2025 (7) TMI 884 - AT - Income Tax

LTCG on sale of residential land - Nature of land - benefit u/s 54B - HELD THAT - Since the original is in regional language we consider the contents of this English translation as true and correct as read out by the ld. Advocate of the assessee Mr. P.N. Arora in course of hearing which is duly stamped and signed by the Advocate post hearing in our presence and is made a part of this order. This proves that the entire land (original asset) transferred by the assessee was under agricultural activity where various crops were grown for more than two years preceding. Considering the above documentary evidence we are also in agreement with the observation of the CIT(A) that benefit u/s 54B is available on the sale of land were agricultural activity was carried out for the last two years immediately preceding the date of transfer and the sale proceeds in this case has also been utilized for the purchase of another land which is again used for agriculture purpose by the assessee and as such the assessee is entitled to the benefit of claim u/s 54B of the Act for the purpose of section 45 of the Act. As such we uphold the order of the ld. CIT(A) and the appeal of the revenue is dismissed as devoid of merits.

Summary

1. ISSUES PRESENTED and CONSIDERED

(i) Whether the addition of Rs. 3,68,15,000/- made on account of long-term capital gain arising from the sale of residential land was rightly deleted by the first appellate authority.

(ii) Whether the condition under section 54B of the Income Tax Act, 1961, that the land transferred must have been used for agricultural purposes during the two years immediately preceding the date of transfer, was satisfied given the Girdauri (crop sown) records indicating agricultural activity on only part of the land and the balance being shown as "Gair Mumkin" (non-cultivable) land.

(iii) Whether the order passed by the State Revenue Authority categorizing the land as residential and sold in plots affects the eligibility for deduction under section 54B.

(iv) Whether the land in question qualifies as "agricultural land" and a capital asset as defined under section 2(14)(iii) of the Income Tax Act, 1961.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i) - Deletion of Addition of Long-Term Capital Gain on Sale of Land

Relevant legal framework and precedents: Section 54B of the Income Tax Act provides deduction from capital gains arising from transfer of land used for agricultural purposes if the sale proceeds are invested in purchasing other agricultural land within a specified period. Section 2(14)(iii) defines agricultural land for capital gains purposes.

Court's interpretation and reasoning: The first appellate authority (CIT(A)) held that the land sold was agricultural land used for cultivation from 2006-07 until the date of sale in 2011. The appellant had purchased another agricultural land with the sale proceeds and thus was entitled to deduction under section 54B. The AO's contention that the land was residential based on the State Revenue Authority's order was rejected by the CIT(A), who emphasized the agricultural use and cultivation evidence over the later classification for stamp duty purposes.

Key evidence and findings: The appellant produced revenue records (Jamabandi) signed by the Patwari, showing self-cultivation of crops such as cotton, paddy, and wheat on the entire land for more than two years preceding the sale. The sale deed was registered in December 2011 for Rs. 3.72 crores. The appellant also produced purchase deeds of agricultural land worth Rs. 3.73 crores in May 2012. The AO's observation of cash deposits and the reassessment notice under section 148 were noted but did not affect the agricultural nature of the land.

Application of law to facts: Since the land was used for agricultural purposes for at least two years immediately preceding the transfer, and the sale proceeds were invested in agricultural land, the appellant met the conditions for deduction under section 54B. The AO's reliance on the State Revenue Authority's classification of the land as residential for stamp duty was held to be irrelevant for income tax purposes.

Treatment of competing arguments: The AO and DR argued that the land was residential and partly non-cultivable ("Gair Mumkin") as per Girdauri records and the State Revenue Authority's order, thus disqualifying the appellant from claiming section 54B benefits. The appellant countered with documentary evidence of cultivation and purchase of agricultural land, supported by a binding High Court precedent that benefit under section 54B cannot be denied merely because the new land was purchased jointly with family members.

Conclusions: The Tribunal concurred with the CIT(A) that the land was agricultural and the appellant was entitled to deduction under section 54B. The appeal filed by the revenue was dismissed.

Issue (ii) - Satisfaction of Condition under Section 54B Regarding Agricultural Use of Land

Relevant legal framework and precedents: Section 54B requires that the land transferred must have been used for agricultural purposes in the two years immediately preceding the transfer. The term "used for agricultural purposes" is interpreted in light of cultivation records and relevant revenue documents.

Court's interpretation and reasoning: The Tribunal gave significant weight to the Jamabandi record, which showed continuous cultivation of the entire land for crops such as cotton, paddy, and wheat for multiple years including the two years before transfer. The Tribunal rejected the AO's reliance on the Girdauri record indicating only partial cultivation and "Gair Mumkin" classification for the rest of the land, stating the Jamabandi record was more authoritative and consistent with the facts.

