Agricultural land won't lose its privileges even if sold in violation of State laws; not taxable as capital asset

CIT v. Rajshibhai Meramanbhai Odedra [2014] 42 taxmann.com 497 (Gujarat High Court)

Merely because agricultural land was sold in favour of non-agriculturist in breach of law prevailing in State, said land would not lose its character as agricultural land and, hence, could not be treated as capital asset.

Facts:

• The assessee had filed return of income and disclosed income from sale of agricultural land in response to notice issued under section 153C. 
• The Assessing Officer made addition on account of capital gain by holding that the land, which was sold by assessee, was a capital asset as it was sold in violation of laws prevailing in the State. 
• On appeal, the CIT(A) deleted the addition. Further, the Tribunal confirmed order of the CIT(A). The aggrieved-revenue filed the instant appeal.

The High Court held in favour of assessee as under:

• It was not in dispute that what was sold by the assessee was an agricultural land which was situated beyond 8 Kms. of local limits of the Municipality and at the relevant time, the land was held by the assessee as agricultural land; 
• The character of land would not change merely because it was sold to a non-agriculturist in breach of law prevailing in the State and the land still would continue as an agricultural land; 
• Even though the sale in favour of non-agriculturist could be declared as illegal, yet the land would not lose its character as agricultural land; 
• When the land was an agricultural land, which was situated beyond 8 Kms. from the municipal limits, no error had been committed by the Tribunal in not considering the land as 'capital asset'; 
• Thus, the land was to be treated as agricultural land and it was outside the purview of capital asset.