2022 (4) TMI 674 - AT - Income Tax

Long-term capital gain - Nature or land sold - Whether the assessee has transferred the agricultural land within the meaning of the provisions of section 2(14) of the Act and therefore the same is not subject to the capital gain? - HELD THAT - Merely showing the land as agricultural land in the revenue records and furthermore the use of the land in the remote past is not decision factor to hold the land as agricultural land after considering the future use of the land which is for non-agricultural operations. As such the future use of the land will change the character of the land from agricultural to non-agricultural at the time of sale. In fact purpose of providing exemption to the agricultural land from the capital gain was to encourage cultivation of land and agricultural operations. Accordingly, a restricted meaning has to be given to the expression agricultural land as contemplated under section 2(14)(iiib) of the Act. Coming to the facts of the case, there is no ambiguity that the land at the time of transfer was not the agricultural land and the same was transferred for the purpose of residential project. Thus there was no use of the impugned land in the future for the purpose of agricultural activities. Therefore, to our mind the assessee is not entitled for claiming the land as agricultural land so as to get out of the purview of the provisions of capital gain. Thus we reject the contention of the learned AR for the assessee. Determining the cost of acquisition of the impugned land which was acquired by way of inheritance - Whether the assessee is entitled for the deduction of cost of acquisition based on the valuation report as on 1 April 1981 for the property acquired by way of inheritance? - Assessee is very much entitled against the full value of consideration from the transfer of capital asset, the deduction for the cost of acquisition of the capital asset. In other words, the same cannot be made nil merely on the reasoning that the assessee has not furnished any detail for the same. Admittedly, the primary onus lies upon the assessee to furnish the necessary details but in the event, the assessee fails to discharge the onus, it does not mean that the revenue can determine the income in arbitrarily manner. It is incumbent upon the revenue to calculate the income chargeable to tax in the manner provided under the statute. If the assessee failed to furnish the cost of acquisition, then the revenue was empowered to find out the same by exercising the authority provided under the statute under the provisions of section 131/133 (6) of the Act. But we find that the revenue has not exercised such powers. Assessee should also be entitled to adopt the value of the property, in a situation when the asset became the property of the previous owner before April 1, 1981, in terms of section 55(2)(b)(ii) of the Act. As such the assessee has the option to take actual cost or the fair market value of the asset (other than a depreciable asset), as on April 1, 1981 as the cost of acquisition. In such a situation, the period of holding shall be determined under section 2(42A) of the Act by including period for which such an asset was held by the previous owner. Accordingly, we hold that the assessee is entitled for the deduction towards the cost of acquisition of the impugned property against the full value of consideration for the amount shown in the valuation report as on 1 April 1981 as per the provisions of law. Hence, the ground of appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Whether the land in question qualifies as agricultural land under section 2(14) of the Income Tax Act, 1961, and is therefore exempt from capital gains tax.
2. Whether the assessee is entitled to a deduction for the cost of acquisition based on the valuation report as of 1 April 1981 for property acquired by inheritance.

Detailed Analysis:

Issue 1: Qualification of Land as Agricultural Land
The primary issue is whether the land sold by the assessee qualifies as agricultural land under section 2(14) of the Income Tax Act, 1961, and is thus exempt from capital gains tax.

The assessee contended that the land was agricultural, supported by a letter from the Gram Panchayat, and was located beyond the limits of the Municipal Corporation. The Assessing Officer (AO) disagreed, noting that the land was converted to non-agricultural status before the sale and was intended for a residential project, indicating no agricultural use. The AO also pointed out the lack of evidence for agricultural activities on the land, such as sales bills or cultivation expenses, and therefore treated the land as non-agricultural.

The Tribunal noted that the definition of agricultural land depends on its location and population. However, the actual and intended use of the land is crucial in determining its status. The Tribunal referenced several judicial pronouncements, including the Supreme Court's ruling in CIT v. Raja Binoy Kumar Sahas Roy and Smt. Sarifabibi Mohmed Ibrahim v. CIT, emphasizing that the use of the land for agricultural operations is a prerequisite for it to be classified as agricultural land. The Tribunal concluded that the land was not used for agricultural purposes at the time of sale and was intended for a residential project, thus disqualifying it as agricultural land for capital gains exemption.

Issue 2: Deduction for Cost of Acquisition
The second issue concerns the deduction for the cost of acquisition of the land, which was acquired by the assessee through inheritance. The AO initially treated the cost of acquisition as nil due to the lack of details provided by the assessee. The assessee later submitted a valuation report as of 1 April 1981, valuing the land at ?3,96,560, which the AO and CIT-A did not accept.

The Tribunal held that under section 49(1) of the Act, the cost of acquisition for inherited property should be the cost to the previous owner. The Tribunal emphasized that the revenue authorities should not arbitrarily determine the income but should exercise their powers to ascertain the correct cost of acquisition. The Tribunal accepted the valuation report submitted by the assessee, citing the Bombay High Court's decision in CIT v. Manjula J. Shah, which allows the assessee to adopt the fair market value as of 1 April 1981 for assets acquired before that date.

Conclusion:
The appeals were partly allowed. The Tribunal ruled that the land did not qualify as agricultural land and was subject to capital gains tax. However, the assessee was entitled to a deduction for the cost of acquisition based on the valuation report as of 1 April 1981.

Combined Results:
The findings and decisions in ITA No. 581/Ahd/2019 were applied to the other appeals (ITA No. 2018/Ahd/2018, ITA No. 2019/Ahd/2018, and ITA No. 2020/Ahd/2018), resulting in all appeals being partly allowed. The order was pronounced on 08/04/2022 at Ahmedabad.