2021 (5) TMI 506 - AT - Income Tax

Land classified as agricultural not subject to capital gains tax; ITAT decision upheld

ACIT, Balasore Circle, Balasore Versus Mr. Pramod Kumar Choubey

The Income Tax Appellate Tribunal (ITAT) upheld the decision that the land in question was agricultural and not liable to capital gains tax. The Tribunal ... Nature of land - Failure to treat 'padat bhoomi' (barren land) as 'non-agricultural land' - 'agricultural land' OR 'capital asset' within the meaning of section u/s.2(14) - HELD THAT:- We are of the opinion that the assessee is entitled for exemption u/s.2(14) of the Act as claimed by the assessee. Ld. DR also could not controvert the findings recorded by the CIT(A) in this regard by bring any cogent material on record. Accordingly, we do not see any good reason to interfere with the observations made by the CIT(A) deleting the addition made by the AO. Thus, we dismiss the grounds raised by the revenue. Consequently, appeal of the revenue is dismissed. Issues Involved:1. Treatment of 'padat bhoomi' (barren land) as 'non-agricultural land'.2. Classification of land as 'agricultural land' under Section 2(14) of the Income Tax Act, 1961.3. Deduction of TDS under Section 194IA on the sale of land.4. Determination of whether the land is a 'capital asset' and liable to tax.Detailed Analysis:1. Treatment of 'padat bhoomi' (barren land) as 'non-agricultural land':The Revenue contended that the land in question, referred to as 'padat bhoomi' (barren land), should be classified as 'non-agricultural land' and thus be liable to tax as a 'capital asset' under Section 2(14) of the Income Tax Act. The Revenue argued that the land was barren and no agricultural operations were carried out on it, which should classify it as non-agricultural.2. Classification of land as 'agricultural land' under Section 2(14) of the Income Tax Act, 1961:The CIT(A) and the assessee argued that the land was agricultural as it was located more than 10 kilometers from the nearest municipal boundary, which exempts it from being classified as a capital asset under Section 2(14) of the Income Tax Act. The CIT(A) relied on a certificate from the local Patwari and the Tehsildar's report, which stated that the land was 'padat bhoomi' (agricultural land). The CIT(A) also referenced judicial precedents that established the capability of land to sustain agricultural operations as sufficient for its classification as agricultural, regardless of whether actual agricultural activities were conducted.3. Deduction of TDS under Section 194IA on the sale of land:The Assessing Officer (AO) noted that the Naya Raipur Development Authority (NRDA) deducted TDS under Section 194IA, which the AO interpreted as evidence that the land was non-agricultural. The CIT(A) countered this argument by stating that the deduction of TDS by NRDA does not determine the nature of the land and cannot override the provisions of Section 2(14)(iii) of the Income Tax Act.4. Determination of whether the land is a 'capital asset' and liable to tax:The AO treated the profit from the sale of the land as business income, arguing that the income was generated as an adventure in the nature of trade and commerce. The CIT(A) disagreed, stating that the land was agricultural and thus not a capital asset under Section 2(14) of the Income Tax Act. The CIT(A) cited judicial decisions that supported the view that land capable of agricultural use qualifies as agricultural land, irrespective of actual agricultural activities.Judgment:The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, stating that the land in question was agricultural and therefore exempt from capital gains tax. The Tribunal emphasized that the capability of the land to sustain agricultural operations was sufficient for its classification as agricultural. The Tribunal also dismissed the Revenue's arguments regarding the deduction of TDS and the lack of agricultural activities on the land. Consequently, the appeal of the Revenue was dismissed.Conclusion:The ITAT confirmed that the land sold by the assessee was agricultural land and not a capital asset under Section 2(14) of the Income Tax Act, thus exempting the profit from the sale from capital gains tax. The Tribunal's decision was based on the location of the land, judicial precedents, and the capability of the land to sustain agricultural operations.