2025 (7) TMI 1217 - AT - Income Tax

Nature of land sold - eight pieces of land had been purchased in a very short span and sold after short - short term capital gain - holding period of asset - observation of AO that the land is to be used for Industrial purpose and are deemed non-agricultural land - CIT(A) held that the land sold was agricultural land and hence no capital gains arise. HELD THAT - The assessee purchased agricultural lands registered in his name. This proves that the assessee is an agriculturist though he has not earned any agricultural income in earlier years.The land at the time of purchase was agricultural in nature as per the land records. The Sale Deeds submitted by the assessee records that the land is agricultural land and the same was subsequently sold for industrial purpose which led to the question whether the agricultural land purchased and sold by the assessee can be treated as non-agricultural in nature and the profits thereof can be taxed or not. We find that transfer u/s 63(AA) is conditional and has to be converted into non-agricultural land within 90 days and if not converted the sale deed automatically gets cancelled. CIT(A) held that at the point of sale by the assessee of the land the land remained agricultural in nature and it was the purchaser who has to apply for conversion of the land into non-agricultural land before the State Government. It also stipulates that failure to convert the land to non-agriculture would lead to cancellation of the sale deed. Thus it can be found that the assessee has purchased agricultural land and sold agricultural land which has been subsequently converted into nonagricultural land by the purchaser which does not ipso facto make the agricultural land sold by the assessee as the non-agricultural land. Hence we decline to interfere with the well-reasoned order of the Ld. CIT(A). Appeal of the Revenue is dismissed.

Summary

ISSUES:

Whether the profit from sale of agricultural land, subsequently converted to non-agricultural land by the purchaser, constitutes short-term capital gains taxable under the Income Tax Act.Whether the nature of the land at the time of sale by the assessee determines the taxability of capital gains, despite the purchaser's intended industrial use and conversion.Whether the short holding period and significant profit on sale of multiple land parcels indicate a taxable capital gain event.

RULINGS / HOLDINGS:

The court held that the land sold by the assessee was agricultural land at the time of sale, and "transfer u/s 63(AA) is conditional and has to be converted into non-agricultural land within 90 days," failing which the sale deed gets cancelled; hence, the land sold cannot be treated as non-agricultural land for capital gains taxation.The court affirmed that "the assessee has purchased agricultural land and sold agricultural land which has been subsequently converted into nonagricultural land by the purchaser," and this does not ipso facto make the land sold by the assessee non-agricultural.The court declined to interfere with the appellate order deleting the addition of short-term capital gains, emphasizing that the land's agricultural nature at the time of sale prevails over the purchaser's subsequent conversion for industrial use.

RATIONALE:

The court applied the provisions of Section 63(AA) of the Income Tax Act, which conditions the validity of transfer of agricultural land on its conversion to non-agricultural land within 90 days, otherwise rendering the sale deed void.The decision relied on land records and sale deeds confirming the agricultural status of the land at the time of sale by the assessee, distinguishing the purchaser's post-sale conversion as not affecting the nature of transfer for capital gains purposes.The ruling reinforces the principle that the taxability of capital gains on land sales depends on the land's status at the time of transfer, not on subsequent use or conversion by the buyer.