2016 (6) TMI 1425 - AT - Income Tax

Land within HADA limits deemed agricultural, not capital asset under Income Tax Act

Income Tax Officer Ward 9 (3) Hyderabad Versus Shri Adela Krishna Reddy Hyderabad

The ITAT upheld the CIT(A)'s decision that the land in question was agricultural and not a capital asset under section 2(14)(iii) of the Income Tax Act. ... Character of the land sold by the assessee - lands covered under Hyderabad Airport Development Authority [HADA] - agricultural land OR capital asset u/s 2(14)(iii) - AO has considered HADA as a govt. notified local authority and concluded that it is a Municipality within the meaning of section 2(14)(iii)(a) - HELD THAT:- AO consideration HADA as a govt. notified local authority and concluded that it is a Municipality within the meaning of section 2(14)(iii)(a) which is not justified as the lands covered under HADA continue to be Gram Panchayats land. It is in record that the land sold by the assessee also does not fall within such distance of not being more than 8 kms from the local limit of any municipality or cantonment rather lands covered under HADA are more than 21 Kms from the municipal areas i.e. GHMC of Hyderabad. As in the case of T. Urmila [2012 (12) TMI 610 - ITAT HYDERABAD] wherein in a similar issue the Tribunal held on facts that HADA is not a local body and lands within HADA is not capital asset u/s 2(14)(iii) of the Act. This decision of the Coordinate Bench was upheld by the Hon'ble Hyderabad High Court when on an appeal by the Revenue in T. Urmila’s case was dismissed. That in the instant case, the land sold by the assessee is within the HADA and therefore, the character of the land is agricultural land - Decided against revenue. Issues Involved:1. Definition and characterization of agricultural land.2. Examination of agricultural activities prior to the sale.3. Jurisdiction and examination of the land by the Assessing Officer (AO).4. Purpose of land sale and its classification.5. Restriction of AO's jurisdiction by the CIT(A).6. Remand for verification of the core issue.Detailed Analysis:1. Definition and Characterization of Agricultural Land:The Revenue contended that the CIT(A) should have appreciated the meaning of agricultural land as per the decisions in the cases of Raja Benoy Kumar Sahas Roy and Sarifabibi Mohd Ibrahim. The AO classified the land as a capital asset under section 2(14)(iii) of the Income Tax Act, arguing that it fell within the limits of the Hyderabad Airport Development Authority (HADA), which was considered a local authority akin to a municipality. The CIT(A) and ITAT, however, concluded that HADA is not a municipality and that the land in question remains agricultural, thus not falling within the definition of a capital asset.2. Examination of Agricultural Activities Prior to the Sale:The Revenue argued that the CIT(A) should have examined whether agricultural activities were carried out on the land prior to two years before its sale. The assessee provided evidence of agricultural activities through lease deeds. The CIT(A) accepted this evidence, noting that the AO did not dispute the agricultural nature of the land but rather its classification under HADA.3. Jurisdiction and Examination of the Land by the AO:The Revenue claimed that the CIT(A) should have directed the AO to examine the agricultural land claim comprehensively. The CIT(A) had called for a remand report from the AO to verify if the land fell within 8 km of any municipality. The AO's remand report confirmed that the land was within HADA limits but did not fall within 8 km of any municipality, supporting the assessee's claim.4. Purpose of Land Sale and Its Classification:The Revenue argued that the land was sold for non-agricultural purposes, such as construction, and that a government order for such conversion was necessary. The CIT(A) and ITAT found that the land was sold as agricultural land and remained classified as such in revenue records. The sale to a company did not alter its classification as agricultural land.5. Restriction of AO's Jurisdiction by the CIT(A):The Revenue contended that the CIT(A) unduly restricted the AO's jurisdiction by focusing only on the distance from GHMC or HADA limits. The CIT(A) and ITAT found that the AO's examination was sufficient to determine that the land did not fall within the municipal limits and thus remained agricultural.6. Remand for Verification of the Core Issue:The Revenue requested the Tribunal to remit the case back to the AO for verification of the core issue of land classification. The ITAT upheld the CIT(A)'s decision, noting that the AO's findings and the evidence provided were sufficient to conclude that the land was agricultural and not a capital asset.Conclusion:The ITAT concluded that the land sold by the assessee was agricultural and did not fall within the definition of a capital asset under section 2(14)(iii) of the Income Tax Act. The appeal by the Revenue was dismissed, and the order of the CIT(A) was sustained, following the precedent set by the Hyderabad Bench in the case of Smt. T. Urmila. The decision emphasized that HADA is not a municipality and lands within HADA limits remain agricultural.