Nature of land determined as "agricultural land" at time of acquisition, the subsequent stamp duty reclassification as “non-agricultural” cannot warrant tax addition

 The Ahmedabad ITAT recently held that decision of Sub-Registrar to determine stamp duty value treating the land as “non-agricultural land” does not in itself alter the actual nature of the property. Since the land in question was demonstrably agricultural in nature, the ITAT held that the addition made under Section 56(2)(x) of the Income-tax Act, 1961 (“the Act’) being the difference of actual consideration and stamp duty value was unsustainable.

In the present case the taxpayer had jointly purchased agricultural land for ₹22.30 lakh while the stamp duty valuation of the land was ₹40.40 lakhs, prompting the Assessing Officer (‘AO’) to treat the differential amount as income under section 56(2)(x) of the Act. The assessee submitted that the land was, in fact, agricultural, duly reflected as such in the sale deed and land records and that the higher stamp valuation resulted solely from a proposed inclusion under AUDA Town Planning Scheme, which was not yet finalized. Despite these submissions, the CIT(A) upheld the addition on the ground that the higher stamp duty indicated non-agricultural character of the land.
On appeal before the ITAT, the taxpayer submitted the sale deed, registration details with Agricultural Taluk, Extract of Rural Land Record, reckoner rate that established the property unquestionably retained its agricultural character and that no conversion to non-agricultural use had occurred. The ITAT taking note of the submissions made held that stamp duty valuation or classification for fiscal purposes cannot determine the nature of land under the Act. It also noted that since the taxpayer had paid more than the prevailing reckoner rate for agricultural land there was no basis for invoking Section 56(2)(x) of the Act and directed deletion of the addition.
This ruling emphasises that existence of stamp duty valuation or classification for fiscal purposes cannot in itself determine the nature of the land under the Act. The same needs to be established independently based on facts and circumstances of the case. It establishes that if the consideration paid for purchase of agricultural land is more than reckoner rate, an addition under deemed gift provisions is not warranted.