Subsequent Conversion by Purchaser Does Not Change Character of Agricultural Land Sold by Assessee: ITAT says No Capital Gain Tax Attracted [Read Order]
Subsequent conversion by the purchaser does not retrospectively alter the character of the land sold by the assessee. Since the land was agricultural at the time of transfer, no capital gains tax was attracted
The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, dismissed Revenue’s appeal ruling that subsequent conversion by the purchaser does not change the character of the agricultural land sold by the assessee.
The income tax department made an addition of ₹3.54 crore as short-term capital and held that the sale of agricultural land by the assessee was effectively a transfer of non-agricultural land, as the purchasers intended to use it for industrial purposes.
The assessee, Vedprakash Devkinandan Chiripal, had purchased eight pieces of land located beyond 8 km of municipal limits in Dholka (Ahmedabad) and Bidaj (Kheda). These lands were originally agricultural in nature, and the State had duly accepted and registered the transactions.
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While the AO treated the profits from their sale as taxable capital gains on the ground that the assessee was a non-agriculturist and the land was meant for industrial use, the assessee argued that the lands were agricultural at the time of both purchase and sale.
On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] agreed with the assessee, holding that the lands continued to be agricultural when sold, irrespective of later conversion by the buyers.
The ITAT upheld the findings of the CIT(A), noting that the assessee had purchased lands that were duly recorded as agricultural in the official land records. The sale deeds also described the properties as agricultural land.
In addition, the bench of Sidhartha Nautiyal and Dr. B.R.R. Kumar said that any subsequent conversion to non-agricultural use was the sole responsibility of the purchaser under law and not that of the seller.
It referred to Section 63(AA) and observed that the transfer itself was conditional, requiring the purchaser to apply for conversion within 90 days, failing which the sale deed would stand cancelled. Thus, the subsequent conversion by the purchaser did not alter the agricultural character of the land at the time of sale.
According to the appellate Tribunal, subsequent conversion by the purchaser does not retrospectively alter the character of the land sold by the assessee. Since the land was agricultural at the time of transfer, no capital gains tax was attracted.
Accordingly, the the bench declined to interfere with the CIT(A)’s well-reasoned order and dismissed the Revenue’s appeal.
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