Friday, March 28, 2014

Agricultural land won't lose its privileges even if sold in violation of State laws; not taxable as capital asset

Merely because agricultural land was sold in favour of non-agriculturist in breach of law prevailing in State, said land would not lose its character as agricultural land and, hence, could not be treated as capital asset.
Facts:
a)  The assessee had filed return of income and disclosed income from sale of agricultural land in response to notice issued under section 153C.
b)  The Assessing Officer made addition on account of capital gain by holding that the land, which was sold by assessee, was a capital asset as it was sold in violation of laws prevailing in the State.
c)  On appeal, the CIT(A) deleted the addition. Further, the Tribunal confirmed order of the CIT(A). The aggrieved-revenue filed the instant appeal.

The High Court held in favour of assessee as under:
1)  It was not in dispute that what was sold by the assessee was an agricultural land which was situated beyond 8 Kms. of local limits of the Municipality and at the relevant time, the land was held by the assessee as agricultural land;
2)  The character of land would not change merely because it was sold to a non-agriculturist in breach of law prevailing in the State and the land still would continue as an agricultural land;
3)  Even though the sale in favour of non-agriculturist could be declared as illegal, yet the land would not lose its character as agricultural land;
4)  When the land was an agricultural land, which was situated beyond 8 Kms. from the municipal limits, no error had been committed by the Tribunal in not considering the land as 'capital asset';

5)  Thus, the land was to be treated as agricultural land and it was outside the purview of capital asset. – CIT v. Rajshibhai Meramanbhai Odedra [2014] 42 taxmann.com 497 (Gujarat)

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