Tribunal rules land used for agriculture, compulsorily acquired by municipality, exempt from capital gains tax.

The Tribunal ruled in favor of the assessee, holding that the land was used for agricultural purposes and was compulsorily acquired by the Surat Municipal Corporation. Consequently, the addition of Rs. 73,15,714 as long-term capital gain was deemed non-taxable, and the appeal of the assessee was allowed.

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Issues Involved:
1. Confirmation of addition of Rs. 73,15,714 as long-term capital gain.
2. Determination of whether the land was acquired under compulsory acquisition.
3. Verification of agricultural operations on the land for exemption under section 10(37) of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Confirmation of Addition of Rs. 73,15,714 as Long-Term Capital Gain:
The assessee sold immovable property along with co-owners for Rs. 6,04,00,000, with the sale deed registered on 01.04.2008. The AO considered the long-term capital gain accrued in A.Y. 2008-09, calculating the gain as Rs. 73,15,714. This calculation was based on the sale consideration minus the indexed cost of acquisition, considering the land was not used for agricultural purposes in the preceding two years and was within 8 km of the municipal limit.

2. Determination of Whether the Land was Acquired Under Compulsory Acquisition:
The assessee claimed the land was acquired under compulsory acquisition by Surat Municipal Corporation (SMC) under section 77 of the Bombay Provincial Municipal Corporation Act, 1949. However, the AO and CIT (A) disagreed, stating that the acquisition was by negotiation, not compulsory acquisition. The CIT (A) noted that SMC could only recommend acquisition to the government, not execute it compulsorily.

3. Verification of Agricultural Operations on the Land for Exemption Under Section 10(37):
The CIT (A) held that for exemption under section 10(37), the land must have been used for agricultural operations for two years immediately preceding the transfer. The 7/12 extract showed agricultural operations in F.Y. 2004-05 and 2005-06 but not in 2006-07 and 2007-08. The land was in possession of Ganotias, who were not paying rent but were carrying out agricultural operations.

Tribunal's Findings:

Agricultural Operations:
The Tribunal found that the land was indeed used for agricultural purposes, as evidenced by the 7/12 extract showing Kharif crops grown as late as 04.02.2008. The Tribunal referred to the Gujarat High Court's decision in CIT v. Amaratbhai S. Patel, which stated that the exemption under section 10(37) does not require the assessee to personally carry out agricultural operations. The Tribunal concluded that the land was agricultural, despite being cultivated by Ganotias.

Compulsory Acquisition:
The Tribunal accepted the assessee's contention that the land was acquired under compulsory acquisition. This was supported by letters from SMC and notifications from the Government of Gujarat placing the land under reservation for public purposes. The Tribunal referenced previous decisions in similar cases, including those of co-owners, where the land was deemed to be compulsorily acquired and eligible for exemption under section 10(37).

Conclusion:
The Tribunal held that the assessee satisfied the conditions for exemption under section 10(37) of the Income Tax Act, 1961. The land was agricultural and compulsorily acquired by SMC. Consequently, the addition of Rs. 73,15,714 as long-term capital gain was not taxable and was deleted. The appeal of the assessee was allowed.

Order Pronouncement:
The order was pronounced in the open court on 30.08.2018, allowing the appeal of the assessee.

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