2024 (3) TMI 766 - AT - Income Tax

Nature of land - capital gain on sale of land - exemption u/s 10(37) - assessee's agricultural land was compulsorily acquired by following entire procedure prescribed under Land Acquisition Act - character of acquisition - addition made agricultural land falls within the Municipal Corporation - date of transfer of the impugned land - Revenue contested the CIT(A)'s acceptance of 1947 as the year of transfer instead of 19.05.2014 (date of final award). - HELD THAT - Admittedly AO charged capital gains merely because the impugned land was situated within municipal limits without rebuttal in the remand report to the contention raised by the appellant before the Ld. CIT(A) as regards to the claim of exemption under section 10(37) of the Act. The provisions of section 10(37) are meant specifically for the purpose of removing hardship to a land holder, whose lands are situated in an area specified in section 2(14)(iii)(a) (b). These lands which were originally used for agricultural purpose, if retained by the owner would continue to have been used for agricultural purpose. In our view, the AO was not right in coming to the conclusion that if a land falls within the discretion of capital asset under section 2(14)(iii)(a), then it would be a transfer of land which is not agricultural and therefore, one should not look at the provisions of section 10(37) at all. It is clear from reading of clauses (i), (ii) and (iii) of section 10(37) that the character of the land in the past has to be seen. In view of the facts enumerated above, the impugned order of the assessment passed by the AO u/s 143(3) of the Income tax Act, 1961 holding that the capital gain tax is chargeable on the compulsory acquisition of the urban land by resorting to the provisions of section 45(5) of the Income Tax Act, 1961 is unsustainable in view of the provisions of amended sub-section (37) of section 10 of the Income Tax Act, 1961. There is no dispute as far as this condition is concerned as the disbursing authority has disbursed the said amount vide Government order dated 19.05.2014 which is after 01/01/2014. A.O. on the basis of report of Tehsildar, agrees that the impugned land was agricultural land and this undisputed fact is also emanating from the order of State Govt. determining final award (order dated 08.01.2014) and the report of the Tehsildar obtained by this office u/s 133(6) of the Act. Before the acquisition, the land was being used for agricultural purposes only and there is no report to the contrary. In the present case where assessee's agricultural land was compulsorily acquired by following entire procedure prescribed under Land Acquisition Act, and at the time of acquisition in 1948, the said land was under agriculture cultivation merely because compensation amount was awarded vide order of State Govt. determining final award (order dated 08.01.2014) and disbursed the said amount vide Government order dated 19.05.2014 which was after 01/01/2014 cannot change the status as not falling beyond municipality limits at the time of acquisition and as such would not change character of acquisition from that of compulsory acquisition to voluntary sale so as to deny exemption under section 10(37) to assessee. Hon ble Apex Court in the case of Balakrishnan vs. Union of India , 2017 (3) TMI 745 - SUPREME COURT observed that merely because the compensation amount is agreed upon would not change the character of acquisition from that of compulsory acquisition to the voluntary sale of capital asset. We find no merit and substance in the grounds of department on the issue of appellants claim of exemption of compensation received on account of compulsory acquisition of agricultural land by state Govt. under section 10(37) of the Act. Therefore, we find no infirmity or perversity in the order of the CIT(A) to the fact on record. Decided against revenue.

Summary

Issues Involved:
1. Date of transfer of the impugned land.
2. Exemption under Section 10(37) of the Income Tax Act, 1961.
3. Agricultural use of the land in the two years preceding the transfer.
4. Calculation of capital gains based on the year compensation was received.

Summary:

Issue 1: Date of Transfer of the Impugned Land
The primary issue was whether the date of transfer of the impugned land measuring 74K 08M should be considered as 1947 or 19.05.2014. The assessee argued that the land was acquired in 1947, and compensation was received in 2014 after a long legal battle. The Assessing Officer (AO) considered the date of transfer as 19.05.2014, the date of the final award of compensation.

Issue 2: Exemption under Section 10(37) of the Income Tax Act, 1961
The assessee claimed exemption under Section 10(37) for the compensation received, arguing that the land was agricultural and used for agricultural purposes. The AO rejected this claim, stating that the land fell within municipal limits and thus could not be considered agricultural for capital gains purposes. The CIT(A) ruled in favor of the assessee, stating that the land was agricultural when acquired and remained out of possession of the assessee, thus fulfilling the conditions of Section 10(37).

Issue 3: Agricultural Use of the Land in the Two Years Preceding the Transfer
The AO argued that the land was not used for agricultural purposes in the two years immediately preceding the date of transfer (19.05.2014). However, the CIT(A) found that the land was used for agricultural purposes by the parents of the assessee prior to the transfer in 1947, thus meeting the requirement of Section 10(37).

Issue 4: Calculation of Capital Gains Based on the Year Compensation was Received
The AO contended that capital gains should be calculated based on the year in which the compensation was received (FY 2014-15) rather than the year the land was acquired. The CIT(A) disagreed, stating that the compensation paid was a relief and could not be viewed as "Capital Gain" since the land was not sold but allotted by the State Government without the consent of the assessee.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, agreeing that the compensation received for the compulsory acquisition of agricultural land was exempt under Section 10(37). The appeal of the department was dismissed, and the order of the CIT(A) was sustained.