Agricultural Land

Introduction

An agriculture land has been kept out of preview of capital gains if it is situated in a rural area in India. If agricultural land is situated within the jurisdiction of a municipality or cantonment board, it is considered as capital asset.

1. About

1.1. Meaning of agriculture land

Income-tax Act provides various exemptions and concessions in respect of agriculture income and agricultural land situated in India. But it does not provide any guidance as to when a land is treated as an agricultural land. In ordinary sense, a land is said to be an agricultural land if it is used for agricultural purposes. However, for taxation matters, there are two important judgments

1.1-1. Classification in revenue records

If the land is classified into revenue records as an agricultural land and it is subjected to the payment of land revenue, then it is certainly a strong piece of evidence of its character as an agricultural land. However, a land which had never been actually used for agriculture and never been ploughed or tilled could not be treated as an agricultural land just because it is entered in revenue records as an agricultural land.

1.1-2. Criteria of usage

A land could be said to be an agricultural land if it is either used or is meant to be used for agricultural purposes. However, the potential use of a land for agricultural purpose is wholly immaterial. Thus, land should be used for agricultural purposes at or about the relevant time. Further, it must be checked whether user of the land was for a long-period or whether it was of a temporary character or by way of a stop-gap arrangement.

If a land is ceased to be put to agricultural use or it is put to an alternative use and such cesser or alternative use is of a temporary nature, then the land could still be treated as an agricultural land.

1.1-3. Source of investment

The Court has observed that in determining the agricultural characteristics of a land, it should also be considered whether the income derived from the agricultural operations bore any rational proportion to the investment made in purchasing the land.

1.1-4. Location of land

The physical characteristics of land, surrounding situation and use of the lands in the adjoining area are some of the vital factors which should be considered to determine whether the land is an agricultural land or not. Further, it must be checked whether the land situated in a developed area and whether the land itself is developed by plotting and providing roads and other facilities.

1.2. When is an agriculture land treated as capital asset?

Following agricultural lands are considered as capital assets:

(a) Agricultural land situated in any foreign country; and

(b) Agricultural land situated within the jurisdiction of a municipality or cantonment board having a population of 10,000 or more.

1.3. When is agriculture land not treated as capital asset?

An agricultural land situated beyond the jurisdiction of a municipality or cantonment board having a population of 10,000 or more is not treated as capital asset if it does not fall within following distances (to be measured aerially):

(a) Up to 2 kms from local limits of the municipality or cantonment board, if population of such municipality or cantonment board exceeds 10,000 but does not exceed 1,00,000;

(b) Up to 6 kms from local limits of the municipality or cantonment board, if population of such municipality or cantonment board exceeds 1,00,000 but does not exceed 10,00,000;

(c) Up to 8 kms from local limits of the municipality or cantonment board, if population of such municipality or cantonment board exceeds 10,00,000.

1.4. How to calculate population of municipality or cantonment board?

It is the population of the municipality or cantonment board that has to be taken into account as a whole and not the population of the street, ward, village where the agricultural land is situated

Population shall be calculated according to the last preceding census of which the relevant figures have been published before the first day of the tax year. The Census of India is conducted in every 10 years. The last census has been conducted in 2011.

References

Smt. Sarifabibi Mohmed Ibrahim v. CIT [1993] 70 Taxman 301 and CWT v. Officer-in-Charge (Court of Wards) [1976] 105 ITR 133

G.M. Omer Khan v. CIT [1992] 63 Taxman 533 (SC)

This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.