TaxTMI 
TaxTMI 
2026 (6) TMI 817
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....ssee, namely Sohanlal Sewaram Jaggi (HUF), along with co-owners, had transferred land situated at Village Wada Bolhai, Taluka Haveli, District Pune, forming part of Gat No.831/2. During the course of reassessment proceedings initiated under section 147, the Assessing Officer examined the nature and character of the said land and formed an opinion that the same was liable to capital gains tax. According to the Assessing Officer, though the assessee had relied upon 7/12 extracts and revenue records showing the land as agricultural land, however, mere classification in revenue records was not conclusive and actual user of the land was equally important. The Assessing Officer observed that no substantial agricultural income had been reflected in the return of income and no documentary evidence such as sale of agricultural produce, cultivation expenses, irrigation expenditure, labour payments or crop sale receipts had been produced. On this basis, the Assessing Officer inferred that no genuine agricultural operations were being carried out on the land. 3. The Assessing Officer further observed that the land possessed substantial commercial potential considering its proximity to Pune ....
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....earned CIT(A) did not accept the submissions of the assessee. The learned CIT(A), after referring to several judicial precedents, held that actual agricultural use of the land constituted an important and relevant factor while determining agricultural character. According to the learned CIT(A), except for revenue records, the assessee had failed to furnish convincing evidence demonstrating actual agricultural operations during the relevant period. The learned CIT(A) further observed that no substantial agricultural income was shown and no contemporaneous evidence of cultivation expenditure or agricultural produce was furnished. The learned CIT(A) therefore concurred with the Assessing Officer that the assessee had failed to establish that the land retained agricultural character and accordingly confirmed the addition made by the Assessing Officer. 7. Before us, the learned counsel appearing on behalf of the assessee took us extensively through the statutory provisions, legislative history, CBDT circulars and the entire judicial evolution governing the concept of "agricultural land" under the Income-tax Act. It was vehemently argued that the authorities below had fundamentally er....
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.... "47. Nothing contained in section 45 shall apply to the following transfers - viii) any transfer of agricultural land in India" c) Thus, capital gain on transfer of agricultural land was not taxable 2) Decisions in the context of old unamended law The said section was subject matter of interpretation by Courts in India including various High Courts and Supreme Court. The decisions of the Hon'ble Supreme Court are referred, as the same are conclusive in this regard, are brought out hereunder: a) Commissioner of Wealth-tax v. Officer-in-Charge (Court of Wards) [1976] 105 ITR 133 (SC) i) Statute/Provision: Wealth-tax Act, 1957, section 2(e) ii) Relevant findings "For the reasons already given, we do not think that the term "agricultural land" had such a wide scope as the Full Bench appears to have given it for the purposes of the Act we have before us. We agree that the determination of the character of land, according to the purpose for which it is meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case. What is really required to be shown is the connection with a....
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....ue of clause (viii) in section 47 of the Act-which clause was inserted by the Finance Act, 1970 with effect from 1-4- 1970-"any transfer of agricultural land in India effected before the 1-3-1970' is exempt from the levy of capital gains tax. By the very same Finance Act, it may be mentioned, agricultural lands situated within the jurisdiction of municipalities and within a radius of 8 kms of such municipalities as may be specified in that behalf by the Central Government (sub-clauses (a) and (b) in clause (iii) of the definition of 'Capital asset" in section 2 (14) of the Act) were excluded from the purview of agricultural land but again with effect from 1-4-1970. Inasmuch as the land concerned herein was sold in May 1969, it does not fall within the mischief of the said subclauses (a) and (b) in clause (ill) of section 2(24). If it was agricultural land, it is exempt from capital gains tax notwithstanding the fact that it is situated within the jurisdiction of a municipality. 9. Whether a land is an agricultural land or not is essentially a question of fact. Several tests have been evolved in the decisions of this Court and the High Courts, but all of them are mo....
