Agricultural land cannot be taken out of the purview of section 56(2)(x) of the Income Tax Act, 1961 (the Act) which uses the term “immovable property”.
In a recent judgment, ITAT Ahmedabad has held that agricultural land cannot be taken out of the purview of section 56(2)(x) of the Income Tax Act, 1961 which uses the term “immovable property”. Though sale of rural agricultural land shall not give rise to any capital gains in the hands of the seller but in the hands of purchaser the difference of sale consideration and stamp duty valuation shall be taxable to the extent as provided in section 56(2)(x).
ABCAUS Case Law Citation:
4580 (2025) (05) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) National Faceless Appeal Centre (NFAC) in upholding the addition made u/s 56(2)(x) of the Income Tax Act, 1961 (the Act) by the Assessing Officer (AO) in respect of purchase of rural agricultural land.
The appellant assessee filed the income tax return declaring a loss for the relevant Assessment Year. Subsequently, the case was selected for ‘Limited Scrutiny’ through CASS to examine whether the purchase value of a property was less than the value determined by the stamp valuation authority under section 56(2)(x) of the Act.
During the course of assessment proceedings, the Assessing Officer noted that the assessee purchased a property during the relevant year for a price which was less than the stamp duty value of the same. The assessee contended that the land in question was agricultural at the time of purchase. The land was later converted to non-agricultural use after obtaining permission from the Collector and the property was registered later.
The assessee submitted that since the property was agricultural land at the time of purchase, it did not qualify as a “capital asset” as per section 2(14), and therefore, section 56(2)(x) was not applicable.
The assessee contended that the nature of land at the time of purchase and its use as agricultural land excluded it from the purview of section 56(2)(x) of the Act.
However, after reviewing the submissions and documents, the Assessing Officer held that although the land was purchased as agricultural, the assessee’s intention was always to use it for non-agricultural purposes, as evident from the early application and subsequent conversion. The Assessing Officer placed reliance on the Supreme Court’s decision in which it was held that agricultural status depends on actual use and intention, and not merely on classification in revenue records. Since the land was not used for agricultural purposes and was bought with a clear intention to convert it, it qualified as a capital asset. Accordingly, the officer held that the provisions of section 56(2)(x) of the Act were attracted, and the difference between the purchase consideration and the stamp duty value was liable to be taxed as “income from other sources”.
The CIT(Appeal) dismissed the appeal of the assessee holding that AO had rightly treated this as non-agricultural land as there was a specific mention in the certificate of the District Collector that the land had been purchased for the bona-fide industrial purposes.
Before the Tribunal, the assessee submitted that CIT(A) erred in law and on facts by upholding the action of the Assessing Officer in failing to refer the matter to the Departmental Valuation Officer (DVO), despite specific requests made by the assessee.
In support of his contention the assessee placed reliance on the decision of the Hon’ble Calcutta High Court which held that the AO, acting in a quasi-judicial capacity, is duty-bound to fairly offer the assessee an opportunity to opt for DVO valuation under section 50C, even if not specifically requested. Similarly, the ITAT Ahmedabad held that where the assessee disputes the stamp duty valuation, reference to the DVO under section 50C(2) becomes mandatory.
The Tribunal observed that on a plain reading, it is seen that section 56(2)(x) of the Act mentions the term “any immovable property”. Now the issue for consideration is whether “Agricultural land” (on the assumption for argument’s sake that the land in question qualifies as an “agricultural land”) falls within the ambit of an “immovable property” as stated in section 56(2)(x) of the Act. The term “immovable property” has not been defined in section 56(2)(x) of the Act or in any other section in the Income Tax Act. This renders the word to be interpreted in general parlance. In general understanding of the term, the word “Immovable Property” means an asset which cannot be moved without destroying or altering it. Therefore, going by the general definition, “immovable property” would, in our view, include any rural agricultural land, in absence of any specific exclusion in section 56(2)(x) of the Act. Notably, section 56(2)(x) of the Act does not use the word “capital asset”. The sale of rural agricultural land is exempt in the hands of the seller since the word “capital asset” has been specifically defined to exclude agricultural land in rural areas under section 2 clause 14. Thus, sale of rural agricultural land shall not give rise to any capital gains in the hands of the seller as it is not considered as a capital asset itself. However, from the point of view of the “purchaser” of immovable property, as stated above, section 56(2)(x) mentions “any immovable property” which going by the plain words of the Statute, does not specifically exclude “agricultural land”.
The Tribunal further observed that the Hon’ble Supreme Court had held that the intention of the Legislature should be primarily gathered from the words which are used. It is only when the words used are ambiguous that they would stand to be examined and construed in the light of surrounding circumstances and constitutional principle and practice. The Hon’ble Supreme Court in another occasion has also held that when the language employed by the legislature is doubtful or susceptible of meanings more than one. However, when the language is plain and explicit and does not admit of any doubtful interpretation, in that case, we cannot, by reference to an assumed legislative intent, expand the meaning of an expression employed by the legislature.
As a result, the Tribunal opined that going by the plain words of the section 56(2)(x) of the Act, which uses the term “immovable property”, agricultural land cannot be taken out of the purview of section 56(2)(x) of the Act
The Tribunal further observed that the ITAT Ahmedabad had held that where assessee purchased agricultural land at price lower than stamp value of land, however FMV of land determined by DVO was within 10% of purchase price, showing no significant difference from purchase consideration, no addition under section 56(2)(x) was warranted. The ITAT in the above order held that from bare perusal of section 56(2)(x), wherein any person receives an immovable property for purchase consideration which is less than the stamp duty value the difference is liable to be taxed in his hands subject to the condition that the difference does not exceed Rs.50,000/- or 10% of the consideration whichever is more. Further, the third proviso to the section clearly provides that where the stamp duty value of the immovable property is disputed by the assessee on grounds mentioned in section 50C(2), the AO may refer its valuation to the Valuation Officer.
Therefore, the Tribunal opined that there was merit in the contention of the assessee that where the stamp duty value of the property is disputed, the AO has to make a reference to the DVO for the purpose or valuing the same.
Accordingly, the Tribunal remitted the matter back to the file of the Assessing Officer with a direction to refer the matter to DVO as requested by the assessee.
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