2016 (6) TMI 550 - AT - Income Tax

Addition under the head capital gains - Nature of land - Agricultural income - Held that - Agricultural income for the purpose of assessment to agricultural income tax, income derived from any building owned and occupied by the receiver of the rent or revenue of any such land is also regarded as agricultural income under the Act. Such building should be on or in the immediate vicinity of the land and is occupied by the owner by reason of his connection with the land and is required by him for his dwelling house or as a store house or other out building. All these qualifications are satisfied in the case of the house where the assessee by reason of his connection with the land is living. The entire land of 30 cents retains the character of the agricultural land. The assessee is actually cultivating the land with agricultural crops. The land is not within the notified area and admittedly within a Panchayat far away from the notified areas in Cochin Corporation as per Notification No. SO 10/6.1.1994. The assessing officer himself admits that 1/3rd of the land could be regarded as agricultural land. The existence of well, septic tank, compound wall, cattle shed, pump house, a small house etc., would not make any difference to nature of land being agricultural in nature. The assessee had also declared agriculture income and the same have been accepted in the asst. order. For the aforesaid reasons, we are of the view that the Income Tax Authorities was not justified in treating 2/3rd of the subject property as capital asset and bringing the same for tax under the head income from capital gains . - Decided in favour of assessee.

Summary

Issues:
1. Whether the addition of ?58,76,920 under the head 'capital gains' is justified.

Analysis:
The primary issue in this case was the confirmation of the addition of ?58,76,920 made by the Assessing Officer (AO) under the head 'capital gains'. The land in question was acquired for a public purpose, and the Assessing Officer held that a portion of the land fell within the definition of "Capital Asset" and was liable for capital gains tax. The CIT(A) concurred with this view, considering the presence of a residential building, cattle shed, well, pump house, etc., on the acquired land. The CIT(A) emphasized that the land was classified as dry land by the Land Acquisition Officer, indicating non-agricultural nature. The AO treated 1/3rd of the land as agricultural, leading to the addition of ?58,76,920 to the taxable income.

In the appellate proceedings, the appellant contended that the land was agricultural and provided documentary evidence to support this claim. The appellant argued that the land retained its agricultural character, as evidenced by various certificates and records. The appellant also highlighted the definition of agricultural income under Section 2(1A) and emphasized that the land was being actively cultivated with agricultural crops. The appellant's submissions focused on proving that the entire 30 cents of land should be considered agricultural and not subject to capital gains tax.

The Appellate Tribunal analyzed the evidence presented and the relevant legal provisions. It noted that the land was indeed agricultural, as supported by the certificates and records provided by the appellant. The Tribunal emphasized that the presence of structures like a well, septic tank, etc., did not alter the agricultural nature of the land. Considering all aspects, the Tribunal concluded that the Income Tax Authorities were not justified in treating 2/3rd of the property as a capital asset subject to tax. Therefore, the appeal was allowed, and the addition of ?58,76,920 under the head 'capital gains' was deemed unjustified.