Agricultural Land Does Not Lose Its Character if Converted for Industrial Use After Sale: ITAT

The Income Tax Appellate Tribunal (ITAT), Ahmedabad, upheld that if an agricultural land was converted for industrial use after its sale, it would still be considered agricultural land at the time of its sale and not a capital asset.

The assessee, Ahmed Mahomed, did not file his Income Tax Return (ITR) for AY 2016-17 even though he allegedly sold two immovable properties for that assessment year. In response to a reopening notice under section 148 of the Income Tax Act, the assessee filed his ITR declaring Rs 6,88,630 as income from other sources. However, the AO claimed that the assessee did not report any capital gains in his ITR. The AO, therefore, made an addition to the income of the assessee. The CIT(A) ruled in favour of the assessee, so the Revenue approached the ITAT.

The assessee argued that the land was agricultural land and did not fall under the capital asset definition as per section 2(14) of the Income Tax Act. However, the revenue’s main contention was that the land sold was converted for industrial purposes by the purchaser.

The Tribunal noted the findings of CIT(A), which observed that the land was converted for industrial use by the purchaser after 5 to 6 years of the sale deed. Therefore, at the time of its sale to the purchaser, the land cannot be held as a capital asset.

Therefore, relying on a few previous rulings, the ITAT upheld that since the land was agricultural and not converted for non-agricultural use before the sale, it did not qualify as a taxable capital asset.

“Since the land was neither converted nor developed for non-agricultural purposes prior to its sale, hence the same would not lose its character as an agricultural land and would not fall in the definition of capital asset,” the tribunal upheld.

Therefore, the revenue’s appeal was dismissed.