Income Tax Appellate Tribunal - Cochin
Sri.Jik George, Kozhencherry vs The Ito, Thiruvalla on 17 April, 2018
1
IN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN BENCH, COCHIN
BEFORE S/SHRI CHANDRA POOJARI, AM & GEORGE GEORGE K., JM
I.T.A. No. 82/Coch/2016
Assessment Year : 2010-11
Shri Jik George, Vs. The Income Tax Officer, Ward-2,
IC, Tropicana Zion Apartment, Thiruvalla
Railway Station P.O.,
Thiruvalla-689 111.
[PAN: ACJPG 7232K]
(Assessee-Appellant) (Revenue-Respondent)
Assessee by Shri K.I. Abraham, CA
Revenue by Shri A. Dhanaraj, Sr. DR
Date of hearing 16/04/2018
Date of pronouncement 17/04/2018
ORDER
Per CHANDRA POOJARI, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax(Appeals), Kottayam dated 05/01/2016 and pertains to the assessment year 2010-11.
2. Ground No. 2 is with regard to treatment of 24 cents of land in S.No. 332/8 of Kozhencherry Village sold by document No. 934/09 dated 21st October, 2009 as non agricultural land.
I.T.A. No.82/C/2016
3. The facts of the case are that the assessee is an individual, an employee of Central Bank of India. The assessee filed his return of income for the assessment year 2010-11 showing income from salary of Rs.2,60.546/- and interest from bank of Rs.1,11,383/- and long term capital loss of Rs.1,65,415/-. By sale document No.934/09 dated 26.09.2009, the assessee sold two plots of land:
(1) 25 cents land in S.No. 332/8 of Kozhencherry Village together with a residential house of built up area of 2000 sq.ft. described as item No. 1 in the schedule of properties. Consideration for land was Rs.62,00,000/- and consideration for building was Rs.5,00,000/- and (2) 25.94 cents land in S.No.332/85 of Kozhencherry Village, described as item No.2 in schedule of properties.
By the same document, a plot of land belonging to the assessee's wife was also sold as described as item No.3 in the schedule of properties. In the return of income filed, the assessee claimed property in item No. 1, excluding area occupied by residential building as agricultural land situated more than eight kilometer away from the boundary of the nearest municipality and hence not a capital asset. While completing the assessment, the assessing officer treated this land as non-agricultural land and the capital gain was subjected to tax on the following grounds:
1) In the document for sale it was stated that "item Number One Property is cultivated agricultural property". The statement was given only after describing the property in 'item number three".
2) On verification of the sale value of the properties as a whole, it is noticed that there is no difference in the sale value of the first property from the other properties.
2
I.T.A. No.82/C/2016
3) The land is transferred to a non agriculturist for non-agricultural purpose.
4) On inspecting the property, it is reported that there is no space in the property for cultivation. Major portion of the ground is filled with R.C.C Structure. No agricultural operations, like sowing of seeds, tillage, planting is since seven to eight years.
5) The land is mentioned as Purayidom and not "Nilam".
4. The Ld. AR submitted that on page 8 of the Sale deed, it was specifically stated that Item Number One Property is a cultivated agricultural dry land which was also used for residential purpose and Item Number Two and Three are now used for commercial purpose. According to the Ld. AR this statement is a part of the sale document . The Ld. AR submitted that the above statement was further supported by the report of the Inspector of Income-tax wherein it was stated that there are coconut trees, fruit trees like Rambuttan , Mango Trees, Arecanut trees, Banana plants etc. The Ld. AR submitted that the certificate of the Village Officer also stated that the land was used for agricultural purpose and there are old Coconut trees, Arecanut trees, Mango trees, Rambuttan trees, Coco trees and Plantain. According to the Ld. AR, from the personal inspection of the site and local enquiry it was revealed that it is an agricultural land. Therefore it was submitted that there is no valid reason for rejecting the statement in the sale deed. The second reason stated by the Income-tax Officer to treat the land in question as non agricultural is that there is no difference in the sale value of the 1st property from the other properties. According to the Ld. AR the property was sold to M/s. Muthoot Mini Hotels Private Ltd. It was submitted that the land was 3 I.T.A. No.82/C/2016 used by the parents of the assessee for agricultural purpose by carrying out basic agricultural operation by planting coconut trees, arecanut trees, fruit trees, plantain etc. It was submitted that on the demise of the parents, the assessee also used the land as agricultural land till the date of sale which is evidenced by the sale deed, report of the Income-tax Inspector and certificate issued by the Village Officer.
