Income Tax Appellate Tribunal - Hyderabad
Income Tax Officer vs Uppala Venkat Rao on 8 November, 2001
Equivalent citations: [2002]83ITD273(HYD)
ORDER
H.S. Sidhu, J.M.
1. The Revenue has filed the present appeal against the order of the CIT(A)-I, Hyderabad, dt. 31st March, 1997, for the asst. yr. 1985-86 on the following grounds :
"1. The order of the CIT(A) is erroneous on facts and in law.
2. The CIT(A) erred in following the decision of the A.P. High Court in the case of Markapakula Agamma v. CIT (1987) 165 ITR 386 (AP) as the facts of the above case are distinguishable from the present case.
3. The CIT(A) ought to have sustained the order of the AO determining the capital gains on sale of lands in view of the fact that there was an element of cost of acquisition of the property, which was missing in the case of Markapakula Agamma (supra) decided by A.P. High Court.
4. The CIT(A) ought not have drawn support from the decision of the Supreme Court in the case of CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) as the facts of the case are clearly distinguishable from the present case."
2. The assessee has also filed a cross-objection in ITA No. 1178/Hyd/1997, for the asst. yr. 1985-86 on the following grounds :
"1. The learned CIT(A) erred in holding that land bearing survey No. 60 sold by the respondent is not an agricultural land. The CIT(A) failed to note that agricultural operations were being carried in the land and various crops were grown and the land was assessed to land revenue, pahanies and certificates of Revenue Department conclusively established the fact that the land was agriculturaland.
2. The CIT(A) further erred in not considering the fact that the above agricultural land is situated beyond 8 kms. from the municipal limits and that the above fact was supported with certificates from Government authorities and therefore capital gains on sale of land if any are not liable to tax.
3. Without prejudice to the above the respondent contends that investment of Rs. one lakh already made in the specified bonds under Section 54E of the Act and further investment of Rs. 4 lakhs sought in the specified bonds from out of cash seized in search operation be directed to be considered for computation of capital gains, if any.
4. The respondent craves leave to file additional grounds before disposal of the appeal.".
There were search operations on the residential premises of the assessee on 9th May, 1985. Pursuant to above, the AO made an assessment for the asst. yr. 1985-86 on 28th March, 1995, in which he had determined certain capital gains on sale of land bearing survey No. 60 situated at Sahebnagar Kalan Village, Hayathnagar Mandal, R.R. Distt. It was contended by the assessee that the above land is an Inam land of which he is a Protected Tenant and pursuant to the A.P. (Telangana) Tenancy and Agricultural Lands Act, 1950, the assessee was declared as protected tenantand ownership rights to the extent of 60 per cent of share in the land were, therefore, conferred upon him by virtue of the above enactment without payment of any consideration and in respect of remaining 40 per cent share in the land, the ownership rights were conferred upon him by virtue of A.P. (Telangana) Abolition of Inams Act, 1955, without payment of any consideration and the amount Rs. 1,272 paid to the RDO in 1983 in terms of s. 7(3) of the A.P. (Telangana) Abolition of mams Act was to register himself as an occupant of the Inam land as a protected tenantand there being no cost of acquisition, no capital gains have arised for tax purposes.
3. Besides the assessee had contended that the land was an agricultural land and assessed to revenue tax, agricultural operations were evidenced by pahanies and certificate from the Revenue authorities and the land is located beyond 8 kms. from the municipal limits of Hyderabad as per the certificates issued by the Government authorities and, therefore, the land is not a capital asset within the meaning of Section 2(14)(iii) of the IT Act for the purpose of capital gains.
4. On appeal, the learned CIT(A) upheld the order of the AO. The learned CIT(A), however, did not give any findings, whether the amount of Rs. 1,272 paid to the RDO would constitute cost for acquisition of land and whether the land is agricultural in character and located beyond 8 kms. from the municipal limits of Hyderabad.
