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Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH, AHMEDABAD
Before: Ms. SUCHITRA KAMBLE & SHRI MAKARAND VASANT MAHADEOKAR
PER MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER:
The present appeal came before us as the same was set aside by Hon’ble Gujarat High Court vide order dated 08-07-2022. The original appeal was dismissed due to low tax effect vide common order dated 14-08-2019. The Revenue filed Miscellaneous Application No. 396/Ahd/2019 against the said order which was also dismissed on 09-09-2020.
2. This appeal by the Revenue arises from the order of the Commissioner of Income Tax (Appeals)-1, Ahmedabad (hereinafter referred to as “CIT(A)”), dated 02- 04-2019, pertaining to the Assessment Year (A.Y.) 2012-13, whereby the CIT(A) deleted the addition of Rs. 54,37,086/- made by the Assessing Officer (AO) on account of short-term capital gains on the sale of agricultural land in his order passed u/s 143(3) r.w.s. 147 of the Income Tax Act,1961 (hereinafter referred to as “the Act”).
Facts of the Case
The assessee filed a return of income declaring Rs. 39,42,875/- for A.Y. 2012- 13, which was assessed at Rs. 1,24,89,332/- under Section 143(3) of Act. The case was subsequently reopened under Section 147 on the grounds that the assessee sold agricultural land to Madhukar Infrastructure & Developers Pvt. Ltd. (MIDPL) and failed to declare any capital gains arising from the sale, claiming the land was not a capital asset under Section 2(14)(iii) of the Act. The AO, after issuing a notice under Section 148, computed a short-term capital gain of Rs. 54,37,086/- on the sale of the land, holding that the land was purchased for industrial purposes, as mentioned in the sale deed. Before making such an addition the assessee was given a show cause notice to explain why such addition should not be made but the assessee did not provide any explanations but
4. The assessee filed an appeal before CIT(A), however, deleted the addition, treating the land as agricultural land and exempt from capital gains tax under Section 2(14)(iii). Therefore, the Revenue is in appeal before us with following grounds of appeal:
1. The Ld. CIT(A) has erred law and on facts in treating the impugned land to be covered within the definition of agricultural land within the meaning of Section 2(14) i of the IT Act.
The Ld. CIT(A) has erred in law and on facts in treating the impugned land as agricultural land not considering the fact that as per the index no.2 issued by the Sub registrar, the land had been purchased for industrial use and Government of Gujarat had given deemed NA permission to the said land.
3. The Ld. CIT(A) has erred in law and on facts in holding that no tax on the STCG of Rs 54,37,086/- can be legally fastened on the assessee and therefore deleting the addition made by the Assessing Officer.
The appellant craves leave to amend alter any ground or add a new ground, which may be necessary.
The Departmental Representative (DR) contended that the CIT(A) erred in deleting the addition made by the AO. According to him, the sale of the land to MIDPL, a developer company, for industrial purposes negates its classification as agricultural land. The DR argued that agricultural land cannot be purchased by non-agriculturalist and as per the Resolution of Gujarat Government dated 10-2-2017 the land shall be deemed as Non-Agricultural (N.A.) when it is to be used for Bonafide Industrial Purposes. He placed the copy of the resolution on records. He further argued that since the land is deemed as N.A., the capital gains on sale of such land is taxable.
Authorised Representative (AR) of the assessee on the other hands relied on the order CIT(A) and stated that the during the course of original assessment proceedings the AO by issuing the notice u/s 142(1) asked for specific details of sale of agricultural land at S.No. 557 at Jansali and the assessee furnished necessary details to the AO to prove that the land was Agricultural land and after verifying the details Ao had passed the assessment order. The AR took us through the submission made before AO and explained the documents such as 7/12 extract from the land records, copy of certificate of population of village Jansali as per last census issued by the office of Mamlatdar, copy of certificate of distance of land from village. He also stated that there is record of agricultural activity on the 7/12 extract. On merits the AR placed reliance on the decision of Co-ordinate Bench in case of Hiten Tulsibhai Engineer (ITA No.77/Ahd/2023 dated 13-9-2023).