4.1 The Ld. AR relied on the judgment of the Gujarat High Court in 106 ITR 917 wherein it was held that "what has to be considered is what was the character of land at the time when the sale took place and not what the purchaser did or was supposed to do with the land. The fact that a particular plot of agricultural land has potential non-agricultural value fetching a high price, docs not mean that it is not an agricultural land- The land in question was agricultural land". 4.2 The Ld. AR submitted that another reason for treating the land as non- agricultural by the Income-tax Officer is that the land was sold to a non- agricultural for non-agricultural purpose. According to the Ld. AR the sale deed does not indicate any future use of the land and the land was used for agricultural purpose till the date of sale is not disputed. 4.3 The Ld. AR relied on the decision of the. ITAT,l Cochin Bench in the case of Deputy CIT Vs. Mrs. Thankamma Simon(2014) 31 ITR (Trib) 0595 wherein it was 4 I.T.A. No.82/C/2016 held that "when the land was maintained as agricultural land and coconut trees were cultivated on it, the land has to be treated as agricultural land and the mere fact that the purchaser developed the plot into residential flats cannot be a ground for treating the land as non agricultural land in the hands of the assessee". Further it was held as follows:
"When the report of the Inspector disclosed that the land was cultivated and the assessee also claimed that earlier the land was cultivated with plantain, tapioca and pineapple, there was no reason to reject the claim of the assessee. The land was classified as wetland in the records of the State Government. When the assessee was using the land for cultivation, it could not be a capital asset. The usage by the purchaser would not determine the character of the land in the hands of the assessee. The only requirement was that the land should be cultivated. The assessee used the land for cultivation and therefore, it could not be treated as capital asset within the meaning of section 2(14) of the Act".
4.4 The Ld. AR relied on the judgment of the Madras High Court in the case of M.S. Srinivasa Naicker And Others Vs. Income-tax Officer (2007)292 ITR 481 wherein it was held that "Admittedly, agricultural operations were carried on by the assessee till he sold the land. Fact that the purchaser intended to put the land in question to totally different use is not relevant for determining its character. Plea of the Revenue that the land in question had shed its agricultural character on sale and is capital asset cannot be accepted. Therefore, surplus on sale of the land was not assessable as capital gains".
4.5 The Ld. AR submitted that the fourth reason for treating the land as non- agricultural is that the Income-tax Officer states that on inspecting the property 5 I.T.A. No.82/C/2016 it is reported that there is no space in the property for cultivation. It was submitted that there is no such statement in the Inspection report. There is mention about some concrete structure in the report. It was submitted that the Income-tax Inspector inspected the property on 7/3/2013 i.e. after 3 years after the sale of property. The Ld. AR submitted that at that time, the property was used by Asianet Satellite Communications Net Work and they might have removed some trees and erected concrete structure for their use. It was submitted that even after 3 years of sale the report of the Inspector of Income- tax state that there were coconut trees, fruit trees, Plantain, Arecanut trees in the land. The Ld. AR submitted that the observation that no sowing of seeds, tillage or planting was seen is against fact. According to the Ld. AR presence of plantain indicates tilling and planting and in respect of other trees, yearly sowing or planting is not necessary.
4.6 The Ld. AR submitted that another reason stated for treating the land as non-agricultural is that the land is Purayidom and not 'Nilam'. According to the Ld. AR in revenue records Nlam is wet land and other lands are 'Purayidom' i.e. dry garden land and wet land only is agricultural land is contrary to facts. The Ld. AR submitted that it is true that the land sold was garden land. The Ld. AR relied on the judgment of the Madras High Court in the case of Commissioner of Income-tax vs. P.J. Thomas (211 ITR 897) which considered the question whether garden land is agricultural land in Kozhencherry Village. "With reference 6 I.T.A. No.82/C/2016 to the first question, we find that the conclusion arrived at by the Tribunal regarding the character of the land is factual. In arriving at the conclusion that the lands sold by the assessee were only agricultural lands, the Tribunal had taken into account not only the classification of the land in the revenue records as "garden land" but also the circumstances that the land was under the actual cultivation of the sister of the assessee and it had the benefit of channel irrigation and there were also 42 coconut trees thereon. The assessee land also is in Kozhencherry Village."
