2022 (1) TMI 406 - AT - Income Tax

Exemption u/s 54B - sale of agricultural land and chargeability of capital gains on sale of freshly acquired land - new asset i.e. land parcel at Sachana (new asset) acquired - As contended before the CIT(A) that the agricultural land giving rise to capital gain is situated in rural area and is not a capital asset as per definition of Section 2(14)(iii) at the first instance and hence, the chargeability u/s 45 on such gains do not arise in any manner. and consequently, in the absence of any chargeable capital gains, Section 54B would not apply - AO had disputed the eligibility of claim of deduction u/s 54B of the Act in the earlier year on the ground that the assessee had sold the land parcels at Sachana (new asset) without holding it for three years from the date of purchase in violation of the conditions of Section 54B HELD THAT - The assessee has reiterated and demonstrated with documentary evidences before us that the land parcels at Sarkhej as well as Sachana (new asset) were used for agricultural purposes. It was further demonstrated that the agricultural land situated at Village Sachana is about 15 km away for Viramgam Taluka Panchayat and 40 kms away from Ahmedabad Municipal Corporation limits. Coupled with this, the population of Sachana Village located at Viramgam Taluka is 3844 as per Census 2011. The extract of google map showing the distance of Sachana village from Viramgam Taluka Panchayat and Ahmedabad Municipal Corporation was also placed on record. The assessee has also pointed out on facts that the land was used for agriculture of crops, namely, Bajri and Jowar etc. The factual matrix demonstrated by the assessee could not be successfully rebutted on behalf of the Revenue. Having regard to the aforesaid facts, the CIT(A), in our view, has rightly concluded that the agricultural land parcels being situated in the rural area is outside the purview of expression capital asset defined in Section 2(14) of the Act. Consequently, the rural agricultural land in question not being a capital asset is not susceptible to tax under s.45 r.w.s. 48 of the Act. The capital gains arising on sale of rural agricultural land (new asset) is thus outside the purview of taxation at the threshold. We thus see no error in the conclusion drawn by the CIT(A) in favour of the assessee.

Summary

Issues:
1. Challenge to the action of the CIT(A) in reversing the action of the AO on withdrawal of exemption under s.54B of the Act on sale of agricultural land and chargeability of capital gains on sale of freshly acquired land.

Analysis:
The Revenue challenged the CIT(A)'s decision to reverse the AO's action on withdrawal of exemption under s.54B of the Act and the chargeability of capital gains on the sale of newly acquired land. The AO determined the total income after adding short term capital gains due to withdrawal of exemption under s.54B and bringing to tax the capital gains on the sale of agricultural land. The AO observed that the assessee did not fulfill the conditions under s.54B as the land was sold within two years, leading to denial of the exemption. The CIT(A) found merit in the assessee's contention that the rural agricultural land was not a capital asset, hence not chargeable under s.45, and eligible for exemption under s.54B.

The Tribunal considered whether the assessee was liable for capital gain tax under Section 2(14) r.w.s. 54B of the Act. The assessee had sold agricultural land at Sarkhej and purchased land at Sachana, claiming a deduction. The AO disputed the deduction claim as the land at Sachana was sold within 14 months, violating the conditions of s.54B. The CIT(A) agreed with the assessee that the land at Sachana was rural agricultural land, not a capital asset, thus not subject to tax on sale.

The assessee demonstrated with documentary evidence that both land parcels were used for agricultural purposes and the land at Sachana was in a rural area. The CIT(A) rightly concluded that the rural agricultural land was not a capital asset and not taxable under s.45 r.w.s. 48. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

The cross objection filed by the assessee supported the CIT(A)'s decision and was dismissed as it did not require separate adjudication. Consequently, both the Revenue's appeal and the assessee's cross objection were dismissed.