Sale of Agricultural land converted into commercial non taxable if operations continued

Sale of Agricultural land converted into commercial land held non taxable as agricultural operations were continued – SC dismisses SLP of Income Tax Department

ABCAUS Case Law Citation:
ABCAUS 3702 (2023) (04) SC

Important Case Laws relied upon by parties:
CIT vs Murali Lodge (1992) 194 ITR 125 (Ker)
CWT vs. Officer in charge (1976) 105 ITR 133 (SC)
Sarifabibi Mohmed Ibrahim vs CIT (1993) 204 ITR 631 (SC)
CIT vs. Gemini Pictures (1996) 220 ITR 43
CIT vs Smt. T. Urmila  

In the instant case, the Revenue had challenged the order passed by the Hon’ble High Court in treating the land sold by the assessee as agricultural land as per section 2(14) of the Income Tax Act, 1961 (the Act).

In the instant case, assessees filed their return u/s 139(1) of the Act. The assesses had agricultural land which they had converted for non-agricultural purposes. During the relevant Assessment Year, the said lands were sold to a company.

The Assessing Officer (AO) was of the view that the lands sold were capital assets and chargeable to capital gain tax.

The CIT(A) confirmed the assessment order. However, the ITAT allowed the appeals of the assesses on the ground that there was no change on the physical characteristics of the land as the assessee continued to cultivate the lands and the land yielded the agricultural income despite conversion for non-agricultural purposes.

The Hon’ble High Court observed that the AO relied upon the google map to hold that the lands were situated with 8 KMs from Bengaluru International Airport Area Planning Authority (BIAAPA). However, the ITAT had recorded a finding that BIAAPA is merely a Planning Authority. Whereas, a Municipality has necessarily to be an elected body and therefore BIAAPA was not qualified to be considered as a Municipality.

The Hon’ble High Court noted that as per the certificate of Tehsildar and PWD Engineer, the distance between the land and Bruhat Bengaluru Mahanagara Palike (BBMP) was more than 8 KMs. Therefore, the contention of the Revenue with respect to distance from Municipal area failed.

With respect to the nature of land the Revenue placed reliance on various judgments including that of Hon’ble Supreme Court.

The Hon’ble High Court observed that in the judgment relied upon by the Revenue, their Lordships had held that in deciding the true nature of the land, it must be seen whether it has been put to use for agricultural purposes for a reasonable span of time prior to the date of sale and further whether on the date of sale, the land was intended to be put to use for agriculture for a reasonable span of time.

The Hon’ble High Court opined that though the land was converted, the assessee continued agricultural activities which was evident from the fact that the agricultural income so derived was declared by the assessee and accepted by the Income Tax Department. Further, no evidence was brought to show that lands were put to any use other than agricultural operations.

The Hon’ble High Court noted that the ITAT recorded a finding that it had inspected the lands in question and found the lands to have fruit yielding trees which was certified by the Horticulture Department.   

The Hon’ble High Court stated that the ITAT is the last fact finding authority and the order of ITAT was based on evidence on record.

As a result, the Hon’ble High Court declined to interfere with the order of the ITAT and dismissed the appeal of the Revenue.

Aggrieved, the Income Tax Department challenged the judgment and order of the Hon’ble High Court before the Hon’ble Apex Court by filing a Special Leave Petition (SLP). However, the Hon’ble Supreme Court dismissed it with observation they did not find any good ground to interfere with the impugned judgment and order passed   by the High Court. 

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