No addition u/s 2(14)(iii) as land sold was agricultural land & didn’t qualify as ‘Capital Asset’

Hiten Tulshibhai Engineer Vs ITO (ITAT Ahmedabad)

Conclusion: Land sold by assessee was agricultural Land and did not qualify as “capital asset” in terms of Section 2(14)(iii) as it was subsequent to purchase of land, its use was changed to non-agriculture purpose, therefore, the capital gain earned on the piece of land as not being liable to tax.

Held: Assessee sold land during the year to a company for a certain consideration but had offered no income/ capital gains from the said transaction for taxation. Accordingly, reassessment proceedings under Section 147  were initiated, during the course of which assessee contended that the land sold by him did not qualify as “capital asset” in terms of Section 2(14)(iii) being “rural agricultural land”, and therefore, the capital gain earned thereon had not been returned to tax. AO  not convinced with the reply of assessee, noting that the land had been purchased by the company for “industrial purposes” under Section 63AA of Gujarat Tenancy and Agricultural Lands Laws (Amendment) Act, 1997 [GT&ALL Act]. He, therefore, held the land sold by assessee to be deemed as “non-agricultural land”. CIT(A) confirmed the addition made by AO to its income on account of capital gain. It was held that as per the facts of the present case the purchaser of land, i.e the company, after purchase of the agricultural land from assessee under Section 63AA of the GT&ALL Act, notified the purchase of agricultural land for bona fide industrial use and was issued a certificate in this regard by the collector after verifying its user for bonafide industrial purposes. Thus, it was subsequent to purchase of land, that its use was changed to non-agriculture purpose. Tribunal held that the impugned land did not qualify as “capital asset” in terms of section 2(14)(iii). The claim of assessee to the entire capital gain earned on these piece of land amounting to Rs.3,56,70,539/-, as not being liable to tax is in accordance with law and thus set aside the impugned order passed by AO and confirmed by CIT(A).

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

The present appeal has been filed by the assessee against the order of the ITO, Ward-1, International Tax, Ahmedabad dated i.e. 17-03-2022 passed under section 147 read with Section 144C of the Income Tax Act, 1961(“the Act” for short) pertaining to the assessment year 2016-17.

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