5. Aggrieved by the order of the learned CIT(A), the assessee has filed appeal before the Tribunal. While disposing of the appeals in the assessee's own case in ITA Nos. 772 & 773/Hyd/1989, the Tribunal, Hyderabad Bench "A" by its order dt. 26th May, 1994, restored the appeal and directed the learned CIT(A) to determine the nature of land sold whether agriculture or not and that the land is located beyond 8 kms. from the municipal limits of the Hyderabad and whether the amount of Rs. 1,272 paid by the assessee as a protected tenant in respect of the Inam land constituted cost of acquisition of land and determine capital gains.
6. Pursuant to the above, the learned CIT(A) by his impugned order dt. 31st March; 1997, disposed off the appeal and held that as far as 60 per cent share in the land is concerned the ownership rights have vested in the assessee without any payment of cost by virtue of A.P. (Telangana) Tenancy and Agricultural Lands Act, 1950 in his status as a protected tenant and no amount can be charged to tax as capital gains by following the decision of the jurisdictional High Court in the case of CIT v. Markapakula Agamma (supra).
7. As regards to the balance of 40 per cent of land is concerned, the learned CIT(A) held that it was a Inam land and 40 per cent ownership rights in the land were vested in the assessee by virtue of A.P. (Telangana) Abolition of Inams Act, 1955 and the payment of Rs. 1,272 was for registration as an occupant of the land and did not partake the character of cost and neither any new asset was acquired on such payment nor new right is created and it was only a pre-existing arid continuous right in the land is accorded formal recognition. The learned CIT(A) further relied upon the observations of the Tribunal in ITA Nos. 772 & 773/Hyd/1989, order dt. 26th May, 1994, of the assessee's own case, in para 17, wherein it was held as under:
"Undisputedly the date of vesting of the Inam in the State was 20th July, 1955. The appellant was holding this asset right from the year 1952. In recognition of status as a Protect Tenant, in respect of this land and also in recognition of the right of the appellant under Section 7(1) to get himself registered as occupant of this land, the R.D.O. issued formal proceedings under Section 7(3) directing registration of the appellant as the occupant of the land in the year 1983. It is not as though for the first time the appellant acquired interest in this land. The certificate issued by the R.D.O. was only in recognition of the pre-existing right of the appellant to this land as Protected Tenant."
The learned CIT(A) further observed that had the legislature intended to bring in an element of cost or purchase price for the occupancy right, there would have been some stipulation with regard to the modalities for such purchase. Under the A.P. (Telangana) Tenancy and Agricultural Lands Act, 1950, detailed procedure has been prescribed for a protected tenant to purchase the landholder's interest in the land held by him as a Protected Tenant. He had to make an offer to the land holder stating the price which he is prepared to pay. If the landholder refuses or fails to accept the offer and to execute a sale deed within three months from the date of the offer, the protected tenantmay apply to the Tribunal for the determination of the reasonable price of the land, whereupon the Tribunal will determine the reasonable price of the landholder's interest in the land after giving notice to both the parties. Under the A.P. (Telangana) Abolition of Inams Act, 1955, no such procedure has been envisaged. The words like "purchase", "offer", "sale deed" do not figure in the A.P. (Telangana) Abolition of Inams Act, 1955. He is, therefore, of the view that payment of Rs. 1,272 is not for the acquisition of the occupancy right, but for its formal recognition. Moreover, the cost of acquisition has to be fair and just and equitable and should represent the fair market value of the property and in the present case it cannot be argued that Rs. 1,272 represents a fair market value of the property. On the facts and circumstances of the case, the learned CIT(A) held that in the absence of any cost, the assessee would not be liable to pay any tax on capital gains even with regard to 40 per cent of his interest in the land.
8. Aggrieved by the order of the learned CIT(A), the Revenue has filed appeal before the Tribunal. As regards to the character of land in question, the learned CIT(A) has agreed with the decision of the AO and held that land in question is a non-agricultural land notwithstanding the fact that no permission was obtained from the Collector for conversion of agricultural land into non-agricultural land and, therefore, distance from municipal limit of Hyderabad becomes an irrelevant. Against this finding of the learned CIT(A), the assessee filed cross-objections.
