2018 (7) TMI 1621 - HC - Income Tax

Nature of land sold - Capital asset or agricultural land - Held that - On the question of law framed as (i), we find that the decision to treat the transferred property as agricultural land is against law and facts, especially since the assessee has not established that the land in his possession and sold by him was an agricultural land put to use for agricultural purposes. There could not have been any reliance placed on the certificate issued by the Village Officer and it did not raise a valid presumption in favour of the assessee. The reliance so placed was also against the binding precedent in Asha George. The second question of law framed is also answered against the assessee and in favour of the Revenue. The third question of law is on facts and the report of the Inspector as relied on by the AO spoke of two factory buildings in the adjacent property. We do not find any relevance to that fact. The orders of the first appellate authority and the Tribunal are set aside.

Summary

Issues Involved:
1. Whether the transferred property qualifies as agricultural land.
2. Validity of relying on the Village Officer's certificate to prove agricultural operations.
3. Consideration of buildings on the transferred land in determining its nature.

Issue-wise Detailed Analysis:

1. Whether the transferred property qualifies as agricultural land:

The Revenue challenged the Tribunal's decision that the land sold by the assessee was agricultural and hence not assessable as capital gains under Section 45 of the Income Tax Act, 1961. The Tribunal had affirmed the first appellate authority's order, which found the land to be agricultural based on the assessee's claim and supporting evidence. However, the court emphasized that the definition of "capital asset" under Section 2(14) of the Act excludes agricultural land, provided it does not fall within the specified municipal or cantonment areas. The court noted that the determination of whether land is agricultural is essentially a question of fact and must be established by the assessee. The court found that the assessee failed to provide sufficient evidence to prove that agricultural operations were conducted on the land, as the only document produced was a Village Officer's certificate issued long after the sale, which was deemed unreliable.

2. Validity of relying on the Village Officer's certificate to prove agricultural operations:

The court scrutinized the reliance on the Village Officer's certificate, which was the sole piece of evidence produced by the assessee to prove the agricultural nature of the land. The court referred to the precedent set in Smt. Asha George vs. Income Tax Officer, where it was held that such certificates, issued long after the sale, cannot be the basis for concluding the agricultural status of the land. The court agreed with the Assessing Officer's (AO) decision to reject the certificate due to its issuance long after the sale without any corroborating evidence. The court highlighted that the burden of proof lies with the assessee to establish the land's agricultural status, which was not adequately discharged in this case.

3. Consideration of buildings on the transferred land in determining its nature:

The court addressed the presence of buildings on the transferred land, which the AO had noted in the assessment order. The court agreed that the existence of buildings could indicate non-agricultural use, but it also acknowledged that the use of the land by the purchaser (for non-agricultural purposes) is not relevant in determining its status at the time of sale. The court emphasized that the intention of the assessee at the time of purchase and the use of the land before the sale are crucial in determining its nature. The court found that the assessee's claim of agricultural use was not substantiated by any credible evidence, such as routine agricultural operations or returns filed under the Agricultural Income Tax Act, which further weakened the assessee's position.

Conclusion:

The court concluded that the assessee failed to establish that the land was agricultural and thus exempt from being treated as a capital asset. The reliance on the Village Officer's certificate was insufficient, and the presence of buildings on the land further complicated the claim. The court set aside the orders of the first appellate authority and the Tribunal, allowing the Revenue's appeal and holding that the land was not agricultural, thus assessable as capital gains. The court also declined the assessee's request for a remand, finding no cause for further evidence to be considered.