2014 (3) TMI 1193 - AT - Income Tax

Land retains agricultural status post-sale, exempting assessee from capital gain tax liability

The Tribunal upheld the lower authorities' decision that the land sold by the assessee, despite being used for non-agricultural purposes post-sale, ... Gain on sale of land - nature of land sold - Agricultural land v/s capital asset - whether the land sold by the assessee is agricultural land and exempt from capital gain tax? - assessee claimed that the subject land sold to KSIDC is agricultural land, therefore, the gain / income cannot be treated as capital gain within the meaning of section 2(14) read with section 45? - HELD THAT:- It is not in dispute land sold by the assessee is actually used for agricultural purpose / activities. The land was a rubber estate and the assessee used the land for agricultural operation till the date of sale this Tribunal is of the considered opinion that the subject land is an agricultural land. Therefore, as found by the Madras High Court in the case of M.S. Srinivasa Naicker & Ors [2007 (1) TMI 149 - MADRAS HIGH COURT] the subject land is not a capital asset within the meaning of section 2(14) of the Act; hence, the assessee is not liable for capital gain tax. - Decided against revenue. Issues involved:1. Whether the land sold by the assessee is agricultural land and exempt from capital gain tax.Detailed Analysis:1. The primary issue in this case is whether the land sold by the assessee qualifies as agricultural land and is exempt from capital gain tax. The assessing officer contended that the land was sold for non-agricultural purposes to establish an industrial estate, making it ineligible for agricultural land status. However, the CIT(A) found that the land retained its agricultural character despite being sold for non-agricultural use.2. The legal representatives presented contrasting arguments. The ld.DR argued that the land lost its agricultural status upon sale for industrial development, citing a Supreme Court judgment. In contrast, the ld.representative for the assessee emphasized that the land was used for agricultural purposes until the sale date, supported by various High Court judgments.3. The Tribunal analyzed the facts and legal precedents to determine the land's classification. It considered the actual use of the land for agriculture, the intention behind the sale, and the absence of an application to convert the land for non-agricultural use. The Tribunal concluded that the land, being a rubber estate and actively used for agricultural operations, retained its agricultural land status.4. Relying on the Madras High Court's decision in a similar case, the Tribunal held that the land's agricultural use at the time of sale was crucial, irrespective of the purchaser's intended industrial use post-acquisition. Consequently, the Tribunal upheld the CIT(A)'s decision that the land was not a capital asset under the Income-tax Act, exempting the assessee from capital gain tax liability.5. The Tribunal's detailed analysis considered the specific circumstances of the case, distinguishing it from previous judgments where land had lost its agricultural character. By emphasizing the continuous agricultural use of the land until the sale date and the absence of intent to convert it for non-agricultural purposes, the Tribunal affirmed the agricultural land status and the consequent exemption from capital gain tax.6. In conclusion, the Tribunal confirmed the lower authority's decision, finding no grounds to overturn the ruling based on the land's agricultural classification and the applicable legal principles.Judgment Delivery:The order was pronounced on 28th March 2014 by Shri N.R.S. Ganesan (JM) and Shri B.R. Baskaran(AM) at the Appellate Tribunal ITAT COCHIN.