Whether Farmhouses Are Agricultural Land Within the Meaning of the Income-tax Act

A builder bought land in the Terai belt of the Yamuna, on the side of Noida and Greater Noida. The landscape was developed into farm land interspersed, in the Assessing Officer's own words, with "beautifully designed cottages with all modern amenities". Roads were laid, fencing put up and electric poles installed by the company itself. The scheme was marketed under the name GREEN BEAUTY.

The owner's answer was the one most owners give. The land was classified in the revenue record of Faridabad as agricultural. It had been used for agricultural purposes at the time of purchase and at the time of sale. Its character had never been changed.

The first appellate authority confirmed the addition anyway, holding that the mere fact of land being recorded as agricultural in the revenue record is not conclusive proof, and that owing to the nature of utilisation, roads, electric poles and cottages with fencing, the land could not be treated as agricultural. The dispute is Gyanendra Tyagi, decided by the Delhi Bench on 15 March 2022.

That is the whole subject in one set of facts. A farmhouse is not disqualified because it is pleasant. It is disqualified because of what was done to the land to make it so.

What the officer is actually running through

There is no definition of agricultural land in the Act. The Supreme Court settled the method in Smt. Sarifabibi Mohmed Ibrahim v. CIT, [1993] 204 ITR 631, approving a Division Bench of the Gujarat High Court in CIT v. Siddharth J. Desai and adopting thirteen tests. They are numbered below as the Supreme Court numbered them, because the numbering matters when an order refers to one of them.

1. Was the land classified in the revenue records as agricultural, and was it subject to the payment of land revenue?
2. Was it actually or ordinarily used for agricultural purposes at or about the relevant time?
3. Was such user for a long period, or was it of a temporary character or by way of a stopgap arrangement?
4. Did the income derived from the agricultural operations bear any rational proportion to the investment made in purchasing the land?
5. Was permission for non-agricultural use obtained, and if so when, by whom, and in respect of the whole or a portion of the land?
6. Had the land, on the relevant date, ceased to be put to agricultural use, and if so was the alternative user permanent or temporary?
7. Though entered in the revenue records, had the land never actually been ploughed or tilled, and did the owner intend to use it for agricultural purposes?
8. Was the land situated in a developed area, and did its physical characteristics, surrounding situation and the use of land in the adjoining area indicate that it was agricultural?
9. Had the land itself been developed by plotting and providing roads and other facilities?
10. Were there any previous sales of portions of the land for non-agricultural use?
11. Was permission under the tenancy law obtained because the sale was in favour of a non-agriculturist, and if so for agricultural or non-agricultural user?
12. Was the land sold on a yardage or on an acreage basis?
13. Would an agriculturist have purchased the land for agricultural purposes at the price at which it was sold, and would the owner have sold it valuing it as a property yielding agricultural produce?

A weekend property with a lawn, a gate, a metalled approach and a two-room cottage answers most of those the wrong way. Test 1 is the only one the revenue record answers, and it is the one every owner leads with.

Four ways it has gone wrong

Permission to stop farming. Fourteen acres were allotted to an assessee whose Collector had already given permission for de-plotting of the land for the construction of farm houses. The agreement itself provided for internal roads and a club house. The Tehsildar reported to the Collector that the land was barren and could not be used for agriculture. The Assessing Officer's conclusion was blunt: the assessee "never had any intention to buy any agriculture land. He had sensed a commercial opportunity in the said land." Compensation of Rs 75,95,230 received on cancellation of the allotment was assessed as income from other sources. The matter is Sunil Khadawala, legal heir of Manhar Khadawala, decided by the Mumbai Bench on 9 September 2025. Tests 5, 6, 7 and 9 were all against the owner on those facts.

A dwelling on the land. In a Gurgaon-district matter concerning land at Sohna, the department recorded that the property lay within a hundred feet of the local limits of Sohna municipality, that the municipality's population was 27,570, and that what was sold was not only a large portion of land but a dwelling unit consisting of two rooms for residence and a washroom, with electricity, water connection and other basic amenities. The registered deed described the land as agricultural, and the Revenue's ground was that the assessee's contention of a farm house "was found to be incorrect and wrong as per Inspector's report". The addition in issue was Rs 1,90,15,785. The matter is ACIT v. Kundan Veer Singh Bhullar, decided by the Delhi Bench on 13 June 2025.

Bought in order to build. A company purchased agricultural land intending to develop farm houses on it. Because that was the purpose, the first appellate authority held the land was stock-in-trade and the profit on sale was business income, at which point section 2(14) never arises at all, the exemption being for capital assets and stock-in-trade not being one. The company's answer was that the plan was frustrated when permission from NOIDA did not come, so the land ceased to be stock-in-trade and became an investment, and being agricultural land was outside section 2(14). The Tribunal set the matter aside for fresh consideration. The matter is New Delhi Auto Finance Pvt Ltd, decided by the Delhi Bench on 15 October 2025.

Potential is not use. The Mumbai Bench stated the principle generally in Dhananjay Estate and Reality Private Limited, decided 26 November 2025: land lying outside the specified areas does not automatically become agricultural land, it has to be used for agricultural purposes, and "much weight cannot be given to mere potentiality of the land for use for agricultural purposes".

A related trap is worth naming. Where land is plotted and sold in pieces, the question stops being whether it is agricultural and becomes whether the owner was carrying on an adventure in the nature of trade. That was the fight in Kalubhai Dulabhai Golaviya, decided at Surat on 30 March 2023, where the assessee said the plotting was never meant for sale, the land having been held with an intention to construct a farm house, and that construction became impossible only when the city limits were extended and a town planning scheme came in.

What actually protects a genuine farm

Nothing above prevents a real farm with a house on it from being agricultural land. What it requires is that the agriculture be real and provable, and the house incidental to it rather than the point of it.

1. Cultivation records, year by year. Seed and fertiliser purchases, labour payments, receipts for sale of produce, mandi records. A claim that the land was farmed, with nothing to show for it, loses tests 2 and 7 together.
2. Agricultural income returned. Income shown in the returns for the years of ownership. In the Sohna matter the department examined the agricultural income claimed and asked for the evidence behind it.
3. No permission for non-agricultural use, or if one exists, knowledge of when it was taken and by whom, because the date can decide the case under test 5.
4. The condition of the land. Photographs, and a clear picture of what is built, how much of the area it covers, and whether roads, fencing or amenities were laid. That is test 9.
5. The basis of sale. Sold by the acre reads as farmland; sold by the square yard reads as plots, which is test 12.
6. What the buyer was. An agriculturist buying to farm, or a developer buying to build, and at what price per unit. That is test 13.

The short answer

A farmhouse is agricultural land within the meaning of the Act when the land is genuinely agricultural and the house sits on it. It is not agricultural land when the agriculture has become the description and the house has become the purpose. The markers of that, on the decided cases, are roads, fencing, electric poles, club houses, de-plotting permissions, sale by the yard, and a price no farmer would pay.

The revenue record will say agricultural in every one of those cases. It said so in all of the matters above.

Where the land does clear this question, the next one is where it stood, which is taken up in the companion note on capital gains on agricultural land.

This note is general information drawn from reported decisions and is not advice upon any particular matter. Whether a given property is agricultural land depends on its own facts and record.