Land Sold by Assessee is Agricultural Land and doesn't qualify as "Capital Asset" in terms of Section 2(14)(iii) of Income Tax Act : ITAT Sets aside Income Tax Addition [Read Order]

The Ahmedabad Bench of Income Tax Act Appellate Tribunal (ITAT) held that land sold by assessee is agricultural Land and did not qualify as “capital asset” in terms of Section 2(14)(iii) of the Income Tax Act,1961 . The claim of the assessee to the entire capital gain earned on these piece of land amounting to Rs.3,56,70,539/-, as not being liable to tax.

The assessee Hiten Tulshibhai Engineer sold land during the year to a company for a consideration of Rs.3,86,98,710/-, but had offered no income/ capital gains from the said transaction for taxation. Accordingly, reassessment proceedings under Section 147 of the Income Tax Act,1961 were initiated, during the course of which the assessee contended that the land sold by him did not qualify as “capital asset” in terms of Section 2(14)(iii) of the Income Tax Act being “rural agricultural land”, and therefore, the capital gain earned thereon had not been returned to tax.

The Assessing Officer (AO) , not convinced with the reply of the assessee, noting that the land had been purchased by the company for “industrial purposes” under Section 63AA of Gujarat Tenancy and Agricultural Lands Laws (Amendment) Act, 1997 [GT&ALL Act]. He, therefore,held the land sold by the assessee to be deemed as “non-agricultural land”, and accordingly he rejected the contention of the assessee that it did not qualify as “capital asset”.

Aggrieved by the order the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], which confirmed the addition made by the AO to its income on account of capital gain amounting to Rs.3,56,70,539/-.

Further aggrieved the assessee filed an appeal before the Tribunal.

The Authorised Representative of the assessee (AR) Anil Kshatriya demonstrated to the authorities below the land sold by the assessee was agricultural land, which fact found mention in the sale deed through which it had been sold to the company.

Further contended that the basis with the AO for treating the land as non agricultural, that the land had been purchased by the company for “industrial purposes” under Section 63AA of Gujarat Tenancy and Agricultural Lands Laws (Amendment) Act, 1997,was irrelevant, since it did not impinge upon the factum of the character of the land in the hands of the assessee till it was sold to the corporate entity being agricultural, and that only subsequently its character was changed to non-agricultural purposes by the purchaser of the land.

The Departmental Representative (DR) Rajdeep Sigh supported order of the AO.

The Bench comprising of Smt. Annapurna Gupta, Accountant Member and Miss Suchitra Raghunath Kamble, Judicial Member observed that the land sold by the assessee, whether agricultural land or not, so as to determine its qualification as a “capital asset” in terms of Section 2(14)(iii) of the Income Tax Act, and thus facilitate finding whether capital gain earned thereon is taxable or not in terms of the provisions of law in this regard.

The Revenue authorities have wrongly held the land to be non-agricultural in nature and have totally mis-appreciated the relevant provisions of the Land Laws, i.e Gujarat Tenancy and Agricultural Lands Laws (Amendment) Act, 1997, in this regard.

As per the facts of the present case the purchaser of land, i.e the company, after purchase of the agricultural land from the assessee under Section 63AA of the GT&ALL Act, notified the purchase of agricultural land for bonafide industrial use and was issued a certificate in this regard by the collector after verifying its user for bonafide industrial purposes. Thus, it was subsequent to purchase of land, that its use was changed to non-agriculture purpose.

The Tribunal held that the impugned land did not qualify as “capital asset” in terms of section 2(14)(iii) of the Income Tax Act. The claim of the assessee to the entire capital gain earned on these piece of land amounting to Rs.3,56,70,539/-, as not being liable to tax is in accordance with law and thus set aside the impugned order passed by AO and confirmed by CIT(A).

Hence, the appeal of the assessee was allowed.

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