2022 (9) TMI 147 - AT - Income Tax

Tribunal rules land as agricultural, rejects LTCG for capital gains.

The Tribunal upheld the CIT(A)'s decision, determining that the land in question was agricultural land and did not meet the definition of a capital asset ... LTCG on transfer of land - Nature of land - capital asset u/s 2(14) or agricultural land - as per AO assessee held the land for less than a year, this land was received as a gift from his brother and there was no intention of doing any agricultural activity and land was to be held as a capital asset on which assessee was liable to pay capital gain - CIT(A) observed that the land in question was agricultural land in the light of the notification of the CBDT dt. 06/01/1994 as well as the Himachal Pradesh Tenancy and Land Reforms Act, 1972, the aerial distance from municipal limits was not applicable to the state of Himachal Pradesh for the relevant A.Y. 2013-14 and the assessee had Pine and Deodar trees also on the above land - HELD THAT:- It is not in dispute that the agricultural land has not been defined in the Act, however the Agriculture land is not an asset for the purposes of levying the capital gain. As per the notification of Himachal Pradesh Tenancy and Land Reforms Act, 1972. The Ghasni land is an agricultural land which is outside the purview of capital asset under section 2(14)(b) as it was situated in the State of Himachal Pradesh. Also noticed that the land situated in the Himachal Pradesh had not been notified up to the A.Y. 2013-14 in the Official Gazette. Moreover brother of the assessee Shri Vijay Garg had grown Pine and Deodar trees on the land in question which was Ghasni Land and used for grazing of animal, the said activity had been held as pasture of land and was an agricultural activity as defined by the Himachal Pradesh Tenancy and Land Reforms Act, 1972. In the present case the department alleged that the assessee obtained “change in land use” certificate, however, the document placed at page no. 24 of the assessee’s compilation, clearly revealed that M/s Gable Promoters Pvt. Ltd. applied for change of land use and not the assessee. No valid ground to interfere with the detailed findings given by the Ld. CIT(A) in the impugned order on this issue and accordingly do not see any merit in this appeal of the Department. Issues Involved:1. Whether the land in question was a capital asset as per the definition of section 2(14) of the Income Tax Act.2. Whether the land was agricultural land and if the assessee was carrying out any agricultural activities on it.3. Whether the addition of Long Term Capital Gain (LTCG) on the transfer of land was justified.Issue-wise Detailed Analysis:1. Whether the land in question was a capital asset as per the definition of section 2(14) of the Income Tax Act:The primary issue was whether the land sold by the assessee to M/s Gables Promoters Pvt. Ltd. qualified as a capital asset under section 2(14) of the Income Tax Act. The Assessing Officer (AO) argued that the land was not agricultural and thus, it was a capital asset. The AO noted that the land was used for grazing cattle and had no agricultural activities performed on it. The AO also referred to the proximity of the land to the municipal limits, which was within 8 kilometers, thus potentially qualifying it as a capital asset.However, the CIT(A) and the Tribunal highlighted that the land in question was classified as 'Ghasni' land under the Himachal Pradesh Tenancy and Land Reforms Act, 1972, which is used for grazing and is considered agricultural land. The Tribunal also noted that the Central Board of Direct Taxes (CBDT) notification excluded Himachal Pradesh from the definition of capital assets for the relevant assessment year 2013-14. Therefore, the land did not fall under the definition of a capital asset as per section 2(14) of the Income Tax Act.2. Whether the land was agricultural land and if the assessee was carrying out any agricultural activities on it:The AO contended that no agricultural activities were carried out on the land, and it was merely used for grazing cattle, thus not qualifying as agricultural land. The AO also pointed out that the assessee did not earn any agricultural income from this land.The CIT(A) and the Tribunal, however, observed that the land was classified as 'Ghasni' land and was used for grazing, which is considered an agricultural activity under the Himachal Pradesh Tenancy and Land Reforms Act, 1972. Additionally, the land had Pine and Deodar trees, which further supported its classification as agricultural land. The Tribunal concluded that the nature of the land should be determined based on the statutory definitions and evidence provided, rather than the intention of the assessee.3. Whether the addition of Long Term Capital Gain (LTCG) on the transfer of land was justified:The AO added Rs. 11,55,56,572/- as LTCG on the grounds that the land was not agricultural and thus, the transfer should be taxed. The AO also argued that the land was sold to the assessee's own company for the construction of a hotel and resort, indicating a commercial intent rather than agricultural use.The CIT(A) and the Tribunal disagreed with the AO's addition. They emphasized that the land was agricultural and situated in Himachal Pradesh, which was excluded from the definition of capital assets for the relevant assessment year. Furthermore, the Tribunal noted that the change of land use was applied for by M/s Gable Promoters Pvt. Ltd. and not by the assessee. Thus, the addition of LTCG was not justified, and the CIT(A) rightly deleted the addition.Conclusion:The Tribunal upheld the CIT(A)'s order, concluding that the land in question was agricultural land and did not fall under the definition of a capital asset as per section 2(14) of the Income Tax Act. Consequently, the addition of LTCG on the transfer of land was not justified, and the appeal by the Department was dismissed.