When ‘Agricultural Land’ Is Not Agricultural- Revenue Records Not Enough: Agricultural on Paper, Commercial in Reality- ITAT Says No Agri Use, No Exemption
In the case of Jairam G. Kimmane, the assessee sold 0.40 hectares of land in Agarsure Village, Alibaug for ₹2 crore, claiming exemption from capital gains tax by asserting it was agricultural land under Section 2(14)(iii). Although revenue records classified the land as agricultural and it lay outside municipal limits, the Assessing Officer (AO) found no evidence of actual agricultural use, citing no cultivation income for 16 years, proximity to tourist destinations, high sale value, and connections to real-estate activities. The Tribunal emphasized that revenue classification alone does not determine agricultural status; actual usage and surrounding circumstances are decisive. Despite some favorable factors, such as agricultural classification and no formal conversion, the Tribunal concluded the land’s commercial utilization and potential outweighed agricultural indicators. Consequently, the land was treated as non-agricultural, and long-term capital gains of ₹1.81 crore were taxed, reaffirming that mere revenue records cannot justify agricultural exemptions.
Assessee sold 0.40 hectares of land at Agarsure Village, Alibaug for Rs.2 crores but did not declare capital gains, claiming the land was agricultural land not falling within the definition of “capital asset” u/s 2(14)(iii). AO accepted that the land was classified as agricultural in revenue records & that it lay outside municipal limits, but held that the assessee failed to prove any agricultural use. AO noted absence of agricultural income for 16 years, no evidence of cultivation, proximity to tourist/holiday destinations, high sale price comparable to commercial plots, & relationship between assessee & buyer involving real-estate ventures. AO treated the land as non-agricultural & taxed long-term capital gains of Rs.1.81 crore. CIT(A) upheld the addition.
Before Tribunal, assessee argued that revenue classification, tax receipts showing paddy/grass cultivation, & absence of conversion were sufficient to treat land as agricultural. He relied on several rulings (Sakunthala Vedachalam, Debbie Alemao, Venkateshwara Hospital) supporting primacy of revenue records.
Tribunal held that classification in revenue records, though relevant, is not conclusive; actual use & cumulative factual circumstances determine agricultural character as per Supreme Court in Sarifabibi Mohammed Ibrahim. Tribunal identified three factors favouring assessee—agricultural classification, no conversion, both parties being agriculturists—but found stronger contrary indicators: no proof of agricultural operations, no agricultural income for 16 years, small & commercially valuable land not viable for agriculture, area known for leisure/resort development, & high sale consideration inconsistent with agricultural usage. Tribunal held that these adverse factors outweighed the favourable ones, concluded that the land was not agricultural land, & upheld taxation of long-term capital gains.
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