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....ot cultivated for a period of four years prior to its sale coupled with its location, the price at which it was sold do outweigh the circumstances appearing in favour of the appellants' case. The aforesaid facts de establish that the land was not an agricultural land when it was sold. The appellants had no intention to bring it under cultivation at any time after 1965-66 certainly not after they entered into the agreement to sell the same to a Housing Co-operative Society. Though a formal permission under section 65 of the Bombay Land Revenue Code was not obtained by the appellants, yet their intention is clear from the fact of their application for permission to sell it for a non-agricultural purpose under section 63 of the Bombay Tenancy Agricultural Lands Act." 3) The decision in case of Sarifabibi (supra) has categorically decided the issues, by not applying the amendment as carried out by Finance Act, 1970. The Hon'ble Supreme Court has consciously not interpreted the term "agricultural land" under the amended law. It is therefore, submitted that the term "agricultural land has to be understood in terms of amendment after Finance Act, 1970. 4) Amendme....
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....f the new asset shall be charged under section 45 as the income of the previous year, and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be nil; or (ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45, and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be reduced by the amount of the capital gain." b) CBDT Circular No. 45 dated 02.09.1970 explains the amendment. Paragraph 30 explains this. "30. Prior to the amendment made by the Finance Act, 1970, the definition of the term "capital asset" in section 2(14) excluded from its scope, inter alia, agricultural land in India. Accordingly, no liability to tax arose on gains derived from transfer of agricultural land in India. This exemption of agricultural land from the scope of levy of tax on capital gains has a historical origin and is not due to any bar in the Constitution on the competence....
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.... taxation even where such land was held for bona fide agricultural purposes, often as the main source of livelihood. With a view to relieving the burden of taxation on the capital gains in such cases, a provision has been made, in a new section 54B, for exempting from tax the capital gain arising from the transfer of agricultural land in certain circumstances. Under the new section 54B, where the capital gain arises from transfer of land which in the two years immediately preceding the date of transfer was being used by the assessee or a parent of his for agricultural purposes, and the assessee has, within a period of two years after that date purchased any other land (whether in the same area or elsewhere) for being used for agricultural purposes, then the capital gain will not be charged to tax to the extent that it has been utilised for acquiring the fresh land. Where the amount of the capital gain exceeds the cost of acquisition of the fresh land, only the excess will be chargeable to tax. The concession will, however, be forfeited if the assessee transfers the fresh land acquired by him within a period of three years from the date of its purchase." e) The amendment to....
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.... constituted agricultural income. Paragraph 10.2 explains that the Explanation was inserted to clarify that capital gains arising from transfer of agricultural land referred to in section 2(14)(iii)(a) / (b) would not constitute "revenue" within the meaning of section 2(IA)(a) Paragraph 10.3 states that the amendment operates retrospectively from 1-4-1970. 7) User requirement in section 54B, section 10(37) and 2(IA) but not in section 2(14)(iii) a) This distinction is vital. Section 2(14)(iii) excludes agricultural land from capital asset on the basis of location and population, subject to the statutory exceptions in clauses (a) and (b). There is no express statutory requirement in section 2(14)(iii) that the land must have been used for agricultural purposes in the two years immediately preceding the transfer. b) By contrast, section 54B specifically imposes such a requirement. Section 54B applies when the capital gain arises from transfer of land which in the two years immediately preceding the date of transfer was being used by the assessee or parent for agricultural purposes. c) Likewise, section 10(37) expressly requires, in clause (ii), tha....
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....lways be and always is used for agricultural purposes. Agricultural land can be and is at times used for non-agricultural purposes. In Raja Mustafa Ali Khan v. CIT [1948] 16 ITR 330, the Privy Council held that whether exemption was claimed under section 2(1)(a) or (b)of the 1922 Act, the primary condition must be satisfied that the land "is used for agricultural purposes". The Privy Council further held that unless there was some measure of the cultivation of the land, some expenditure of skill and labour upon it, it cannot be said to be used for agricultural purposes within the meaning of the Income-tax Act. In CIT v. Raja Benoy Kumar Sahas Roy (1957) 32 ITR 466, the Supreme Court considered the meaning of the term "agricultural purposes". It held that those operations which the agriculturist had to resort to and which were absolutely necessary for the purpose of effectively raising produce from the land, operations which were to be performed after the produce sprouted from the land such as weeding, digging the soil around the growth, removal of undesirable undergrowth, and all operations which fostered the growth and preservation of the same not only from insects and pests but a....