We have considered the order of CIT(A) where the assessee argued that the land sold was agricultural land situated in a village named Jansali. According to the assessee, the land under question did not fall within the definition of a "capital asset" as provided under Section 2(14)(iii)(a) and (b) of the Income Tax Act. He also argued that section 2(14)(iii) of the Act excludes from the definition of "capital asset" any agricultural land in India that is not situated within certain prescribed limits, specifically within 8 kilometres of a municipality or cantonment board with a population exceeding 10,000. The assessee claimed that the land was being used for agricultural purposes at the time of sale and continued to bear the character of agricultural land. This was supported by records from the land revenue authority indicating that the land remained classified as agricultural even after the sale.
At the time of appellate proceedings, the assessee relied on the judgment of the Hon'ble Madras High Court in Sri M.S. Srinivas Naicker (292 ITR 481) (2007), where it was held that the character of the land at the time of sale is crucial, and if the land was agricultural, it does not become a capital asset merely because it was sold to a non-agriculturist or someone who intended to use it for non-agricultural purposes. The assessee also referred to the ITAT Ahmedabad decision in ITO vs. Akash Deep Farms P. Ltd. (ITA No. 2138/Ahd/2012), which supported the argument that the distance of the land from municipal limits should be measured from the boundaries as they existed at the time of the 1994 notification by the Central Government, not from any later extensions. The CIT(A) examined the facts and noted that the land was indeed agricultural and was situated beyond the 8-kilometer limit from any municipal corporation, specifically Ahmedabad Municipal Corporation (AMC) and Gandhinagar Municipal Corporation (GMC). The CIT(A) agreed with the assessee's argument, concluding that the land did not qualify as a capital asset under Section 2(14)(iii), and therefore, the sale proceeds could not be taxed as capital gains under Section 45 of the Act. The CIT(A) also cited the ITAT decision in Akash Deep Farms P. Ltd., which clarified that the measurement of distance should be as per the boundaries existing at the time of the Central Government notification in 1994 and since the land in question was far beyond the prescribed limit, it remained a rural agricultural land, exempt from capital gains tax. The CIT(A) further supported this conclusion by referencing the Supreme Court decision in CIT vs. B.C. Srinivasa Setty (128 ITR 294), which held that if an asset does not fall under the definition of a capital asset, the charging provision for capital gains under Section 45 would not apply. The CIT(A) further observed that agricultural activities were carried out on the land up until the date of sale, and there was no agreement or intention by the assessee to convert the land for non-agricultural purposes. The CIT(A) agreed that the assessee distinguished the facts of the case from Smt. Sarifabibi Mohmed Ibrahim v. CIT (supra) and relied on the decision of the Hon'ble Madras High Court in Sri M.S. Srinivas Naicker (292 ITR 481) (Mad) and the Ahmedabad Tribunal's decision in ITO v. Akash Deep Farms P. Ltd. (ITA No. 2138/Ahd/2012), which held that the agricultural nature of the land at the time of sale is determinative, regardless of the buyer's intended use.
Considering the facts and judicial precedents, we are of the opinion that the CIT(A) has rightly held that the land sold by the assessee was agricultural land and was not a capital asset under Section 2(14)(iii) of the Act. The sale of such land does not attract capital gains tax under Section 45 of the Act.
We have also considered the decision of Co-ordinate Bench in case of Hiten Tulsibhai Engineer (supra) where the Tribunal reinforced the principle that the character of the land at the time of sale is decisive in determining its taxability under the capital gains provisions. The Tribunal also dealt with the provisions of Section 63AA of Gujarat Tenancy and Agricultural Lands Laws (Amendment) Act, 1997 and clarified that agricultural land sold under this provision remains agricultural until its use is officially converted, regardless of the purchaser's intentions for future industrial use. The conversion of the land's status occurs only after the sale and upon the purchaser's notification and approval by the Collector. The present case mirrors this legal reasoning, as the land's status at the time of sale not the purchaser's intended use determines whether it qualifies as a capital asset. The CIT(A) in the present case accepted that the land was agricultural and situated far beyond the municipal limits, which supported the conclusion that it was not a capital asset at the time of sale, aligning with the reasoning in Hiten Tulsibhai Engineer.
In view of the above findings, we find no merit in the appeal filed by the Revenue. The order of the CIT(A) is upheld, and the appeal filed by the Revenue is hereby dismissed.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the open Court on this 27th August, 2024.