Opinion Of Eminent Legal Luminaries On Controversial Issues

Whether Gains On Sale Of Agricultural Land Are Taxable?

QUERY: Mr. ‘A’ is filing his Income Tax Return regularly. He acquired an agricultural land by way of partition effected by his father on 29-7-2007.

The partition is effected by father of ‘A’ and as per said partition, the property is partitioned among ‘A’ and his brother ‘B’.

Actually, father of ‘A’ had acquired this agricultural land by way of a partition deed effected by his grandfather on 21-12-1976 and further grand-father had acquired this property by way of gift alongwith father of ‘A’, Grandmother of ‘A’ and his brother ‘C’, from the father-in-law of grandfather on 4-5-1953. In short this property is gifted by father-in-law of grandfather to all of them.

In the circumstances, your valuable opinion alongwith case laws is solicited in the matter as to whether finally property fell in the hands of ‘A’ is his individual property or property of his H.U.F.

Now, this property is compulsorily acquired by the Government for constructing offices on said property for functioning the Governmental works.

In lieu of acquisition of this property, Mr. ‘A’ had received compensation from Government by way of consent agreement entered into with the Government.

Mr. ‘A’ received compensation, which consists of cost of land, solatium and compensation for loss caused to ‘A’. The loss is calculated by the Government from the date of notification to the date of Award by the Authority.

The above amount of cost of land, solatium and compensation for loss as mentioned above, have been received by way of consent Award executed between ‘A’ and the State Government.

Further as mentioned earlier, the property is an agricultural land situated in a village, which is beyond 8 Kms. from Muncipal Area and the same has been compulsorily acquired by Government for constructing office buildings etc. for the purpose of Government work.

In view of this, whether the compensation so received in the nature of cost of land, solatium and compensation for loss, is chargeable to Income Tax or not?
ANSWER: As per the query, the father-in-law of the grandfather had gifted property for the benefit of the grandfather alongwith father of ‘A’, grandmother of ‘A’ and his brother ‘C’ on May 04, 1953. Thus, it can be presumed that the property was gifted to the HUF of the grandfather, if intention of the donor was to gift the property for the benefit of HUF of grandfather of ‘A’. (See C. M. Arunachala vs. Muruganatha – AIR 1953 SC 445).

The said property was participated by Father of ‘A’ between ‘A’ and his brother ‘B’. The character of the property remains HUF property in the hands of co-parcener [See N. V. Narendranath vs. CWT 74 ITR 190 (SC) and L. Hirday Narain vs. ITO 78 ITR 26 (SC)].

Further, the said property is beyond 8 kms. From Municipal Area, hence, no capital gains in the hands of ‘A’ as it is not a capital asset as per section 2(14)(iii) of the Income Tax Act, 1961.

Posted in Income-tax

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