Agricultural land converted into non agricultural merely for facilitating sale is not a capital asset: ITAT Bangalore

 

Shri Kamanahalli Pilla Reddy Nagesh Vs ITO (ITA No. 1396/Bang/2019)

Facts:

1. An agricultural land owned by the assessee, is situated beyond the Municipal limits 10 kms. and therefore, as per the assessee, it is not a capital asset as per section 2(14) of the Income Tax Act. 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.

2. However, the A.O. held that, the land was converted for non­agricultural purposes before execution of sale deed, therefore, it is a capital asset u/s 2(14) of the Act, and it cannot be exempted u/s 10(1) of the Act. Accordingly, the same was brought into taxation as capital gain.

3. The assessee claimed that the land was converted as per condition laid down by the purchaser in sale agreement. The conversion of  property for non-agricultural purpose was only to fetch good price & not any other intention.

ITAT Bangalore held as below:

1. The said land was put to use as agricultural land by the assessee right up to the date of sale and the assessee has also been declaring the agricultural income earned therefrom in the returns of income filed before the Dept in this period.

2. The assessee did nothing to change the physical character of land from agricultural to non-agricultural even after obtaining the permission to convert.

3. The land continued to be agricultural land in actual physical condition even after a period of six years after its sale.

4. The assessee obtained permission to convert the land merely to facilitate its sale to corporate entity as the sale would otherwise not been possible.

5. So the land, though converted into non agricultural land, as per government records, is not a capital asset.