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....citly accepted the proposition that actual agricultural operations are not a necessary condition under section 2(14). It further distinguished section 2(14) from sections 54B and 10(37), which expressly require user. iii) Relevant findings. "3. Aggrieved by the order of CIT (A), petitioner preferred an appeal before the Income-tax Appellate Tribunal (ITAT). No appeal was filed by the Revenue or any cross objection filed. Therefore, the finding of the CIT (A) that actual carrying on of agricultural operations is not a necessary condition for deciding that a particular parcel of land was agricultural land, has attained finality. In our view also, in the facts and circumstances of this case, actual carrying on of agricultural operation may not be necessary condition. We say this because it is petitioner's claim that the agricultural land sold was not within the jurisdiction of municipality or municipal corporation or notified area committee or town area committee or town committee or a cantonment board and which has a population of not less than ten thousand. The only requirement was to see whether this fact as alleged by petitioner was correct.... 8. Mr....
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....4) of the Act. then the question of applicability of section 50C of the Act would arise." Therefore, it is obvious that the matter has been restored to the AO only to examine the evidence filed by petitioner and conducting enquiry, if necessary, with the concerned authorities of the Government to find out the true nature and character of the land sold and only if the AO comes to a conclusion on the basis of material brought on record that the lands sold by petitioner are not in the nature of agricultural land, can he come to conclusion that the land would come within the purview of "capital asset" as defined under section 2(14) of the Act. 9. In the circumstances, we hereby quash and set aside the impugned order dated 24th March 2022 and remand the matter for passing the fresh assessment order. The AO will only examine whether the evidence brought on record to establish the claim that the lands sold are in the nature of agricultural land, was authentic. If the AO has to reject the evidence filed by petitioner, he shall bring contrary material on record. For that, the AO has to conduct an enquiry to ascertain the authenticity of the certificates filed by petitioner. The AO ....
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....d on during certain periods. iii) Relevant findings: 2" ii. Whether on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the lands in question sold by the company are "agricultural" when it is on record and not in dispute that no agricultural activity whatsoever was carried out by the assessee from the Financial Year 2005-06 onwards? 3. There is a presumption to the validity of such official document and if a party states that the entry is incorrect or the document is false, the onus is on the party to prove the same. There is no allegation made by the Assessing Officer that the patta, copy of which was furnished by the Tahsildar, is a bogus patta. Even going by the Adangal extracts, which were furnished by the VAO, on being summoned under section 131 of the Act, we find that in column no. 19 of the Adangal extract, the land has been described as "Tharisu". Therefore, even going by the subsequent records, the character of the land is not stated to be non agriculture. A land, which is an agricultural land, at many at times, cannot be put to use for agricultural purposes. Merely because an agricult....
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....ransitional period, that is, between purchase and acquisition, the nature and character of the land did not change. The fact that the appellant/assessee intended to use the land for industrial purposes did not in any way alter the nature and character of the land. The further fact that the appellant/assessee did not carry out any agricultural operations did not also result in any conversion of the agricultural land into an industrial land. It is nobody's case that the appellant/assessee carried out any operations for setting up any plant or machinery or of the like nature so as to lead to an inference that the nature and character of the land had been changed from agricultural to industrial. The mere fact that the appellant/assessee did not carry out any agricultural operation did not alter the nature and character of the land. In any event, this discussion is not relevant in the backdrop of the clear finding given by the Tribunal that on the date of the purchase and an also on the date of acquisition, the land in question was agricultural land Having come to much a concherion, the Tribunal ought not to have gone into question of intention of the appellant intressee and definit....
