Agricultural land excluded from capital asset treatment cannot attract section 56(2)(vii)(b) addition where records support its agricultural character.

Agricultural land situated beyond municipal limits and in a green zone was treated as excluded from the definition of capital asset under section 2(14) of the Income-tax Act, 1961. On that basis, the Tribunal held that section 56(2)(vii)(b) could not be invoked to tax the purchase consideration, especially where local authority certificates and revenue records supported the agricultural character of the land and the Revenue did not rebut them. The addition was therefore held unsustainable and directed to be deleted.

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Issues: Whether the purchase of agricultural land attracted addition under section 56(2)(vii)(b) of the Income-tax Act, 1961, and whether such land stood excluded from the definition of capital asset under section 2(14) of the Income-tax Act, 1961.

Analysis: The land was accepted on record as agricultural land situated beyond the municipal limits and in a green zone. The Revenue did not controvert the local authority certificates showing that the land was outside the municipal area and governed by restrictions under the Maharashtra Tenancy and Agricultural Lands Act, 1948. Section 2(14) excludes agricultural land from the definition of capital asset, and the Tribunal held that this exclusion takes the case outside the ambit of section 56(2)(vii)(b). The fact that the land was described as agricultural in the records and the similar treatment in the cases of co-owners further supported the assessee's case.

Conclusion: The addition under section 56(2)(vii)(b) was not sustainable and was directed to be deleted, in favour of the assessee.

Ratio Decidendi: Agricultural land excluded from the definition of capital asset under section 2(14) of the Income-tax Act, 1961 does not fall within the charge of section 56(2)(vii)(b) of the Income-tax Act, 1961.

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