Actual Agricultural Operation not necessary condition to qualify as Agricultural Land: Bombay HC directs to pass Fresh Assessment Order under Income Tax Act [Read Order]

The Bombay High Court recently ruled that actual agricultural operation is not necessary condition to qualify as agricultural land and directed to pass fresh assessment order.

The Assessing Officer ( AO ) rejected the contention of petitioner and held that land was a capital asset and therefore, capital gain was payable. The AO proceeded on the basis that most of the alleged agricultural land sold was held for a period of less than two years and, therefore, intention of petitioner was not to do any agricultural activities but was to make investment and earn profit. The AO held that there was no evidence submitted by petitioner that petitioner had carried out agricultural operations during the year under consideration.

The counsel for the Revenue submitted that the ITAT has not disturbed the findings of the CIT(A) that actual carrying on of agricultural operation is not a necessary condition for deciding that a particular parcel of land was agricultural land and because the ITAT has directed the AO to adjudicate denovo, the AO was entitled to disregard the findings of the CIT(A) in its entirety.

A Division Bench of Justices Dr Neela Gokhale and KR Shriram observed that “It is obvious that the matter has been restored to the AO only to examine the evidence filed by petitioner and conducting enquiry, if necessary, with the concerned authorities of the Government to find out the true nature and character of the land sold and only if, the AO comes to a conclusion on the basis of material brought on record that the lands sold by petitioner are not in the nature of agricultural land, can he come to conclusion that the land would come within the purview of “capital asset” as defined under Section 2(14) of the Income Tax Act.”

“The contention of petitioner cannot be rejected purely on presumption that the lands sold were not an agricultural lands because petitioner sold the parcels of lands within two years of purchase. If the AO is satisfied that the parcels of land actually are not situated in an area which will fall under Section 2(14)(iii), the AO shall proceed on the basis that in the facts and circumstances of the case, actual carrying on of agricultural operation is not a necessary condition for deciding that the parcels of lands were agricultural lands” the Bench noted.

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