9. The learned Departmental Representative argued that the order passed by the first appellate authority, dt. 31st March, 1997, is against law and on facts on the file and liable to be cancelled on the ground that the learned CIT(A) has wrongly followed the decision of the Hon'ble High Court of Andhra Pradesh in the case of Markapakula Agamma v. CIT (supra), because the facts of the case on hand and the facts of the case cited by the learned CIT(A) are distinguishable. He further argued that the AO has rightly determined the capital gains on the sale of lands in view of the fact that there was an element of cost of acquisition of the property. Therefore, the first appellate authority should uphold the order of the AO. The learned Departmental Representative relied upon the order of the AO and drew our attention at p. 5 in para 3 of the order of the AO and at p. 5 in para 4.2 of the order of the CIT(A) to establish the cost of acquisition of the land in dispute. The learned Departmental Representative also supported the observations regarding the character of land as non-agricultural land, meant for commercial exploitation as house plots. He finally argued that the AO has established that the assessee became the absolute owner of the land in dispute by making payment of premium of Rs. 1,272. This amount, therefore, is a cost of acquisition of the asset in the hands of the assessee.
10. As regards the cross-objections filed by the assessee, the learned Departmental Representative relied upon the order passed by the CIT(A) on the issue in dispute in the cross-objections as well as by the AO and stated that there is no reason to allow the cross-objections of the assessee which deserve to be dismissed and the appeal filed by the Revenue may be allowed.
11. Shri Kalyandas, the learned chartered accountant appearing for the assessee controverted all the arguments advanced by the learned Departmental Representative and submitted that the agricultural land bearing Survey No. 60 of Sahebnagar, Kalan Village, admeasuring 13 acres 32 guntas came into possession of the assessee in the year 1952 as a tenant under a registered lease deed dt. 15th Feb., 1952, obtained from the legal heirs of late Nawab Salarjung-III and the assessee carried on agricultural operations since then and by virtue of A.P. (Telangana) Tenancy and Agricultural Lands Act, 1950, the assessee was declared as a protected tenant of the above land and ownership rights to the extent of 60 per cent share in the land were converted upon him without payment of any cost or consideration and that the above land being an Inam land, grant made by the Nizam of Hyderabad Nawab Salarjung-III by virtue of A.P. Abolition of Inams Act, 1955 all the Protected Tenants in the State of the Andhra Pradesh were declared as owners in respect of the remaining 40 per cent share.
12. In support of the contentions that where no cost is paid to acquiring ownership rights in an asset, computation of capital gains cannot be made under law, the assessee relied upon the decision of the Supreme Court in the case of CIT v. B.C. Srinivasa Setty (supra). In the case of CIT v. H.H. Maharaja Sahib Shri Lokendra Singhji (1986) 162 ITR 93 (UP), wherein their Lordships have held thus ;
"The liability to tax on capital gains would arise in respect of only those capital assets in the acquisition of which an element of cost is either actually present or is capable of being reckoned and not in respect of those assets in the acquisition of which the element of cost is altogether inconceivable".
Accordingly, their Lordships held, where the Maharaja of Ratlam sold some lands which were part of the property inherited by him from his forefather to whom the property was gifted by the Moghul Emperor. There being no cost for acquisition of land, no capital gains accrued to the assessee. Similar view was expressed by the Ahmedabad Bench of the Tribunal, wherein it was held :
"No capital gains can be worked out as the land in question was not purchased by any of his predecessors who were the Rulers of Rajkot State, but was acquired by conquest".
Relying upon the decision of the Supreme Court in the case of B.C. Srinivasa Setty (supra).
13. Similar view was expressed by the Chandigarh Bench of the Tribunal in the case of ITO v. Raja Shiv Dev Inder Singh (1986) 19 ITD 213 (CM) wherein it was held that capital gains in respect of an asset acquired by the assessee for nothing, could not be subjected to capital gains tax. Similar view was also expressed by the Hon'ble High Court of Andhra Pradesh in the case of Shri Krishna Dairy & Agricultural Farm v. CIT (1988) 169 ITR 291 (AP).
14. Following the catena of the decisions cited above, it was submitted that the assessee got the asset absolutely and free for nothing by virtue of enactment and there being no cost of acquisition, capital gains cannot be constituted for tax purposes. The decision of the Pune Bench of the Tribunal in the case of G.N. Ghorpade v. Dy. CIT (2001) 70 TTJ (Pune) 919 in the similar facts where the assessee acquired ownership rights in the land under the Bombay Merged Territories Miscellaneous Alienation and Abolition Act, it was held that the land was Inam land and right to occupancy was continued on payment of certain amount and compensation received on acquisition of such land cannot be subjected to capital gains tax.
