Key Takeaways on Capital Gains on Agricultural land and Section 54F Exemption: ITAT Chennai in the Case of Natesan Ekambaram

General
1

The Income Tax Appellate Tribunal (ITAT), Chennai Bench “A”, delivered its order on 1st September 2025 in the case of Natesan Ekambaram v. DCIT, Central Circle-1(2), Chennai, concerning the assessment year (AY) 2014-15. The case revolved around the taxability of capital gains on the sale of land and the assessee’s entitlement to exemption under section 54F of the Income Tax Act, 1961.

Background of the Case

  • The assessee, Mr. Natesan Ekambaram, owned 121 cents of land in Siruseri Village, Kancheepuram District.
  • Through his power agent, he sold 30.35 cents of this land to M/s Jacaranda Properties Pvt. Ltd. on 14.10.2013 for a recorded consideration of ₹1,00,44,000.
  • The Assessing Officer (AO) found that the assessee had actually received ₹2.5 crore, and treated the entire sum as sale consideration, assessing long-term capital gains (LTCG) of ₹2.45 crore.
  • The AO further denied the assessee’s claim that the land was agricultural and exempt from tax, holding it to be urban land within the ambit of Section 2(14)(iii).
  • The assessee’s claim for exemption under Section 54F (investment in residential house construction) was also denied for lack of proper supporting documents.

Aggrieved, the assessee approached the CIT(A), who confirmed the AO’s order. The matter then reached the ITAT.

Key Issues Before the Tribunal

  1. Whether the land sold qualifies as agricultural land excluded from “capital asset” under Section 2(14)(iii).
  2. Whether the sale consideration should be taken as ₹1,00,44,000 (actual sale deed value) or ₹2,50,00,000 (amount received).
  3. Whether capital gains should be taxed entirely in the hands of the assessee or partly in the hands of family members.
  4. Whether the assessee is entitled to exemption under Section 54F.

Tribunal’s Findings

1. Nature of the Land – Capital Asset vs. Agricultural Land

  • The Tribunal accepted that the land was agricultural in character, but emphasized its location.
  • Since Siruseri is within 8 km of Semmencherry, which falls under the expanded limits of the Greater Chennai Corporation (population exceeding 10 lakh), the land is deemed urban agricultural land.
  • Therefore, it qualifies as a capital asset under Section 2(14)(iii), and capital gains tax is applicable.

2. Sale Consideration – ₹1,00,44,000 vs. ₹2,50,00,000

  • ITAT noted that only 30.35 cents were transferred during the year under a registered sale deed for ₹1,00,44,000.
  • The balance ₹1.5 crore received was held as advance for the remaining 90.5 cents, duly reflected in the assessee’s books.
  • The Tribunal ruled that the AO erred in taxing the entire ₹2.5 crore in the same year.
  • It directed that only ₹1,00,44,000 should be taken as consideration for computing LTCG for AY 2014-15.

3. Ownership and Family Share Claim

  • The assessee argued that the land was purchased from ancestral property proceeds and his children had rights over it.
  • However, since the sale deed was solely in his name, and no documentary proof of HUF status or joint ownership was provided, the Tribunal held that capital gains are taxable only in his hands.

4. Exemption under Section 54F

  • The assessee claimed to have invested ₹82,15,610 in construction of a residential property.
  • Though the CIT(A) rejected the claim citing doubts over bills and vouchers, the ITAT examined bank statements showing corresponding withdrawals and payments.
  • Applying the principle that substance prevails over form, the Tribunal accepted that genuine investment was made.
  • It directed the AO to allow exemption under Section 54F for ₹82,15,610.

Outcome

  • The ITAT upheld the applicability of capital gains tax on the ground that the land was urban agricultural land (capital asset).
  • However, it restricted the sale consideration for AY 2014-15 to ₹1,00,44,000, deleting the addition of ₹1.49 crore.
  • The Tribunal also allowed exemption under Section 54F for ₹82,15,610.
  • The appeal was thus partly allowed.

Key Takeaways

  1. Urban agricultural land within the statutory limits prescribed under Section 2(14)(iii) is taxable as capital asset, even if agricultural in character.
  2. Registered sale deed value prevails over notional or advance payments in determining consideration for capital gains.
  3. Claims of joint ownership must be supported with proper documentary evidence.
  4. Section 54F exemption cannot be denied merely due to imperfect documentation if bank records substantiate genuine construction investment.