2023 (5) TMI 692 - AT - Income Tax

Computation of capital gain on sale of land - Nature of land sold - capital asset or agricultural land - appellant fails to convincingly pass the test of proving that the impugned land is indeed agricultural land - HELD THAT - All evidences filed by the assessee including copies of purchase and sale deeds of land, revenue records maintained by the State Government, certificate issued by the Additional Tahsildar and Village Officer, clearly shows that the impugned land is an agricultural land and used for agricultural operations. The assessee had also filed other evidences to prove that the land has been used for agricultural operations till it was sold. Therefore, we are of the considered view that land sold by the assessee is an agricultural land and which is outside the scope of definition of capital asset as defined u/s. 2(14) of the Act. Thus, we are of the opinion that the Assessing Officer and the ld. CIT(A) are completely erred in denying exemption from tax towards consideration received for sale of agricultural land. Hence, we direct the AO to delete additions made towards computation of capital gains on sale of land. Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Classification of the land as agricultural land.
2. Evidence supporting the agricultural nature of the land.
3. Tax implications under capital gains.

Summary:

1. Classification of the Land as Agricultural Land:

The primary issue was whether the land sold by the assessee was agricultural land and thus outside the scope of a "capital asset" as defined under Section 2(14) of the Income-tax Act, 1961. The assessee argued that the land was classified as agricultural land when purchased and remained so until sold. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] contended that the land was not used for agricultural purposes and thus did not qualify for exemption from capital gains tax.

2. Evidence Supporting the Agricultural Nature of the Land:

The assessee provided various documents, including revenue records, certificates from the Village Officer, and tax receipts from the Kerala Agricultural Workers Welfare Fund Board, to prove the agricultural nature of the land. The AO and CIT(A) were not convinced, citing the lack of substantial agricultural income and the classification of the land as "dry land" or "wet land" without explicit mention of agricultural use. The Tribunal, however, found that the evidence provided, including the classification in revenue records and certificates from local authorities, sufficiently demonstrated the land's agricultural nature.

3. Tax Implications under Capital Gains:

The Tribunal examined whether the land, classified as agricultural, was subject to capital gains tax. It referred to several judicial precedents, including decisions by the Hon'ble Madras High Court and ITAT Cochin Bench, which supported the view that land classified as agricultural in revenue records and used for agricultural purposes should not be treated as a capital asset. The Tribunal concluded that the land sold by the assessee was indeed agricultural and thus exempt from capital gains tax. Consequently, the Tribunal directed the AO to delete the additions made towards the computation of capital gains on the sale of the land.

Conclusion:

The Tribunal allowed the appeal, holding that the land sold by the assessee was agricultural land and exempt from capital gains tax. The decision was based on the classification in revenue records, certificates from local authorities, and judicial precedents supporting the agricultural status of the land. The order was pronounced on 10th May 2023 at Chennai.