2013 (9) TMI 37 - AT - Income Tax

Disallowance of long term capital gain - Agricultural land or capital asset - Held that - It is true that the definition of agricultural land is not given in the Income-tax Act, but various factors contribute to ascertain the correct nature of a particular piece of land. - as per revenue records, the land has been recorded as agricultural land. It is found to be a fact that the assessee has been showing agricultural income from this very land and the same has been accepted by the Revenue as such year after year. Even if we accept the contention of the Revenue that no agricultural production was done by the assessee on this land, this mere fact will not take out the land out of the nomenclature of agricultural land . The assessee grows coconut on this land and the same are sold in the market and these receipts are treated as agricultural receipts by the Revenue. The assessee has also paid agricultural land tax and copies of the same were made available to the authorities. The land in question is situated in the revenue estate of a Village named Iyyappanthangal Panchayat which is situated more than 8 kms away from the limits of Alandur Municipality. We have found that the land has been agricultural land for the past many years and has been classified as such in the records of the revenue Department. The assessee has paid kist of Rs. 400/- each in respect of land on 30.1.2007 regarding fasli years 1413, 1414, 1415 and 1416. It was brought on record that this land was being cultivated by one local person, namely Shri Murugan, but for assessment years 2005-06 and 2006-07, agricultural operations were carried out by him, he could not get food returns and that is why he did not admit any agricultural income in the returns filed. The report of the Tahsildar refers to noncultivation of the land because an agricultural operation in a large scale was not carried out on this land. - Decided against the revenue.

Summary

Issues Involved:
1. Whether the land sold by the assessee qualifies as 'agricultural land' and thus exempt from capital gains tax.
2. Examination of the land's classification and usage to determine its status as 'agricultural land' or 'capital asset'.
3. Review of the remand report and additional evidence provided by the assessee.

Issue-wise Detailed Analysis:

1. Classification of Land as Agricultural Land:
The primary issue was whether the land sold by the assessee was agricultural land, which is exempt from capital gains tax under Section 2(14) of the Income-tax Act, 1961. The Assessing Officer (AO) initially treated the land as a 'capital asset' and included the gains from its sale as taxable income. The assessee contended that the land was agricultural and thus not a capital asset. The CIT(A) examined the revenue records, statements, and a report from the Tahsildar/Revenue Officer, concluding that the land was indeed agricultural. The Tribunal upheld this finding, noting that the land was classified as agricultural in revenue records, and the assessee had shown agricultural income from it, which was accepted by the Revenue in previous years.

2. Examination of Land's Classification and Usage:
The AO argued that the land was not used for agricultural purposes for several years before its sale, citing the Tahsildar's report indicating no cultivation from 2003 to 2006. However, the Tribunal emphasized that the non-cultivation of land does not necessarily change its classification as agricultural unless its use has been officially changed. The Tribunal referred to various judicial guidelines to determine the nature of the land, such as its classification in revenue records, its use for agricultural purposes, and whether it was subject to land revenue. The Tribunal found that the land met these criteria, reinforcing its status as agricultural land.

3. Review of Remand Report and Additional Evidence:
The CIT(A) called for a remand report from the AO regarding fresh documents and submissions provided by the assessee. The remand report confirmed that the land was situated beyond 8 km from the outer limits of the nearest notified municipality, supporting the assessee's claim. The Tribunal considered this report and the spot enquiry conducted by the Income-tax Inspector, which corroborated the distance measurements provided by the Village Administrative Officer. The Tribunal accepted the reasons provided by the assessee for the land's non-cultivation and reaffirmed that the land retained its agricultural character at the time of sale.

Conclusion:
The Tribunal concluded that the land sold by the assessee was agricultural land and not a capital asset. Consequently, the gains from its sale were not subject to capital gains tax. The appeal filed by the Revenue was dismissed, and the order of the CIT(A) was upheld. The Tribunal emphasized that the classification of land as agricultural is a question of fact, which must be determined based on the specific circumstances of each case. The Tribunal's decision was pronounced in the open court on 20.01.11.