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2021 (5) TMI 320 - AT - Income TaxCapital gain on sale of land - Nature of land - capital asset u/s 2(14) or agricultural land - whether land is used solely for agricultural purposes? - HELD THAT - We note that during the course of assessment proceedings, the Assessing Officer noted that the assessee has sold agricultural land bearing R. S. No. 12/1, B 17/1 located at village Nava Gam. Tal. Kamrej. Dist. Surat during the year under assessment, for sale consideration of ₹ 4,41,00,000/-. The population of village Navagam is less than 10,000 therefore, one of the conditions of section 2(14) of the Act, has failed, and hence such land is not a Capital Asset, consequently capital gains provisions are not attracted. Based on the other conditions, as mentioned by the ld Counsel in his arguments, the said land is an agricultural land. The assessee, right from the beginning, is an agriculturalist, his source of income is only agriculture. He is residing at village Navagam of Dist. Surat. He has sold agricultural land located outside SMC limits, and he was cultivating the land up to the date of sale. He has not obtained any permission to make use of land for non-agriculture purpose. There is no any non-agriculture activities carried out upon the same land till the date of sale. The Assessing Officer has accepted the fact of selling of rural agricultural land by the assessee vide his order at Para no. 2. The CIT(A) has also accepted the said fact. Thus, it is undisputed fact that assessee has sold agricultural land on which he was carrying out agricultural activities prior to its sales. Thus , we note that assessee is an agriculturist and has been carrying out agricultural operation on the land for many years. In the Revenue records the said land is an agricultural land. Certificate of Hon ble Dy. Collector, Kamrej Circle, Kamrej Dist., Surat clearly explains that till the date of sale the assessee s land was an agricultural land and said land was being used for agricultural purposes. Thus, it is abundantly clear that till the date of sale, the land was an agricultural land. Besides, the population of village Navagam is less than 10,000, at that point of time, therefore, one of the conditions of section 2(14) has failed and hence such land is not a Capital Asset, consequently capital gains provisions are not attracted. Therefore, based on the above factual position, we are of the view that assessee has sold an agricultural land which is not a capital asset hence we direct the assessing officer to treat the said land as an agricultural land. Disallowance of deduction under section 54B - HELD THAT - Since the assessee has made payment for purchase of another agricultural land and took possession of land therefore he is entitled to take deduction under section 54B of the Act. Hence considering the facts narrated above, as the assessee has fulfilled the essential conditions of section 54B of the Act. Therefore, we direct the assessing officer to allow deduction under section 54B of the Act.
Issues Involved:
1. Classification of agricultural land as a capital asset. 2. Disallowance of deduction under Section 54B of the Income Tax Act. Detailed Analysis: Issue 1: Classification of Agricultural Land as a Capital Asset The primary issue was whether the agricultural land sold by the assessee should be classified as a capital asset under Section 2(14) of the Income Tax Act. The assessee argued that the land, located outside the Surat Municipal Corporation (SMC) limits and used exclusively for agricultural purposes, should not be treated as a capital asset. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, citing that the land was within 8 kilometers of the SMC limits, thus qualifying it as a capital asset under Section 2(14). The Tribunal noted that the AO had treated the land as agricultural in the case of the assessee's mother, a co-owner, and allowed deductions under Section 54B. The Tribunal emphasized consistency, noting that if the land was treated as agricultural for one co-owner, it should be treated similarly for the other. Additionally, the Tribunal highlighted that the population of village Navagam was less than 10,000, failing one of the conditions under Section 2(14), thus not qualifying as a capital asset. Consequently, the Tribunal directed the AO to treat the land as agricultural. Issue 2: Disallowance of Deduction under Section 54B The second issue concerned the disallowance of the assessee's claim for deduction under Section 54B, related to the reinvestment in new agricultural land. The AO partially allowed the deduction, disallowing amounts paid in cash due to lack of verifiable evidence. The CIT(A) upheld this decision. The Tribunal, however, found that the assessee had made actual investments in new agricultural land, supported by affidavits and other evidence. The Tribunal held that the assessee fulfilled the conditions under Section 54B, which allows for deductions on capital gains from the sale of agricultural land if the proceeds are reinvested in new agricultural land. The Tribunal directed the AO to allow the full deduction under Section 54B. Conclusion: The Tribunal ruled in favor of the assessee on both issues. It directed that the land be treated as agricultural, not a capital asset, and allowed the full deduction under Section 54B for the reinvestment in new agricultural land. Both appeals filed by the assessees were allowed.
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