Nataraj Ramaiah v. ITO (IT) (2024) 115 ITR 31 (SN)(Chennai)(Trib)

🌾 Nataraj Ramaiah vs. ITO – ITAT Chennai on Sale of Agricultural Land Beyond Municipal Limits (2024)

📌 Background

The taxation of capital gains arising from the sale of agricultural land under Section 2(14)(iii) of the Income-tax Act, 1961 has been a recurring issue, particularly in cases where urban expansion blurs the distinction between rural and urban agricultural land. The law provides that agricultural land situated beyond the prescribed distance from the limits of a municipality—depending on the population as per the last Census—does not qualify as a capital asset, and hence, any sale thereof is not taxable under Section 45 of the Act.

In Nataraj Ramaiah v. ITO [(2024) 115 ITR 31 (SN) (Chennai)(Trib)], the Income Tax Appellate Tribunal (ITAT), Chennai Bench, reaffirmed that genuine agricultural land located beyond the notified municipal limits cannot be treated as a capital asset, even if certain administrative records are incomplete or ambiguous.

Facts of the Case – What Happened to Nataraj Ramaiah

• Assessee: Nataraj Ramaiah
• Assessment Year: 2015–16
• Nature of Asset: Agricultural land located beyond 10 km from municipal limits

Key Documentary Evidence Submitted by the Assessee:

1. Village Administrative Officer (VAO) Certificate: Confirmed that the land was located beyond 10 kilometers from the nearest municipal limit.
2. Revenue Records: Classified the property as wet land (nanjai) in the government registers.
3. Land Revenue Receipts: Demonstrated regular payment of land tax as applicable to agricultural properties.
4. Land Registrar’s Valuation Records: Recorded the land as wet agricultural land for registration purposes.

The Revenue, however, argued that because the Tahsildar’s record left the column relating to “crops grown” blank, the land could not be treated as agricultural land.

❓ Point of Dispute

Whether the sale of land located beyond 10 kilometers from municipal limits, and shown in revenue records as wet agricultural land, can be treated as the sale of a capital asset under Section 2(14)(iii) and thereby be chargeable to tax as capital gains under Section 45 of the Income-tax Act, 1961.

📑 Submissions by the Assessee

• The land was classified as agricultural in all relevant government and revenue records.
• The Village Administrative Officer’s certificate clearly stated that the property was situated more than 10 kilometers from the municipal limits, taking it outside the definition of capital asset as per Section 2(14)(iii).
• The assessee regularly paid land revenue tax applicable to agricultural land, reinforcing the nature and use of the property.
• The Land Registrar had assessed and registered the property as wet land, confirming its agricultural character.
• The absence of details in the Tahsildar’s records regarding crops grown was merely a clerical or administrative lapse and not determinative of the land’s character.

📑 Submissions by the Revenue

• The Tahsildar’s report did not mention any cultivation or crops grown, which according to the Assessing Officer, implied non-agricultural use.
• The Revenue contended that in the absence of evidence of actual cultivation, the land could not be treated as agricultural.
• It was further argued that the location of the land had potential for urban development and thus should fall within the ambit of capital asset.

⚖️ Legal Principles & Tribunal’s Findings

1. Definition of Capital Asset – Section 2(14)(iii)

The Tribunal reiterated that agricultural land is excluded from the definition of capital asset if it:

• Lies beyond the specified distance (ranging from 2 to 8 or 10 km, depending on population size); and
• Is not within the jurisdiction of a municipality or cantonment board as per the last Census.

2. Evidentiary Value of Revenue Records

The ITAT observed that multiple government records—VAO certificate, land tax receipts, and registration documents—consistently described the land as wet agricultural land.

The Tribunal held that such official records carry presumption of correctness unless disproved by concrete evidence.

3. Blank Crop Columns Do Not Alter Agricultural Character

The Tribunal dismissed the Revenue’s argument regarding the Tahsildar’s blank columns, stating that:

“Merely because the Tahsildar had left the columns of crops grown or cultivated blank, it cannot lead to the conclusion that the immovable property is not agricultural land.”

The omission was deemed non-substantive and administrative in nature, insufficient to change the inherent classification of the land.

4. Location Beyond Municipal Limits

Based on the VAO’s certification and corroborated evidence, the land was found to be situated beyond 10 kilometers from the municipal limits, thus clearly outside the scope of Section 2(14)(iii).

🏁 Held

✅ The ITAT deleted the addition made by the Assessing Officer under the head “capital gains.”
✅ It held that the land was agricultural, situated beyond 10 km from the nearest municipality, and therefore did not constitute a capital asset under Section 2(14)(iii).
✅ Consequently, the sale consideration was not taxable under Section 45 of the Income-tax Act.

✅ Practical Impact on Taxpayers

• Clear Precedent: Establishes that documentary proof from government records and revenue authorities is decisive in determining the agricultural nature of land.
• Distance and Classification Key: Land beyond the notified distance from a municipality, even if potentially developable, remains rural agricultural land for income tax purposes.
• Protection for Genuine Agriculturists: Prevents arbitrary reclassification of rural land as urban simply based on incomplete administrative entries.
• Importance of Certificates: Taxpayers should maintain and produce VAO certificates, land tax receipts, and land registrar’s valuation documents to substantiate claims.

🔑 Key Takeaways

1. Distance from municipal limits is the foremost criterion under Section 2(14)(iii).
2. Official classification in revenue and registration records carries high evidentiary weight.
3. Administrative omissions (like blank crop details) do not change the land’s agricultural nature.
4. Consistent documentation protects taxpayers from wrongful capital gains assessment.
5. Judicial consistency: Aligns with earlier rulings that emphasize physical and legal characteristics over speculative potential.

📢 Why This Case Matters

The Nataraj Ramaiah v. ITO (2024) ruling is a significant reaffirmation of taxpayers’ rights concerning agricultural land transactions. It provides clarity that mere procedural lapses or clerical errors in revenue records cannot override the substantive evidence of land being agricultural.

The decision fortifies the principle that the definition of capital asset under Section 2(14)(iii) must be applied strictly and objectively, ensuring genuine agriculturists are not unfairly taxed under capital gains provisions.

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