2022 (7) TMI 220 - AT - Income Tax

LTCG - profit on sale of ancestral agricultural lands in the status of individual instead of assessing it in the status of appellant HUF - only reason for the AO to bring sale consideration received for transfer of impugned land under the head capital gains is land has been sold for non-agricultural purpose and further, impugned land is situated within jurisdiction of Chennai City Municipal Corporation HUF - Whether land which was sold by the assessee, nature of land was agricultural land, same cannot be included within definition of capital asset as defined u/s.2(14)? - HELD THAT - We find that there is no dispute with regard to nature of land, because in the revenue records, the land has been classified as agricultural land. The assessee has also furnished various evidences to prove that his father has carried out agricultural operations for many years. The only dispute with regard to distance in which such land is situated from the limits of Chennai Municipal Corporation and from which date said distance has been extended to the village in which impugned land is situated. The assessee claims that village in which impugned land situated was included in the Chennai City Corporation limits from 19.07.2011 onwards, whereas the Revenue claims that place has been included within Chennai City Corporation limits on 09.11.2010 itself. In case, the G.O referred to by the AO is correct, then nature of land has to be examined with reference to said G.O. and distance of the place to determine nature of the asset. In case G.O. referred to by the assessee is correct, then impugned land in question is definitely as agricultural land which is outside scope of capital asset as defined u/s.2(14) - This fact needs to be verified by the AO in light of two Government orders referred to above. Hence, we set aside the issue to the file of the AO and direct the A.O to decide the issue after considering necessary facts and also by referring to G.Os brought on record by both the parties and also decide the issue in accordance with law. Appeal filed by the assessee is treated as allowed for statistical purposes.

Summary

Issues involved:
Assessment of long term capital gain on sale of ancestral agricultural lands, applicability of section 54F deduction, classification of land as capital asset, jurisdiction of Chennai City Municipal Corporation.

Analysis:

1. Assessment of long term capital gain on sale of ancestral agricultural lands:
The appellant contested the assessment of LTCG as an individual instead of as an HUF, arguing that the lands sold were ancestral agricultural lands. Despite providing evidence such as partition and settlement deeds, the AO assessed LTCG as individual income. The CIT(A) upheld this decision, emphasizing that the land was a capital asset under section 2(14) of the Income Tax Act. However, the ITAT found that the nature of the land was crucial, being classified as agricultural in revenue records. The dispute regarding the jurisdiction of the Chennai City Municipal Corporation and the relevant dates led to the ITAT setting aside the issue for the AO to verify and decide based on the conflicting government orders.

2. Applicability of section 54F deduction:
The appellant also raised concerns about the rejection of the claim under section 54F of the Act by the authorities. While the AO allowed a deduction for the purchase of a plot of land, the cost of construction for a house property was denied. The CIT(A) upheld this decision. The ITAT did not delve into this issue due to the primary dispute regarding the classification of the land as a capital asset.

3. Classification of land as capital asset:
The core issue revolved around whether the land sold by the appellant qualified as a capital asset under section 2(14) of the Act. The Revenue argued that the land, though classified as agricultural in records, fell within the Chennai City Municipal Corporation's jurisdiction. In contrast, the appellant contended that the land was agricultural and situated beyond the corporation's limits at the time of sale. The conflicting government orders necessitated a factual verification by the AO to determine the nature of the asset for tax purposes.

4. Jurisdiction of Chennai City Municipal Corporation:
The debate over the jurisdiction of the Chennai City Municipal Corporation played a pivotal role in determining the taxability of the land sale. The conflicting dates of inclusion of the village within the corporation's limits led to a disagreement between the Revenue and the appellant. The ITAT directed the AO to investigate and decide the issue based on the relevant government orders provided by both parties.

In conclusion, the ITAT allowed the appeal for statistical purposes, setting aside the assessment of LTCG and the section 54F deduction claim for further examination by the Assessing Officer. The judgment highlighted the importance of verifying the nature of the land and its jurisdiction to determine its tax treatment accurately.