No Capital Gain on Sale of Agricultural Land Beyond Prescribed Municipal Limits u/s 1(14): ITAT Dismisses Appeal of Revenue Dept [Read Order]

The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, upheld the deletion of addition towards long-term capital gains (LTCG), holding that agricultural land does not lose its character merely because it was subsequently used for industrial purposes by the purchaser.

The respondent, Ahmed Mahomed Pandorl, sold his two immovable properties during the relevant assessment year but did not disclose any capital gains, contending that the land sold was agricultural land falling outside the definition of “capital asset” under Section 2(14) of theIncome Tax Act, 1961.

The Assessing Officer (AO) treated the land as a capital asset and made an addition of ₹8,75,97,656 towards LTCG.

Upon appeal filed by the respondent, the Commissioner of Income Tax (Appeals) (CIT(A)) deleted the addition, observing that the land was classified as agricultural in revenue records and was situated beyond the prescribed municipal limits.

Sher Singh, Represented the Revenue Department, contended that the land sold by the respondent was liable to capital gains tax as it constituted a “capital asset”, emphasizing that the sale deed reflected its intended industrial use and that tax had been deducted at source treating it as long-term capital gains.

Rasesh Shah, counsel for the appellant submitted that the land was agricultural in nature and situated beyond the prescribed municipal limits, and therefore excluded from the definition of “capital asset” under Section 2(14) of the Income Tax Act, 1961.

It was further contended by the respondent counsel that the subsequent conversion or industrial use by the purchaser is not relevant and the character of the land must be determined at the time of transfer.

Sanjay Garg, Judicial Member and Narendra Prasad Sinha, Accountant Member rejected the appellant contention, holding that the character of land has to be determined at the time of sale.

The tribunal observed that the land was admittedly agricultural and situated outside the specified limits, thereby falling outside the ambit of “capital asset” under Section 2(14)(iii). The subsequent conversion of land by the purchaser could not alter its nature at the time of transfer.

The Tribunal Relied on the decision of the Gujarat High Court in CIT v. Rajshibhai Meramanbhai Odedra, and reiterated that sale of agricultural land to a non-agriculturist or its later use for non-agricultural purposes does not change its character for tax purposes.

Accordingly, the Tribunal found no infirmity in the order of the CIT(A) and dismissed the Revenue’s appeal.

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