2021 (1) TMI 832 - AT - Income Tax

Agricultural land beyond 8 KM from city limits not a capital asset, exempt from Section 56(2)(vii)(b)

The ITAT held that agricultural land situated outside 8 KM of municipal limits is not considered a capital asset and thus is not subject to Section ... Income from other sources u/s 56 - Purchase of agricultural land situated outside 8 KM of municipal area - capital asset u/s 2(14) or agricultural land - assessee and Sh. Anil Parwal have jointly purchased this property - HELD THAT:- It is undisputed fact that there is no dispute to the fact that the land purchased by the assessee is an agricultural land outside 8 Km of municipal limits. Therefore, keeping in view the facts and circumstances of the case, we are of the view that the agricultural land purchased by the assessee is not a capital asset, therefore, provisions of Section 56(2)(vii)(b) of the Act are not applicable in the present case. Therefore, we direct the A.O. to delete the addition so made. - Decided in favour of assessee. Issues Involved:1. Applicability of Section 56(2)(vii)(b) of the Income Tax Act, 1961 to the purchase of agricultural land situated outside 8 KM of the municipal area.Detailed Analysis:Issue 1: Applicability of Section 56(2)(vii)(b) to Agricultural Land Outside Municipal LimitsThe core issue revolves around whether the provisions of Section 56(2)(vii)(b) of the Income Tax Act, 1961, which pertains to the taxation of income from other sources, apply to the purchase of agricultural land situated outside 8 KM of municipal limits.Facts and Proceedings:- The assessee, along with co-purchasers, bought agricultural lands at village Jatwara and Bagru Kalan, with the purchase prices significantly lower than the DLC values.- The Assessing Officer (A.O.) issued a show cause notice to the assessee, proposing to add the difference between the DLC value and the purchase price as income from other sources under Section 56(2)(vii)(b).- The assessee contended that the lands were agricultural and situated outside 8 KM of municipal limits, thus not falling under the definition of 'capital asset' as per Section 2(14) of the Act, and hence, Section 56(2)(vii)(b) should not apply.CIT(A) Decision:- The CIT(A) upheld the A.O.'s decision, interpreting that Section 56(2)(vii)(b) applies to any immovable property, including agricultural land, as defined under the explanation to Section 56(2)(vii)(b).ITAT Analysis and Decision:- The ITAT examined the explanation (d) to Section 56(2)(vii)(b), which defines 'property' to mean capital assets, including immovable property.- The definition of 'capital asset' in Section 2(14) specifically excludes agricultural land situated outside 8 KM of municipal limits.- Therefore, the ITAT concluded that since the agricultural lands in question are not capital assets, Section 56(2)(vii)(b) does not apply.- The ITAT referenced decisions from the Pune Bench (Mubark Gafur Korabu Vs ITO) and Jaipur Bench (Prem Chand Jain Vs. ACIT), which supported the view that agricultural land outside municipal limits is not a capital asset and thus not subject to Section 56(2)(vii)(b).Conclusion:- The ITAT directed the A.O. to delete the additions made under Section 56(2)(vii)(b), thereby allowing the appeals of the assessees.Separate Judgments:- The findings and conclusions in ITA No. 300/JP/2019 for A.Y. 2015-16 were applied mutatis mutandis to the appeals in ITA Nos. 301/JP/2019 and 302/JP/2019 for A.Y. 2015-16 and 2016-17 respectively, as the issues and facts were identical.Final Order:- All three appeals of the assessees were allowed, and the order was pronounced in the open court on 18th January 2021.