2017 (6) TMI 1122 - AT - Income Tax

Nature of land sold - LTCG - agricultural land - Held that - Land was not actually or ordinarily used for agricultural operations on or around the relevant time of sale. It is also to be seen that the income returned from agricultural operations carried on in the land was just for namesake and does not have any proportion to the efforts usually that would have been made by a true agriculturist. At the time of sale of land also no agricultural activities were carried on by the assessee. When the basic nature of the land itself found to be nonagricultural, the arguments regarding status of the property, whether within metropolis or outside the limit of the metropolis, is irrelevant. A non-agricultural property, whether inside the municipality or outside the municipality or even in a remote village is a capital asset and transfer of the same may generate income liable for capital gains taxation. In the facts and circumstances of the case, we set aside the order of the Commissioner of Income-tax(Appeals) on this point and restore the order of the Assessing Officer. - Decided in favour of revenue.

Issues Involved:
1. Determination of whether the land sold by the assessee qualifies as agricultural land.
2. Assessment of whether the agricultural land is a capital asset under the Income-tax Act.
3. Evaluation of the distance of the land from the municipal limits to determine tax liability.
4. Examination of agricultural activities and income reported by the assessee.
5. Consideration of the market value and real estate potential of the land.

Issue-wise Detailed Analysis:

1. Determination of Agricultural Land Status:
The core issue in the Revenue’s appeal was the classification of the land sold by the assessee as agricultural land. The Assessing Officer (AO) concluded that the land was not agricultural based on the lack of agricultural activities and an Inspector's report indicating the land was within 7.2 km from the municipal limits. The CIT(A) countered this by accepting the assessee's evidence, including government certificates and historical records, proving the land's agricultural status. The CIT(A) ruled that the AO's conclusion was incorrect, emphasizing the presence of eucalyptus trees and past agricultural income.

2. Agricultural Land as a Capital Asset:
The AO argued that the land was a capital asset since it was within 8 km of the municipal limits, making it subject to capital gains tax. The CIT(A) disagreed, relying on various government documents and certificates, which indicated the land was beyond 8 km from the municipal limits. The CIT(A) also noted that the AO's reliance on the Inspector's physical measurement was flawed and not authoritative compared to the government surveyor's report.

3. Distance from Municipal Limits:
The AO's determination that the land was within 8 km of the municipal limits was based on an Inspector's report. However, the CIT(A) found this measurement unreliable, favoring the government surveyor's report, which accurately placed the land beyond the 8 km limit. The CIT(A) emphasized that the Inspector's method was not precise and lacked the technical accuracy required for such measurements.

4. Agricultural Activities and Income:
The AO contended that no significant agricultural activities were conducted on the land, supported by the Tahsildar’s statement that no agricultural activities had been carried out for three years prior to the sale. The CIT(A) accepted the assessee's claim of ongoing agricultural activities, supported by historical records and certificates of agricultural income. However, the Tribunal found that the reported agricultural income was nominal and did not reflect substantial agricultural operations, suggesting it was more a formality to maintain the land’s agricultural status.

5. Market Value and Real Estate Potential:
The Tribunal observed that the land was sold for a significantly high price, indicating its potential for real estate development. This high market value contradicted the claim of the land being purely agricultural. The Tribunal concluded that the land’s character had shifted from agricultural to non-agricultural due to urbanization and real estate developments in the area.

Conclusion:
The Tribunal set aside the CIT(A)'s order and restored the AO's decision, concluding that the land sold by the assessee was non-agricultural and thus a capital asset subject to capital gains tax. The cross-objections filed by the assessee, supporting the CIT(A)'s order, were dismissed as they became infructuous following the Tribunal's decision. The Revenue's appeal was allowed, and the order was pronounced on 26th April 2017 in Chennai.

← Previous Next →