2025 (9) TMI 948 - AT - Income Tax

Agricultural land held capital asset under section 2(14)(iii)(b); registered deed value used for LTCG, 54F exemption allowed

ITAT, Chennai - The Tribunal held the agricultural land to be a 'capital asset' under section 2(14)(iii)(b) given its proximity to municipal limits and ... LTCG - agricultural land liable for taxation as per section 2(14)(iii) - Nature of land sold - “capital asset” u/s. 2(14) - whether it falls within the ambit of urban land taxable as capital asset? - HELD THAT:- There is no dispute as to the agricultural character of the land in question, nor its location in Siruseri Village. Revenue’s case rests on the assertion that by virtue of the 2011 expansion of the Greater Chennai Corporation, Semmencherry village was included within the corporation limits, and the distance between Semmencherry and the impugned land is less than 8 kilometres. Consequently, in view of the statutory prescription u/s. 2(14)(iii)(b) of the Act, the impugned land is to be regarded as a capital asset. Assessee has not been able to establish, with cogent evidence, that the distance between Siruseri and Semmencherry exceeds 8 kilometres. In the absence of such proof, and having regard to the statutory framework, we are inclined to accept the findings of the Revenue authorities. Accordingly, we hold that the land in question constitutes a “capital asset” within the meaning of Section 2(14) and that the transfer thereof during the impugned assessment year is liable to capital gains tax. The ground raised by the assessee is, therefore, dismissed. Action of the AO in adopting the sale consideration as against the actual sum received by the assessee in respect of the transfer of 30.35 cents of land effected during the assessment year under consideration - Mere receipt of funds, if any, from the power agent cannot be equated with the transfer consideration for the impugned sale transaction, particularly when there was no transfer of the capital asset to the power agent himself. The legal position is well settled that unless possession and ownership of the property are transferred in pursuance of a registered instrument, coupled with actual consideration from the purchaser, the same cannot be regarded as “transfer” within the meaning of section 2(47) of the Act. In the instant case, the recitals of the registered sale deed dated 14.10.2013 clearly indicate that the full value of consideration for the transfer of 30.35 cents of land to M/s. Jacaranda Properties Private Limited is Rs. 1,00,44,000/- only. In law, the recitals of a registered document carry greater evidentiary value unless rebutted by cogent evidence, which in the present case is completely absent. On the contrary, the assessee has duly accounted for the differential sum of Rs. 1,50,00,000/- as an advance in his books of account, which is also duly reflected in the return of income filed for the relevant year under the head “liabilities”. Thus, the assessee’s stand remains consistent both in books as well as before the authorities. AO erred in adopting the figure of Rs. 2,50,00,000/- as the sale consideration for the transfer of 30.35 cents of land. The correct figure of sale consideration, as evidenced by the registered sale deed and corroborated by books of account, is only Rs. 1,00,44,000/-. We direct the AO to recompute the long-term capital gains by adopting Rs. 1,00,44,000/- as the full value of consideration. Consequently, the addition of Rs. 1,49,56,000/- (Rs.2,50,00,000/- less Rs. 1,00,44,000/-) made by the AO is hereby deleted. In the result, the ground raised by the assessee on this issue stands allowed. Taxability of the entire sale consideration in his individual hands on the plea that the impugned land was acquired out of ancestral property, and consequently, he is under a legal obligation to distribute the sale consideration among the respective family members - As during the course of hearing, the ld.AR failed to furnish any cogent or corroborative evidence in support of the said contention. In the absence of substantiating material, we are not inclined to accept this ground. Accordingly, Ground No. 4 raised by the assessee stands dismissed. Benefit of exemption u/s. 54F claimed on account of reinvestment in a residential house property - Where the assessee has sought to avail exemption u/s. 54F of the Act without incurring any real or tangible cost. When sufficient bank transactions comprising both withdrawals and payments are demonstrably available in support of the claim, the exemption cannot be disallowed solely on the ground that the supporting vouchers or bills are on plain paper or not in the preferred form. Substance must prevail over form, particularly when the evidence otherwise substantiates the incurring of expenditure for the purposes envisaged u/s. 54F of the Act. We are of the considered view that the assessee is entitled for exemption u/s. 54F in respect of the investment made towards construction of a residential house, aggregating to a sum. The AO is directed to grant exemption u/s. 54F of the Act for the said sum and to recompute the long-term capital gains chargeable to tax after giving effect to the same.In the result, the ground of appeal raised by the assessee on this issue stands allowed. We direct the AO to adopt the sale consideration at Rs. 1,00,44,000/- instead of Rs. 2,50,00,000/- for the purpose of computing the taxable long-term capital gains. Further, the AO is directed to compute the long-term capital gain after allowing the exemption u/s. 54F of the Act considering the investment made towards house property by the assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether the land transferred qualifies as 'agricultural land' excluded from the definition of 'capital asset' under Section 2(14) of the Income-tax Act, 1961, having regard to its location relative to municipal limits and prescribed aerial distances. 