Income Tax Appellate Tribunal - Ahmedabad
Radheshyam P. Trivedi vs Income-Tax Officer on 31 July, 1986
Equivalent citations: [1986]19ITD354(AHD)
ORDER
K.R. Dixit, Judicial Member
1. There are three grounds in this appeal. They all relate to the sale of certain lands by the assessee and the levy of tax on the resulting capital gains.
2. The assessee sold land for total amount of Rs. 8,10,941. From this he claimed deduction of Rs. 53,542 for expenses on stamp duty and brokerage and Rs. 1,05,780 as development charges. Regarding the balance amount of Rs. 6,51.525 he claimed exemption of Rs. 4 lakhs as having been invested in National Rural Development Bonds and Rs. 2,51,525 exemption under Section 54B of the Income-tax Act, 1961 ('the Act') for acquiring another agricultural land. The ITO disallowed the claim in respect of development charges and the investment in another agricultural lands.
3. The Commissioner (Appeals) has confirmed the disallowance and that is why the assessee is in appeal.
4. The assessee sold the land at a price of Rs. 46 per sq.yd. and the aforesaid sum of Rs. 1,05,780 claimed as development charges was actually paid to one Durga Land Development Corporation ('Durga') with which the assessee had entered into an agreement to the effect that if Durga procured a buyer for a price higher than Rs. 40 per sq.yd., the excess amount over and above that rate would be payable to Durga. The land was actually sold at the price of Rs. 46 and so the excess amount of Rs. 6 per sq.yd. was paid to Durga. The agreement for payment to Durga was executed on the same date on which the banakhat with the purchaser was executed. Before the IAC, a claim for deduction of the aforesaid amount of Rs. 1,05,780 was also made as an overriding title but this was also negatived on the ground that if there would have been any overriding title it would have been mentioned in the banakhat. The IAC has also recorded that no services were rendered by Durga to the assessee and so this payment was only ex gratia. The Commissioner (Appeals) has confirmed the order of the ITO for the reasons given by the IAC in his directions.
5. Before us the assessee's claim was sought to be justified under Section 48 of the Act and also as an overriding title and diversion at source, He also pointed out that Durga had been assessed on the said amount of Rs. 1,05,780. The assessee's counsel argued that the expression expenditure in connection with the transfer in Clause (i) should be construed liberally, to include this higher amount which was paid to Durga for procuring a buyer to pay an amount up to Rs. 40 and above. In that connection he argued that the brokerage and advertisement expense was considered as cost of transfer. He also pointed out that the litigation expenses to get higher amount in land acquisition proceedings was considered deductible. He pointed out that in the agreement with Durga it was mentioned that the amount of Rs, 6 per sq.yd. was to be paid by way of commission/ wages/remuneration and emphasized the word 'remuneration' and that in the original Gujarati the word egsUrkjxq was used. He also mentioned that the development charges may consist of various items listed in the draft assessment order. On the alternative claim based on the diversion at source he relied upon the decision of the Andhra Pradesh High Court in the case of CIT v. M.D. Manohar Rao [1985] 155 ITR 696.
6. The learned departmental representative replied that in order to claim the benefit under Section 48 the assessee had to prove that the expenditure was incurred wholly and exclusively in connection with the transfer. He also mentioned that the agreement with the purchaser showed that the assessee was entitled to Rs. 46 per sq. yd. in April 1975. There was no evidence of any improvement to the land. The agreement with Durga entered on the same day only showed that Durga was entitled to Rs. 6 per sq.yd. and there was no mention therein regarding any service rendered by Durga. Regarding the argument of overriding title the learned departmental representative submitted that the clause in the agreement which enabled Durga to prevent the sale if the amount of Rs. 6 per sq. yd. was not paid, was only by way of security. It did not mean that there was an overriding title in favour of Durga. He also stated that the payment to Durga was to be made after the receipt and so it was application of income.
7. The first question is whether the assessee by agreeing to pay Rs. 6 per sq. yd. to Durga can be said to have incurred that liability for improving the land. The answer to this question is so obvious that no authorities are necessary for this purpose. The assessee by that agreement did not improve the land but only improved his prospects of getting a higher price. Clause (ii) is as follows:
The cost of acquisition of the capital asset and the cost of any improvement thereto.