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....come shown and the land had non-agricultural potential. The Bombay High Court held that the land was agricultural because it was entered as such in the revenue records, and the assessee's had obtained no permission for non-agricultural use. The Court also held that absence of surplus agricultural income did not matter since the produce may only have been sufficient to maintain the land. ii) Relevant findings: "5. Under section 260A of the Income-tax Act, it is not open to the High Court to interfere in the finding of the fact. The finding of fact that could be interfered only if it was arrived at by application of wrong principles of law or was perverse, le., to say that no prudent man versed in law would come to the said finding. In our view, the finding is neither perverse nor is it arrived at by wrong application of any principle of law and it is not open for us to interfere in the possible finding of fact in an appeal under section 2604 of the Income-tax Act. The Assessing Officer has noted that the said land was entered in the revenue record as an agricultural land. i.e.. garden or orchard. The ITAT also held that the land was recorded in the revenue records ....
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....he AO has noted that the said land was entered in the revenue record as an agricultural land te garden or orchard. It is contended by the revenue that the land was not achially used for agriculture in as much as no agricultural income was derived from this land and was not shown by the respondents in their Income Tax Return, This was explained by saying that there were coconut trees in the land but the agricultural income derived by sale of coconut was just enough to maintain the land and there was no actual surplus, hence, no agricultural income was shown from this land. In our opinion, if an agricultural operation does not result in general of surplus that cannot be a ground to say that the land was not used for the agricultural purpose. It is not disputed that the land was shown in the revenue record to be used for agricultural purpose and no permission was ever obtained for non-agricultural purpose by the respondents." 1) Shankar Dalal v. CIT [2017] 247 Taxman 170 (Bom.) i) Assessment Year: 2007-08 ii) The Revenue argued that the land was not agricultural because regular agricultural activities were not shown and the land was sold to a non-agriculturi....
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....ndition being not situated within the jurisdiction of a municipality or a cantonment board and second being such area having a population of not less than 10000, to bring the land outside the purview of agricultural land, is indicative of the legislative intent that the two requirements as alluded to hereinabove would have to be read conjunctively. In other words, both the requirements or conditions would have to be fulfilled to bring the land outside the scope and ambit of agricultural land to be treated as capital asset. Otherwise, even if one is not fulfilled or is not present, it would be an agricultural land which would not be included within and treated as capital asset. 21. Having noted that, we may once again revert back to the requirements of clause (iii)(a) of sub-section (14) to Section-2 of the Act. For land to be excluded from capital asset, it has to be agricultural land in India; such land to be not agricultural must fulfill two conditions viz. it must be land situated in any area which is comprised within the jurisdiction of a municipality or cantonment board and which has a population of not less than 10,000. These two conditions are pre-conditions and mus....
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.... (A) are not applicable in the assessee's case. The Hon'ble Jurisdictional High Court in the case of Mrs. Sakunthala Veachalam & Mrs. Vanitha Manickavasagam v. ACIT [2014] 369 ITR 558 (Mad.) held that merely because of the adjacent land divided into Plots for sale not a reason that the land sold by the assessee were for the purpose of development of land. Records are showing that the lands are agricultural land, classified as dry land for which Kisthu has been paid and falls far exclusion from the definition of capital asset u/s. 2(14) of Income Tax Act. The case laws relied upon by the assessee are squarely applicable in the assessee's case. Therefore, we hold that the land in question sold by the assessee was agricultural land and cannot be held as capital asset and no capital gains are chargeable and hence we set aside the orders of the lower authorities and the assessee's appeal is allowed." 1) CIT vs. Bolla Ramaiah [1988] 174 ITR 154 (Andhra Pradesh) i) Assessment Year: 1970-71 ii) The assessee's lands were situated either within municipal limits or within 8 kilometres of municipal limits. The lands had been requisitioned by the Defen....
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.... No. 3 is to be answered in the negative, i.e., against the assessee's and in favour of the revenue." m) CIT vs. Shree Hanuman Sugar & Industries Ltd. [1992] 195 ITR 625 (Cal) i) Relevant findings: "At the hearing, Mr. Dey appearing for the assessee has contended that the facts which have been found by the Tribunal are all findings of fact, and, accordingly, on that basis, the Tribunal came to a correct conclusion. He has drawn our attention to the order parred by the Tribunal which we have already extracted hereinbefore. On the firat question which has been referred to us, the findings of the Tribunal have been challenged. Merely because the assessee produced several varieties of crops on the disputed land, the land would be not treated as agricultural land, nor is the fact of parment of land revenue in respect of the land decisive. Section 2014)(0) which deals with the agricultural land has been amended by the Finance Act. 1970, with effect from the assessment year 1970-71. Before the said amendment, agricultural income arising from the transfer of agricultural land was exempt from tax but, by the amendment, the capital asset being the agricultural land....
