The Income Tax Appellate Tribunal (ITAT), Chennai held that Farmhouse is part of agricultural land and eligible for deduction under Section 10(37) of the Income Tax Act, 1961.
The assessee, A. Nagarajan was having an agricultural land and a farmhouse. A portion of the agricultural land was acquired by National Highway Authority of India (NHAI) during financial year 2009-10. The assessee was paid compensation of Rs.22.40 Lacs for acquisition of agricultural land and farmhouse and trees. The assessee computed gains of Rs.3.44 Lacs and offered the same to tax. While computing the gains, indexed cost of acquisition was claimed.
The return was accepted. However, the case was reopened wherein the assessee claimed exemption u/s 10(37) arising out of compulsory acquisition of land and farmhouse. The AO denied the exemption u/s 10(37) on the ground that the benefit could not be given on plot of land. Though the assessee claimed indexed cost of land as well as building as on 01.04.1981, however, AO calculated indexed value for the farmhouse taking into account the indexation relevant to the year 1992 being the year of construction based on the license granted by Panchayat for the same.
The AO held that the vacant land was valued at Rs.1560/- per sqm. whereas agricultural land was compensated at Rs.62/- per sqm though the lands were adjacent land. The compensation awarded for vacant land was much higher than compensation paid for agricultural land. Therefore, the assessee was held ineligible for deduction u/s 10(37).
T. Vasudevan, Counsel for the assessee assailed the validity of reassessment proceedings on the ground that it was on mere change of opinion and submitted that the farmhouse on which deduction under Section 10(37) has been denied, was part and parcel of agricultural land and it was used for storing vegetable products.
The Counsel further submitted that the ‘agricultural income’ as defined in Sec.2(1A) include any income derived from any building which is used as dwelling house, a store-house or other out-building. Reliance has been placed on various decisions, the copies of which have been placed on record.
ARV Sreenivasan, Counsel for the respondent submitted that t farmhouse was not entitled to deduction u/s 10(37) since land alone would be entitled to exemption from capital gains.
The bench consisting of Mahavir Singh, Vice President and Manoj Kumar Aggarwal, Accountant Member held that “It is undisputed fact that the land under consideration is agricultural land and it has RCC structure for which the assessee has separately been compensated. Nevertheless, this structure, in our considered opinion, was integral to the land which was used for agricultural purposes and could not be separated from the land and therefore, qualifies to be agricultural income.”
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