2023 (1) TMI 968 - AT - Income Tax

Gain on sale of land - Agricultural land - Whether a piece of land is agricultural land or not? - exemption u/s. 54B - HELD THAT - A capital asset, had never been used for agricultural purposes, except, perhaps, sometime in the distant past, of which, again, there is nothing on record to suggest, even as it is not relevant inasmuch as the time of such user prior to the transfer stands clearly defined by law. It would, given its nature, not even fetch the price applicable to an agricultural land. And, further, stands sold as an, urban, vacant piece of land, with, rather, no agriculture potential, which normally a piece of land, unless the soil quality is very poor, has. That is, was not an agricultural land in the recent past nor sold as such. The matter, as continually emphasized herein, is essentially factual and, accordingly, stands decided on the basis of the material on record, taking the entirety of the facts and circumstances thereof into account, as indeed the Tribunal is obliged to, and toward which we may refer to some case law, viz. CIT v. Radha Kishan Nandlal 1975 (3) TMI 2 - SUPREME COURT , Daulat Ram Rawatmull 1972 (9) TMI 9 - SUPREME COURT ; Omar Salay Mohamed Sait 1959 (3) TMI 2 - SUPREME COURT ; Dhiraj Lal Girdharilal 1954 (10) TMI 8 - SUPREME COURT In view of the foregoing, we, setting aside the impugned order, uphold the assessment of capital gains at rs. 248.17 lacs, disallowing the benefit u/s. 54B. The agriculture income returned by the assessee, quantum of which is not available on record, could be, as afore-stated, in respect of his balance agricultural land of 41.74 acres. There is thus no reason to disallow the same, as done by the AO, treating it as nil, even if, as found by him and with which we wholly agree, no agricultural activity has been carried out by the assessee on the land sold during the relevant year. This disallowance has not been disturbed by the ld. CIT(A) even as he finds to the contrary. In fact, the AO s order is also inchoate inasmuch as the income being admitted, if not agricultural income, as returned, the same is liable to be assessed under any other, including the residuary head, i.e., as income from other sources, or even as income from an unexplained source/s.

Summary

Issues Involved:
1. Whether the land sold by the assessee qualifies as agricultural land eligible for exemption under Section 54B of the Income Tax Act, 1961.
2. Whether the agricultural income declared by the assessee should be accepted or treated as nil.

Issue-wise Detailed Analysis:

1. Agricultural Land and Exemption under Section 54B:

The primary issue revolves around whether the land sold by the assessee qualifies as agricultural land, which would make the capital gains from its sale eligible for exemption under Section 54B of the Income Tax Act, 1961. The facts of the case reveal that the assessee sold 1.61 acres of inherited land located within the municipal limits of Jabalpur for Rs. 260 lacs. The assessee claimed exemption under Section 54B on the grounds that the land was agricultural and the proceeds were invested in purchasing another agricultural land.

The Assessing Officer (AO) disputed this claim, noting that the land was classified as 'Padti' (barren land) in the revenue records, indicating no agricultural activities were conducted on it. The AO's findings were based on the land's description in the sale deed and confirmations from the Jabalpur Municipal Corporation and the Tehsildar. The AO concluded that the land was not used for agricultural purposes and denied the exemption under Section 54B, bringing the entire capital gain of Rs. 2,48,71,420 to tax.

In appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] accepted the assessee's claim, noting that the Sub-Divisional Magistrate (SDM) had quashed the Tehsildar's rejection order and directed corrections in the revenue records to reflect agricultural activity. The CIT(A) also considered bills and vouchers provided by the assessee supporting agricultural income.

The Tribunal, however, observed that the land was sold at a rate applicable to urban land and was described as non-irrigated and barren in both the sale deed and revenue records. The Tribunal emphasized that the revenue records are contemporaneous and based on regular inspections by the area Patwari. The Tribunal found no substantial evidence to support the claim of agricultural activity on the land, noting that the land was agreed to be sold to a builder for real estate development, further corroborating its non-agricultural status. Consequently, the Tribunal upheld the AO's decision to deny the exemption under Section 54B and assessed the capital gains at Rs. 2,48,17,420.

2. Agricultural Income Declaration:

The second issue concerns the agricultural income declared by the assessee. The AO treated the agricultural income as nil, citing the lack of agricultural activity on the land sold. The CIT(A), while accepting the assessee's claim of agricultural activity, did not disturb the AO's finding of nil agricultural income.

The Tribunal noted that the assessee owned a total of 43.35 acres of agricultural land, of which only 1.61 acres were sold. The Tribunal found no reason to disallow the agricultural income declared by the assessee, as it could pertain to the remaining agricultural land. The Tribunal directed the AO to reassess the agricultural income in accordance with the law, ensuring that the declared income is either exempt or taxed appropriately.

Conclusion:

The Tribunal allowed the Revenue's appeal, setting aside the CIT(A)'s order and upholding the AO's assessment of capital gains at Rs. 2,48,17,420, disallowing the exemption under Section 54B. The Tribunal also restored the issue of agricultural income assessment to the AO for a fresh decision, ensuring proper treatment of the declared income.