Capital Gains - Agricultural Lands

Hi Mr Shankar,

I presume that the land in question was not a capital asset in termsof Section 2(14) of the Act (not situated within 8 kms from themunicipality, etc). If it satisfied the exceptional conditions asmentioned in Section 2(14)(iii), then it would be treated as acapital asset even if you plowed it and grew vegetables on it.Now, in your case, the assessee used the land for agriculture but inthe revenue records, that piece of land was described as non-agricultural. Clearly, the assessee violated the norms by not takingpermission of the revenue authorities—-Tehsildar or whatever---before tilling it. However, from a perusal of decided case laws itseems the manner in which a piece of land is described in the landrevenue records isn't necessarily the only test of designating it asagricultural land.It's important to note that although "agricultural income" has beendefined in the I T Act, what exactly constitutes "agricultural land"hasn't been laid down. So we can argue that a common sense approachbe adopted in ascertaining whether a tract of land is agriculturalor not.Consider the following judgement:[Whether land is agricultural land or not cannot depend on thefluctuating or ambulatory intention of the owner of the land. Thecriterion must be something more definite, something more objective,something related to the nature or character of the land and notvarying with the intention of the owner as to the use to which hewants to put the land at a particular point of time. Of course, thismust not be understood to mean that the intention as to user isaltogether an irrelevant consideration; it is certainly a factorwhich would bear on the nature or character of the land but it doesnot afford a sole or exclusive criterion for determining whether aland is agricultural land or not. Where the land is actually put touse, there is usually not much difficulty in ascertaining the natureor character of the land. If the land is USED FOR AGRICULTURALPURPOSES, ordinarily it would be CORRECT to say that the LAND ISAGRICULTURAL land and vice versa. But even this test may not alwaysfurnish a correct answer, for, there may be cases, where landadmittedly non-agricultural (such as a building site) may be usedtemporarily for agricultural purposes. In such cases it would not becorrect to say that merely because the land is in fact being usedfor agricultural purposes, it is agricultural land. But as a generalproposition it may be stated without any fear of contradiction thatORDINARILY the ACTUAL USER TO WHICH THE LAND IS BEING PUT wouldfurnish prima facie EVIDENCE of the TRUE NATURE or character of theland and, therefore, whenever a question arises whether a particularland is agricultural land or not, primarily regard must be had tothe purpose for which the land is being ACTUALLY USED at or aboutthe relevant time and that would ordinarily provide a satisfactoryanswer to the problem - Rasiklal Chimanlal Nagri v. CWT [1965] 56ITR 608 (Guj.).]There are scores of judgements like the above. But in none of thosehave I noticed the courts laying down the description of land in thetehsildar's records as the litmus test for determining whether ornot it was agricultural land. The emphasis in all judgements is onthe actual use of land, like in the above one I have cited.So I think a lot will hinge upon your persuasive powers now. Ifindeed your friend's dad was actually soiling his hands tilling thatpiece of land, I think you can fight it out with the AO. See also ifyou can approach the Tehsildar/CMDA authorities to seek theirpermission for change in land use after paying appropriate fee forcondonation of delay.Thanks,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_CA@yahoogroups.com, "Shankar S.C." wrote:>>> Dear Members,>> I would like to have your valuable views on the problem faced byone of> my best friend's father. My friend's father sold some agriculturallands> during the assessment year 2005-06. As he was of the view thatthose> lands which he sold were agricultural lands and it was outside the> purview of capital gains. With this in mind he did not showcapital> gains in his returns. During the scrutiny procedure the Assessing> Officer treated these lands as non agricultural and charged toCapital> Gains Tax based on enquiry from the CMDA authorities and thedistrict> Tashildhar . My queries are:>> 1. Whether the lands sold at the time of sale is classified as non> agricultural but if the assessee was carrying on agriculturalactivities> before such sale could such Sale be treated as agricultural incomeand> be protected from capital gains tax.>> 2. The sale consideration received by my friends father is farbelow the> market price and the assessing officer has substituted the marketprice> as the consideration received by him U/s. 50c to calculate Capital> gains.>> At present he is very much disturbed and being a senior citizen hewould> like to know whether there is any other avenue open to fight hiscase.>> CA Shankar S.C.>