Agricultural Land Sold to Non-Agriculturist Remains Agricultural and cannot be treated as Capital Assets: ITAT [Read Order]

In a recent ruling, the Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ) has ruled that agricultural land sold to a non-agriculturist retains its status as agricultural land and cannot be classified as a capital asset.

The respondent / assessee, Urmila Bharatbhushan Agarwal an individual and partner in two partnership firms, filed their Return of Income on August 5, 2017, declaring a total income of ₹6,45,330. The return was subjected to a complete scrutiny to verify the claim of exempt income related to capital gains/losses from the sale of lands.

 During the relevant year, the assessee reported agricultural income amounting to ₹3, 80,352 after deducting agricultural expenses of ₹1,26,782. The assessee owns 34 bighas of agricultural land in Janshali and has consistently reported agricultural income from these lands ranging from ₹4,96,779 to ₹8,13,361 for the assessment years 2011-12 onwards.

Get a Copy of Handbook To Income Tax Rules, Click here

On August 9, 2016, the assessee sold agricultural land for ₹10, 53,81,144 to M/s. Industrial Cluster Private Ltd., which had obtained permission from the Industries Commissioner of Gujarat for purchasing agricultural land for bona fide industrial use. This purchase was in accordance with the Gujarat Industrial Policy, 2015, to establish an Industrial Park, as per the Industries Commissioner’s letter dated October 13, 2015.

 Despite the provided documentation, including a certificate from the Industries Commissioner dated December 23, 2015, indicating the establishment of an Industrial Park, the Assessing Officer sought information from the Director of the Bhaskaracharya Institute for Space Applications and GeoInformatics, Gandhinagar. Based on the satellite imagery report, the Assessing Officer treated the land as non-agricultural, invoking Section 63AA of the Land Revenue Code, and denied the exemption under Section 2(14)(iii) of the Income Tax Act. Consequently, the Assessing Officer determined a Long-Term Capital Gain of ₹9, 78,66,687 and demanded tax accordingly.

Get a Copy of Handbook To Income Tax Rules, Click here

The assessee appealed the assessment order to the Commissioner of Income Tax (Appeals) [CIT (A)]. During the appellate proceedings, the assessee argued that under Section 63AA of the Land Revenue Code, land sold to a non-agriculturist for bona fide industrial purposes should still be treated as agricultural land. The assessee relied on the Gujarat High Court judgment in the cases of PCIT vs. Heenaben Bhadresh Mehta and Kishorbhai Harjibhai Patel vs. ITO, asserting that the sale of land was exempt under Section 2(14)(iii) of the Income Tax Act.

The Revenue filed an appeal challenging the CIT (A) decision, arguing that the CIT (A) erred in deleting the addition of ₹9, 78,66,687 regarding the capital gain on the sale of non-agricultural land.

Mr. Pushpendra Singh Chaudhary representing for the revenue supported the Assessing Officer’s decision and sought to uphold the capital gain determination.

Mr. Sudhir Mehta, representing the assessee, submitted a detailed paper book including documents, revenue records, income tax returns, and a copy of the registered Sale Deed. He emphasized that Clause (f) of the Sale Deed explicitly stated that the land was purchased for bona fide industrial purposes under relevant provisions. Citing judicial precedents, including the Tribunal’s decision in Hiten Tulshibhai Engineer vs. ITO, Mr. Mehta argued that the land should not be considered a capital asset under Section 2(14)(iii) of the Income Tax Act and thus, not liable for capital gains.

Get a Copy of Handbook To Income Tax Rules, Click here

After careful consideration of the records and judicial precedents, the two member bench of the tribunal comprising Annapurna Gupta (Accountant member) and T.R.Senthil Kumar (Judicial member) determined that the Assessing Officer misinterpreted Section 63AA of the Land Revenue Code by classifying the sale as non-agricultural. According to the Gujarat High Court ruling in CIT vs. Rajshibhai Meramanbhai Odedra, land sold to a non-agriculturist does not lose its agricultural character. Thus, the Revenue’s appeal was dismissed, affirming that the sale of agricultural land could not be treated as capital assets. 

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates