2025 (9) TMI 292 - AT - Income Tax

Sale of agricultural land outside municipal limits not liable for long-term capital gains tax; purchaser conversion irrelevant

The ACIT, Central Circle-2 (1), Ahmedabad Versus Deepak Jyotiprasad Chiripal

The ACIT, Central Circle-2 (1), Ahmedabad Versus Deepak Jyotiprasad Chiripal - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether the profit on sale of land sold by the assessee qualifies for exemption under the definition of 'agricultural land' in section 2(14)(iii) of the Income Tax Act when the sale deed records transfer under section 63(AA) of the Land Revenue Code with a clause that the land is to be used for industrial purposes. 2. Whether the subsequent conversion of agricultural land into non-agricultural land by the purchaser (under the procedural/conditional regime of section 63(AA) LRC) alters the character of the land 'at the time of sale' so as to deny the seller the exemption under section 2(14)(iii). 3. Whether the conditional nature of transfers under section 63(AA) LRC (including the statutory time limit for conversion and the consequence of cancellation if not converted) affects the seller's tax liability for capital gains. 4. Whether prior Tribunal/CIT(A) decisions dealing with identical facts (including the assessee's own earlier Tribunal decision and the Vedprakash Devkinandan Chiripal decision) are applicable and binding for resolution of the present dispute. ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of exemption under section 2(14)(iii) of the Income Tax Act when sale deed references section 63(AA) LRC and industrial use. Legal framework: Section 2(14)(iii) excludes certain transfers of agricultural land from being treated as capital assets for capital gains purposes; the characterization depends on whether the land sold is agricultural in nature at the time of transfer. Section 63(AA) of the Land Revenue Code provides a regime whereby non-agriculturists may acquire agricultural land for bona fide industrial purposes subject to specified conditions and conversion procedure; transfer under that provision may be recorded as being for industrial purposes. Precedent Treatment: The Tribunal in an earlier, factually identical proceeding involving the same assessee (AY 2016-17) held that where the land was agricultural at the time of sale and subsequently converted by the purchaser, the seller remains entitled to treat the sale as of agricultural land for income-tax purposes. Similarly, the decision in Vedprakash Devkinandan Chiripal was relied upon and followed by the Tribunal, which treated transfers under section 63(AA) as conditional and not ipso facto changing the seller's characterization. Interpretation and reasoning: The Court examined the sale deed and the statutory scheme of section 63(AA) LRC and concluded that the crucial question is the character of the land at the time of sale by the assessee. The transfer under section 63(AA) imposes on the purchaser the obligation to seek conversion to non-agricultural status within the statutory period; until conversion is effected, the land retains its agricultural character for the purposes of the seller's transaction. A recitation in the sale deed that the land 'is to be used for industrial purposes' does not, without completed statutory conversion, change the nature of the land as sold by the assessee. Ratio vs. Obiter: Ratio - where a sale is effected by an agricultural owner and conversion to non-agricultural status is to be effected by the purchaser under section 63(AA), the seller is not deprived of the agricultural-land exemption under section 2(14)(iii) by virtue of the purchaser's intended industrial use or by mentioning section 63(AA) in the deed. Obiter - observations regarding policy or consequences for purchasers who fail to convert within the statutory time (except as expressly relied on for conclusion) are ancillary. Conclusion: Exemption under section 2(14)(iii) remains available to the seller when the land sold was agricultural in nature at the time of sale, notwithstanding that the sale deed records transfer under section 63(AA) LRC for industrial use by the purchaser. Issue 2: Effect of subsequent conversion by purchaser on seller's tax treatment. Legal framework: Taxability of capital gains depends on character of asset at time of transfer by the taxpayer. Conversion of land by a purchaser after transfer cannot retrospectively alter the nature of the seller's disposed asset unless statute provides otherwise. Precedent Treatment: The Tribunal's earlier decision in the assessee's own case and the Vedprakash Devkinandan Chiripal decision were applied to hold that conversion effectuated by the buyer post-sale does not ipso facto make the earlier sale a transfer of non-agricultural land by the seller. Interpretation and reasoning: The Court reasoned that a purchaser's subsequent acts - including obtaining conversion under LRC - relate to the purchaser's rights and obligations and do not change what was transferred by the vendor at that earlier point in time. Section 63(AA)'s procedural and conditional nature places the conversion obligation on the purchaser; only upon completion of conversion does the land's status change for that owner going forward. Therefore, capital gains assessment of the seller must be determined on the factual status at sale. Ratio vs. Obiter: Ratio - post-sale conversion by purchaser does not affect the seller's entitlement to treat the asset as agricultural for tax exemption under section 2(14)(iii). Obiter - none materially relied on beyond the core holding. Conclusion: The subsequent conversion of the land by the purchaser does not negate the seller's exemption; the seller cannot be made liable to capital gains tax on the basis of conversion effected after the sale. Issue 3: Consequences of the conditional transfer regime under section 63(AA) LRC (90-day conversion requirement and cancellation on failure) for tax characterization. Legal framework: Section 63(AA) LRC imposes a time-bound procedural requirement on the purchaser to obtain conversion to non-agricultural status; failure can result in cancellation of the sale deed under state law. Tax characterization focuses on the nature of the asset transferred at the time of transfer. Precedent Treatment: Vedprakash Devkinandan Chiripal and the assessee's prior Tribunal ruling were followed: both treat the transfer under section 63(AA) as conditional, emphasize the purchaser's statutory duty to convert within the time limit, and note that non-compliance can result in cancellation - underscoring that the vendor's sale was of agricultural land. Interpretation and reasoning: The Tribunal treated the conditionality as decisive: because conversion is a contingent, purchaser-driven event (subject to statutory time and consequence of cancellation), the legal character of what the vendor conveyed remains agricultural unless and until conversion is completed. The Court considered the cancellation consequence as reinforcing that the vendor cannot be treated as having transferred non-agricultural land merely because the deed records an intention or condition for conversion. Ratio vs. Obiter: Ratio - the conditional nature and statutory conversion mechanism under section 63(AA) prevents imputation to the vendor of a non-agricultural transfer absent completed conversion; this is central to the decision. Obiter - remarks on the purchaser's exposure to cancellation or enforcement under LRC are explanatory. Conclusion: The conditional conversion requirement under section 63(AA) LRC confirms that the seller's transfer is of agricultural land for income-tax purposes unless conversion is effected by the purchaser as a completed act within the statutory dispensation. Issue 4: Applicability and binding effect of prior Tribunal/CIT(A) decisions on identical facts. Legal framework: Consistency and precedent value of Tribunal and appellate orders in identical factual matrices guide adjudication; earlier decisions in the same matter or closely analogous matters are persuasive and often determinative where facts align. Precedent Treatment: The Tribunal relied on the assessee's own earlier Tribunal decision for AY 2016-17 and on the Vedprakash Devkinandan Chiripal decision; both were followed. No authority was distinguished or overruled. Interpretation and reasoning: The Court found the facts before it identical to those in the prior Tribunal/CIT(A) decisions - namely, sale by an agricultural owner of agricultural land, purchaser thereafter effecting conversion, and the deed referencing section 63(AA). Given factual parity and the legal principle that seller's tax position is fixed at the time of sale, the Tribunal adhered to the earlier rulings and declined Revenue's invitation to treat the transaction as non-agricultural at the vendor level. Ratio vs. Obiter: Ratio - where prior authoritative decisions address identical facts and legal questions, they can be followed to reach the same conclusion; the Tribunal followed earlier decisions as binding for the present facts. Obiter - none material beyond reliance justification. Conclusion: The Tribunal applied and followed prior consistent decisions dealing with identical facts and thus dismissed the Revenue's appeal; prior decisions guided and determined the outcome.