2021 (1) TMI 560 - AT - Income Tax

Capital gain - nature of land sold - whether the land sold by the assessee by way of a registered sale deed is a capital asset as defined u/s 2 (14)? - HELD THAT - The land in question is classified as Don in the revenue records and is thus wet land in which paddy is grown. Based on the documentary evidences it is clear that the land in question which is sold is agricultural land. The AO or the ld. CIT(A) have no evidences to controvert the documentary evidences furnished by the assessee. The assessee has submitted a copy of Indian Village Directory where the village Lapra is located 12 km away from sub-district headquarter Khelari and 60km away from the district headquarter of Ranchi and that it is a gram panchayat that has a population of 3, 559 people. No evidence controverting the above facts is brought on record by the AO or the ld. CIT(A). Thus the assessee has proved that the land in question is more than a distance of 8 km from the closest municipality and that it is agricultural land as defined u/s 2(14)(iii) - Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Whether the land sold by the assessee is a capital asset as defined under Section 2(14) of the Income Tax Act, 1961.
2. Whether the land sold is agricultural land and hence not subject to capital gains tax.

Issue-wise Detailed Analysis:

1. Whether the land sold by the assessee is a capital asset as defined under Section 2(14) of the Income Tax Act, 1961:

The primary contention from the assessee’s counsel was that the land sold by the assessee is agricultural land, thus not a capital asset as per Section 2(14) of the Income Tax Act, 1961. The counsel argued that the land was classified as Don land in the revenue records, indicating it was used for growing paddy, and the sale deed supported this classification. The assessee, a senior citizen with income from pension and interest, initially submitted an incorrect computation due to a lack of awareness that no capital gains arise on the sale of agricultural land. The counsel emphasized that there is no estoppel against law, meaning the incorrect initial submission should not affect the legal determination of the land’s status.

The Revenue’s representative opposed this, arguing that the land was not agricultural and thus a capital asset. The CIT(A) had noted that the land was 2.5 km from the nearest municipality with a population of 20,010, and classified it as a residential bungalow surrounded by gardens, thus subject to capital gains tax.

2. Whether the land sold is agricultural land and hence not subject to capital gains tax:

The Tribunal considered the documentary evidence provided by the assessee, including the sale deed and revenue records, which classified the land as Don land, used for growing paddy. The Tribunal noted that the land measured 11.8 acres, with the residential bungalow occupying less than half an acre, and the gardens of mango and guava did not change the land's agricultural classification. The Tribunal found no evidence from the AO or CIT(A) to counter the documentary evidence provided by the assessee.

The Tribunal referred to several case laws to support its decision, emphasizing that the land’s classification in revenue records, its use for agricultural purposes, and its distance from the nearest municipality (more than 8 km) are crucial factors in determining its status as agricultural land. The Tribunal cited cases such as Sanjeev Kumar Goyal vs. ITO, Naiyer Sultan v. ITO, and Pr. CIT vs. P. S. Raghupathy, which held that agricultural land beyond 8 km from municipal limits is not a capital asset and thus not subject to capital gains tax.

The Tribunal also addressed the argument of acquiescence, stating that there is no estoppel against law. Even if the assessee initially submitted an incorrect computation, the legal status of the land as agricultural cannot be changed by such an error. The Tribunal cited cases like Haripal Singh vs. ACIT and Mayank Poddar (HUF) vs. WTO, which reinforced that tax cannot be levied based on an incorrect admission by the assessee if the law does not support such taxation.

Conclusion:

The Tribunal concluded that the land sold by the assessee is agricultural land, not a capital asset, and thus not subject to capital gains tax. The appeal of the assessee was allowed, and the capital gains tax levied by the AO and confirmed by the CIT(A) was deleted.