Mere categorisation of land as agricultural in revenue records not suffice for capital gain exemption-High Court

Mere categorisation of land as agricultural in revenue records not suffice for capital gain exemption. Whether a land is agricultural or not is a question of fact – High Court

Section 2(14) of the Income Tax Act, 1961 (the Act) defines  “capital assets”. It also provides for exceptions not considered as capital assets. As per clause (iii), “agricultural land”. Is one of such exceptions if the land situated within the limits of a municipality, corporation, cantonment board etc.

In the instant case, a controversy arose as to whether the land sold by the assessee was an agricultural land and hence not chargeable to capital gain u/s 45 of the Act.

agricultural land in revenue records

ABCAUS Case Law Citation:
ABCAUS 2170 (2018) (01) HC

Important Case Laws Cited/relied upon by the parties:
Commissioner of Income Tax v. Gemini Pictures Circuit Pvt.Ltd., [(1996) 220 ITR 43 (SC)]
Gopal C.Sharma v. Commissioner of Income Tax, [(1994) 209 ITR 946 (Bom)]
Commissioner of Income Tax v. V.A.Trivedi, [(1988) 172 ITR 95 (Bom)]
Sarifabibi Mohmed Ibrahim and others v. Commissioner of Income Tax, [(1993) 204 ITR 631 (SC)]
Asha George v. Income Tax Officer, [(2013) 351 ITR 123 (Ker)]

Brief Facts of the Case:
The appellant assessee had sold land for Rs. 11 crores. In his return of income he had claimed exemption admissible under the relevant provisions of the Act regarding capital gain stating that the said land was situated in a village which was a rural area.

The assessee relied on the Notifications issued by the CBDT under Section 2(14) of the Income Tax Act (the ‘Act’) which had not included the said area in the list of notified areas..

However, his claim for exemption was denied by the Assessing Officer (AO) and the appellant was assessed to income tax including long term capital gain amounting to Rs. 10,34,89,809/-.

The assessee’s appeal was allowed by the CIT(A) and the claim for exemption was accepted relying on the decision of the High Court wherein it was held that the agricultural land is exempted from capital gains unless it is located in a municipal area or notified area.

However, the ITAT by the majority decision rejected the claim of exemption.

Contention made on behalf of the Appellant Assessee:
It was submitted that the said area was earlier a notified area for the purpose of Section 2(14) of the Act. But later in the revised notification issued, it was not included. It was urged that the very purpose of de-notifying the area was to extent the benefit of agricultural land to the property situated therein.

The question of Law framed/urged:
Whether the ITAT vide majority decision was justified in holding that the property in question was not an agricultural land, thus upholding the disallowance of the claim of the assessee for exemption from ‘capital assets’?

Observations made by the High Court:
The Hon’ble High Court noted the following important decision:

Supreme Court

Whether a particular land is agricultural land or not, is to be decided on the totality of the relevant facts and circumstances

Bombay High Court
  • When the land is used for agricultural purposes situated in an industrial area and not intended for agricultural purposes in future, that would give rise to capital gains.
  • The character and the nature of land are relevant in determining whether the land is agricultural land or whether the land is put to use for agricultural purposes on the relevant date. The mere fact that the area in which the land is situated is not notified under Section 2(14) would not enable exclusion of the land from the definition of ‘capital gains’. Only agricultural lands are excluded and such exclusion will not be applicable if the area is notified under Section 2(14)(iii)(b).
Supreme Court

The question whether a particular piece of land is agricultural or not is essentially a question of fact, to be decided after a consideration of circumstances appearing for and against the assessee

Kerala High Court

The crucial question is whether the land was actually being used for agricultural purpose during the two years prior to the date of transfer. We do not think that we can overturn a finding on fact, at any rate, based on our re-appreciating the material which was considered by the Tribunal which is the final fact finding authority

The High Court noted that in an earlier decision it had held that a certificate of the Village Officer showing the land as paddy land alone was not sufficient for the crucial question is whether the land was actually used for agricultural purposes during the two years prior to the date of transfer.

It was observed that the Tribunal had reported that the assessee was not an agriculturist and was the Proprietor of a Management Institute, and there was no evidence to indicate that the land has been put to any agricultural use.

The Hon’ble High Court opined that in the instant case, the Tribunal had concluded that the subject land had to be treated as capital asset within the meaning of Section 2(14) of the Act. Ordinarily, the question whether a land is an agricultural land or not is a question of fact and the finding on the question of fact recorded by the Tribunal was final. The Hon’ble High Court declined to upset the decision of the Tribunal.

Decision/ Conclusion/Held:
The appeal was dismissed as devoid of any question of law arising from the impugned order.

agricultural land

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