10. Capital asset – Agricultural land – Sections 2(1A) and 2(14) – A. Y. 2007-08 – Where assessee sold a piece of land in view of fact that assessee had planted various fruit bearing trees on land and produce was being used for personal consumption and, moreover, assessee had not filed an application for conversion of land for non-agricultural propose, it was not a ‘capital asset’ u/s. 2(14) and, thus, gain arising from sale of it was exempt from tax

Shankar Dalal vs. CIT;
[2017] 80 taxmann.com 41 (Bom):

The assessee was
individual deriving income from salaries and income from other source (interest
income). He was also co-owner of an ancestral agricultural land along with
other family members. The land was situated within the limits of village
Panchayat. During relevant year, i.e. A. Y. 2007-08, assessee sold said land.
He claimed gain on sale of agricultural land as exempt since the land did not
constitute ‘Capital Assets’ as defined u/s. 2(14). The Assessing Officer
rejected assessee’s claim holding that the land did not constitute agricultural
land since no agricultural operations were carried out regularly and same was
sold to a company engaged in the business of development of infrastructure
activity. The Tribunal upheld the order of Assessing Officer.

On appeal by the assessee,
the Bombay High Court reversed the decision of the Tribunal and held as under:

“i)  The
impugned order and the whole action of the department proceeds on the
foundation that the land in question so transferred is a “non-agricultural
land” and falls within the ambit of “non-agricultural land”
because of use and/or non-use and/or stated to be unused for specific
agricultural purpose for want of labour and no-agricultural operations and/or
no specific regular income continuously for three years, as required and many
other such facets.

ii)  For the
purposes of such transfer of land, one has to consider the provisions of the
Goa, Daman and Diu Land Revenue Code, 1968. (Code) and the Rules made
thereunder and so also the definition so provided to deal with the concept of
“agricultural land”. Under the Code, there was no bar that an
agriculturist and/or one who possesses agricultural land cannot transfer such
land to any third party who is not agriculturist. Nothing contrary has been
pointed out and/or placed on record that any permission and/or formalities are
required to be completed before transfer of such lands. Under the Code, a transfer
could be made to a non-agriculturist and/or to a person whose activities are
not related to agricultural project or purpose

iii)  The
assessee had received the consideration. Admittedly, the property was not
divided and/or sub-divided. Admittedly, before transfer of the property, the
parties were fully aware about the nature of the land which includes rocky
area, used and usable area for agricultural, number of trees, plants growing or
in existence for so many years, apart from certain plantations. Being the
ancestral agricultural property, the families were using the agricultural
produce for their own consumption.

iv) Here, at
this stage, it is relevant to note the definition of the term
“agriculture”. This definition, ought not to have been overlooked,
while taking any action against the assessee. The definition itself provides
that expression “agriculture” means raising of useful or valuable
products which derive nutriment from the soil with the aid of human labour.
This inclusive definition, no where provides and/or takes away rights of the
assessee to treat such land as an agricultural land which they had been using
before transfer and/or till the date it came to be transferred as an
“agricultural land”

v)  The
definition of “agriculture” itself permitted, such unused land to be
used and utilised even for grazing, horticulture, dairy farming, stock
breeding. This is clear terms of the law and so also the intent of the Code
which governs such agriculture land and its transfer. The report so submitted
and/or referred to by the department against the assessee, is unsustainable,
unacceptable and contrary to the specific provisions of the Code. All the
“agriculture” activities so defined covers the agriculture land in
question. Therefore, exemption from the capital gain is the only option, on
fact and the law.

vi) The whole
approach of the Tribunal and the Assessing Officer is incorrect and
unsustainable in law. Section 105 of the Code further clarifies the position
with regard to presumption of correctness of entries in the record of rights
and register of mutations. It provides that an entry in the record of rights,
and certified entry in the register of mutation shall be presumed to be true
and until the contrary is proved or a new entry is lawfully substituted
therefor. The assessee has placed on record material to justify their claim.
There is no issue with regard to assessee’s ownership, title and the name
recorded in the land records at the relvant time. Even, otherwise, in view of
settled position of law, all concerned are bound by the entries, unless contra
material is placed on record. On the contrary, adverse findings are given by
the department solely based upon the so called inspection initially taken at
the stage of assessment by the concerned officer and later on by the Tribunal
Members. But the fact is that this inspection reports, in no way, has
considered the purpose and object of the Code and the definition of
‘agriculture’ so liberally mentioned.

vii) The
finding of facts recorded by the Tribunal itself confirms the position that the
case of the assessee falls within the ambit of definition of
“agriculture” as defined under the Code. The property requires to be
treated as agricultural land and its ‘activities are “agricultural”
in nature. In view of above, it is held that the property in question cannot be
treated as “capital asset” as contemplated u/s. 2(14)(iii). It is
wrong to hold, in view of the facts and circumstances and the nature of
agricultural land because of peculiar situation of the land near the sea side
or stony side of the sea, that assessees are not doing any regular agriculture
operation, this is also on the ground that they never showed agriculture income
out of it. Any agriculture produce and products can be for personal use also.