INTRODUCTION
The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has recently given a landmark
ruling regarding the rural agriculture land transactions that take place. The ITAT stated that
such a land transaction will no longer be immune to the shield of concealing unaccounted
wealth. The decision was given by the tribunal in order to protect from the misuse of Section
56(2)(x) of the Income Tax Act, 1961, which was introduced to prevent tax evasion through
gifts, ensuring there is transparency in the procedure of transferring assets. Back in those days,
agricultural land became an attractive tool for laundering money as it was treated as a non-
capital asset; in this process, the land was most of the time undervalued. This purchase
transaction with under-valuation of the land helped in laundering of black money, which
involves huge cash transactions. The recent ruling given by the ITAT has overturned the
background by considering the difference between the market value and the sale consideration,
which is taxable in the buyer’s hands, hence putting the agriculture land transaction under the
inspection of the income tax laws.
BACKGROUND
The rural agricultural farmland has been exploited severely over the decades and has become
a source of money laundering. The scenario was that the buyers used to purchase the farmlands
at a price below the fair market value and then used to make the payment of the remaining
amount in unaccounted cash. This happened due to agricultural lands were not defined as
“capital assets” under Section 2(14) of the Income Tax Act. It enabled the individuals to sell
the agricultural lands at the actual market price and not disclose the black money used in the
transaction for payment of the balance amount. This helped in the conversion of black
unaccounted cash to white wealth. These transactions were difficult to monitor as they
happened without a proper recording of the formal valuation.
The buyers and investors took advantage of buying the agricultural farmlands under this
pretext, and provided unaccounted cash to the seller. Following this, the buyer would sell the
farmland at the original market value, leading to the conversion of the black money to white.
This act took place due to the absence of monitoring mechanisms in the villages. In recent
years, it has become a widely spread mechanism for laundering money, and converting black
wealth to white. The agricultural farmlands remained a blind spot, even after the Benami
Transactions (Prohibition) Amendment Act came into force. Now, as per Section 56(2)(x) of
the Income Tax Act, this technique to launder money has been curbed, and the buyers who used
to launder money under this ploy cannot do so anymore. This grey area of laundering money
has been addressed by the ITAT by providing a clear distinction between the fair market value
and the actual price paid by the buyers.
KEY POINTS
1. Section 56(2)(x) of the Income Tax Act applies to both the capital assets in the rural and
urban areas.
2. The rural agricultural farmland is no longer immune to the taxation policies, and it
would be treated as any other capital asset.
3. The ruling given by the ITAT brings out the grey area of money laundering through the
sale of agricultural farmlands, and with this, the agricultural lands will be treated as any
other capital asset, and the tax payable on the sale would be levied.
RECENT DEVELOPMENTS
With the ruling of the ITAT, Ahmedabad Bench on 27th May 2025, there has been harsher
scrutiny enforced for monitoring the sale of agricultural lands. There have been crucial
discussions initiated by the Central Board of Direct Taxes (CBDT) for guiding the mechanisms
followed for money laundering. The officers are also instructed to examine the transactions
that took place in the past years.
CONCLUSION
The ruling of the ITAT is a crucial step in curbing the black money laundering through the sale
of agricultural lands at a price lower than the market value. This step increases the transparency
in the dealings of agricultural lands. Now, the rural agricultural farmlands are also treated as
“capital assets” under Section 56(2)(x) of the Income Tax Act. 1961.
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WRITTEN BY SAUMYA GUPTA
