By TIOL News Service

CHENNAI, DEC 01, 2017: THE issue is - Whether when a property is found to be non-agricultural, it is to be treated as 'capital asset' even if it is situated outside the municipal area and the profits on its transfer are liable to capital gains tax. YES is the answer.

Facts of the case

The Assessee is an Individual. The AO noticed that the Assessee along with his four family members have sold a land at Kunnukadu Village. They owned the land by way of inheritance from their father who has purchased the agricultural lands.However, in the return of income, the capital gain was not shown by Assessee. The Assessee's submission was that the land sold was an agricultural land and it fall beyond 8 kms from the municipal limit of Chennai Municipal Corporation, therefore, on sale of agricultural land there was no capital gain. But AO was of the view that capital gains tax was leviable on sale of land as there were no agricultural activity carried on and further relying on the Inspector’s report that the land sold was at a distance of 7.2 kms from the limit of Municipal Corporation.On appeal, CIT(A) directed the AO to delete the addition made by treating the land in question as agricultural land and sale proceeds as agriculture income.

After hearing the parties, Tribunal held that,

++ the land was not actually or ordinarily used for agricultural operations on or around the relevant time of sale. It was also to be seen that the income returned from agricultural operations carried on in the land was just for namesake and did not have any proportion to the efforts usually that would have been made by a true agriculturist. At the time of sale of land also no agricultural activities were carried on by the assessee.It was noted that the land in question had become an nonagricultural land with high market potential for real estate development, not all of a sudden in the previous year relevant to the assessment year under appeal but over a period of long years in the past. This aspect really co-relates the argument of the Revenue that the assessee had not been carrying on any agricultural operations in the lands for so many years in the past. Hence it was found that AO had conclusively established that the lands sold by the assessee in the previous year relevant to the assessment year under appeal for a consideration of `11,66,00,000/- were not agricultural in nature, but, on the other hand, they were non-agricultural land. Therefore, it definitely comes under the category of “capital asset”. Accordingly, the gains arising out of transfer of that capital asset was exigible to capital gains tax.

++ when the basic nature of the land itself found to be nonagricultural, the arguments regarding status of the property, whether within metropolis or outside the limit of the metropolis, was irrelevant. A non-agricultural property, whether inside the municipality or outside the municipality or even in a remote village is a “capital asset” and transfer of the same may generate income liable for capital gains taxation. In the facts and circumstances of the case, order of the CIT(A) on this point was set aside. Order of the Assessing Officer was restored.

(See 2017-TIOL-1659-ITAT-MAD)