The buyer’s subsequent usage of the property is unimportant when determining the type of property that was sold

Fact and issue of the case

This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-7, Chennai, dated 30.08.2018 and pertains to assessment year 2015-16

The assessee has raised the following grounds of appeal

The order of the Commissioner of Income Tax (Appeals) is contrary to law, facts and in the circumstances of the case

The CIT (Appeals) erred in holding the lands in question were not agricultural lands and thereby confirming the addition of long term capital

The CIT(Appeals) erred in not properiy appreciating the evidence showing that the lands sold are agricultural lands

The CIT (Appeals), without considering the reply to the remand report filed by the Appellant on 29.09.2018, erred in merely relying on the remand report given by the Assessing Officer and concluding that the Appellant has not proved that the impugned land is indeed agricultural land

The CIT (Appeals) erred in ignoring the Certificate from the Additional Tahsildhar and the Village Officer Manarcadu and copy of Receipt issued by the Kerala Government evidencing payment of Basic Land Tax and contribution towards agricultural Workers Welfare Fund according to which these are agricultural lands. Further there is no need for recovering the Tax Revenue to agricultural worker’s benefit fund if the appellant’s land is not under agricultural category

The CIT (Appeals) ought to have appreciated that the entries in the revenue record are prima facie evidence to indicate that the land in question is agricultural land

The CIT (Appeals) erred in holding the Certificate issued by Additional Tashildar, Kottayam, dt 20.09.2016 mentions the type of land as “wet’ and ‘dry lands only and there is no mention of the being agricultural land

The CIT (Appeals) ought to have appreciated that according to the Kerala Conservation of Paddy and Wetland Act, 2008, the word ‘Nilam’ was meant as Wet Land and the word ‘Puraiyidam’ as Dry Land. The Appellant was in possession of both Nilam and Puraiyidam’ under different survey numbers and was regularly paying Agriculture Land Tax to the Government of Kerala as well as to Kerala Agriculture Workers Welfare Fund Board, (KAWWF) Thrissur. The Appellant has produced copies of both Land tax paid as well as tax paid to KAWWF from the period 2011-2012 to 2015-2016

The Commissioner of Income Tax (Appeals) erred in holding that the Appellant has not given proof for carrying agricultural operations

The Commissioner of Income Tax (Appeals) ought to have appreciated that the land in question was used for cultivating rubber plants. Due to drastic fall in the prices of Rubber latex and the shortage of labour for tapping, the previous owner stopped re-cultivating rubber plant. Appellant also decided not to use the land for replanting rubber trees as it takes a long time and may not be economically viable. Hence the appellant was using the land for cultivating seasonal smaller crops mainly plantains and Vegetables. This is evidenced by the certificate No. 1140/ 14 dated 21.03.2014 issued by Village Officer, Village Office , Manarcadu village

The Commissioner of Income Tax (Appeals) ought to have appreciated that what is required is the classification of the land as agricultural purpose land in the Government records and as long as the land has been cultivated in any of the earlier years, then the land has to be treated as agricultural land

The CIT (Appeals) ought to have appreciated that once the land 15 classified as agricultural land, it would continue to be an agricultural land, as long as the appellant does not change the use or put the land for some other purpose

The CIT(Appeals) ought to have appreciated that the purchase deed clearly mentions that the assessee bought agricultural land with coconut trees,mango trees, banana trees and rubber trees. The classification of land was not changed at any point of time subsequently till the sale

The CIT(Appeals) ought to have appreciated that the appellant has sold the land as mutated by him upon purchase without any modification. It was agricultural land as certified by the VO that was sold by the Assessee as is where condition

The CIT(Appeals) ought to have appreciated the Vendor (i.e) Rubber Board Employee Co-operative Housing Society Ltd has approached the appropriate authority for conversion of the Agricultural land for non agricultural purpose. If the said land is not an agricultural land what is the necessity to approach the appropriate authority for conversion. In the state of Kerala, conversion of Nilam for non-agricultural purpose is not allowed and Agricultural Purayadim can be converted subject to the approval of the appropriate authorities

