2013 (5) TMI 449 - HC - Income Tax

Court Upholds Tax Exemption for Agricultural Activities under Section 10(37)

The High Court affirmed the Tribunal's decision in favor of the assessee regarding the interpretation of Section 10(37) of the Income Tax Act. The Court ... Exemption u/s 10(37) - whether said section require that the assessee should himself carry out the agricultural activities on the land? - assessee contended that in view of provisions of section 10(37) r.w.s. 45(5), no capital gain tax was payable as also allowed by ITAT - Held that:- Only ground on which the CIT (Appeals) held against the assessee was that he was staying away from the agricultural land and that he was otherwise engaged in a business. But neither of these two facts, either in isolation or cumulatively, would be sufficient to hold that such land was not being used for agricultural purposes by the assessee. The concept of personal cultivation as accepted in agricultural land tenancy laws also recognizes, as can be seen from the statutory provisions contained in the Bombay Tenancy and Agricultural Lands Act, 1948, cultivation of a land through hired labourer or through member of one’s family. Merely because the assessee was not residing close to the land or was also pursuing some other business would not by itself be sufficient to hold that the land was not used for agricultural purposes by the assessee. The Tribunal recorded that in the earlier years, the assessee had declared agricultural income, which was also accepted by the Revenue. Under the circumstances, the Tribunal correctly ruled in favour of the assessee. No question of law arises. The tax appeal is dismissed. Issues:- Interpretation of Section 10(37) of the Income Tax Act- Exemption under Section 10(37) for agricultural land in urban areasInterpretation of Section 10(37) of the Income Tax Act:The Revenue appealed against the Income Tax Appellate Tribunal's judgment regarding the interpretation of Section 10(37) of the Income Tax Act, 1961. The dispute arose from the ownership of a property acquired by the State, leading to additional compensation paid to the assessee. The Assessing Officer (AO) rejected the assessee's claim for exemption under Section 10(37) on the grounds that the land was within municipal limits with a population exceeding 10,000. The CIT (Appeals) upheld the AO's decision, emphasizing that the land should have been used for agricultural purposes by the assessee or his family in the two years preceding the transfer. However, the Tribunal disagreed, stating that the plain reading of Section 10(37) does not mandate the assessee to personally carry out agricultural activities. The Tribunal found that the assessee had regularly declared agricultural income, fulfilling the conditions for exemption under Section 10(37). The High Court concurred with the Tribunal's decision, emphasizing that the assessee's physical presence near the land or involvement in other business activities did not negate the agricultural use of the land. The Court dismissed the Revenue's appeal, affirming the Tribunal's ruling in favor of the assessee.Exemption under Section 10(37) for agricultural land in urban areas:The core issue revolved around the applicability of exemption under Section 10(37) for agricultural land situated in urban areas. The Tribunal observed that the AO had taxed the enhanced compensation received by the assessee for the acquired land under Section 45(5) due to its location near Gandhinagar. The CIT (Appeals) acknowledged that exemption under Section 10(37) could apply to urban agricultural land but stressed the necessity of the land being used for agricultural purposes by the assessee or his family. The Tribunal, however, ruled in favor of the assessee, highlighting that the Revenue did not dispute the regular declaration of agricultural income by the assessee. The Court upheld the Tribunal's decision, emphasizing that physical proximity to the land or engagement in other businesses did not invalidate the agricultural use of the land. The Court concluded that the Tribunal's ruling was correct, and no legal question arose, resulting in the dismissal of the tax appeal.