Does Sec 56(2)(x) apply to purchase of rural agricultural land?

Practical case:

1.  Suppose an assessee has purchased a property during the relevant year for Rs. 42,72,000/-, whereas the stamp duty value of the same was Rs. 1,15,62,880/-.

2.  The land was agricultural at the time of purchase on 21.09.2017. The assessee submitted that since the property was agricultural land at the time of purchase, it did not qualify as a “capital asset” as per section 2(14), and therefore, section 56(2)(x) was not applicable.

3.  The Assessing Officer addition made U/S 56(2)(x) of the Act for Rs. 72,90,880/- (difference between stamp duty valuation and purchase price) in respect of purchase of rural agricultural land.

4.  Is the stand of the Assessing Officer justified?

Reply:

1.  The term “immovable property” has not been defined in section 56(2)(x) of the Act or in any other section in the Income Tax Act. Therefore, going by the general definition, “immovable property” could include any rural agricultural land, in absence of any specific exclusion in section 56(2)(x) of the Act.

2.  Notably, section 56(2)(x) of the Act does not use the word “capital asset” as understood in Section 2(14) of the Income Tax Act. Section 56(2)(x) does separately define property which includes certain ‘capital assets’. However this definition does not exclude agricultural land.

3.  The sale of rural agricultural land is exempt in the hands of the seller since the word “capital asset” has been specifically defined to exclude agricultural land in rural areas U/S 2(14). Thus, sale of rural agricultural land shall not give rise to any capital gains in the hands of the seller as it is not considered as a capital asset itself.

4.  However, from the point of view of the “purchaser” of immovable property, as stated above, section 56(2)(x) mentions “any immovable property” which going by the plain words of the Statute, does not specifically exclude “agricultural land”.

5.  The above has been held in a very recent case by Ahmedabad ITAT (Clayking Minerals LLP – ITAT/82/AHMD/2025).

6.  So even in the case of an agricultural land, Sec 56(2)(x) is applicable and if the purchase value is lesser than the stamp duty valuation, the difference could be taxable as income from other sources.

The copy of the order is as under:

1748324043-3kVBXv-1-TO