Capital gains on agriculture land

Tax queries 480 views 3 replies

Firstly, an agriculture land earlier didn't come under any notified area nor within eight kms of a municipal area( there was a gram panchayat in that area). After some time(when this so called rural agricultural land was converted into industrial land), municipality came into existence in that area... will this agricultural land be considered as urban since begining???

Secondly, a rural agricultural land purchased in 2009 was converted into an industrial land in 2013 and later in 2014 converted into stock in trade.what will be the tax liability??

in my opinion for the second question, since 2014, trading profits will be sale consideration minus FMV on the date of conversion and,

capital gains would be FMV on the date of conversion into stock in trade minus fmv on the date of conversion into an industrial land.

Pls correct me if Iam wrong. Urgent replies will be appreciated and thanx in advance.

Replies (3)

There is judgement of Madhukumar N. (HUF) 2012 karnataka HC ,  in which it was held that if the area is not under any notification then land in such an area would be treated as rural.

There is also a judgement of Amrutilal B. Shah ITAT mum 2013, concuring with same view

Another judgement of Harniks Park (P.) Ltd ITAT 2014 hyd. , in which this viewpoint was again used

And 4-5 more

And because of this (HUF) and similar cases the amendment was made in definition.Later judgements are just follow ups.

answer to your first ques..... for the purpose of capital gain two things need to be ascertained on date of transfer - 1. whether the asset trfd is capital asset or not, and 2. whether it is transfer or not...... now on date of sale, the land will be called a capital asset because it comes under municipal area as well as it is converted as industrial land.... so gains will be computed accordingly after taking into consideration indexed COA from 2009, when the land was originally acquired.
answer to second ques....... trading profits have been correctly calculated by you. but in my opinion CG should be FMV on date of conversion minus indexed COA.


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