The CIT (Appeals) ought to have appreciated that If an agricultural operation does not result in generation of surplus that cannot be a ground to say that the land was not agricultural land

The Appellant submits that the surplus arising on sale of impugned agricultural land gave rise to agricultural income and was not assessable to capital gains tax

The Hon’ble Madras High Court in the case of Sakunthala Vedachalam 369 ITR 538 (Mad) has held that Assessee cannot be denied exemption from capital gains tax once it has been accepted by revenue authorities that the classification of lands as per the revenue records was agricultural lands and it satisfies other conditions of s 2(14) of the Income Tax Act in this regard

Observation of the court

We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The factual matrix of the impugned dispute are that the assessee has sold a vacant land measuring 5 acres 41 cents to M/s. Rubber Board Employees Co-operative Housing Society for a total consideration of Rs. 6,81,66,000/-. The assessee has originally purchased said land on 14.07.2006. The assessee has claimed that impugned land sold during the financial year is an agricultural land used for agricultural operations and thus, it is out of the scope of capital asset as defined u/s. 2(14) of the Act. The Assessing Officer, computed long term capital gains on sale of land on the ground that land sold by the assessee is not an agricultural land and assessee could not file any evidence to justify its stand that said land is in fact was agricultural land and used for agricultural operations. The Assessing Officer, has given various reasons to come to the conclusion that impugned land is not an agricultural land and according to the Assessing Officer, the revenue records could not convincingly prove the nature of land as agricultural land and further the profit derived by the assessee from sale of land is not commensurate with the investment he had made when he was purchased said lands. The Assessing Officer, had also given other reasons to come to the conclusion that land was sold for non-agricultural purpose and the assessee did not declare any agricultural income in the past

We have given our thoughtful consideration to the reasons given by the AO in the light of various evidences filed by the assessee and we ourselves do not subscribe to the reasons given by the Assessing Officer for the simple reason that, if an agricultural land is situated beyond a specified limits of municipality, notified area committee or by any other name or a cantonment board and which has a specified population, then said land is outside the scope of definition of capital assets as defined u/s. 2(14) of the Act. Therefore, to decide whether a particular asset sold by the assessee is an agricultural land or capital asset, the distance of land, nature of land and the place where said land is situated needs to be examined. In the present case, the Assessing Officer never disputed the distance of land from the nearest municipality and the population of said municipality, but the dispute is only with regard to the nature of land. According to the Assessing Officer, land sold by the assessee is not an agricultural land. We do not subscribe to the reasons given by the Assessing Officer for the simple reason that as per revenue records, the land sold by the assessee is situated at Manarcadu Village, Kerala, is an agricultural land and used for agricultural operations. Certificate issued by the Additional Tahsildar and Village Officer at Manarcad Village and copy of receipt issued by the Kerala Government evidencing payment of basic land tax contribution towards Agricultural Workers Welfare Fund Board also clearly shows that said land was agricultural land. Further, as per revenue records, the land has been classified as ‘Puraiyidam’ land in the revenue records. The word ‘Puraiyidam’ means a dry land. In some survey numbers, the land has been classified as ‘Nilam’ land, and ‘Nilam’ means wet land. From the above it is very clear that the assessee was having both wet and dry lands. The assessee had also filed various evidences to prove that the land was used for cultivating rubber plants, but because of decrease in rubber prices, the assessee stopped cultivating rubber plant and used land for cultivating seasonal crops like vegetables and plants, and this fact has been certified by the Village Officer at Marnacadu Village, vide his certificate dated 21.03.2014. Therefore, we are of the considered view that as per evidences filed by the assessee including revenue records, it is very clear that the land was an agricultural land when it was purchased in the year 2006 and remained agricultural land when it was sold in the year 2015. Further, the assessee had also filed various evidences to prove that the land has been used for agricultural purposes and also cultivation has been carried out in the past. Therefore, we are of the considered view that when the land has been classified as agricultural land, it would remain to be an agricultural land as long as the appellant does not change the use or put the land for some other purpose. Further, simply because the land is situated in a place where proper road connection exists and further the land was sold to non-agriculturalist, it does not change the characteristics of land, for the purpose of taxation. In this case, although the land has been sold to M/s. Rubber Board Employees Cooperative Housing Society, for the commercial purpose, but fact remains that when the land was sold by the assessee it was remained as agricultural land and thus, subsequent use of land by the purchaser is not relevant to decide the nature of land when it was sold. Further, from the evidences filed by the assessee, it was noticed that the purchaser of the land, after purchase has approached a legal authority for conversion and from the above it is very clear, if it is not an agricultural land at the time of sale, then what is the necessity to approach appropriate authority for conversion of said land. In the state of Kerala, conversion of Nilam land for non-agricultural purpose is not allowed and only Puraiyidam land can be converted subjected to approval of appropriate authorities. Since, land sold by the assessee is Puraiyidam land, the purchaser might have put to use the land for non-agricultural activities. However, subsequent use of land by the purchaser has no connection to decide the nature of land, whether it is an agricultural land. As long as land was agricultural land when it was sold, the assessee can rightly claim the benefit of exemption of capital tax

