Rule 37BA TDS Restrictions Don’t Apply to Exempt Agricultural Land Sale Proceeds – K. Venkatesan (HUF) vs ACIT (ITAT Chennai)

 

Introduction

Selling agricultural land in India often feels like walking through a tax maze. Fortunately, the ITAT Chennai decision in K. Venkatesan (HUF) vs ACIT sheds light on how Rule 37BA and Section 194IA apply—or don’t apply—to sale proceeds of rural agricultural land. This ruling is a big win for taxpayers and sets strong precedent. Let’s decode this landmark judgment in straightforward, engaging terms—with helpful examples and practical takeaways.

🔍 Key Takeaways from ITAT’s Verdict

1. Section 194IA doesn’t apply to agricultural land
   The rule mandates TDS deduction for immovable property transfers other than agricultural land. The tribunal reaffirmed that rural agricultural land isn't covered by Section 194IA 

2. Rule 37BA is limited to assessable income
   Rule 37BA offers TDS credit only if the income is assessable to tax. Since sale proceeds of rural agricultural land (above Rs 10 lakh or more) are exempt under Section 10(37), Rule 37BA cannot restrict credit taxguru.in.

3. TDS credit cannot be denied for exempt income
   Even if agricultural sale proceeds weren't separately reported in ITR, the tribunal ruled the credit claim must stand, since those proceeds were exempt and the error was technical—not deliberate taxguru.in.

Case Overview: What Happened?

• Land Sale: K. Venkatesan (HUF) sold rural agricultural land for Rs 10.5 crores.

• TDS Deducted: Buyer deducted 1% TDS under Section 194IA.

• Issue: Assessee claimed TDS credit, but CPC and CIT(A) denied it under Rule 37BA—mostly because the income wasn't shown in the ITR.

• ITAT Bench: Found the TDS deduction was invalid; ruled TDS credit must be given, as the income was exempt and Rule 37BA didn’t apply 

Related Legal Principles & Precedents

The tribunal aligned with notable High Court judgments:

• Nirmali Bhadra (Calcutta HC) and Sumit Devendra Rajani (Gujarat HC) confirmed TDS credit can't be denied merely due to formal omissions.

• These precedents confirm that legal exemptions and credit eligibility outweigh procedural lapses taxguru.in.

Why This Matters

For Whom?	Benefit Highlight
Sellers of agri land	Get full credit for TDS deducted under wrong Section 194IA
Tax authorities	Clarifies that exemptions under Section 10(37) override TDS denial
Practitioners & CA’s	Flexible approach in audits; technical errors won’t cost TDS benefits

🍃 Real-Life Scenario

Example: Mr. Rao sells 5 acres of rural farmland for Rs 2 crore. The buyer, mistakenly applying Section 194IA, deducts Rs 2 lakh TDS. Mr. Rao, despite not declaring proceeds in ITR, can claim full credit—thanks to the ITAT Chennai ruling.

Practical Tip: Even if Form 26AS shows income, but ITR doesn’t explicitly include it (due to exemption), taxpayers shouldn’t lose TDS credit under Rule 37BA.

Practical Tips for Taxpayers

1. Double-check buyer's TDS section: Ensure it's not 194IA for agricultural land.

2. Declare agricultural proceeds clearly in your ITR—even though exempt—under the “Exempt Income/Schedule EI”.

3. Keep Form 26AS handy: Shows TDS deducted, critical during refunds or credit claims.

4. Correct errors proactively: File ITR corrections or clarifications if CPC flags discrepancies.

5. Consult tax professionals: Before filing, to avoid missing exemptions or credits.

What CA’s and E-Filed Returns Should Do

• Declare exempt sale proceeds under Section 10(37).

• Reconcile Form 26AS with filed income properly.

• Maintain audit documentation—purchase deeds, sale deeds, proof of rural classification.

• Inform CPC/CIT(A) or challenge assessments if Rule 37BA is wrongly applied.

Conclusion

In the K. Venkatesan case, ITAT Chennai issued a definitive ruling:
Agri land sales are exempt from both Section 194IA and Rule 37BA restrictions.
Taxpayers are entitled to full TDS credit, even with minor ITR reporting missteps, as long as the income is exempt under law.

This judgment empowers taxpayers to stand firm. Whether you're selling land or advising clients, this ruling simplifies a complex compliance area and reduces unnecessary tax friction.

FAQs

1. Does TDS apply to rural agri land sale over Rs 50 lakh?
No—Section 194IA doesn’t apply to rural agricultural land

2. Can Rule 37BA deny TDS credit on exempt income?
No—Rule 37BA applies only to assessable income, not exempt under Section 10(37) 

3. What if Form 26AS shows income but ITR omits it?
ITAT clarified that a technical omission won’t deny TDS credit; substance prevails 

4. How to claim TDS credit if denied?
File revised ITR or rectification claim, and appeal under Section 154, pointing to ITAT judgment.

5. Should I declare exempt Agri land income in ITR?
Yes, under Schedule EI, to match Form 26AS and avoid CPC mismatches.

Call to Action

Need help claiming your rightful TDS credit or filing tax returns related to agricultural land sales? Contact Manika FinTax Solutions today for expert guidance and hassle-free filing support!

Keywords: Rule 37BA, TDS Credit, Agricultural Land Sale, Section 194IA, ITR exemption, K. Venkatesan HUF judgment, ITAT Chennai, agri land TDS.