JCIT Vs Rajeshkumar Shantilal Sanghvi (ITAT Ahmedabad)
ITAT Ahmedabad held that the agricultural nature of the land at the time of sale is determinative, regardless of the buyer’s intended use. Thus, land sold was agricultural land and hence doesn’t attract capital gain.
Facts- The case of the assessee was reopened u/s.n 147 on the grounds that the assessee sold agricultural land to Madhukar Infrastructure & Developers Pvt. Ltd. (MIDPL) and failed to declare any capital gains arising from the sale, claiming the land was not a capital asset under Section 2(14)(iii) of the Act.
AO computed a short-term capital gain of Rs. 54,37,086/- on the sale of the land, holding that the land was purchased for industrial purposes. CIT(A) deleted the addition, treating the land as agricultural land and exempt from capital gains tax under Section 2(14)(iii). Being aggrieved, revenue has preferred the present appeal.
Conclusion- Held that the agricultural nature of the land at the time of sale is determinative, regardless of the buyer’s intended use.
Held that agricultural land sold under this provision remains agricultural until its use is officially converted, regardless of the purchaser’s intentions for future industrial use. The conversion of the land’s status occurs only after the sale and upon the purchaser’s notification and approval by the Collector. The present case mirrors this legal reasoning, as the land’s status at the time of sale not the purchaser’s intended use determines whether it qualifies as a capital asset. The CIT(A) in the present case accepted that the land was agricultural and situated far beyond the municipal limits, which supported the conclusion that it was not a capital asset at the time of sale, aligning with the reasoning in Hiten Tulsibhai Engineer.
