2016 (3) TMI 491 - AT - Income Tax

Agricultural lands in terms of Sec 2(14) - treatment to land sold - Held that - In the present case the purchaser of the property was a company by name M/s. Menakur Infrastructure Private Limited which is a registered company under the Companies Act 1956 incorporated on 04/08/2004 vide registration No.U45204TN2004PTC053884 with an intention to develop housing projects Information Technology Buildings and family housing construction in and around Chennai. The property sold is situated in Navalur which is a suburb in Chennai it is situated in Kanchipuram Districtt Tamil Nadu located south of the city of Chennai along the Old Mahabalipuram Road. Navalur is located between Sholinganallur and Siruseri and is around 6 kms. from Sholinganallur and comes under Thirporur taluk. The place was once a village but with the advent of Information Technology Companies and the rapid development of the Old Mahabalipuram it has become a bustling suburban. The property sold by the assessee is in the midst of development activities being carried out by builders in promoting housing/ Information Technology corridors and no agricultural activities were being carried out either by the assesse nor by others in that area the property is described as a mango grove as per the copy of the sale deed/patta chitta adangal produced. An overall view is to be taken in deciding whether the land was an agricultural land we would come to a conclusion that the property cannot be considered as Agricultural land. Though the circumstance that the land is classified as Agricultural in the revenue records and the Village Panchayat President Navallur has certified that the land is away from municipality. In our view the other circumstances pointed out above outweighs all of the circumstances in favour of the Revenue and on the basis of those circumstances we are inclined to conclude that the property was not an agricultural land. - Decided in favour of revenue

Issues Involved:
1. Classification of land as agricultural land under Sec 2(14) of the Income Tax Act.
2. Taxability of the sale proceeds from the land as capital gains.

Issue-wise Detailed Analysis:

1. Classification of Land as Agricultural Land under Sec 2(14) of the Income Tax Act:

The primary issue in this case was whether the lands sold by the assessee could be classified as agricultural lands under Sec 2(14) of the Income Tax Act, which would exempt them from being considered as capital assets and thus not subject to capital gains tax.

Facts and Arguments:
- The assessee filed a return of income for the assessment year 2006-07, declaring an income of Rs. 5,60,510. The assessment was completed, determining the income at Rs. 4,57,780.
- The Assessing Officer (AO) reopened the assessment, noting that the assessee sold property for Rs. 6,09,60,000 and invested Rs. 1,20,00,000 in share application money.
- The land in question, jointly owned by the assessee and his mother, was sold to M/s. Menakur Infrastructure P. Ltd. The assessee claimed exemption under Sec 2(14), asserting the land was agricultural and situated beyond 8 kms from the outer limits of Chennai Municipal Corporation.
- The AO rejected this claim based on several factors, including the absence of agricultural activities, the land's location in a commercial area, the high sale price, and the nature of the buyer's business.

Commissioner of Income Tax (Appeals) Findings:
- The Commissioner of Income Tax (Appeals) found that the lands were classified as agricultural in revenue records and were under cultivation until their sale.
- The lands were sold with standing crops, and the sale deed mentioned the presence of mango and coconut trees.
- The Commissioner concluded that the lands were agricultural and not capital assets under Sec 2(14), thus exempting the sale proceeds from capital gains tax.

Tribunal's Analysis:
- The Tribunal considered multiple factors to determine whether the land was agricultural, referring to the Supreme Court's decision in Smt. Sarifabibi Mohmed Ibrahim v. CIT, which laid down 13 tests for this purpose.
- Factors included the land's classification in revenue records, its actual use for agricultural purposes, the nature of the sale, and the surrounding area's development.
- The Tribunal noted that although the land was classified as agricultural, other circumstances, such as its location in a developing area and the high sale price, outweighed this classification.

Conclusion:
- The Tribunal concluded that the land could not be considered agricultural based on the cumulative consideration of all relevant facts, including the nature of the sale and the land's location in a rapidly developing area.
- The appeal by the Revenue was allowed, overturning the Commissioner of Income Tax (Appeals) decision.

2. Taxability of the Sale Proceeds as Capital Gains:

Facts and Arguments:
- The AO argued that the lands were not agricultural and thus constituted capital assets, making the sale proceeds liable for capital gains tax.
- The assessee contended that the land was agricultural and the sale proceeds should not be taxed as capital gains.

Tribunal's Analysis:
- The Tribunal emphasized the need to consider all relevant factors to determine the nature of the land.
- It noted that the land was sold to a company engaged in developing housing projects and IT parks, and the sale price was significantly high, indicating its non-agricultural nature.
- The Tribunal applied the tests laid down by the Supreme Court and concluded that the land was not agricultural.

Conclusion:
- The Tribunal held that the sale proceeds were taxable as capital gains, as the land did not qualify as agricultural under Sec 2(14) of the Income Tax Act.

Final Order:
- The appeal by the Revenue was allowed, and the sale proceeds were subject to capital gains tax.
- The order was pronounced on December 31, 2015, at Chennai.

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