A division bench of the Kerala High Court has held that the capital gain received on the sale of land water-logged and comprised within the backwaters, adjacent to the agricultural land as the same can be treated as ‘agricultural land’ for the purpose of the provisions of the Income Tax Act, 1961.
The assessee sold 130.73 Ares of land, out of which 97.60 Ares of land was agricultural land and the remaining was a water-logged area. The Assessing Officer denied capital gain exemption on the water-logged area, being comprised in the backwaters finding that there could be no classification as an agricultural land.
On appeal, the tribunal granted relief to the assessee by finding that the Kayal portion was used for irrigating the other portion was acceptable. It was found that the Kayal land has acquired the character of a water tank, used for the irrigation of the other land.
Aggrieved by the order, the Revenue approached the High Court alleging that said finding was merely on the submission of the assessee and there was nothing to establish the same.
The bench comprising Justices K.Vinod Chandran and Ashok Menon noted that the Assessing Officer had accepted the fact that 97.60 Ares of land sold by the assessee is agricultural land.
“In fact, the said finding was also on proof of specific agricultural operations having been undertaken in the said land. The adjacent land which is lying as Kayal land and water-logged would only have made the adjacent land more fertile and admittedly it was not used for any other purpose. The adjacent land remaining as water-logged and comprised within the backwaters, sold along with the agricultural land, could be deemed to be only agricultural land. We are, hence, not inclined to interfere with the orders of the Tribunal. We answer the questions of law, which are more on facts, against the Revenue and in favour of the assessee,” the bench said.
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