Income From Sale Of Agricultural Land Can't Be Taxed, Says ITAT
The tribunal said that agricultural land is not a capital asset and any income derived from selling it cannot be taxed.
Income from the sale of agricultural land is fully exempt from taxation under the Income Tax Act, the Delhi bench of the Income Tax Appellate Tribunal has held.
The tax department had conducted a search and seizure operation against a taxpayer, Kamlesh Kumar Rathi, and initiated assessment proceedings against him. Rathi submitted his tax returns for the years 2013–14 and 2014–15 in April 2016 in accordance with the procedures, declaring respective incomes of Rs 54.93 lakh and Rs 79.20 lakh.
To include the sale consideration obtained from the sale of his agricultural land, he subsequently filed his revised returns for the two assessment years in December. The revised returns indicated that his income for 2013–14 was Rs 1.36 crore and for 2014–15 was Rs 3.18 crore.
The assessing officer questioned as to why the money received in cash on the sale of land should not be treated as his undisclosed income and subject to tax.
However, Rathi argued that since it was agricultural land, the money received from the sale will be considered agricultural income, and will not be taxed.
The assessing officer didn't accept this argument and went on to tax the sale consideration by categorising it as undisclosed income. That prompted Rathi to file an appeal before the Commissioner of Appeals, which decided in his favour.
The Income Tax Department then filed an appeal before the ITAT.
The ITAT, too, decided in favour of the taxpayer, saying that once the nature and character of the land sold are established as agricultural land, any income arising out of the sale of such land will not be taxable.
It was reiterated that the income derived from the sale of agricultural land, which is not a capital asset, cannot be made taxable.
The source from which the income emanates is important, and once it is established that agricultural land is not a capital asset under the IT Act, then the consideration and money received by the taxpayer from such a source cannot be made taxable, Kumarmanglam Vijay, partner at JSA, told BQ Prime.
