Land classified as agricultural, not capital asset; Revenue's appeal dismissed.

The Tribunal upheld the CIT(A)'s decision, confirming that the land was agricultural and not a capital asset under Section 2(14)(iii). The transfer date was 02.04.2007, and the land's character remained agricultural despite the Section 90B conversion. The appeal by the Revenue was dismissed, and the addition of Rs. 1,26,63,199/- was deleted.

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Issues Involved:
1. Deletion of addition on account of capital gains.
2. Determination of the material date of transfer of land.
3. Characterization of land as agricultural or non-agricultural.
4. Applicability of Section 2(47) and Section 2(14)(iii) of the Income Tax Act, 1961.
5. Validity of the sale agreement and possession date.
6. Impact of land conversion under Section 90B of the Rajasthan Land Revenue Act, 1956.

Detailed Analysis:

1. Deletion of Addition on Account of Capital Gains:
The Revenue challenged the CIT(A)'s decision to delete the addition of Rs. 1,26,63,199/- made by the AO on account of capital gains. The AO had brought the transaction to tax, arguing that the land sold was no longer agricultural after conversion under Section 90B. The CIT(A) deleted the addition, holding that the land was agricultural and not a capital asset under Section 2(14)(iii).

2. Determination of the Material Date of Transfer of Land:
The CIT(A) determined that the material date of transfer was 02.04.2007, the date of the sale agreement. The AO argued that the transfer occurred when the sale deeds were registered after land conversion. The CIT(A) relied on Section 2(47)(v) and Section 53A of the Transfer of Property Act, which recognize the transfer upon the possession and part performance of the contract.

3. Characterization of Land as Agricultural or Non-Agricultural:
The AO contended that the land ceased to be agricultural after conversion under Section 90B. The CIT(A) and the Tribunal found that the land remained agricultural, supported by the JDA's orders stating no need for conversion for farmhouses. The land was beyond 8 Kms from municipal limits, satisfying the conditions under Section 2(14)(iii).

4. Applicability of Section 2(47) and Section 2(14)(iii) of the Income Tax Act, 1961:
The CIT(A) and the Tribunal applied Section 2(47)(v), which includes transfer by part performance under Section 53A of the Transfer of Property Act. The Tribunal held that the transfer occurred on 02.04.2007, when possession was given. The land was agricultural, not a capital asset under Section 2(14)(iii), and thus exempt from capital gains tax.

5. Validity of the Sale Agreement and Possession Date:
The CIT(A) and the Tribunal accepted the sale agreement dated 02.04.2007 as valid. The possession and control were transferred to the buyer on this date, making it the material date of transfer. The AO's emphasis on the registration date was found irrelevant for determining the transfer date under Section 2(47)(v).

6. Impact of Land Conversion under Section 90B of the Rajasthan Land Revenue Act, 1956:
The Tribunal examined the JDA's orders, which confirmed that constructing farmhouses did not require land conversion. The land remained agricultural, and the conversion under Section 90B did not change its character. The Tribunal concluded that the land transferred was agricultural, exempting it from capital gains tax.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, confirming that the land was agricultural and not a capital asset under Section 2(14)(iii). The transfer date was 02.04.2007, and the land's character remained agricultural despite the Section 90B conversion. The appeal by the Revenue was dismissed, and the addition of Rs. 1,26,63,199/- was deleted.

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