4.7 The Ld. AR submitted that the area planted with coconut trees, was considered as agricultural land by the ITAT, Cochin Bench in the case of Deputy CIT Vs. Smt. Thankamma Simon 31 ITR (Trib) 595. The Ld. AR relied on the decision of the Calcutta High Court in the case of Commissioner of Income-tax Vs. Sutton & Sons Ltd. 127 ITR 57 wherein it was held that "Agriculture is cultivation which is signified by the word "Cultura, that is, culture and "ager" means land. Thus culture of land means cultivation of land. If a land is used for that purpose, irrespective of what happens to the resultant of the produce , it would merit to be considered an agricultural land. The question whether the land in question is agricultural land or not is a question of fact to be determined by the cumulative effect of all the relevant factors. But the basic factor to be taken into consideration is whether the land is such where agricultural operations are carried on or are capable of being carried on. Undoubtedly, in the instant case, 7 I.T.A. No.82/C/2016 the land in question was used for agricultural purposes because there were agricultural operations, there was cultivation of the land and sowing of seeds. The purpose of this cultivation does not, in view of the definition of capital asset under the 1961 Act, in any way affect the question whether the land in question is agricultural land or not. The user or the potentiality of use is a relevant factor but the purpose for which such nature of activity is carried on is of no relevance"..
4.8 The Ld. AR submitted that none of the reason stated by the Income-tax Officer is a valid ground for rejecting the claim of the assessee that 23 cents of land described in Item Number One of the schedule of land sold is an agricultural land. According to the Ld. AR basic agricultural operations were carried out in the land in question and it was used as agricultural land till the date of sale. The Ld. AR submitted that the land is not in any town or any commercial or industrial area, but is in a Panchayat. Hence it is not a capital asset within the meaning of Sec. 2(14) of the Income-tax Act.
5. The Ld. DR submitted that the argument of the assessee that the land in question sold by the assessee, being situated in a Panchayat and not being included in section 2(14)(iii)(a)(b) of the Act as capital asset, is exempt from capital gains tax does not hold ground. Merely because the land is situated beyond municipal limits or in a panchayat does not by itself make the land 8 I.T.A. No.82/C/2016 agricultural. The Ld. DR submitted that exemption from capital asset is given only to agricultural land and no other forms of land including commercial properties. It was submitted that the assessee is a bank employee and not an agriculturist by profession and he has neither leased out the land nor has he claimed to have done any agricultural activity by himself and earned any income. It was submitted that no agricultural income was returned by the assessee from the plot of land characterized by him as agricultural land. According to the Ld. DR the area of land itself was only 24 cents and it is too small an area to carry out any basic agricultural operations. It was submitted that the land in question was not sold to an agriculturist but to a prominent businessman of the area and the physical characteristics and surrounding areas as recorded by the Inspector in his report also indicate that the land was neither under any agricultural activity nor as it sold for any such purpose. It was submitted that mere existence of a few members of coconut and other trees usually found around a house in Kerala cannot be a reason to characterize the land as agricultural and to have it exempted from the purview of taxation of capital gains. The Ld. AR submitted that the records of the Village Office indicate that the land fell under the category of "Purayidom" not for agricultural operations. It was submitted that had it been classified as 'Nilam', then there would have been merit in the claim of the assessee. Moreover, it was submitted that in Form 1B- Annexure, the land was classified as "Residential cum Commercial. Hence, the assessee is not liable for exemption from capital gains tax u/s. 2(14)(iii)(a) and (b) of the Act. 9
I.T.A. No.82/C/2016
6. We have heard the rival submissions and perused the record. The main crux of the argument of the Ld. AR is that the land in question is shown as agricultural land in revenue records and it was certified by the Village Officer, Kozhencherry vide certificate dated 19/10/2013 wherein it was stated that land bearing No. 332/8 of Kozhencherry Village in old Thandapper No. 6935 now under Thandapper No. 9767 in favour of Roy M. Mathew, s/o M. Mathew, Managing Director, Muthoot Mini Hotels Pvt. Ltd., Kozhencherry has been using for agricultural purposes and cultivates with 25 years old coconut trees, 20 year old Arecanut trees, 35 years old Mango trees, 30 year old jackfruit trees, 30 years old rambuttan trees, 20 years old cocoa tree and plantain. This was personally inspected by the Village Officer. As such it is an agricultural land. For this proposition, the Ld. AR relied on the following judgments:
1) CIT vs. Manilal Somnath (1977) 106 ITR 917 (Guj.)
2) DCIT vs. Smt. Thankamma Simon (2014) 31 ITR (Trib) 595 (Cochin)
3) M.S. Srinivasa Naicker vs. ITO (2007) 292 ITR 481 (Mad.)
4) CIT vs. Sutton & Sons Ltd. (1981) 127 ITR 57 (Cal.)
