NO tax on Capital gains arising from compulsory acquisition of agricultural land

Whether merely because assessee was not residing close to land or was also pursuing some other business would not by itself be sufficient to hold that land was not used for agricultural purposes by assessee – Held, yes – Whether, therefore, exemption claimed by assessee under section 10(37) on enhanced compensation received on compulsory acquisition of agricultural land could not be denied merely because assessee was staying away from agricultural land or was also pursuing some other business – [In favor of assessee]  Facts of the Case:

• The assessee was the owner of agricultural land acquired by the Government, for which under the order of the Court, the assessee received enhanced compensation.
• The assessee claimed that in view of provisions of section 10(37) read with section 45(5), no capital gain tax was payable.
• The Assessing Officer, however, held that the land in question was situated within the municipal limits of Gandhi nagar, which had population of more than 10,000. Therefore, section 10(37) did not apply to the assessee.
• The Commissioner (Appeals) agreed with the assessee to the extent that exemption under section 10(37) would be available also to agricultural land situated in urban area but he held that such exemption would be subject to fulfillment of certain conditions, one of them being that such land, during the period two years immediately preceding the date of transfer was used for agricultural purpose by Hindu Undivided Family or individual or his parent. He was of opinion that the assessee was staying away from the agricultural land and was also involved in some business activities. Therefore, the assessee could not have carried out agricultural activities himself and, therefore, exemption under section 10(37) was not available to him.
• The Tribunal held that there was no such requirement that the assessee should himself carry out the agricultural activities on those lands. Accordingly, the Assessing Officer was directed to grant exemption as claimed by the assessee under section 10(37).

Held for the case:

• The only ground on which the Commissioner (Appeals) held against the assessee was that he was staying away from the agricultural land and that he was otherwise engaged in a business. Neither of these two facts, either in isolation or cumulatively, would be sufficient to hold that such land was not being used for agricultural purposes by the assessee.
• The concept of personal cultivation as accepted in agricultural land tenancy laws also recognizes, as can be seen from the statutory provisions contained in the Bombay Tenancy and Agricultural Lands Act, 1948, cultivation of a land through hired labourer or through member of one’s family.
• Merely because the assessee was not residing close to the land or was also pursuing some other business would not by itself be sufficient to hold that the land was not used for agricultural purposes by the assessee.
• The Tribunal recorded that in the earlier years, the assessee had declared agricultural income, which was also accepted by the revenue.

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