2015 (1) TMI 776 - AT - Income Tax

Tribunal: Land partly non-agricultural, exempts from tax under ITA. Revenue appeal dismissed.

Shri E. Raghavulu, Shri E. Kotaiah Versus The Dy. Commissioner of Income Tax

The Tribunal determined that only 1 acre 20 guntas of land sold by the assessee should be considered non-agricultural, while the remaining land qualifies ... Agricultural v/s non agricultural land - situation of lands in any area within such distance not being more than 8 kms from the local limits of any municipality or cantonment board - whether assessee’s 16 acres 24 guntas land, 3 acres can be held as non agricultural land and the balance 13 acres can be treated as agricultural land? - Held that:- It was submitted that 1 acre 20 guntas could be taken as land put to use by each of the brothers and not 3 acres in the case of Raghavalu alone. We find merit in the arguments of the ld Counsel. The CIT (A) cannot presume that another 1 acre 20 guntas are to be set apart by the assessee over the above 1 acre 20 guntas used by the assessee for storage of metal stone crushers and stocking yard for spalls, metal, metal dust, labour quarters etc. The excess of 1 acre 20 guntas wrongly looked by the CIT (A) towards metal stone crushers and stocking yard for spalls, metal, metal dust, labour quarters etc.could be kept for the purpose of cultivation of land and growing of crops. It seems that the ld CIT (A) has got confused about the extent of 3 acres being jointly held by the brothers and hence observation. Therefore, we clearly conclude that in our opinion, 1 acre and 20 guntas of land are taxable in the case of Shri Raghavalu, while the rest are exempt as they are covered by the provisions of section 2(14)(iii) of the I.T. Act. We direct the AO to rework the relief to the assessee accordingly. Decided partly in favour of assessee. Issues Involved:1. Determination of whether the land sold by the assessee qualifies as agricultural land under section 2(14)(iii) of the Income Tax Act, 1961.2. Assessment of the taxable capital gains from the sale of the land.3. Correctness of the CIT(A)'s decision to classify a portion of the land as non-agricultural.Issue-wise Detailed Analysis:1. Determination of Agricultural Land:The primary issue was whether the land sold by the assessee qualifies as agricultural land under section 2(14)(iii) of the Income Tax Act, 1961. The assessee argued that the land was agricultural, supported by evidence such as the pattadar pass book, Pahani/Adangal register, and the classification under the Hyderabad Land Revenue Act. The assessee also contended that the land was used for agricultural purposes, and agricultural income was consistently reported over the years. The CIT(A) acknowledged that the assessee was carrying out agricultural operations and returning agricultural income consistently. However, the CIT(A) expressed doubts about the land's reuse for agriculture after being used for stone crusher activities.2. Assessment of Taxable Capital Gains:The AO made an addition of Rs. 1,59,04,900/- on account of profit from the sale of agricultural lands. The CIT(A) concluded that out of 16 acres 24 guntas of land, 3 acres could be held as non-agricultural land, and the balance 13 acres could be treated as agricultural land. Consequently, the sale proceeds of 3 acres amounting to Rs. 30.00 lakhs were deemed taxable, while the rest were exempt under section 2(14)(iii). The assessee appealed, arguing that only 1 acre 20 guntas should be considered non-agricultural land, as this portion was used for metal stone crushers and related activities.3. Correctness of CIT(A)'s Decision:The CIT(A)'s decision to classify 3 acres as non-agricultural was challenged by the assessee. The Tribunal found merit in the assessee's argument that the CIT(A) wrongly presumed an additional 1 acre 20 guntas as non-agricultural. The Tribunal clarified that only 1 acre 20 guntas used for metal stone crushers should be considered non-agricultural, and the rest should be treated as agricultural land. Thus, the Tribunal directed the AO to rework the relief accordingly, concluding that 1 acre 20 guntas of land are taxable in the case of the assessee, while the rest are exempt.Separate Judgments:The Tribunal's decision in ITA No.706/Hyd/2014 was applied to the Revenue's appeal in ITA No.658/Hyd/2014, which was dismissed. In the case of the assessee's brother, the facts were identical, and the Tribunal held that 1 acre 20 guntas of land are taxable, while the rest are exempt. Consequently, the cross-objection raised by the assessee's brother in C.O.No.56/Hyd/2014 was allowed.Conclusion:The Tribunal concluded that the CIT(A) erred in classifying an additional 1 acre 20 guntas as non-agricultural. The correct taxable portion is 1 acre 20 guntas, and the rest of the land qualifies as agricultural, exempt under section 2(14)(iii). The AO was directed to rework the relief accordingly. The Revenue's appeal was dismissed, and the cross-objection was allowed, affirming the Tribunal's decision.