Sale Deed Not Document Issued By Revenue, Can't Be Used To Verify Land's Classification As 'Agricultural' For Taxation Purposes: Delhi HC

The Delhi High Court has held that sale deed is not a document issued by the revenue authorities or any government authority which would certify the agricultural nature of a land. “A sale deed primarily reflects the transaction between the parties and the terms of sale, but it does not, in itself, verify the land's classification as agricultural for the taxation purposes. Therefore, heavy reliance on the sale deed to establish the agricultural character of the land would be misplaced,” a division bench of Justices Vibhu Bakhru and Swarana Kanta Sharma held. The observation was made while hearing Revenue's appeal against ITAT order which set aside Principal Commissioner's (PCIT) order under Section 263 of the Income Tax Act whereby the Assessing Officer (AO) order determining assessee's land as “agricultural” and exempt from capital gain was found to be erroneous. Significant to note that sale of agricultural land does not make an assessee liable to pay capital gains tax, either short-term or long-term. However, to qualify as an agricultural land, the land must meet specific criteria, including its distance from the municipal areas, as stipulated under Section 2(14)(iii)(b) of the Act. As per the said provision (as it stood prior to its amendment i.e. at the time of AY 2013-14), if a land is situated within the distance of 8 kms from the local limits of any municipality, it would be treated as a capital asset and the assessee would be liable to pay the capital gains tax; otherwise, the land would be treated as agricultural land, which does not fall within the meaning of “capital assets”. Assessee relied upon the sale deeds pertaining to the land in question to claim that land was agricultural in nature and was exempt from capital gains. It had also placed reliance on a certificate issued by the Tehsildar in the year 2012 allegedly to the effect that the land was situated beyond 8 kms of the municipal limits. The prescribed limit for Sohna District was 5 kms. Thus, the assessee claimed that the land did not qualify as a capital asset defined under Section 2(14) of the Act, and was thus. However, on a perusal of the said certificate the Court noted that the same is a letter written by the assessee to the Tehsildar in which she had herself mentioned that she resided at Araji Waka Mauza Sohna, Tehsil Sohna, District Gurugram, and was requesting the Tehsildar to order the Patwari to give “certificate of distance from Sohna border of the above municipality of Araji”. “Under normal circumstances, upon receiving such a letter, it would be the duty of the Tehsildar to undertake an inquiry and then to tender information or certify as to what is the distance of the land from the municipal limit. However, in the present case, the Tehsildar's certificate, which is only in the form of two liner endorsement beneath the application made by the assessee requesting for issuance of such certificate, would reveal that he has not even mentioned the distance of the land from the municipal limit, which is a fundamental criterion under Section 2(14)(iii) of the Act to determine whether the land qualifies as agricultural land or not, for seeking exemption from capital gains tax, but has merely mentioned that the land is out of the boundary of Sohna Municipal Corporation,” Court noted. Before the PCIT, the assessee had also placed reliance on another certificate, which was issued by the Tehsildar in the year 2016. However, the Court found that the said certificate draws upon the assessment made in 2012. It said, “since the 2012 certificate did not mention the distance of the land from the municipal limits, the 2016 certificate would suffer from the same deficiency inasmuch as it merely reiterates the earlier assessment without addressing the fundamental requirement of Section 2(14)(iii) of the Act.” Court then turned to the District Town Planner's statement informing that the land in question was within 2.6 km from the old municipal limit and within 1.8 km of the extended municipal limit of Gurugram. Moreover, the land was shown on the sectoral plan of Sector 2, 35 and 36 of Sohna, meaning thereby that the land had been developed into sectors, and thus, no agricultural operations could be carried out on the land. In any case, the Court noted that the assessee sold the land in question within nine months from the date of purchase and did not show any agricultural income for the relevant assessment year. It thus upheld PCIT order making assessee liable for short term capital gain. The High Court also deemed it fit to cite Sarifabibi Mohmed Ibrahim & Ors. v. CIT (1993) whereby the Supreme Court had laid down guidelines/criteria regarding the land being defined as agricultural land. It was held therein that the classification of land as agricultural depends on multiple factors. It was emphasized that each case must be...

Sale Deed Not Document Issued By Revenue, Can't Be Used To Verify Land's Classification As 'Agricultural' For Taxation Purposes: Delhi HC

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