2019 (2) TMI 707 - AT - Income Tax

Exemption u/s.54B - whether the land transferred by the assessee was non-agricultural land, there can be no grant of exemption u/s.54B of the Act - whether or not the land transferred by the assessee was an agricultural land? - Held that - On a cumulative consideration of all the relevant factors prevailing in the instant case, both for and against the treatment of land transferred by the assessee as agricultural land, we have no hesitation in holding that the assessee transferred agricultural land to Mr. Dhanraj Malchand Rati. It is so for the reason that the land was classified as agricultural land in land revenue records; subjected to land revenue; was being cultivated on which Jowar crop was grown. Reliance placed by the ld. DR on a Tribunal order dated 27.5.2015 passed in the case of Abhijit Subhash Gaikwad 2015 (5) TMI 971 - ITAT PUNE is misplaced in as much as the Tribunal returned a categorical finding in that case that the concerned Talathi had stated that the land was never used for agricultural activity . This position is contrary to the extant case. Here the concerned Talathi of the land transferred by the assessee has certified in the 7/12 extract that the Jowar Crop was grown on the land in last four years in line. It is, therefore, held that the land transferred by the assessee was an agricultural land and the capital gain arising from such land is eligible for exemption u/s.54B. We, therefore, overturn the impugned order on this issue and uphold the assessee s point of view. Treatment of agricultural income as income from other sources - Held that - We have held in earlier paras of this order that the land transferred by the assessee was an agricultural land on which jowar crop was raised. However, in order to claim exemption for a particular sum as an agricultural income, it is sine qua non for the assessee to prove the quantum of agricultural income claimed with relevant evidence. Existence and quantum of agricultural income are two separate things. AR fairly conceded that no formal sale of crop receipts were available as the Jowar crop was sold directly without routing it through commission agents. In view of the foregoing and in the absence of direct evidence of quantum of income, we estimate the existence of agricultural income in the peculiar facts of this case at half of the amount declared at ₹ 56,000/- and the remaining half is held to be Income from other sources .

Summary

Issues Involved:
1. Exemption under Section 54B of the Income-tax Act, 1961.
2. Treatment of agricultural income as "income from other sources".

Issue-wise Detailed Analysis:

1. Exemption under Section 54B of the Income-tax Act, 1961:

The primary issue in this appeal was whether the assessee was entitled to exemption under Section 54B of the Income-tax Act, 1961. The facts reveal that the assessee, along with two others, transferred land measuring 2 acres to a builder and developer, Mr. Dhanraj Malchand Rati, and claimed exemption on the capital gain arising from this transfer by purchasing two agricultural lands within the stipulated period.

The Assessing Officer (AO) and CIT(A) denied the exemption on the grounds that the land transferred was not agricultural land, as it was situated within the Municipal Corporation limits of Pune and was subject to a "Development Agreement" with the developer. The AO contended that the land ceased to be agricultural land, thus disqualifying the assessee from claiming exemption under Section 54B.

Upon review, it was noted that the land was classified as "Jirayat" (dry crop land), which depends on annual rainfall for cultivation. The 7/12 extract indicated that the land was used for growing "Jowar crop" for four consecutive years, and land revenue was paid. Additionally, the land was sold on an acreage basis rather than yardage, further supporting its agricultural nature.

The Tribunal referred to the Supreme Court judgment in Smt. Sarifabibi Mohmed Ibrahim and others Vs. CIT, which outlined tests to determine the nature of land. Applying these tests, the Tribunal found that the land was classified as agricultural in revenue records, used for agricultural purposes, and not sold on a yardage basis. Despite being situated in a developed area and intended for development post-transfer, the cumulative consideration of these factors led to the conclusion that the land was indeed agricultural at the time of transfer.

Thus, the Tribunal held that the assessee was entitled to exemption under Section 54B, overturning the lower authorities' decision.

2. Treatment of Agricultural Income as "Income from Other Sources":

The second issue concerned the treatment of agricultural income of ?1,12,000/- declared by the assessee. The AO had treated this income as "income from other sources," a view upheld by the CIT(A).

The Tribunal acknowledged that the land was agricultural and "Jowar crop" was cultivated. However, the assessee failed to provide formal sale receipts for the crop, as it was sold directly without intermediaries. The Tribunal emphasized the need for evidence to substantiate the quantum of agricultural income claimed.

In the absence of direct evidence, the Tribunal estimated the agricultural income at half the declared amount, i.e., ?56,000/-, and treated the remaining half as "income from other sources."

Conclusion:

The appeal was partly allowed. The Tribunal granted exemption under Section 54B for the capital gain arising from the transfer of agricultural land but only partially accepted the declared agricultural income, estimating half of it as "income from other sources." The order was pronounced in the Open Court on 08th February, 2019.