Sohanlal Sewaram Jaggi (HUF) Vs ITO (ITAT Mumbai)
Conclusion: Addition of capital gain was deleted as impugned land being agricultural land situated beyond the prescribed municipal limits and having retained its agricultural character, was outside the ambit of “capital asset” under section 2(14)(iii) and therefore no capital gains could have been charged on transfer thereof.
Held: Assessee sold certain land situated approximately 17–18 kilometers away from the municipal limits of Pune. AO treated the land as a “capital asset” under section 2(14)(iii) and brought the resultant gains to tax as capital gains on the ground that assessee had not shown substantial agricultural income, no intensive cultivation was established immediately prior to sale, and agricultural activities were allegedly not carried out continuously. CIT(A) affirmed the addition by holding that absence of reflected agricultural income and lack of evidence of active cultivation indicated that the land had ceased to retain agricultural character. Assessee contended that the land continued to be classified as agricultural land in revenue records, no non-agricultural conversion was ever obtained, the land was situated beyond notified municipal limits, crops were reflected in survey and 7/12 extracts, and Parliament had consciously distinguished “agricultural land” under section 2(14)(iii) from “land used for agricultural purposes” appearing in sections 54B and 10(37). The issue arose for consideration was whether agricultural land situated beyond prescribed municipal limits could lose its exclusion from the definition of “capital asset” under section 2(14)(iii) merely because substantial agricultural income was not disclosed or intensive cultivation was not proved immediately preceding transfer. It was held that unlike sections 54B and 10(37), section 2(14)(iii) did not impose any express statutory requirement that the land must have been actually used for agricultural purposes during any specified period. Tribunal observed that where Parliament intended to prescribe actual agricultural user as a mandatory condition, it expressly incorporated such language in the statute itself. Therefore, importing into section 2(14)(iii) a mandatory requirement of continuous agricultural operations or reflected agricultural income would amount to impermissible judicial legislation. Tribunal held that the Revenue authorities committed a legal error by equating absence of substantial agricultural income with absence of agricultural character and by importing into section 2(14)(iii) statutory conditions consciously incorporated only in sections 54B and 10(37).
