Taxpayer must prove land's agricultural status for capital gains relief: HC
Mar 18, 2025
Official revenue records like Jamabandi, Khasra, and Khatauni confirm land ownership, classification, and usage, ensuring it is legally recognised as agricultural in official documents
The Kerala High Court recently held that the burden of proof is on the taxpayer to show that he/she is entitled to capital gains tax exemption in case gains derived from the sale of land are claimed to be agricultural land. The authorities must decide whether the land is agricultural in nature based on evidence placed on record by the taxpayer.
What is the case?
The case pertained to the assessee, the late MJ George, who was later represented by his legal heirs. During the assessment year 2006-07, George sold 5.21 acres of land in Kakkanad village, Kochi, for Rs 977.10 lakhs. The petitioner argued that the land was agricultural and, therefore, exempt from capital gains tax under Section 2(14)(iii) of the Income Tax Act, 1961. However, the assessing authority initially dismissed this claim, treating the sale proceeds as taxable capital gains. On appeal, the First Appellate Authority ruled in favour of the assesse. It based its decision largely on a certificate issued by the village officer, which confirmed that the land was classified as agricultural in the revenue records.
Dissatisfied with the ruling, the revenue department appealed to the Income Tax Appellate Tribunal (ITAT), which scrutinised the nature of the land and ultimately dismissed the assessee’s exemption claim. As a result, the matter was further contested before the Kerala High Court.
According to live law, the division bench of Justices AK Jayasankaran Nambiar and Easwaran S observed that “it is significant in this regard to observe that the claim of the assessee, being for exemption from the levy of income tax as applicable to capital gains, the burden of proof was on the assessee to show that he was entitled to exemption by virtue of the land sold by him being in the nature of agricultural land.”
“The most important proof is official revenue records such as Jamabandi, Khasra, and Khatauni, which indicate the land's classification and usage. These records confirm ownership and whether the land is officially listed as agricultural. Even though actual farming on the land is not mandatory for claiming exemption, courts have emphasised that revenue records must support the claim,” said Ashish Goel, partner, Ved Jain and Associates.
Apart from revenue records, other supporting documents like land revenue receipts, tax assessment records, irrigation facility details, and past agricultural income statements can strengthen the claim. However, if revenue authorities issue a certificate stating that the land is unsuitable for agriculture and the taxpayer fails to provide additional proof, the department/courts may reject the exemption.
What should taxpayers do?
“This primary impact of this decision is that the taxpayers should be careful before claiming any such exemption and whenever they are claiming any such exemption, they should do so with sufficient details like maintenance of detailed land use records, necessary certificates, and documentary evidence to prove that the capital asset being sold is an agricultural land,” said SR Patnaik, partner (head - taxation), Cyril Amarchand Mangaldas.
“Going forward, the taxpayers should maintain adequate records and sufficient documentary evidence to be able to contend that the land qualifies as an agricultural land and meets the criteria as per the definition of agricultural land provided in the Income Tax Act,” Patnaik said.
[The Business Standard]
