2017 (4) TMI 1005 - AT - Income Tax

Sale of land - Agricultural Land OR Capital Asset - nature of land - Held that - The land was sold to an agriculturist who later on converted the land for non-agricultural purposes after obtaining permission from the competent authority. Moreover, in the present case neither there is any cogent evidence to rebut the presumption of truth attached with the revenue record maintained by the department nor any verification was conducted by AO during assessment to rebut the documentary evidence placed on record by the assessee to falsify contention of the assessee. The authorities below have not given any cogent and convincing reason for disbelieving the documentary and circumstantial evidence discussed in the foregoing paras which, in our considered opinion, prima facie establish that the land in question was an agricultural land within the provisions of the Act at the time of sale to the purchaser. Since, in our considered opinion the assessee has been able to establish that the land in question at the time of its sale was an agricultural land and not a capital asset within the definition of section 2(14) of the Act, the Ld. CIT(A) has wrongly affirmed the findings of the AO. We, therefore, set aside the impugned order and allow this ground of appeal of the assessee.

Summary

Issues Involved:
1. Classification of land as "Agricultural Land" versus "Capital Asset" within the meaning of Section 2(14) of the Income Tax Act, 1961.
2. Deduction of brokerage paid towards the sale of the said land for computing Capital Gains.

Issue-Wise Detailed Analysis:

1. Classification of Land as "Agricultural Land" vs. "Capital Asset":

The primary issue in the appeals was whether the land sold by the assessees was an "agricultural land" and thus not a "capital asset" under Section 2(14) of the Income Tax Act, 1961, thereby exempting the gains from capital gains tax. The assessees contended that the land was agricultural, supported by various documents such as 7/12 extracts, land revenue receipts, affidavits from individuals who carried out agricultural activities, and bills for agricultural inputs.

The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) (CIT(A)) concluded that the land was not used for agricultural purposes and was a capital asset. This conclusion was based on findings that the land had been barren since 1996-97, no agricultural income was reported in the tax returns, and the high sale price indicated non-agricultural use. Additionally, the purchaser had developed a bungalow on the land after converting it to non-agricultural use.

The Tribunal, however, found that the AO did not adequately rebut the direct and circumstantial evidence provided by the assessees. The Tribunal noted that the AO did not verify the affidavits or the documentary evidence submitted by the assessees. The Tribunal also considered an application by the purchaser for using the land for horticulture, which supported the claim that the land was agricultural at the time of sale. The Tribunal distinguished the facts of this case from the precedent set by the Supreme Court in Smt. Sarifabibi Mohmed Ibrahim, where the land was within municipal limits and had been partially converted to non-agricultural use before the sale.

Based on the evidence and the lack of contrary verification by the AO, the Tribunal concluded that the land was agricultural and not a capital asset at the time of sale. Consequently, the gains from the sale were not subject to capital gains tax.

2. Deduction of Brokerage Paid:

The second issue was whether the brokerage paid towards the sale of the land should be deducted from the sale value for computing capital gains. Since the Tribunal decided the primary issue in favor of the assessees, declaring the land as agricultural and not a capital asset, the question of brokerage deduction became academic and was not adjudicated.

Conclusion:

The Tribunal allowed the appeals, setting aside the orders of the CIT(A) and AO, and ruled that the land sold by the assessees was agricultural land, not a capital asset. Hence, the gains from the sale were not taxable as capital gains. The brokerage deduction issue was rendered moot by this decision.