From this it is clear that the Legislature wanted to give deduction of the cost price of the land and of the improvement on it. With regard to the learned counsel's submission that liberal interpretation should be made, it must be said that for every interpretation beyond the clear words of this clause there should be a clear authority. From one decision which can be considered as a liberal interpretation, a general method of liberal interpretation of that clause cannot be derived in view of the clear language of that clause. Regarding the submission that Durga was paid for the labour or work put in, there is nothing in the agreement of 1975 to support it. That agreement merely mentioned that Durga had managed to procure a buyer at the rate of Rs. 46 per sq.yd. For this work Durga had been paid brokerage. Nor can it be said to be expenditure in connection with the transfer under Clause (i) which would cover such expenditure as stamp duty, legal expenses, etc. That expenditure is connected with procuring a certain price and not with the transfer. It was an incentive for Durga but nothing beyond that.
8. We now come to the claim based on diversion by overriding title. Here the decision of the Andhra Pradesh High Court in the case of M.D. Manohar Rao (supra) relied upon by the assessee's counsel is on a different basis. In that case there was an agreement for the sale of land and thereafter that land was acquired under the Land Acquisition Act, 1894. The Court held that under that Act the purchaser was a person interested in the compensation and so he was entitled to the compensation amount over and above the sale price payable to the assessee under the agreement of sale. It was for that reason that the Court held that this was a case of diversion of the excess amount over the sale price. Although there was agreement between the assessee and the purchaser that the excess amount was to be paid to the purchaser, the basis thereof was the statutory position in the said Act. It was the Act which provided the basis for giving compensation and it was the Act which entitled the purchaser to the excess amount. Thus, the source of the payment and the source of entitlement of the purchaser were the same. That is why it was held to be diversion of income at source. In this case the source of the income to the assessee is the actual sale while the source of the entitlement of Durga is the agreement by the assessee to pay the excess amount over Rs. 40 per sq. yd. to Durga. Therefore, these two sources are different. Hence, this payment of Rs. 1,05,780 cannot be a diversion at source. In this regard the analogy drawn by the assessee's counsel between this case and the case before the Andhra Pradesh High Court on the basis of payment of excess amount is superficial and unjustified. In this connection the Supreme Court's observations in the case of CIT v. Sitaldas Tirathdas [1961] 41 ITR 367 may be referred to :
... Whereby the obligation income is diverted before it reaches the assessee, it is deductible ; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied. The first is a case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable.(p. 705) In this case the assessee by making payment to Durga at the rate of Rs. 6 per sq. yd. was merely discharging his obligation to Durga who fulfilled his desire to get a high price. Therefore, in our view the assessee's claim for deduction of the aforesaid amount of Rs. 1,05,780 fails. The fact that the amount has been assessed in the hands of Durga is not conclusive since it is application of income by the assessee.
9. The next question is regarding the claim under Section 54B. Here it is necessary that the land should have been 'used for agricultural purpose'. In this connection the distinction between this expression and the expression 'agricultural land' in Section 2(14) of the Act drawn by the assessee's counsel is quite valid. The Commissioner (Appeals) has failed to notice this distinction. The learned departmental representative has relied upon several decisions but they relate to the question whether the land is agricultural or not. We are, however, concerned with the use of the land and not its nature and so those decisions are not applicable. The assessee's counsel pointed out extracts from Form No. 12 to show that the land was used for agricultural purposes.
10. On the other hand, the learned departmental representative pointed out from those extracts that for the years 1976-77, 1977-78, 1978-79 and 1980-81 the land was fallow.
11. We find that for the years 1976-77, 1977-78 and 1978-79 only a small part of the land was fallow and for the year 1979-80 which is relevant for the assessment year before us no part of it was fallow. Further, even after the sale it was used for agricultural purpose. It is true that permission to use it for non-agricultural purpose was taken on 1-4-1980 but that does not mean that the land was not used for agricultural purpose for sometime thereafter. Therefore, we hold that the assessee is entitled to the benefit of Section 54B in respect of the amount of Rs. 2,51,525 invested in the purchase of agricultural lands.
12. The last ground is that 'the learned Commissioner (Appeals) ought to have held that the cost of acquisition of land came to Rs. 5 per sq. yd. and not Rs. 4 per sq. yd.' This ground is not pressed and is rejected.
13. In the result, the appeal is partly allowed.