2. Whether the Assessing Officer correctly adopted Rs. 2,50,00,000 as full value of consideration for the transfer of 30.35 cents of land, or whether the sale consideration for that transfer is restricted to Rs. 1,00,44,000 as recorded in the registered sale deed. 3. Whether the entire sale consideration is taxable in the individual assessee's hands by reason of asserted co-ownership or ancestral interest, or whether assessment is correctly made solely in the assessee's hands. 4. Whether the assessee is entitled to exemption under Section 54F for reinvestment of capital gains in construction of a residential house, in view of documentary evidence consisting of bills (some on plain paper) and bank statements. ISSUE-WISE DETAILED ANALYSIS Issue 1: Characterisation of the land under Section 2(14) - urban agricultural land vs agricultural land excluded from capital asset Legal framework: Section 2(14) defines 'capital asset' but expressly excludes agricultural land in India except where situate (a) within municipal limits of specified municipalities (population thresholds) or (b) within specified aerial distances (2 km/6 km/8 km) from municipal/local limits depending on population bands. The statutory test is territorial/proximity-based, measured aerially as amended. Precedent treatment: The Tribunal applied the statutory text and municipal expansion facts; authorities cited in lower orders (including local government notifications) were considered relevant to determine whether the locality falls within prescribed distances. Interpretation and reasoning: The Court accepted that the subject land indisputably had agricultural character in revenue records. The determinative question was whether the land was within the statutory aerial distance from municipal limits of a municipality having population thresholds (Greater Chennai Corporation >10 lakhs). The Court relied on municipal expansion in 2011 which incorporated certain localities (Semmencherry) into Greater Chennai Corporation and accepted Revenue's contention that aerial distance between Semmencherry (municipal limit) and the subject land (Siruseri) is less than 8 km. The assessee failed to discharge onus of proving distance exceeds 8 km. The Court emphasised that the amendment prescribes aerial measurement and that inclusion within expanded municipal limits brings the land within Section 2(14)(iii)(b). Ratio vs. Obiter: Ratio - where (i) municipal limits include a locality by statutory expansion, (ii) population threshold is met, and (iii) aerial distance from municipal limits to subject land is within the statutory distance, agricultural land ceases to be excluded from 'capital asset' and becomes taxable on transfer. Obiter - references to VAO certificates and mixed residential zone notifications are evidentiary but secondary to statutory aerial-distance inquiry. Conclusion: The land transferred (30.35 cents) qualifies as 'urban agricultural land' within Section 2(14)(iii) and thus constitutes a capital asset taxable as long-term capital gains; the assessee's challenge on this point was dismissed. Issue 2: Correct full value of consideration for the transfer - Rs. 2,50,00,000 vs Rs. 1,00,44,000 Legal framework: Section 45 and Section 2(47) govern chargeability on 'transfer' of capital assets; full value of consideration is ordinarily the consideration recorded in the instrument evidencing transfer. Principles include evidentiary value of registered instruments and requirement of cogent evidence to treat other receipts as consideration. The concept of 'advance' is distinct from consideration attributable to a particular transfer until ownership/possession passes. Precedent treatment: The Court treated recitals in registered sale deeds as carrying prima facie evidentiary weight unless rebutted by cogent material. The absence of enquiry by AO from the agent or purchaser and lack of evidence that purchaser paid amounts beyond the deed consideration were material in the Court's approach. Interpretation and reasoning: Facts found - a registered GPA was executed (no transfer thereby); sale deed dated 14.10.2013 transferred only 30.35 cents to purchaser for Rs. 1,00,44,000. The AO treated receipts (allegedly Rs. 2,50,00,000) as full consideration without establishing that the purchaser paid the excess or that the agent became transferee. The assessee had accounted for the balance as advance in books and return. The Court held that receipt of funds from a power agent, without proof of transfer to or from purchaser or transfer of ownership/possession to the agent, cannot be equated with consideration for the specific transfer. The Court noted the settled legal position that transfer requires transfer of rights/possession under a registered instrument and actual consideration from the purchaser; mere receipt from