The Kolkata Bench, of the Income Tax Appellate Tribunal (ITAT), has held that the sale of agricultural land does not amount to capital gain for the purpose of allowing exemption under section 10(1) of the Income Tax Act, 1961.
The assessee was represented by Shri Guruswamy and the revenue was represented by Shri V.S. Chakrapani.
The A.O. made the addition of Rs.2.06 crores as long-term capital gain arising from the sale of land situated at Survey No.40, Chikkanahalli Kammanahalli, Sarjapur hobli, Anekal Taluk, Bengaluru. The assessee contended that the said land is situated beyond the Municipal limits of 10 km and it was not a capital asset as per section 2(14) of the Act. Further contended that the sale of agricultural land outside municipal limit is to be treated as agricultural land and should be exempted u/s 10(1) of the Act.
The A.O. held that the land was converted for non-agricultural purposes before execution of the sale deed, therefore it was a capital asset u/s 2(14) of the Act, and it cannot be exempted u/s 10(1) of the Act. The CIT(A) on appeal confirmed the finding of the A.O.
It was submitted that the assessee entered into a sale agreement to sell the subjected property and the land was got converted as per the condition laid down by the purchaser and got converted the land for non-agricultural purposes on 16.9.2013 by order of Commissioner of Bangalore district OM. Further, it was submitted that land has been used by the assessee till the date of transfer as agricultural land and also assessee declared income from agriculture in its return of income.
The revenue stated that the land was converted for non-agricultural purposes before sale and the sale of converted land for non-agricultural purposes should be liable for tax as it is not an agricultural income in terms of section 2(14) of the Act
The Tribunal observed that if the cultivation of land continued till the date of sale of the land, then the land should have been treated as agricultural land and exempt from the capital gain in view of section 2(14) of the Act.
As the revenue failed to bring anything on record to controvert the tribunal’s observation the Coram consist of Chandra Poojari, accountant member and Smt. Beena Pillai, judicial member allowed the exemption u/s 10(1) as the sale not amounts to capital asset. The appeal filed by the assessee was allowed.
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