Onus on assessee to prove land is agricultural for Capital Gains exemption

 In a significant ruling that underscores the importance of strict evidentiary standards in land-related tax matters, the Hon’ble Chandigarh ITAT, has recently delivered an important decision in Manjit Kaur Kamboj v. Income-tax Officer. The ruling sends a clear and cautionary message to taxpayers that mere assertions or reliance on local or non-statutory certifications are insufficient to exclude land from the ambit of capital gains taxation, unless such claims are supported by clear, authoritative, and statutory evidence.

Under the Income-tax Act, agricultural land situated beyond the prescribed distance (generally 8 kilometres aerially) from municipal limits does not qualify as a “capital asset” and, consequently, its transfer is not liable to capital gains tax. In practice, however, disputes often arise on the question of how the distance from municipal limits is to be determined and what constitutes reliable evidence for this purpose.

In the present case, the assessee sold a parcel of land and claimed that it was rural agricultural land located beyond 8 kilometres from the municipal limits and, therefore, not chargeable to capital gains tax. To support this position, the assessee relied primarily on a certificate issued by the local Gram Panchayat stating that the land was situated approximately 15 kilometres away from the municipal limits.

The Assessing Officer (AO), however, deputed an Income-tax Inspector to physically verify the location of the land. Based on the Inspector’s report, it was found that the land was situated at a distance of approximately 7 kilometres from the municipal limits. On this basis, the AO treated the land as a capital asset under section 2(14) of the Act and brought the resultant capital gains to tax. While the CIT(A) granted relief from penalty on the ground that the assessee was under a bona fide belief, it upheld the taxability of the capital gains on merits. Thereafter, the matter travelled before the Hon’ble ITAT.

The Hon’ble ITAT delivered a clear and reasoned ruling in favour of the Revenue, holding that:

· The Inspector’s physical verification report constituted credible and reliable evidence establishing that the land was situated within 8 kilometres of the municipal limits.
· The assessee failed to produce the registered sale deed, which was the best possible evidence to demonstrate the status and location of the land at the time of sale. The Hon’ble ITAT drew an adverse inference from the non-production of this crucial document.
· The Gram Panchayat certificate could not be relied upon, as it did not specify the exact distance from the relevant municipality, did not clarify the statutory basis of such certification, and measured distance from a different municipality without justification.
· For the purpose of determining whether land falls within or outside the specified municipal distance under section 2(14), the competent authorities are revenue officials (such as the Tehsildar) or municipal authorities through their revenue wing, and not the Gram Panchayat.

In the absence of any clinching documentary evidence from a competent statutory authority, the Tribunal upheld the finding that the land constituted a capital asset and confirmed the levy of capital gains tax.

This ruling is a timely reminder that claims of rural agricultural land must be supported by precise, authoritative, and contemporaneous documentation. Certificates from non-statutory bodies, vague distance measurements, or incomplete records may not withstand scrutiny. The decision reinforces the principle that the onus squarely lies on the taxpayer to conclusively establish that the land falls outside the notified municipal limits. The judgment is expected to influence ongoing and future disputes involving the taxability of land transactions, particularly in semi-urban areas where municipal boundaries are often contentious.