2013 (8) TMI 1119 - AT - Income Tax

Summary

Issues Involved:
1. Determination of whether the land in question was agricultural land or a capital asset.
2. Treatment of agricultural income as income from other sources.

Issue 1: Determination of Nature of Land
The assessee contested the revenue authorities' decision that the land transferred was not agricultural but a capital asset within the meaning of section 214 of the Act. The facts revealed that the land was situated in Tondapally village, Shamshabad Mandal, included in the Hyderabad Air Port Development Authority (HADA) and later under Hyderabad Metropolitan Development Authority (HMDA). The Assessing Officer concluded that the land was not agricultural due to its location within HADA/HMDA, its sale for non-agricultural purposes, and its high sale consideration. The CIT(A) upheld this view, emphasizing the need for actual agricultural use at the time of sale, referencing the Supreme Court's decision in Sarifa Bibi Mohammad Ibrahim & Others.

The Tribunal, however, noted that the land was recorded as agricultural in revenue records, was in a bio-conservation zone, and had no development activity. It referenced several judicial precedents, including the Supreme Court's decision in Sarifa Bibi Mohammad Ibrahim & Others and the ITAT Hyderabad Bench's decision in Smt. T. Urmila vs. ITO, which stated that mere inclusion in a development authority's jurisdiction does not change the land's agricultural character unless converted under relevant laws. The Tribunal concluded that the land retained its agricultural character as it was used for agriculture, recorded as such in revenue records, and no conversion had occurred. Consequently, it was not a capital asset under section 2(14) of the Act, and no capital gains tax was applicable.

Issue 2: Treatment of Agricultural Income
The CIT(A) treated the agricultural income as income from other sources, arguing that the land was not agricultural. The Tribunal, however, reversed this decision, noting that the assessee had consistently shown agricultural income in previous returns. Given the Tribunal's finding that the land was indeed agricultural, it held that the income of Rs. 30,000 shown by the assessee should be treated as agricultural income.

Conclusion
The Tribunal allowed the appeal, setting aside the CIT(A)'s order and directing the deletion of the capital gains addition, affirming that the land was agricultural and the income derived from it was agricultural income.