The Delhi High Court in a significant case has held that sale deed is not a document issued by the revenue authorities or any government authority which would certify the agricultural nature of a land. The court viewed that a sale deed primarily reflects the transaction between the parties and the terms of sale, but it does not, in itself, verify the land’s classification as agricultural for the taxation purposes.
The Revenue filed an appeal against ITAT order which set aside Principal Commissioner’s (PCIT) order under Section 263 of the Income Tax Act whereby the Assessing Officer (AO) order determining assessee’s land as “agricultural” and exempt from capital gain was found to be erroneous. Master GST Notice Replies – Drafting 20 Notices, Including Appeals – Register Now Significant to note that sale of agricultural land does not make an assessee liable to pay capital gains tax, either short-term or long-term. However, to qualify as an agricultural land, the land must meet specific criteria, including its distance from the municipal areas, as stipulated under Section 2(14)(iii)(b) of the Act. As per the said provision (as it stood prior to its amendment i.e. at the time of AY 2013-14), if a land is situated within the distance of 8 kms from the local limits of any municipality, it would be treated as a capital asset and the assessee would be liable to pay the capital gains tax; otherwise, the land would be treated as agricultural land, which does not fall within the meaning of “capital assets”.
Assessee relied upon the sale deeds pertaining to the land in question to claim that land was agricultural in nature and was exempt from capital gains. It had also placed reliance on a certificate issued by the Tehsildar in the year 2012 allegedly to the effect that the land was situated beyond 8 kms of the municipal limits. The prescribed limit for Sohna District was 5 kms. Thus, the assessee claimed that the land did not qualify as a capital asset defined under Section 2(14) of the Act, and was thus. Before the PCIT, the assessee had also placed reliance on another certificate, which was issued by the Tehsildar in the year 2016. Master GST Notice Replies – Drafting 20 Notices, Including Appeals – Register Now The Court found that the said certificate draws upon the assessment made in 2012 and viewed that since the 2012 certificate did not mention the distance of the land from the municipal limits, the 2016 certificate would suffer from the same deficiency inasmuch as it merely reiterates the earlier assessment without addressing the fundamental requirement of Section 2(14)(iii) of the Act.
The Court turned to the District Town Planner’s statement informing that the land in question was within 2.6 km from the old municipal limit and within 1.8 km of the extended municipal limit of Gurugram. Moreover, the land was shown on the sectoral plan of Sector 2, 35 and 36 of Sohna, meaning thereby that the land had been developed into sectors, and thus, no agricultural operations could be carried out on the land. It was evident that the assessee sold the land in question within nine months from the date of purchase and did not show any agricultural income for the relevant assessment year. It thus upheld PCIT order making assessee liable for short term capital gain. Master GST Notice Replies – Drafting 20 Notices, Including Appeals – Register Now The High Court also deemed it fit to cite Sarifabibi Mohmed Ibrahim & Ors. v. CIT (1993) whereby the Supreme Court had laid down guidelines/criteria regarding the land being defined as agricultural land. It was held therein that the classification of land as agricultural depends on multiple factors. It was emphasized that each case must be evaluated based on its specific facts. The High Court found that the Assessing Officer (AO) neither read the contents of the certificate issued by the Tehsildar nor sought any additional evidence or document from the relevant authorities like the DTP, Gurugram.
It was viewed that the PCIT had exercised the jurisdiction under Section 263 of the Act correctly and legally, in view of the fact that the order passed by the AO was erroneous and prejudicial to the interest of the Revenue since the same was passed without conducting any enquiries and applying mind to the claims of the assessee. Master GST Notice Replies – Drafting 20 Notices, Including Appeals – Register Now A division bench of Justices Vibhu Bakhru and Swarana Kanta Sharma held that a sale deed primarily reflects the transaction between the parties and the terms of sale, but it does not, in itself, verify the land’s classification as agricultural for the taxation purposes. Therefore, heavy reliance on the sale deed to establish the agricultural character of the land would be misplaced.
The Court held that the ITAT erred in setting aside the order passed by PCIT and thus allowed Revenue’s appeal
