S. 2(14) : Capital asset – Agricultural land –Beyond 8 kms of local limits of the Municipality- land sold to non-agriculturalist-It would not loose its character as agricultural land –Not liable to be taxed as short term capital gains.[S.45

 

The Assessing Officer made addition of Rs. 4,56,83,750 on account of short-term capital gain on the

ground that assessee had sold agricultural land to one SICC which was non-agriculturist and as per the

existing State law, the assessee could not sell the agricultural land in favour of a non-agriculturist.

Therefore, the land which was sold was a capital asset and its transfer was chargeable to tax under capital

gain. The High Court held that, 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. Merely because

the said land came to be sold to a non-agriculturist, may be in breach of law prevailing in the State,

character of the land would not be changed and the land still would continue as an agricultural land. At

the most the sale in favour of non-agriculturist can be declared as illegal and/or invalid. There was no

provision that if the agricultural land is sold in favour of non-agriculturist in breach of law prevailing in

the State, it would not lose its character as agricultural land and would be treated as non-agricultural land.

Considering the aforesaid facts and circumstances of the case, it could not be said that the Tribunal had

committed any error in holding the land in question not as capital asset and not liable to be taxed. (AY.

2006 – 2007)

CIT .v. Rajshibhai Meramanbhai Odedra (2014)222 Taxman 72/ 42 taxmann.com 497 (Guj.)(HC)