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....iness income because it had been sold to an industrial unit and yielded substantial profit. The Gujarat High Court held that purchaser's intention and sale price cannot determine the agricultural character of the land sold by the assessee. What mattered was that the land sold was agricultural land and entered as such in the revenue records. ii) Relevant findings: "7. From the order passed by the Assessing Officer, it appears that the Assessing Officer treated the profit of Rs. 68,18,800/- earned by the assessee from sale of agriculture lands as business income mainly on the grounds that (i) the land was sold to the company, which used the said land for industrial purpose, (ii) that there was a steep rise in the profit and (iii) that the lands were sold within a short span of time. However, it is required to be noted and it is not in dispute that as such, what was sold by the assessee was agriculture land. In the revenue record also, lands were shown as agriculture lands. It is also required to be noted that the agriculture lands in question were sold by the assessee after a period of approximately 15 to 16 months from purchase. 8. Therefore, on plain ....
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....Act unless the land is covered under item (a) & (b) of Section 2(14)(iii), in which event tax would be levied on the capital gains." 4) Shri Rajesh Ramchandra Dake v. DCIT, ITA No. 03/Mum/2021, order dated 23.01.2025, which followed Ashok Chaganlal Thakkar and reiterated the same proposition. 1) Relevant Para 24.1 and 24.2 9) Relevant circulars in this regard a) CBDT Circular No. 17/2015 dated 06.10.2015 clarifies in para 1 as under: ""Agricultural Land" is excluded from the definition of capital asset as per section 2(14)(iii) of the Income- tax Act based, inter alia on its proximity to a municipality or cantonment board." b) CBDT Circular No. 36/2016 dated 25.10.2016 clarifies as under: Under the existing provisions of the Income-tax Act, 1961 ('the Act'), an agricultural land which is not situated in specified urban area, is not regarded as a capital asset. Hence, capital gains arising from the transfer (including compulsory acquisition) of such agricultural land is not taxable. Finance (No. 2) Act, 2004 inserted section 10(37) in the Act from 1-4-2005 to provide specific exemption to the capital gains arisin....
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....treated as capital asset within the meaning of Section 2(14) of the Act. Ordinarily, the question whether a land is an agricultural land or not is a question of fact and the finding on the question of fact recorded by the Tribunal is final. We are not inclined to upset the decision of the Tribunal, and therefore, there is no merit in the argument advanced by the learned Senior Counsel for the assessee. The appeal will stand dismissed finding no question of law arising from the impugned order. No costs." b) Prashant Jaipal Reddy vs. ITO 2025] 481 ITR 547 (Bombay) 1) Assessment Year: 2011-12 ii) Relevant findings: "19. The fact-finding authorities have also correctly referred to the contradictory stances of the assessee. The moment one of the defences was found untenable, the same was sought to be substituted or explained by yet another stance. From the perusal of the three orders, we agree with the fact-finding authorities that the assessee was bent upon adopting inconsistent and contrary stances on the issue of property being used for agricultural purposes. The various inferences drawn by the three fact-finding authorities from the holistic consi....
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....nding suffered from any perversity. Besides, as noted earlier, all these decisions turned on their facts, which are incomparable to the facts in the present matter. Therefore, based on these three decisions, no case is made to entertain this appeal." c) CIT v. GRK Reddy & Sons (HUF) [2021] 430 ITR 283 (Mad.) i) Assessment Year: 2008-09 ii) The assessee relied on revenue entries and argued that the land was agricultural. The High Court held that mere revenue classification was not conclusive, particularly where there was no evidence of agricultural operations and the land had commercial development characteristics. It therefore ruled against the assessee. iii) Relevant findings: "3. The Tribunal reversed the order passed by the CITA, who confirmed the order of assessment only on the ground that the lands were shown as agricultural lands in the revenue record during the relevant period and therefore, would not fall within the purview of the definition of 'capital asset' under the Act. Unfortunately, the Tribunal applied the wrong test and ignored the settled legal position, as held in the case of Smt. Sarifabibi Mohmed Ibrahim v. C....