Key evidence and findings: The Jamabandi record was certified and translated into English, showing the land under self-cultivation by the appellant. The record covered the relevant years 2007-08 to 2011-12 and was accepted as true and correct by the Tribunal. The evidence demonstrated that the entire land was used for agriculture, satisfying the statutory condition.

Application of law to facts: The statutory condition under section 54B was fulfilled as the land was used for agricultural purposes for two years immediately preceding the sale. The Tribunal emphasized that the status of the land at the time of sale is determinative, not subsequent classification.

Treatment of competing arguments: The revenue's argument based on partial cultivation and "Gair Mumkin" land was considered but found insufficient to disqualify the entire land from being treated as agricultural. The Tribunal prioritized the comprehensive cultivation record over fragmented evidence.

Conclusions: The condition under section 54B regarding agricultural use was satisfied.

Issue (iii) - Effect of State Revenue Authority's Classification of Land as Residential

Relevant legal framework and precedents: Classification of land for stamp duty purposes by State Revenue Authorities does not necessarily determine the nature of the asset for income tax purposes. The Income Tax Act's definitions and conditions prevail.

Court's interpretation and reasoning: The Tribunal agreed with the CIT(A) that the State Revenue Authority's order passed in 2015, categorizing the land as residential and sold in plots, cannot override the factual position of agricultural use at the time of sale in 2011. The Tribunal held that the nature of the land for income tax purposes must be ascertained as on the date of transfer.

Key evidence and findings: The sale deeds, cultivation records, and purchase of agricultural land with sale proceeds were all dated prior to or contemporaneous with the transfer date. The classification by the Revenue Authority was post facto and related to stamp duty reassessment, not income tax assessment.

Application of law to facts: The Tribunal distinguished the purpose and timing of the State Revenue Authority's classification from the requirements of section 54B. The latter's conditions must be met as on the date of transfer, which was established by the appellant's evidence.

Treatment of competing arguments: The revenue's reliance on the stamp duty classification was rejected as irrelevant for the income tax claim under section 54B.

Conclusions: The State Revenue Authority's classification did not affect the appellant's entitlement to deduction under section 54B.

Issue (iv) - Whether the Land Qualifies as Agricultural Land Capital Asset under Section 2(14)(iii)

Relevant legal framework and precedents: Section 2(14)(iii) defines agricultural land in certain specified areas as capital asset for the purpose of capital gains tax. The nature of the land must be established based on use and location.

Court's interpretation and reasoning: The Tribunal found that the land in question was agricultural land used for cultivation, supported by revenue records and continuous agricultural activity. The appellant's status as an agriculturist and the ancestral nature of the land further supported this classification.

Key evidence and findings: The Jamabandi record, sale deeds, and cultivation history demonstrated the agricultural character of the land. The AO's contrary view based on partial "Gair Mumkin" classification was outweighed by the comprehensive evidence.

Application of law to facts: The land qualified as agricultural land capital asset under section 2(14)(iii), and hence the sale triggered capital gains subject to section 54B relief.

Treatment of competing arguments: The revenue's argument that there was no evidence on record proving the land's agricultural status was rejected on the basis of the appellant's documentary evidence.

Conclusions: The land was held to be agricultural land capital asset as defined under section 2(14)(iii).

3. SIGNIFICANT HOLDINGS

"The benefit of section 54B is available for any land which is utilised for the purpose of agriculture for at least two years immediately preceding the date on which the transfer took place. In the instant case it is not disputed that the appellant was cultivating the said land. The appellant in his written submissions has produced the revenue record as proof of doing agriculture in the said land. Further, the appellant had submitted copies of sale deeds evidencing purchase of 24 acres 1 Kanai agricultural land at village Daulatpura, Tehsil Abohar for Rs. 3,73,48,255/- by him. Therefore, the appellant is entitled for benefit u/s 54B of the total sale consideration received by him."

"The nature of the land should be considered as it is at the time of sale and not thereafter."

"The Jamabandi record duly certified and translated, showing cultivation of cotton, paddy, and wheat on the entire land for more than two years preceding the date of transfer, is sufficient proof of agricultural use."

"The classification of land as residential by the State Revenue Authority for stamp duty purposes cannot override the fact that the land was agricultural land for income tax purposes on the date of transfer."

"The appellant is entitled to claim deduction under section 54B of the Income Tax Act on the sale of agricultural land, where the sale proceeds have been invested in agricultural land within the stipulated period."

Final determinations:

The appeal filed by the revenue was dismissed. The deletion of the addition of Rs. 3,68,15,000/- on account of long-term capital gain was upheld. The appellant was held entitled to claim deduction under section 54B as the land sold was agricultural land used for cultivation for at least two years preceding the sale, and the sale proceeds were invested in agricultural land. The classification of the land as residential by the State Revenue Authority post-sale was held irrelevant for income tax purposes. The conditions under section 54B were satisfied, and the land qualified as agricultural land capital asset under section 2(14)(iii).