2020 (9) TMI 236 - AT - Income Tax

Land classified as agricultural but lacking evidence of agricultural use subject to capital gains tax

Mr. Jairam G Kimmane Versus The Deputy Commissioner of Income Tax, Central Circle – 1 (3), Bengaluru.

Mr. Jairam G Kimmane Versus The Deputy Commissioner of Income Tax, Central Circle – 1 (3), Bengaluru. - [2021] 88 ITR (Trib) 308 (ITAT [Bang]) Issues Involved:1. Whether the land sold by the assessee qualifies as agricultural land and thus is exempt from capital gains tax.2. The relevance of the classification of land in revenue records as agricultural land.3. The impact of the use of adjacent lands and the sale price on determining the nature of the land.4. The burden of proof on the assessee to establish the land as agricultural.Detailed Analysis:1. Whether the land sold by the assessee qualifies as agricultural land and thus is exempt from capital gains tax:The primary issue was whether the land sold by the assessee constituted agricultural land, which is exempt from capital gains tax under Section 2(14) of the Income-tax Act, 1961. The AO noted that the assessee did not declare the capital gain from the sale of the land, arguing it was agricultural land and therefore not a capital asset. However, the AO observed that the assessee did not provide sufficient evidence of agricultural activities on the land, such as tilling, ploughing, or planting, nor did he show any agricultural income from the land. The AO concluded that the land was not used for agricultural purposes and thus did not qualify for the exemption.2. The relevance of the classification of land in revenue records as agricultural land:The assessee argued that the land was classified as agricultural in the revenue records and that he paid land revenue charges, which should be a vital factor in determining its nature. He cited the Madras High Court decision in Mrs. Sakunthala Vedachalam, which stated that classification in revenue records and payment of land revenue are significant indicators of agricultural land. The Tribunal acknowledged this but emphasized that classification alone is not conclusive; the actual use of the land for agricultural purposes must also be demonstrated.3. The impact of the use of adjacent lands and the sale price on determining the nature of the land:The AO noted that the land was in proximity to holiday destinations and was sold at a high price, which suggested it was not intended for agricultural use. The Tribunal referred to the Supreme Court decision in Sarifabibi Mohmed Ibrahim, which emphasized considering multiple factors, including the land's use, the surrounding area's characteristics, and the sale price. The Tribunal found that the land's high sale price and its location near leisure spots indicated it was not primarily agricultural.4. The burden of proof on the assessee to establish the land as agricultural:The Tribunal reiterated that the burden of proof lies on the assessee to establish that the land was used for agricultural purposes. The assessee failed to provide sufficient evidence of agricultural activities or income from the land. The Tribunal noted that while the land was classified as agricultural in revenue records, other factors, such as the lack of evidence of agricultural operations and the high sale price, outweighed this classification.Conclusion:The Tribunal concluded that the land sold by the assessee could not be considered agricultural land. Despite its classification in revenue records, the lack of evidence of agricultural use and the high sale price indicated it was not used for agricultural purposes. The appeal was dismissed, and the gain from the sale was subject to capital gains tax.