Sale deed cannot certify the agricultural nature of the land: Delhi HC

The Delhi High Court has said that a sale deed cannot certify the agricultural nature of the land since it is not a document issued by the revenue authorities or any government authority. 

"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 taxation purposes," a bench headed by Justice Swarana Kanta Sharma ruled.

The bench, also comprising Justice Vibhu Bakhru, was hearing an appeal under Section 260A of the Income Tax Act, 1961 challenging the February 2018 passed by the Income Tax Appellate Tribunal (ITAT) in respect of the assessment year (AY) 2013-14.

The assessee, who carries her business through a proprietary, had filed her return of income in September 2013, declaring a total income of Rs 2,64,51,220. A notice under Section 143(2) of the Income Tax Act was issued in September 2014 and was duly served on the assessee. The assessee had informed the Assessing Officer (AO) that she had earned a long-term capital gain of Rs 10,72,76,180 on the sale of agricultural land, situated beyond 8 km of the municipal limit, but the said land did not qualify as a capital asset and was thus exempt from capital gains.

The Principal Commissioner of Income Tax said that the AO should not have relied solely on the certificate issued by the Tehsildar, which was issued in a routine manner and without any corroborative evidence. Further, it was also noted that the assessee did not show any agricultural income for the assessment year and that she sold the land within a period of nine months, indicating that there was no intention to use the land for agricultural purposes.

In its judgment, the Delhi High Court said that the Tehsildar's certificate, which was only in the form of a two-line endorsement beneath the application made by the assessee, did not mention 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".

It further noted that the sale deed itself specified that the land was not beneficial for the purposes of sowing and cultivation.

"The assessee had purchased the land on 03.05.2011 and sold the same on 20.04.2012 i.e. within nine months from the date of purchase. Undisputedly, the assessee did not show any agricultural income for the AY 2013-14 in her return," the Delhi HC said.

It upheld the view taken by the Principal Commissioner of Income Tax and said that "the order passed by the AO was erroneous and prejudicial to the interest of the revenue since the same was passed without conducting any enquiries and applying mind to the claims of the assessee".

Setting aside the ITAT order, it said: "ITAT erred in setting aside the order passed by the PCIT under Section 263 of the Act on the ground that the PCIT had wrongly exercised jurisdiction under Section 263 of the Act."