15. It is pertinent to note that the Hyderabad Bench "A" of the Tribunal in the assessee's own case in ITA Nos. 772 and 773/Hyd./1989, dt. 26th May, 1994, in para 17 gave a categorical finding that "in recognition of status as a Protected Tenant, in respect of this land and also in recognition of the right of the appellant under Section 7(1) to get himself registered as occupant of this land, the R.D.O. issued formal proceedings under Section 7(3) directing registration of the appellant as the occupant of the land in the year 1983. It is not as through for the first time the appellant acquired interest in this land. The certificate issued by the R.D.O. was only in recognition of the pre-existing right of the appellant to this land as Protected Tenant". The above finding conclusively establish the facts that the assessee did not pay any cost for acquisition of ownership rights in the land and the finding since has not been challenged by the Revenue in any reference, the Revenue is now estopped from contending in the present appeal that the payment of Rs. 1,272 made to the R.D.O. constituted the cost for acquisition of ownership rights in the land. The certificate issued by the R.D.O. was only in recognition of pre-existing rights of the assessee and, therefore, there is no element of cost involved in acquiring the ownership rights in the land.
16. It may also be noted, had the Government required the protected tenant of Inam land to acquire the 40 per cent rights in the land on payment of cost/sale consideration, it would not have used the terms in Section 7(3) of the Act that "no protected tenant shall be entitled to be registered as an occupant under Sub-section (1), unless he pays to the Government as premium" in contrast to the language used under Section 38 of the A.P. (Telangana) Tenancy and Agricultural Lands Act which requires the protected tenant to purchase the landlord's interest in the land" (i.e. in respect of remaining 40 per cent right of the land after having acquired 60 per cent ownership right under the Act as a Protected Tenant) and "the Protected Tenant" shall make an offer to the landlord stating the price which he is prepared to pay for the landlord and that "if the landholder refuses or fails to accept the offer and to execute a sale deed within three months from the date of the offer, the protected tenant may apply to the Tribunal for the determination of the reasonable price of the land."
17. In the above facts it may be noted that the legislature had used terms under the Tenancy Act, protected tenantshall make an offer to the landlord stating the price and the landlord would execute sale deed in favour of the protected tenantand in case of dispute in price, sale price would be determined by the Tribunal. No such language was used in A.P. (Telangana) Abolition of Inams Act, although the legislation was quite aware of its intendments while legislating the Tenancy Act. This would establish the fact that the amount of Rs. 1,272 paid by the assessee is only for registering his occupancy rights and not the sale price or to obtain the sale deed and the amount paid being quite meagre, the payment cannot be constituted as cost of acquisition for the purpose of capital gains.
18. Regarding the character of land as agriculture emerging from the cross-objections filed by the assessee, it is submitted that the assessee had been carrying on agriculture operations on the above land since 1952 until sale deeds were executed in the year under consideration. In support of the fact that the lands were agriculture in character pahanies for the revenue year 1983-84 and for the earlier years were filed on record. The above pahanies conclusively establish the fact that the land was agriculture in character and agricultural operations were being carried, since earlier years including in the year 1983-84 to the date of sale and Kharif crops like jawar, bajra, etc. are grown therein. There are two wells which served agriculture operations and the land is known as "Chinna Thota Bai". The fact that the agricultural operations were carried and regular irrigation facility was available is also evidenced by the sale agreement dt. 2nd April, 1984, entered by the assessee with Mancha Mallesh Yadav and others.
