2017 (1) TMI 815 - AT - Income Tax

Agricultural income - nature of transfer - whether the said agricultural land was used for agricultural purposes before the date of transfer - nature of land - Held that - We find that both the lower authorities have grossly erred in dismissing the claim of the assessee merely on the strength of the probable uses of the said agricultural land by the purchaser M/s. Attune Inc. We fail to understand the observations of the A.O. which has been confirmed by the ld. CIT(A), that the onus for converting the agricultural land for nonagricultural purpose is upon the firm M/s. Attune Inc. as per the MOU. As mentioned earlier, the assessee is not responsible for the acts of the purchaser of the land. All that we are concerned about is whether the said agricultural land was used for agricultural purposes before the date of transfer and after going through the documentary evidences, the answer is YES . In our considered opinion, if an agricultural operation does not result in generation of surplus that cannot be a ground to say that the land was not used for the agricultural purpose. The said land was entered in the revenue records as an agricultural land. It is also not in dispute that no permission was ever obtained for non-agricultural use by the assessee. Since no evidence has been brought to show that it was used for nonagricultural purposes, nor there is any evidence to show that the assessee has ever taken permission for non-agricultural uses, the profit earned on sale of the impugned land was agricultural income of assessee liable to be exempt from tax. - Decided in favour of assessee Denial of the claim of deduction u/s. 54F - whether legal claim can be made before the First Appellate Authority also ? - Held that - There is no dispute that the assessee has paid a sum of ₹ 42.25 lacs. It is also not in dispute that the assessee has entered into two Banakhata one pertaining to the land and the other pertaining to the construction. The assessee had purchased one constructed house for a total consideration of ₹ 42.25 lacs within the prescribed period mentioned in Section 54F of the Act. Merely, because the claim was made by a revised return which was not a valid return in the eyes of the law, the claim of exemption cannot be denied because a legal claim can be made before the First Appellate Authority also and the First Appellate Authority should have entertained the claim of the assessee. Thus we direct the A.O. to allow the claim of the assessee u/s. 54F of the Act. See Pruthvi Brokers and Shareholders Pvt. Ltd. 2012 (7) TMI 158 - BOMBAY HIGH COURT - Decided in favour of assessee

Summary

Issues Involved:
1. Transfer of agricultural land to a partnership firm and taxation of capital gains.
2. Eligibility of the assessee to claim relief under section 54F of the Income Tax Act.
3. Disallowance of cost of improvement while calculating capital gains.

Issue 1: Transfer of Agricultural Land to Partnership Firm:
The appeal was against the order upholding the finding that the land transferred to the partnership firm was not agricultural land, resulting in taxable Long Term Capital Gain. The Assessing Officer (A.O.) concluded that the land was used for non-agricultural purposes by the firm, thus subjecting the income to tax. The Appellate Tribunal found that the land was indeed used for agricultural purposes before the transfer, supported by documentary evidence. The Tribunal emphasized that the responsibility for future land use was on the purchaser, not the assessee. As no evidence indicated non-agricultural use or permission obtained, the Tribunal ruled the profit as agricultural income exempt from tax, setting aside the lower authorities' decision.

Issue 2: Eligibility for Relief under Section 54F:
The second grievance related to the denial of deduction under section 54F of the Act. The A.O. questioned the investment claimed by the assessee and allowed a reduced deduction amount. The A.O. rejected the claim in the revised return, citing it as belated. The Appellate Tribunal noted that the assessee had fulfilled the conditions for claiming exemption under section 54F by purchasing a constructed house within the stipulated period. Referring to a High Court ruling, the Tribunal held that a legal claim could be made before the Appellate Authority, directing the A.O. to allow the claim of the assessee under section 54F.

Issue 3: Disallowance of Cost of Improvement:
The other grievances of the assessee, regarding building loan interest and cost of improvement, were not pressed by the counsel and dismissed. The Tribunal did not delve into these issues as they were not pursued further. Consequently, the appeal filed by the Assessee was partly allowed, with the Tribunal ruling in favor of the assessee on the first two issues while dismissing the remaining grievances.

This detailed analysis of the judgment highlights the critical issues of the case, the arguments presented, and the Tribunal's findings on each aspect, providing a comprehensive overview of the legal proceedings and outcomes.