2025 (3) TMI 1575 - HC - Income Tax

Land sale classified as 'agricultural land' u/s2(14) to avoid capital gains tax, but claim rejected on evidence

The dominant issue was whether the land sold was 'agricultural land' excluded from 'capital asset' under s. 2(14) of the IT Act, so as to avoid capital ... Nature of land sold - capital asset u/s 2(14) v/s agricultural land - Assessment of Capital Gains on sale of assessees' agricultural property - burden of proof - interpreting the meaning of 'purayidom' as plain land - whether the land in question was within 8 Kms limits of the Cochin Municipality? - HELD THAT:- We find that, towards that end, the assessee did not produce any evidence other than a certificate from the Village Officer that the land in question was agricultural land, which certificate went against the revenue records itself that pointed to the land being in the nature of ‘Purayidam’ which translates as dry land suitable for construction of houses. In addition to that, the assessee also produced copies of some returns that showed that he had returned an amount slightly over Rs. 1 lakh as agricultural income obtained from the property over many years prior to the sale of the land. The appellant, however, did not produce any other cogent evidence such as wages paid to agricultural labourers, purchase invoices in respect of manure, fertilizers etc., purchase invoices pertaining to agricultural implements, if any, used in connection with the agricultural operations, the details regarding the source of water for irrigation purposes, etc. all of which would have been available with the assessee, if in fact he was engaged in agricultural operations on the land in question. It is on account of the absence of any cogent evidence adduced by the appellant that the appellate tribunal proceeded to hold, based on the evidence on record, that the appellant/assessee had not established that the land sold by him was agricultural in nature. The above findings of the appellate tribunal being entirely factual and, in the absence of any evidence adduced by the assessee, cannot be said to be arbitrary or perverse for the purposes of maintaining an I.T. Appeal under Section 260A of the Income Tax Act. Decided against assessee. 1. ISSUES PRESENTED AND CONSIDERED (a) Whether the assessee discharged the burden of proving that the land sold was 'agricultural land' so as to be excluded from 'capital asset' and thereby not chargeable to capital gains tax. (b) Whether the Tribunal's finding that the land was not proved to be agricultural in nature was arbitrary or perverse so as to give rise to a 'substantial question of law' warranting interference in an appeal under Section 260A. 2. ISSUE-WISE DETAILED ANALYSIS (a) Proof of agricultural nature of land for exclusion from capital gains Legal framework: The Court proceeded on the basis that the assessee's claim was for exemption from levy of income tax applicable to capital gains, and therefore the burden of proof lay on the assessee to establish entitlement by showing that the land sold was agricultural in nature. Interpretation and reasoning: The Court noted that the assessee relied essentially on a Village Officer's certificate stating that the land was agricultural. The Court found this insufficient, particularly because it ran contrary to revenue records indicating the land as 'Purayidam', understood as dry land suitable for construction. The Court further observed that, apart from copies of returns showing modest agricultural income over prior years, the assessee produced no cogent supporting material ordinarily available if agricultural operations were actually conducted (such as evidence of wages paid to agricultural labourers, invoices for manure/fertilisers, invoices for implements, or details of irrigation/water source). Conclusion: The Court upheld the Tribunal's conclusion that, due to lack of cogent evidence from the assessee, it was not established that the land sold was agricultural in nature, and consequently the assessee was not entitled to exclude the transaction from capital gains taxation on that basis. (b) Existence of a substantial question of law / scope of interference with factual findings Legal framework: The Court examined whether the Tribunal's determination could be interfered with in an appeal under Section 260A, which requires a substantial question of law. Interpretation and reasoning: The Court held that the Tribunal had examined the factual issues at length on the evidence available and arrived at a factual finding against the assessee. Given the absence of supporting evidence from the assessee, the Court found that the Tribunal's findings could not be characterised as arbitrary or perverse. Therefore, the challenge did not raise any substantial question of law. Conclusion: No substantial question of law arose from the Tribunal's factual findings; consequently, the appeal was dismissed.