an agent is not enough. The recitals in the registered sale deed (1,00,44,000) stand unrebutted and enjoy stronger evidentiary value than uncorroborated assertions of higher receipt. Ratio vs. Obiter: Ratio - where a registered sale deed records consideration for a specific transfer and there is no cogent evidence that additional sums received from an agent represent consideration from the purchaser or that ownership was transferred for the larger amount, the sale consideration for tax purposes is the amount recorded in the registered deed; amounts received as advances for unsold balance must be treated as advances and taxed, if at all, when corresponding transfers occur. Obiter - commentary that AO ought to have made enquiries from agent/purchaser and that possession/ownership transfer principles govern 'transfer' under Section 2(47). Conclusion: The AO erred in adopting Rs. 2,50,00,000 as full value of consideration for the transfer of 30.35 cents; the correct consideration for that transfer is Rs. 1,00,44,000 as per the registered sale deed. The addition of Rs. 1,49,56,000 was deleted and AO directed to recompute LTCG adopting Rs. 1,00,44,000. Issue 3: Taxability in assessee's hands vis-à-vis alleged co-ownership/ancestral interest Legal framework: Principles of ownership, title and evidentiary proof determine who is taxable on capital gains; when land is shown in the name of an individual and sale deed executed by that individual, the burden lies on claimant to prove co-ownership or ancestral joint title. Precedent treatment: The Tribunal required cogent corroborative evidence (e.g., HUF status documents, deed records, signatures of heirs) to divert taxability to other family members. Interpretation and reasoning: The assessee alleged ancestral origin and 50% shares in favor of children but produced no corroborative documentary evidence (no HUF proof, no sale documents showing ancestral roots, heirs not party to deed). The landed property continued in assessee's name until sale. Absent evidence, the Court declined to reallocate taxable income. Ratio vs. Obiter: Ratio - taxability follows legal title and documentary proof; unsubstantiated assertions of ancestral or co-ownership are insufficient to distribute capital gains. Obiter - none material beyond the evidentiary standard reiterated. Conclusion: The claim that the entire sale consideration must be apportioned among family members failed for lack of evidence; assessment in assessee's hands was upheld on this ground. Issue 4: Entitlement to exemption under Section 54F - adequacy of evidence (bills on plain paper vs bank corroboration) Legal framework: Section 54F provides exemption on reinvestment of capital gains in purchase/construction of residential house subject to conditions; claimants must prove actual investment/expenditure and source of funds. Appellate authorities have discretion to admit claims not in original return if omission was not wilful/unreasonable and relevant material is on record (principles drawn from Goetze (India) Ltd. and subsequent authorities). Precedent treatment: The Tribunal applied Supreme Court guidance (Goetze) and High Court decisions allowing appellate/adjudicatory consideration of claims where material exists even if original return omitted the claim; the Court accepted that appellate authority may admit and examine such claims under Section 250(5) principles and related jurisprudence. Interpretation and reasoning: The assessee had made an alternate claim under Section 54F before AO and before the appellate authority; although several bills were on plain paper and plans not approved, the Tribunal examined bank account statements which contained withdrawals and payments consistent with construction activity. The Tribunal held that when bank transactions corroborate expenditure substance should prevail over form; absence of preferred voucher format alone does not justify denial where payments are demonstrably made for construction. The Tribunal accordingly admitted and allowed the exemption after examining material; it relied on settled jurisprudence permitting consideration of additional claims where relevant material was placed on record and omission was not wilful. Ratio vs. Obiter: Ratio - where bank account entries and other corroborative material demonstrate real expenditure towards construction, exemption under Section 54F cannot be denied solely because supporting bills are on plain paper or not in an ideal form; appellate authority may admit and decide such a claim if omission in return was not wilful and relevant material exists. Obiter - emphasis that lower authorities should have verified bank statements rather than reject claims on form alone. Conclusion: Exemption under Section 54F amounting to Rs. 82,15,610 was allowed; AO directed to grant the exemption and recompute LTCG accordingly. Overall Disposition Partial allowance: confirmation that land is a capital asset (Issue 1) but (i) sale consideration adopted must be Rs. 1,00,44,000 for the 30.35 cents transferred (Issue 2 allowed), (ii) claim to distribute consideration among heirs rejected for lack of proof (Issue 3 dismissed), and (iii) exemption under Section 54F allowed on the basis of bank corroboration of construction payments (Issue 4 allowed). Directions issued to recompute long-term capital gains after giving effect to these findings.