2022 (9) TMI 308 - HC - Income Tax

Nature of land sold - capital asset or agricultural land - Deduction u/s 54F - Whether land sold by the appellant is not agricultural land and consequently the sale proceeds are not entitled for exemption? - Revenue, opposing the appeal submitted that the land in question is converted for Industrial purpose and the Assessing Officer has rightly held so HELD THAT - Undisputed facts of the case are, the land in question has been converted for Industrial purpose. In the remand Report called for by the CIT(A), AO has stated undersigned visited the land in Ankanahalli village, bilikere hobli, Hunsur taluk. The land continues to be a mango orchard there is no sign of any development activity. ITAT has held that the land in question is situated beyond the prescribed limits of Mysore City - Thus, the Remand Report by the Assessing Officer clearly shows that the land continued to be a 'Mango Orchard' and there was no sign of any development. Agricultural land is excluded from the definition of Capital Asset u/s 2(14)(iii) and land situated beyond 8 kms. is exempted from the definition of Capital Asset. Thus, there is a finding of fact by the ITAT that the land is situated beyond the prescribed limit. This Court, after considering the law on the point in various authorities, has held in M.R.Anandaram(HUF) supra that the actual condition and the intended view is a sina qua non while deciding whether a land in question is an agricultural land or not. In view of the Remand Report and the finding of fact recorded by the ITAT, the first question of law merits consideration and it is answered in favour of the assessee and against the Revenue.

Summary

Issues:
1. Exemption of sale proceeds of land claimed as agricultural land.
2. Addition of income by Assessing Officer.
3. Conversion of land into non-agricultural character.
4. Direction to Assessing Officer for section 54F claim.
5. Adjudication on cost of acquisition of trees and interest levied.

Analysis:
1. The main issue was whether the land sold by the appellant qualified as agricultural land for exemption of sale proceeds. The Tribunal had initially held that the land was not agricultural, but the High Court disagreed based on the Remand Report and ITAT findings. The Court emphasized the importance of actual condition and intended use of the land in determining its classification.

2. Another issue was the addition of income by the Assessing Officer, which was challenged by the appellant. The CIT(A) had admitted the claim under Section 54F and directed the Assessing Officer to allow it after meeting legal conditions. The ITAT allowed the Revenue's appeal and dismissed the appellant's, but the High Court reversed this decision in favor of the assessee.

3. The question of land conversion into non-agricultural character was raised, with the Tribunal upholding the Commissioner's order. However, based on the Remand Report indicating the land continued as a mango orchard with no development, the High Court found in favor of the assessee, emphasizing the exclusion of agricultural land from the definition of Capital Asset.

4. The direction to the Assessing Officer regarding the section 54F claim was a significant issue. The High Court ruled in favor of the appellant, emphasizing the importance of meeting legal conditions for granting relief under this section.

5. Lastly, the High Court did not address the adjudication on the cost of acquisition of trees or the interest levied by the Assessing Officer, deeming them academic after resolving the primary issue in favor of the assessee. The Court concluded by allowing the appeal, answering the first question in favor of the assessee, and ruling no costs to be awarded.