A division bench of the Kolkata ITAT, on Wednesday held that any income accrues on compulsory acquisition of agricultural land it is to be regarded as agricultural income and not chargeable to tax under the head ‘capital gain’ under the provisions of the Income Tax Act, 1961.
Assessee was engaged in tea plantation. The land used by him for the purpose of cultivation was compulsorily acquired by the Government under the Land Acquisition Act. The department was of the view that as per section 2(47) (iii) of the Income Tax Act, compulsory acquisition of a capital asset is also regarded as transfer of a capital asset capital gain that accrues or arises out of compulsory acquisition is chargeable to tax under the head “capital gain”.
In reply, the assessee contended that the land in question was an agricultural land which was used for agricultural purpose and therefore not a capital asset within the meaning of section 2(14) of the Act. further, the compensation received on compulsory acquisition will be in the nature of agricultural income within the meaning of section 10(1) of the Act and was therefore not liable to tax.
The bench noticed the decision in CIT vs All India Tea and Trading Co. Ltd. wherein the Supreme Court observed that the agricultural land which was being used for agricultural purpose even after its being acquired, the amount of compensation paid on its acquisition was not chargeable under the head ‘capital gains’ as the said land was not a capital asset. The Court further observed that “It is clear, therefore, that at no point of time or at least till its acquisition the land lost its character of agricultural land.”
The bench noted that up to the date of acquisition of the land, it was used by the assessee for the purpose of agriculture. “It is also not disputed that the other condition for regarding the property of the assessee that was acquired by the Government as agricultural land within the meaning of Sec.2(14)(iii) of the Act is satisfied. As we have already noticed, the definition of a capital asset u/s 2(14) of the Act does not include agricultural land. Therefore if any income accrues on compulsory acquisition of agricultural land it is to be regarded as agricultural income and not chargeable to tax under the Act under the head ‘capital gain’.”
Read the full text of the Order below.
