2013 (12) TMI 1549 - AT - Income Tax

Land not a 'capital asset' under Income-tax Act, surplus exempt from capital gains tax

Income Tax Officer, Versus Shri Nitin M. Rajhans,

The tribunal upheld the CIT(A)'s decision that the land in question did not qualify as a 'capital asset' under section 2(14)(iii)(b) of the Income-tax ... Land in question was liable to be excluded from the definition of ‘capital assets’ on account of section 2(14)(iii) of the Act. Accordingly, the surplus on the sale of such asset has been rightly held to be outside the purview of capital gains tax. Issues:- Interpretation of the term 'capital asset' under section 2(14)(iii)(b) of the Income-tax Act, 1961.Analysis:1. The appeal by the Revenue challenged the CIT(A)'s order regarding the taxation of surplus from the sale of land as 'capital gains.' The primary issue revolved around whether the land in question qualified as a 'capital asset' under section 2(14)(iii)(b) of the Act.2. The assessee argued that the land was agricultural and not a 'capital asset' as per the Act. Evidence provided included certificates, land revenue records, and receipts showing agricultural use. The Assessing Officer disagreed, stating that only grass was grown on the land, thus not meeting the agricultural use criteria.3. The CIT(A) considered the factual and legal aspects, relying on precedents like the Bombay High Court and the Supreme Court judgments. The CIT(A) agreed with the assessee, concluding that the land did not fall under the definition of a 'capital asset' and directed the surplus from the sale to be exempt from tax.4. During the appeal, the Departmental Representative reiterated the Assessing Officer's objections, while the respondent's representative supported the CIT(A)'s decision based on the facts and material presented.5. The core issue for the tribunal was to determine if the land qualified as a 'capital asset' under section 2(14) of the Act. The Revenue contended lack of evidence of agricultural use, while the assessee provided documentation supporting agricultural classification.6. The tribunal noted that the land was classified as agricultural in state records and located beyond municipal limits, meeting the criteria for exclusion from 'capital asset' definition. Precedents were cited where lack of agricultural income declaration did not negate agricultural land classification.7. The tribunal upheld the CIT(A)'s decision, emphasizing that the land was agricultural for a significant period, sold to an agriculturist, and remained undeveloped. The sale to an agriculturist also indicated the land's perceived agricultural nature.8. Ultimately, the tribunal affirmed the CIT(A)'s decision, ruling that the land did not qualify as a 'capital asset' under section 2(14)(iii) of the Act, and the surplus from the sale was exempt from capital gains tax. The Revenue's appeal was dismissed.