At this stage, it is necessary to consider various case laws relied upon by the assessee. The assessee has relied upon the decision of Hon’ble Madras High Court in the case of Sakunthala Vedchalam vs Vanitha Manickavasagam [2014] 369 ITR 0558 (Mad), where it was held that assessee cannot be denied exemption from capital gains tax once it has been accepted by revenue authorities, that the land classified as per the revenue records was agricultural land and it satisfies other conditions of section 2(14) of the Act in this regard. The assessee had also relied upon the decision of Hon’ble Madras High Court in the case of CWT vs S.S. Sangaralingam 162 CTR 400, where it was held that revenue records showed land to be agricultural in nature till it was sold and merely because agricultural operations were not done just prior to the sale, it was not be sufficient enough reason to treat the land as nonagricultural. The Hon’ble High Court of Bombay in the case of CIT vs Smt. Debbie Alemao [2010] 331 ITR 59, had considered an identical issue and held that agricultural land which was never sought to be used for non-agricultural purpose by the assessee till it was sold, has to be treated as agricultural land, even though no agricultural income was not shown by the assessee from this land and therefore, no capital gain was taxable on the sale of the said land.

The assessee had also relied upon the decision of ITAT Cochin Benches in the case of M.J. Thomas vs DCIT in ITA No. 224/Coch/2011, dated 06.06.2014, where it was held that once State Government has classified the subject land as agricultural land, the Government is collecting tax as agricultural land and further, the revenue authorities has certified that the said lands were used for cultivation, then said land cannot be treated as capital asset as per section 2(14) of the Act

In this case, on perusal of material on record, it is abundantly clear that all evidences filed by the assessee including copies of purchase and sale deeds of land, revenue records maintained by the State Government, certificate issued by the Additional Tahsildar and Village Officer, clearly shows that the impugned land is an agricultural land and used for agricultural operations. The assessee had also filed other evidences to prove that the land has been used for agricultural operations till it was sold. Therefore, we are of the considered view that land sold by the assessee is an agricultural land and which is outside the scope of definition of capital asset as defined u/s. 2(14) of the Act. Thus, we are of the opinion that the Assessing Officer and the ld. CIT(A) are completely erred in denying exemption from tax towards consideration received for sale of agricultural land. Hence, we direct the Assessing Officer to delete additions made towards computation of capital gains on sale of land

In the result, appeal filed by the assessee is allowed

Order pronounced in the court on 10th May, 2023 at Chennai