No tax is leviable on sale of rural agricultural land, even if no proof of whether any agricultural activity is carried on that agricultural land.

Shri Kallepu Sharath Chander v. Asstt. Commissioner of Income Tax, Hyderabad (ITAT)

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No tax is leviable on sale of rural agricultural land, even if no proof of whether any agricultural activity is carried on that agricultural land.

Issue

Whether sale of rural agricultural land is taxable if no proof of agricultural operation carried out is shown to hold it as agricultural land?

Provision

Section 2(14) of the Income Tax Act, 1961

As per section 2(14) rural agricultural land is not capital asset.

Following is not rural agricultural land:

  • Agricultural land situated within the jurisdiction of municipality or cantonment board and having a population of 10,000 or more
  • Agricultural land situated within the following distance from the local limits of Municipality or Cantonment Board to be measured aerially.
Distance of agricultural land from Municipality or Cantonment Board to be measured aerially. Population of the Area
Upto 2 kilometres Between 10,001 to 1,00,000
Upto 6 kilometres Between 1,00,001 to 10,00,000
Upto 8 kilometres Exceeding 10,00,000

 

Shri Kallepu Sharath Chander v. Asstt. Commissioner of Income Tax, Hyderabad (ITAT)

In above case the Assessing Officer (AO) had received information that the assessee had sold properties and received a sale consideration and this consideration, when compared with the information provided by the assessee, showed an escapement of income by him. Therefore the AO issued notice under section 148 of Income Tax Act 1961.

The assessee in response of the notice submitted that the land sold by the assessee was agricultural land and that it was situated beyond 8 kms from the Municipal limits and therefore, the profit on sale of land is not taxable.

The AO had held that the assessee has failed to prove that he had carried on agricultural operations and profit there from was treated as income from business and brought to tax.
The assessee aggrieved by the order of AO made an appeal to the CIT (A); CIT (A) confirmed the order of AO.

The assessee further made an appeal to Tribunal:

Judicial member P. Madhavi Devi held that the AO has also accepted that as per the revenue records, these lands are rural agricultural lands but the only reason for not accepting the said contention is that the assessee has not carried on any agricultural operations. The Hon’ble Bombay High Court in the case of CIT vs. Smt. Debbie Alemao and 2.Joaquim Alemao, reported in (2011) 331 ITR 59 (Bom.) has held that where the land is shown in revenue record as agricultural land and no permission was taken for conversion of land, it is immaterial whether any agricultural income is shown in the return or not, the gains from sale are exempt from taxation. Therefore, the reason given by the AO for not accepting the assessee’s contention is not sustainable. Judicial member inclined to accept the contention of the assessee and hold that the land sold by the assessee being agricultural land, no capital gain is taxable on the profit from sale of such land.

Conclusion
Therefore no tax is leviable on sale of rural agricultural land, irrespective of any proof whether any agricultural activity is carried on that agricultural land.


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