Cultivate agri land for capital gains sop: ITAT

Two different benches of the Income Tax Appellate Tribunal (ITAT) – in Chennai and Pune – recently dealt with a similar issue and denied capital gains tax exemptions on sale of land. The reason: No agricultural activities had been carried out.

Exemption under section 54B of the Income Tax (I-T) Act can be claimed in respect of capital gains arising on transfer of agricultural land, provided it has been used for agricultural purpose for at least two years prior to the sale. The capital gains is exempt to the extent such gains is used to buy another agricultural land within three years.

Tax officials point out that it is no longer easy to pass off an income as tax-free agricultural income. Or for that matter, even when a taxpayer claims that a sale is of agricultural land, a range of records – be it land records or, in case of high-value matters, even satellite images – prove handy.

In the case heard by the Chennai ITAT, the taxpayer Keshav Sunderam Rajam was a nonresident. He had invested the capital gains arising from sale of ‘agricultural land’ by parking Rs 2.4 crore in a capital gains account scheme (the sum so deposited needs to be used for purchase of agricultural land within the specified period) and had paid Rs 1.2 crore to his father to acquire agricultural land in Coonoor. He produced ‘adangal’ (local land records) to substantiate the land sold was agricultural. The I-T officer denied the capital gains exemption benefit of Rs 3-odd crore on the grounds that the land sold had not been used for agricultural purposes.