT - Income Tax

Gains arising on sale of Agricultural land Revenue added the sale to LTCG as assessee could not prove that the land was agricultural in nature Held that - There is no doubt that the assessee was unable to produce any records regarding purchase of seeds,inputs,fertilizers or insecticides for the casuarina plants stated to have been grown in the said land this by itself would not convert agricultural land in which factually there were cultivated casuarina plants a non-agricultural one - letter of Assistant Commissioner (Urban Land Ceiling, Alandur, Chennai clearly shows that the land had cultivation of casuarina plants therein and as per the Tehsildar, the land was agricultural in nature - Assistant Commissioner (Urban Land Ceiling) had dropped the proceedings for levy of urban land tax - Tehsildar, Chengalpattu,had also certified in his letter that irrigation was done through ground water facilities - Assessee might not have paid agricultural income-tax but is paying land revenue and village records clearly showed the land to be agricultural other two conditions being satisfied, impugned land is hereby held to be Agriculture land in favour of assessee.

Summary

Issues Involved:
1. Whether the land in question was agricultural in nature.
2. Whether the gains from the sale of the land should be considered as Long Term Capital Gains and taxed accordingly.

Issue-wise Detailed Analysis:

1. Whether the land in question was agricultural in nature:

The Revenue's primary grievance was that the CIT(Appeals) erroneously deleted an addition of Rs. 1,11,41,597/- made by the Assessing Officer (A.O.) under the head "Long Term Capital Gains." The A.O. contended that the assessee could not substantiate the agricultural nature of the land or prove any agricultural operations during the relevant year. The land was also subject to Urban Land Tax, and the A.O. argued that the CIT(Appeals) should not have relied on the Assistant Commissioner (Urban Land Tax)'s letter to determine the land's agricultural status.

The assessee, engaged in finance business, declared a total income of Rs. 3,76,047/- for the impugned assessment year. During a search on 26.10.2005, it was found that the assessee sold a property for Rs. 1,16,57,500/-. The assessee claimed the land was agricultural, thus exempting the gains of Rs. 1,14,78,958/- from tax. However, the A.O. noted the absence of evidence for agricultural operations, such as purchase records for seeds, fertilizers, insecticides, and sale proceeds, leading to the conclusion that the land was not put to agricultural use.

In the appeal, the assessee argued that the land was not within any urbanized jurisdiction and provided several pieces of evidence, including:
- A letter from the Assistant Commissioner of Urban Land Tax confirming the land's agricultural status and casuarina cultivation.
- Agricultural income reported in tax returns up to the assessment year 2005-06, accepted by the Department.
- Land revenue records and Adangal from the Village Administrative Officer confirming the agricultural nature.
- Wealth-tax returns reflecting the land as agricultural and accepted in earlier years.

The A.O., in his remand report, maintained that the land was not used for agricultural purposes and the assessee admitted to having no records for agricultural inputs. The A.O. also cited the Hon'ble Apex Court's decision in CIT v. Raja Benoy Kumar Sahas Roy (32 ITR 466) to argue against a broad definition of "agricultural land." The land's sale on a square feet basis and the high sale price were also indicators that it was not agricultural.

The CIT(Appeals) concluded that there was sufficient evidence to classify the land as agricultural, noting the Tehsildar's report confirming casuarina cultivation and ground water irrigation. The CIT(Appeals) also referenced the jurisdictional High Court's decision in CIT v. K.E. Sundara Mudiliar & Others (18 ITR 259), which recognized income from casuarina plantations as agricultural. The CIT(Appeals) determined that the land did not fall under the definition of "capital asset" in Section 2(14) of the Act, thus exempting the gains from Long Term Capital Gains tax.

2. Whether the gains from the sale of the land should be considered as Long Term Capital Gains and taxed accordingly:

The Revenue argued that the assessee failed to prove any agricultural operations, and the high sale price indicated the land was not for agricultural use. The land was considered commercial by both the assessee and the purchaser. The Revenue also distinguished the jurisdictional High Court's decision, noting that in that case, agricultural operations were carried out, unlike in the present case.

The assessee countered by highlighting the wealth tax returns and agricultural income reported and accepted in previous years. The Assistant Commissioner (Urban Land Ceiling)'s letter confirmed the land's agricultural nature, and the Tehsildar's report corroborated casuarina cultivation and ground water irrigation. The assessee argued that the absence of records for agricultural inputs did not negate the land's agricultural status, especially given the certifications from various authorities.

The Tribunal, after reviewing the evidence and hearing submissions, found no dispute that the land was not within an urbanized jurisdiction and was more than 8 kilometers from any municipality or cantonment board. The Tribunal emphasized that the absence of records for agricultural inputs did not convert factually cultivated agricultural land into non-agricultural land. The Assistant Commissioner (Urban Land Ceiling)'s letter and the Tehsildar's report were crucial in establishing the land's agricultural status. The Tribunal concluded that the land was agricultural in nature, and the gains from its sale were not subject to Long Term Capital Gains tax.

Conclusion:

The Tribunal upheld the CIT(Appeals)'s decision, confirming that the land was agricultural in nature and the gains from its sale were not taxable as Long Term Capital Gains. The appeal filed by the Revenue was dismissed.