19. Further, the above land was regularly assessed to land revenue tax and pursuant to demand notices, taxes were paid upto the revenue asst. yr. 1982-83 and particulars of tax payments were filed on record. The assessee had also filed certificate, dt. 20th Feb., 1985, from the concerned Mandal Revenue Officer who had certified that the above land is agriculture in character and agricultural operations were being carried on before sale. The assessee did not convert the agriculture land into non-agriculture land before sale. Under the provisions of Hyderabad Land Revenue Act (of VIII of 1317 Fasli) agriculture land cannot be converted into non-agriculture and put to other use unless the required conversion fees is paid to the Revenue Department and written permission is obtained from the concerned Collector. Further, the assessee had not effected division of land as such division required permission under A.P. (Telangana) Prevention of Fragmentation & Consideration of Holdings Act, 1956. The assessee neither paid any such conversion fee nor obtained permission from the District Collector nor it is the case of the AO that such conversion took place and permission was obtained by the assessee. The AO without placing any evidence on record, presumed that the assessee had converted the land into non-agriculture for sale purposes. The assessee although made an application earlier for layout sanction paid the amount of Rs. 11,212 on 27th Nov., 1984, after nine months from the date of sale agreement. Pahanies filed on record, testify the facts that land was never divided into plots and converted into non-agriculture until sale and sale agreement dt. 2nd April, 1984, also states the fact that land was not divided into plots. It is settled law that even temporary suspension of agricultural operations would not vitiate the character of land as agriculture or on character of the land. The decision of the Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim v. CIT (1993) 204 ITR 631 (SC) relied upon by the learned CIT(A) is not applicable to the facts of the case. The assessee carried on agricultural operations till the date of sale and had not given up the agricultural operations. As per the said decision of the Supreme Court the factual aspects and circumstances have to be considered while deciding the nature of land whether agriculture or not. In view of the evidence filed on record and having regard to the decision of the Gujarat High Court in the case of CIT v. Siddharth J. Desai (1983) 139 ITR 628 (Guj) and the decision of the Ahmedabad Bench of the Tribunal in the case of Smt. Shashiben v. WTO (1987) 27 TTJ (Ahd) 131 : (1986) 17 ITD 380 (Ahd) the land under consideration is required to be held as an agriculture land.
20. Further, the above lands are located at a distance more than 8 kms. from the municipal limits. In support of the fact that the lands are located beyond 8 kms. distance from the municipal limits, the assessee has filed two certificates (i) from the Asstt. Executive Engineer P.W. (R&B), Hyderabad, dt. 6th Oct., 1986, and the other from the Asstt. Engineer, Sub-Division-II, Construction Division-III, Municipal Corporation, Hyderabad, dt. 11th Aug., 1986. Above certificates establish the fact that the lands are situated beyond 8 kms. distance from the municipal limits. The AO without disputing the certificates arrived at a finding that the lands are situated within a distance of 8 kms. based on the measurement by means of scale in map published by the Urban Development authorities and the fact is also noted in para 11 of its order. Determining the distance based on scale measurement on map is highly illogical and such distance cannot be relied upon.
21. In the light of the above evidence, the learned counsel for the assessee has submitted that the lands being agricultural land, located at a distance beyond 8 kms. from the municipal limits, on transfer, tax is not liable on capital gains, as it does not constitute a capital asset within the meaning of Section 2(14)(iii)(b) of the Act. By considering from any point of view, the learned counsel for the assessee has submitted that capital gains on sale of the land are not taxable.
22. The learned Departmental Representative relied upon the order of the AO and drew our attention at p. 5 in para 3 of the order of the AO and at p. 5 in para 4.2 of the learned CIT(A) to establish the cost of acquisition of the land in dispute. The learned Departmental Representative also supported the observation regarding the character of the land as non-agricultural land and is meant for commercial exploitation as house plots. He finally argued that the AO has established that the assessee became the absolute owner of the land in dispute by making payment of premium of Rs. 1,272. This amount is, therefore, a cost of acquisition of the asset in the hands of the assessee.
23. As regards the cross-objection filed by the assessee, the learned Departmental Representative relied on the order passed by the learned CIT(A) on the issue in dispute in the cross-objection as well as by the AO and stated that there is no reason to allow the cross-objection of the assessee and it deserves to be dismissed and the appeal filed by the Revenue may be allowed.
24. We have heard the learned Departmental Representative and the authorised representative of the assessee. We have also perused the orders passed by the Revenue authorities as well as the relevant records available with us, The authorised representative of the assessee filed a paper book, containing pp. 1 to 72 in which he drew our attention about some notifications regarding the Inam lands in dispute and about some provisions of the relevant Act relating to the matter in dispute. We have also gone through the same.