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....CIT(A) affirming the order of assessment dated 14-3-2014." 10. Per contra, the learned CIT-DR strongly relied upon the orders of the lower authorities and submitted that actual agricultural operations and surrounding circumstances constitute highly relevant factors while determining agricultural character of land. He submitted that mere classification in revenue records is not conclusive and that the assessee had failed to establish actual cultivation by producing cogent evidence of agricultural produce or agricultural income. According to him, the judicial precedents relied upon by the Revenue support the proposition that surrounding circumstances and actual use of land are important considerations while determining whether the land retained agricultural character. 11. We have thoughtfully considered the rival submissions, carefully perused the assessment order, the impugned appellate order, the documentary evidences placed in the paper book including the 7/12 extracts, survey records, affidavit and sale agreement, and have deeply reflected upon the entire statutory framework, legislative history and judicial evolution governing the concept of "agricultural land" under the I....
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....ration of totality of circumstances appearing for and against the assessee. Thus, even under the old regime, actual agricultural operations were never treated as the sole or determinative criterion. 13. Thereafter came the watershed legislative amendment through Finance Act, 1970 whereby Parliament consciously introduced section 2(14)(iii)(a) and (b), incorporating objective statutory criteria based upon municipal limits, population and urban proximity. This amendment fundamentally altered the statutory landscape and shifted the legislative focus from uncertain subjective factual tests towards objective geographical and demographic determinants. The legislative intent behind the amendment was abundantly clear, namely, to bring within the tax net urban and peri-urban agricultural lands possessing commercial urban potential while simultaneously continuing exclusion of genuinely rural agricultural lands. Thus, post amendment, Parliament itself consciously recognized that agricultural lands situated beyond specified municipal and urbanisable limits ordinarily ought to remain outside the ambit of "capital asset". Once such objective statutory criteria were consciously incorporated by....
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.... of reflected agricultural income in the return cannot automatically destroy or extinguish the agricultural character of the land, particularly when overwhelming surrounding circumstances continue to support its agricultural nature. 16. The legislative history further fortifies this interpretation. Prior to the Finance Act, 1970, agricultural land in India was broadly excluded from the ambit of "capital asset" without any distinction based upon municipal limits or urbanisation. Consequently, courts evolved multifactor tests for determining agricultural character of land. The Hon'ble Supreme Court in Sarifabibi Mohmed Ibrahim vs. CIT [204 ITR 631] and several earlier authorities referred to various indicators such as classification in revenue records, actual user, intention of owner, surrounding development, physical characteristics, possibility of cultivation and permission for non-agricultural use. However, importantly, the Hon'ble Apex Court never held that actual agricultural operations constituted the sole or mandatory test. On the contrary, the Hon'ble Supreme Court categorically observed that no single factor could be treated as conclusive and ultimate determination had to....
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.... not be taxed merely because purchaser subsequently exploited the land commercially. 21. Equally important are the judgments of the Hon'ble Bombay High Court in CIT vs. Debbie Alemao, CIT vs. Minguel Chandra Pais and Shankar Dalal vs. CIT, wherein the Hon'ble Court consistently emphasized that agricultural character of land does not disappear merely because agricultural income is insignificant or because the land was not cultivated personally by the owner. The Hon'ble Court repeatedly emphasized the significance of revenue records, absence of non-agricultural conversion and continuity of agricultural character. 22. The judgments relied upon by the Revenue, in our considered opinion, are clearly distinguishable on facts. In Sreedhar Asok Kumar vs. CIT [89 taxmann.com 145 (Ker.)], the Hon'ble Kerala High Court itself observed that the issue is essentially factual depending upon cumulative circumstances. The Court merely found that except for bare revenue entries, overwhelming evidence demonstrated commercial non-agricultural character. Likewise, in Prashant Jaipal Reddy vs. ITO [481 ITR 547 (Bom.)], the Hon'ble Bombay High Court declined interference because concurrent factual ....