2006 (9) TMI 247 - AT - Income Tax

Capital Gains - sale of agricultural land - Nature of land sold - Addition by treating the land as capital asset - revenue records as agricultural - No permission for non-agricultural use obtained - HELD THAT - It is clear from the records that the lands were subjected to land revenue and assessment of the land revenue was accordingly entered into the extract of 7/12. It is also seen that the total cultivable land has also been shown therein. It is nobody s case that the assessee had used the land for nonagricultural purposes before selling the same. No permission for non-agricultural use has also been obtained by the assessee. No evidence to that effect that the assessee had ever used the land for non-agricultural purposes was brought on record. The evidence in the form of 7/12 extracts clearly shows that agricultural operations were carried out on the land in question. The extract also gives the details and kinds of agricultural produce produced or cultivated on the said land. Merely because the assessee has not given any direct evidence of sale of agricultural produces which were stated to have been consumed by the assessee for own purposes is not sufficient to say that the land in question was not agricultural land when it is classified as agricultural land in 7/12 extracts where the nature of the crop and the person who cultivated the land are duly mentioned at the relevant point of time when the lands were sold by the assessee and where nothing is brought on record to show that the land was put in use for non-agricultural purposes by the assessee. In view of the decision of the Hon ble jurisdictional High Court in the case of Gopal C. Sharma 1993 (10) TMI 41 - BOMBAY HIGH COURT it is also clear that the profit motive of the assessee in selling the land without anything more by itself can never be decisive to say that the assessee used the land for non-agricultural purposes. We may also refer to a decision of the Hon ble Supreme Court in the case of N. Srinivasa Rao v. Special Court 2006 (3) TMI 727 - SUPREME COURT where it was observed that the fact that agricultural land in question is included in urban area without more held not enough to conclude that the user of the same had been altered with passage of time. Thus the fact that the land in question in the instant case is brought in industrial zone cannot be a determining factor by itself to say that the land was converted into use for nonagricultural purposes. Thus we hold that the land in question sold by the assessee was an agricultural land in nature at the relevant point of time when the land was sold and as such any gain arising from sale thereof is exempted from tax under the Income-tax Act. Therefore the addition of capital gain included by the Assessing Officer in the assessment of the assessee stands deleted. In the result the appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Classification of the land as agricultural or non-agricultural.
2. Exemption from capital gains tax on the sale of land.

Detailed Analysis:

1. Classification of the Land:
The primary issue was whether the land sold by the assessee was agricultural land and thus exempt from capital gains tax. The assessee argued that the land was agricultural, evidenced by 7/12 extracts showing agricultural use and payment of land revenue. The CIT and Assessing Officer (AO) contended that the land was non-agricultural due to its inclusion in an industrial zone and lack of evidence of agricultural operations.

The Tribunal noted that the classification of land as agricultural or non-agricultural is a question of fact, determined by various factors. The Hon'ble Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim had laid down 13 tests for determining the nature of the land, including classification in revenue records, actual use, intention of the owner, and surrounding land use.

The Tribunal found that the land was classified as agricultural in revenue records, subjected to land revenue, and used for agricultural purposes, as evidenced by the 7/12 extracts. The extracts indicated cultivation of crops like rice and animal feed grass. The Tribunal emphasized that mere inclusion in an industrial zone without actual non-agricultural use does not convert agricultural land into non-agricultural land.

2. Exemption from Capital Gains Tax:
The assessee claimed exemption from capital gains tax on the grounds that the land was agricultural. The AO and CIT(A) denied the exemption, arguing that the land was not used for agricultural purposes and the sale was to a company intending non-agricultural use.

The Tribunal considered judicial precedents, including decisions of the Hon'ble Supreme Court and High Courts, which held that the classification in revenue records and actual agricultural use are crucial factors. The Tribunal concluded that the land was agricultural based on the evidence provided, including the 7/12 extracts and the absence of any non-agricultural use by the assessee.

The Tribunal also noted that the profit motive in selling the land and its inclusion in an industrial zone were not decisive factors. The land was not developed or used for non-agricultural purposes by the assessee, and no permission for non-agricultural use was obtained.

Conclusion:
The Tribunal held that the land in question was agricultural at the time of sale, and the gain from its sale was exempt from capital gains tax. The addition of Rs. 15,12,525/- as capital gain by the AO was deleted, and the appeal filed by the assessee was allowed.