On 20th Feb 2013, ITAT bench held that Non-agricultural
property, whether inside the municipality or outside the municipality or even
in a remote village is a “capital asset” and transfer of the same may generate
income liable for capital gains taxation.
The assessee had
sold twelve pieces of land belonging to him to M/s. Pallanishamy Properties
Pvt. Ltd. for a consideration of 26,40,00,000/-. All the parcels of land are
contiguously situated at Padur Village. The parcels of land sold by the assessee
in the previous year relevant to the assessment year under appeal, were
purchased by the assessee over a period of ten years from 1980 to 1991. The
assessee did not offer any income for taxation by way of long-term capital
gains on account of sale of lands, as stated above. The claim of the assessee
before the Assessing Officer was that the lands sold by him were agricultural
land and, therefore, not a capital asset exigible to capital gains taxation.
The AO summoned the
Village Administrative Officer and obtained a sworn statement on 9.12.2011. In
his statement given before the AO, the Village Administrative Officer made it
clear that the lands sold, belonged to the assessee but he did not carry on any
agricultural activities at the time of selling the lands. He also stated that
as per the land records, the assessee had not carried on any agricultural
activities for so many years in the past. He also stated that the assessee has
not paid local land cess, land cess surcharges and water charges for the lands sold
by him, as is otherwise required in the case of agricultural lands. He also
stated that agricultural activities were not carried out, not only in
assessee’s property but also in surrounding properties. He further stated that
even though the land was classified as agricultural land, no agricultural
activities were being carried out in the area because of development of real
estate business. He further stated that the assessee still holds lands unsold
and those unsold lands were also not used for agricultural purposes.
Assessee before AO
stated that the lands are classified as agricultural lands in revenue records
as nanjai and punjai lands and this classification establishes that the lands
were agricultural in nature. After the sale of lands, the purchasers might have
developed the lands but that does not alter the character of the lands before
its sale. The assessee explained that when the lands were sold by him, they
were agricultural in nature and, therefore, the lands did not partake the
character of capital asset.
Assessing Officer held
that the properties sold by the assessee were not agricultural in nature.
Accordingly, he computed the long term capital gains at 26,16,06,595/- arising
out of the sale of lands made by the assessee for a consideration of
26,40,00,000/-.
CIT(A) accepted the
contentions of the assessee and held that the properties sold by the assessee
were agricultural in nature.
Aggrieved by the order
passed by Ld. CIT(A), revenue appeal before ITAT
Whether a particular
land is agricultural or not, is basically a question of fact.
ITAT bench observed that
the core of the arguments of the assessee is on the classification of the land
in revenue records. But, that alone does not conclusively prove the nature of
the land sold by the assessee, as other evidences are shadowing the said
presumption prima facie created by the entry made in the revenue records. The
properties were in fact, purchased over a period of ten years since 1980. At
the time of purchase of these parcels of land, they might have been
agricultural lands. That is why the land parcels are classified in the revenue
records as agricultural lands. That position was continued in a religious
manner without any annual verification of the nature of the property. But, the character
of the land sold by the assessee has been explained by the Village
Administrative Officer in unequivocal terms in his statement given under sec.
131 before the assessing authority. The Village Administrative Officer has
stated that not only for the impugned previous year but also for so many
earlier previous years, no agricultural activities were carried out in that
area. The assessee as well as the owners of surrounding properties were not in
fact carrying on any agricultural activities. The statement given by the
Village Administrative Officer is very exhaustive and descriptive. He has
stated the reasons as to why the agricultural activities were not being carried
out on those properties.
Because of urbanization,
the properties, real estate development has started taking place in that area
as well. Four educational institutions have been set up in the area within a
short period. A lot of private and commercial buildings are constructed.
Because of the boom of the real estate development, the entire contingent of
that land has become subject matter of transactions intended for the purpose of
real
estate development. In
that background no agricultural activities were being carried out in that area.
The case of the assessee is also not an exception.
The past history of the
land alone is not the deciding factor. Once upon a time the land might have
been used for agricultural operations. In that way of speaking, almost all
parts of Chennai Metropolis might be agricultural or marshy land in good old past.
Therefore, history is not the only test to be applied to decide the character
of the land at the time of sale. A temporary stoppage in the agricultural
activities carried on by an assessee also should not go against an assessee.
For one or other reason, an assessee may not be carrying on agricultural
operations for one or two years, he might be carrying on agricultural
operations for all the years in a consistent manner. In such cases, it is not
possible to hold that non carrying on agricultural operations for one or two
years permanently changes the character of the land.
It is not a case of
intermittent stoppage of agricultural operations. It is a case of permanent
stoppage of agricultural operations in the light of real estate development
taking place in the particular area. Therefore, by
virtue of not carrying
on agricultural activities for a quiet long time in the past, the character of
the land occupied by the assessee has been naturally converted into a
non-agricultural land.
ITAT further observed
that in the context of agricultural operations, it is necessary to see that the
agricultural operations carried on by the assessee must be activity of economic
gain. It must generate meaningful income to the person who is carrying on
agricultural activities. If the agricultural activities carried on by the
assessee as a hobby or casual or incidental, it is very difficult to hold a
view that the land is agricultural in nature.
In fact, the assessee
had started purchasing the land since 1980. He continued to purchase the land
till 1991. Since then upto the assessment year 2003-04, the assessee had not
returned any agricultural income. The assessee started filing returns for the assessment
years 2004-05 to 2008-09. We cannot rule out that this was only a ploy carried
out by the assessee to make an impression before the tax authorities that the
assessee’s land was agricultural in nature, so that the assessee can claim the
benefit of agricultural land, when the lands are sold, in view of high demand
of land in the area and in view of hectic activities of real estate
development.
the agricultural land
sold by the assessee had a market value of more than 6 crores per acre. It is
unheard of. It clearly illustrates that the land has become an non-agricultural
land with high market potential for real estate development, not all of a
sudden in the previous year relevant to the assessment year under appeal but
over a period of long years in the past.
Held, the lands sold by
the assessee in the previous year relevant to the assessment year under appeal
for a consideration of 26,40,00,000/- were not agricultural in nature, but, on
the other hand, they are non-agricultural land. Therefore, it definitely comes
under the category of “capital asset”. Accordingly, the gains arising out of
transfer of that capital asset is exigible to capital gains tax.
A non-agricultural
property, whether inside the municipality or outside the municipality or even
in a remote village is a “capital asset” and transfer of the same may generate
income liable for capital gains taxation.
