Factors Determine when an Agricultural Land is Capital Asset or Not

Any Profit or gain arising from the transfer of a capital asset is chargeable to tax under the head Capital Gains.  In the previous article, we had discussed about the basic concept of capital gains and capital assets. In this article, we will cover only the topic of agricultural land. Most of us consistently puzzle to decide whether a particular land is agricultural or not. This is the leading subject to understand while calculating the capital gain tax on agricultural land.

Land qualifies to be agricultural land if it is not situated in any area

• which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board,
• And which does not have a population of 10,000 or more according to the last preceding census which has been published before the 1st day of the previous year in which the sale of land takes place, and it is not situated less than eight kilometres from the local limits of any municipality or a cantonment board.
• In any area specified by the Government vide Notification NO. 9447, dated January 6, 1994

See the Notification No. 9447 or download this notification to see in detail about the area specification for determining whether a particular land is agricultural or not.
Notification No. 9447 Dt. 6-1-1994

So, before calculating capital gain tax on agricultural land, you have to see whether your land is agricultural land, if it is not then there will be no capital gain tax.

Agricultural land not forming part of the above will be a capital asset and sale of which will attract capital gains tax subject to Section 54B, we will cover it later articles.

Important Point to be Noted: If an agricultural land is situated in a village which comes with-in a municipality, then population of the municipality shall be considered (and not of village). In such a case if population of the municipality exceeds 10,000, then the agricultural land is a capital asset, even if population of the village is less than 10,000.

Other Factors for determining whether a land is agricultural land or not.

The following guiding factors to be considered while determining the nature and character or the land decided in the case of The Gujarat High Court in CIT v. Siddharth j. Desai (1982) (Click to Dowload the extracts of the case)

• Whether the land was classified in the revenue record as agricultural land or not.
• Whether the land was actual or ordinarily used for agricultural purposes at or about the relevant time.
  Whether such user of the land was for a long period or whether it was of temporary character or by the way of stop-gap arrangement.
• Whether the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land.
• Whether the land, on the relevant date, had ceased to be put to the agricultural use; if so, whether it was put to an alternative use; whether, such cesser and /or alternative user was of a permanent or temporary nature.
• Whether there were any previous sales of portions of the land for non-agricultural use.

Commissioner of tax … vs Siddharth J. Desai on 22 September, 1981

See Also : Capital Gain Tax on Agricultural Land when it become Capital Asset

Related posts:

1. Capital Gain Tax on Agricultural Land
2. Capital Gains exemption u/s 54F: Capital Gain on Transfer of Asset, other then a Residential House (Sec. 54F)
3. Taxability of Agricultural Income: Which Income Comes under Agricultural Income?
4. Capital Gains Guide: Basic Concepts
5. Capital Gain Exemption u/s 54, 54B, 54D, 54EC, 54F, 54G, 54GA Table