25. After hearing both the parties and perusing the relevant provisions relating to the matter in dispute, we are of the considered opinion that the present appeal filed by the Revenue deserves to be dismissed, because the assessee in the disputed land was protected tenantat the relevant time in pursuant to the A.P. (Telangana) Tenancy and Agricultural Lands Act, 1950, the assessee was declared as a protected tenantand ownership rights to the extent of 60 per cent of share in the land by virtue of the above enactment without payment of any consideration and in respect of the remaining 40 per cent share in the land, the ownership rights were conferred upon him by virtue of A.P. (Telangana) Abolition of Inams Act, 1955, without payment of any consideration and the amount Rs. 1,272 paid to the R.D.O in 1983 in terms of Section 7(3) of the AP (Telangana) Abolition of Inams Act, 1955 was to register the assessee as an occupant of the Inam land as a Protected Tenant. Therefore, there is no cost of acquisition of the land in dispute and the question of capital gains does not arise for the purpose of income-tax. In support of this contention we would like to reproduce the A.P. (Telangana) Abolition of Inams Act, 1955 :
Section 2(1)(c) "Inam means land held under a gift or a grant made by the Nizam or by any Jagirdar, holder of a Samsthan or other competent grantor and continued or confirmed by virtue of a muntakhab or other title deed, with or without the condition of service and coupled with the remission of the whole or part of the land revenue thereon and entered as such in the village records and includes :
(i) arazi makhta, arazi agrahar and seri inam; and
(ii) lands held as inam by virtue of long possession and entered as inam in the village record :
Provided that in, respect of former Jagir areas, the expression inam shall not include such lands as have not been recognised as inams by Government after the abolition of the Jagirs.
Section 2(1)(i) 'Protected Tenant' means the Protected Tenant as defined in the A.P. (Telangana Area) Tenancy and Agricultural Lands Act, 1950.
Section 3 Abolition and vesting of inams and consequences thereof.--(1) Notwithstanding anything to the contrary contained in any usage, settlement, contract, grant, sanad, order or other instrument, Act, regulation, rules or order having the force of law and notwithstanding any judgment, decree or order of a civil, revenue or Atiyat Court, and w.e.f. the date of vesting, all inams to which this Act is made applicable under Sub-section (2) of Section 1 of this Act shall be deemed to have been abolished and shall vest in the State.
Section 4 Registration of inamdars as occupants.--(1) Every inamdar shall, w.e.f. the date of vesting, be entitled to be registered as an occupant of all inam lands other than;
Section 7 Registration of protected tenants as occupants.--(1) Every protected tenant shall, w.e.f. the date of vesting, be entitled to be registered as an occupant of such inam lands in his possession as may be left over after the allotment under Section 4, which were under his personal cultivation and which, together with any lands he separately owns and cultivates personally, are equal to four and a half times the 'family holding', Section 7(3) No protected tenant shall be entitled to be registered as an occupant under Sub-section (1) unless he pays to the Government as premium an amount equal to forty times the land revenue for dry land and thirteen times for wet land. The amount of premium shall be payable in not more than ten annual instalments along with the annual land revenue and in default of such payment shall be recoverable as arrears of land revenue due on the land in respect of which it is payable."
26. After perusing the above said provisions and the impugned order passed by the learned CIT(A) which is on the basis of the decision of the Hyderabad Bench of the Tribunal in ITA. Nos. 772 & 773/Hyd./1989, dt. 26th May, 1994, we are of the considered opinion that the Revenue authority has wrongly determined the capital gains on the sale of land in dispute without any basis, because there is no cost of acquisition of land in dispute. Hence, no interference is called for in the well reasoned order passed by the learned CIT(A). We, therefore, uphold the impugned order and dismiss the appeal filed by the Revenue.
27. As regards the cross-objection filed by the assessee, keeping in view the aforesaid order passed by the Hyderabad Bench of the Tribunal in ITA Nos. 772 & 773/Hyd/1998, the cross-objection has become infructuous. We, therefore, dismiss the cross-objection filed by the assessee as infructuous.