Agricutural land transferred to company
Querist :
Anonymous
(Querist) 21 December 2011
This query is : Resolved
Dear Sir,
Fact of the Case:
A Director of Company has some agricultural land in his name situated within 8 Kms of municipal corporation and Director has given such agricultural land to the Company for use of commercial activity and recovered rent from the company.
After 10-11 years, such land acquired by the Company on the basis of registered agreement i.e. without registry, consideration price was taken by the Company at circle rate of agricultural land prevailing at that time.
Accordingly, Director has paid capital gains on the basis of circle rate of agricultural land.
AO is in opinion that such land is used for commercial purposes for more than 10 years, accordingly AO adopted circle rate of commercial land and calculated capital gains.
Is AO legally right or not, pls advice at the earliest.
Regards
soumitra basu
(Expert) 21 December 2011
The land has to be valued on the basis of determinable registered value although the same was not registered.
Querist :
Anonymous
(Querist) 21 December 2011
Dear Sir,
Thanks for reply, but pls advice what would be consideration amount to be taken for computation of capital gains- i.e. circle rate of agriculture land or circle rate of commercial land.
Regards
A V Vishal
(Expert) 21 December 2011
Circle rate of agri land
Raj Kumar Makkad
(Expert) 21 December 2011
As the change of the land use has neither been applied nor been provided so the status of the land is intact as an agricultural land though the same may be practically been used in commercial activities. It is upon the owner of the land to decide how to use it so the objection of AO is not legal and is required to be discarded.
You may file an appeal against the order of AO.
prabhakar singh
(Expert) 22 December 2011
rightly advised,now time to act.But can one take benefit of his own wrong may also be a question?Whose duty it was to get the land converted before taking it in use of commerce???
Vineet
(Expert) 23 December 2011
The matter is complicated as you put the agricultural land to commercial use.
But as far as Income Tax Act is concerned, the AO has limited power to replace sale consideration. He can replace it with the value adopted by registration authorities.
In your case it appears there is one more violation. The sale agreement is not registered. So AO has been given enough ammunition to discard your agreement and adopt a value which appears to be more reasonable.
Now, factually your case is weak, but legally you have a strong point in your favour that IT Act does not authorise AO to adopt a sale value other than agreed between parties (except as above)unless he has information on record regarding suppression of sale value to prove that the full value of consideration was more than the recorded value.
Earlier there was a provision u/s 52(1) wherein the full value of consideration for capital gain purposes wrt transfers between related parties could be replaced with fair market value. However, the same has been deleted in 1988 and as of now there is no provision to replace sale consideration by fmv in the above transfer. Hence even reference to section 55A also cannot be resorted to.
All the Best!!
