1. Introduction:
During the assessment year in question, the taxpayer, Hiten Tulshibhai Engineer, entered into the sale of four parcels of agricultural land to a company. Central to the matter was the contention by the assessee that the land, characterized as "rural agricultural land" under section 2(14)(iii), did not qualify as a "capital asset," thereby rendering the capital gains earned from the sale non-taxable.
2. AO's Determination: The Assessing Officer (AO) countered the assessee's claim, pointing out that the land had originally been acquired for "industrial purposes" under section 63AA of the Gujarat Tenancy and Agricultural Lands Laws (Amendment) Act, 1997. Consequently, the AO categorized the land as "non-agricultural land," making the resultant capital gains subject to taxation.
3. Appeal and Commissioner's Confirmation: The Commissioner (Appeals) upheld the AO's decision, prompting the case to advance to the Ahmedabad Tribunal.
4. Tribunal's Analysis - Legal Provisions: The Tribunal, in its evaluation, referenced section 63 of the Gujarat Tenancy and Agricultural Lands Laws (Amendment) Act, 1997, which prohibits the transfer of agricultural land to non-agriculturists. However, the Tribunal highlighted Section 63AA, which carves out an exemption for agricultural lands designated for bona fide industrial purposes under section 65B of the Bombay Land Revenue Code, 1879. Importantly, such lands are exempt from requiring permission for a change in land use and can be freely sold to non-agriculturists under section 63AA of GT&ALL.
5. Relaxation of Prohibition: The GT&ALL enforces a general prohibition on the sale of agricultural land to non-agriculturists but provides relaxation in the case of lands earmarked for bona fide industrial purposes. This exemption further stipulates that no permission is necessary for a change in land use, aligning with the provisions of the Bombay Land Revenue Code, 1879.
6. Post-Purchase Change in Land Use: In this specific case, subsequent to the purchase of the agricultural land from the assessee under section 63AA of GT&ALL, the purchaser officially declared the land's acquisition for bona fide industrial use. Additionally, a certificate issued by the Collector verified its dedicated usage for bona fide industrial purposes. Consequently, the change in land use from agriculture to non-agriculture occurred after the sale transaction had taken place.
7. Classification of Land as Capital Asset: Emphasizing the consistency in the classification of the assessee's sold land as agricultural, coupled with the absence of disagreement regarding its proximity to municipal limits, the Tribunal concluded that the land did not meet the criteria for being categorized as a "capital asset" under section 2(14)(iii).
8. Alignment with Legal Provisions: In light of the above analysis, the Tribunal affirmed the assessee's assertion that the entire capital gain from the land sale is not subject to taxation. This decision underscores the significance of a thorough examination of legal provisions, particularly in cases involving agricultural land and subsequent changes in land use.
