2020 (10) TMI 21 - AT - Income Tax

Long term capital gain - nature of land sold - sale of agricultural property as the property sold by the appellant - Whether not capital asset with in the meaning of section 2(14) - first contention of the AR is that the impugned land is an agricultural land and it is not a capital asset since it is the land covered by Section 2(14)(iii)(a) (b) - HELD THAT - It is an agricultural land, only if the said land is subject to agricultural operation and agricultural activities is carried on in that land. There is no presumption that all land situated outside the notified area are agricultural land and there is no automatic treatment of land as an agricultural land on the ground that it is covered by section 2(14)(iii)(a) (b) of the Act. The expression 'agricultural land' is not defined in the Act, and now, whether it is agricultural land or not has got to be determined by using the tests or methods laid down by the Courts from time to time. As in the case of Smt. Sarifabibi Mohmed Ibrahim 1993 (9) TMI 10 - SUPREME COURT has approved the decision of case of CIT v. Siddharth J. Desai 1981 (9) TMI 48 - GUJARAT HIGH COURT and has laid down 13 tests or factors which are required to be considered and upon consideration of which, the question whether the land is an agricultural land or not has got to be decided or answered. Though the circumstances that land is classified as agriculture in revenue record and Akkupet village, Devanahalli Taluk that is not notified under the provisions of Section 214(iii)(a) (b) of the Act still it is considered as agriculture land on the reason that no agriculture operations has been carried out by the assessee in the said land. In our opinion, the land situated on the presumption of urban area and in the municipal limit cannot be considered as agriculture land unless there was actual agriculture operations carried out by the assessee. Further it is to be seen that the income returned in her Return of Income was an agriculture income was just for name sake and does not have any proportion. At the time of sale of land, no agriculture activity was carried out by the assessee. Accordingly we hold that the property sold by the assessee is not an agricultural land and to be treated as a capital asset liable to be taxed. Claim of payment of compensation to unauthorized occupants and payment of commission to Brokers, the assessee has not produced any evidence in support of the same. Similarly, the assessee has not produced supporting evidence in relation to claim of deduction under section 54F of the Act. Assessee appeal dismissed.

Summary

Issues Involved:
1. Assessment of long-term capital gain on the sale of agricultural property.
2. Applicability of Section 2(14)(iii)(b) regarding the notification by the Central Government.
3. Disallowance of commission paid to brokers.
4. Calculation of interest under Sections 234A and 234B of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Assessment of Long-term Capital Gain:
The primary contention was whether the land sold by the assessee qualifies as an agricultural land and thus is exempt from capital gains tax under Section 2(14) of the Income-tax Act, 1961. The assessee argued that the land was agricultural, located 3 km away from Devanahalli Municipality, and used for agricultural purposes, as evidenced by the income declared in her tax returns. The Tribunal, however, emphasized that the classification of land in revenue records and its actual use for agricultural purposes at the time of sale are critical. The Tribunal cited various judgments, including Smt. Sarifabibi Mohmed Ibrahim (204 ITR 631) and CWT v. Officer-in-charge (Court of Wards) (105 ITR 138), to outline the factors determining the agricultural nature of land. Upon evaluation, the Tribunal concluded that the land in question did not qualify as agricultural land due to the lack of actual agricultural operations and the high sale price indicative of non-agricultural use, thus treating it as a capital asset liable to capital gains tax.

2. Applicability of Section 2(14)(iii)(b):
The assessee contended that Devanahalli Municipality was not notified by the Central Government as required under Section 2(14)(iii)(b) for the land to be considered a capital asset. The Tribunal clarified that for land to be excluded from the definition of a capital asset, it must either fall within the limits of a municipality with a population of not less than 10,000 or be situated within 8 km of such a municipality, provided the area is notified by the Central Government. The Tribunal noted that the land in question, although 3 km from Devanahalli Municipality, did not meet the criteria for exclusion as no agricultural activities were carried out. Thus, the land was considered a capital asset.

3. Disallowance of Commission Paid to Brokers:
The assessee claimed deductions for commissions paid to brokers amounting to ?7,50,000. The Tribunal observed that while brokers might be necessary for property transactions, the assessee failed to provide sufficient evidence to substantiate the payments. Despite the brokers' acknowledgment of receipt of the commission, the lack of supporting documentation led to the disallowance of this claim.

4. Calculation of Interest under Sections 234A and 234B:
The Tribunal noted that the interest calculations under Sections 234A and 234B of the Income-tax Act are consequential. Since the primary issues regarding the nature of the land and the disallowance of expenses were resolved against the assessee, the interest calculations followed accordingly.

Conclusion:
The Tribunal dismissed the appeal, upholding the assessment of long-term capital gains on the sale of the property, disallowing the commission paid to brokers, and confirming the interest calculations under Sections 234A and 234B. The judgment emphasized the need for substantial evidence to support claims of agricultural use and related deductions.