5) CIT vs. P.J. Thomas (1995) 211 ITR 897) (Mad.) 6.1 It is to be seen that the question, whether a particular land is agricultural or not is a basic question of fact as laid down by various High Courts, a series of tests are applied to decide, whether land is agricultural or not. It is also to be 10 I.T.A. No.82/C/2016 understood that all these decisions are in the nature of guidelines and have to be applied, depending upon the facts and circumstances of each case. As already stated, the core of the arguments of the assessee is in the background of existence of coconut trees, Arecanut trees, Mango trees, jackfruit trees, rambuttan trees, cocoa tree and plantain on the above land as certified by the Village Officer. But that does not conclusively prove the nature of the land sold by the assessee, as other evidences are shadowing the said presumption prima facie created by the entry made in the revenue records. The properties were infact inherited by the assessee. At the time of purchase of this land by the assessee's ancestors, it might have been agricultural land. However, at the time of sale of the said land, it cannot be said that it is agricultural land. As mentioned in the sale deed dated 26/09/2009, the property was mentioned as agricultural dry land which was also used for residential purposes. In other words, it is a residential property with few coconut trees, Arecanut trees, Mango trees, jackfruit trees, rambuttan trees, cocoa tree and plantain. Merely because in the residential property there exists few trees, it cannot be considered as an agricultural land. In the present case, the assessee along with his wife sold three adjoining properties as follows:
Sl. Name of the owner Extent Building Sale Value
No.
1. Shri Jik George 24 cents 1 67 lakhs
2. Shri Jik George 25 cents - 63 lakhs
3. Smt. Sheelu Jik George 10 cents - 20 lakhs
11
I.T.A. No.82/C/2016
6.2 Admittedly the assessee or anybody has not carried out any agricultural activity systematically in the said land. The past history alone is not the deciding factor. Once upon a time, the land might have been used for agricultural operations. In that way of speaking, almost all parts of Kozhencherry village might be agricultural land in good old past. Therefore, history is not the only test to be applied to decide the character of the land at the time of sale. A temporary stoppage of agricultural activities carried on by the assessee also should not go against the assessee. For one or other reason, the assessee may not be carrying on agricultural operations for one or two years, he might be carrying on agricultural operations for all the years in a consistent manner. In such cases, it is not possible to hold that non-carrying on agricultural operations for one or two years would permanently change the character of the land. Here the case is still different. Admittedly, it is a residential property having few coconut trees, Arecanut trees, Mango trees, jackfruit trees, rambuttan trees, cocoa tree and plantain and the assessee never carried on agricultural operations in a systematic manner so as to earn agricultural income. There was no iota of evidence to suggest that the assessee was engaged in agricultural activities in this land and also it is not the case of the assessee that there was intermittent stoppage of agricultural operations. It is a case of permanent stoppage of carrying on of agricultural operations in the impugned land. By virtue of existence of few coconut trees, Arecanut trees, Mango trees, jackfruit trees, 12 I.T.A. No.82/C/2016 rambuttan trees, cocoa tree and plantain in a residential property, the character of the property cannot be said to be an agricultural property. Further, the existence of these trees in a residential property cannot make the non agricultural land as agricultural land.
6.3 It is also seen that nobody will pay Rs.67 lakhs for an agricultural land of 24 cents. In the present case it shows if circumstances so permits the frivolousness of the argument usually made by the assessee that it has carried on agricultural activities by planting coconut trees, Arecanut trees, Mango trees, jackfruit trees, rambuttan trees, cocoa tree and plantain. In the context of planting these trees, it is necessary to see that agricultural operations carried on by the assessee must be an activity of economic gain. It must generate meaningful income to the person who is carrying on agricultural activities systematically. If the agricultural activities carried on by the assessee as a hobby or casual or incidental, then it is very difficult to hold that the land is agricultural in nature. India is pre-dominantly an agricultural country where agricultural activities are major part of the economic activities of our country. Therefore, agricultural activities carried on by the assessee must be meaningful and result-oriented towards generating reasonable income from such activities. As far as the present case is concerned, there is no such economic utilization of the impugned land for earning agricultural income by carrying on agricultural operations. In this case we have to refer to the argument of the assessee that 13 I.T.A. No.82/C/2016 the assessee has never reported any agricultural income in his returns for any assessment year and he is working in Central Bank of India. It is to be noted that co-incidentally, there are few coconut trees, Arecanut trees, Mango trees, jackfruit trees, rambuttan trees, cocoa tree and plantain. We cannot rule out that this was only a ploy carried out by the assessee to make an impression before the Income Tax authorities that the assessee's land is agricultural in nature so that the assessee can claim the benefit of agricultural land. The land was sold in view of high demand of land in that area and in view of hectic real estate development. Therefore, we are of the opinion that the existence of small number of above trees as certified by the Village Officer do not go to change the character of the land.
6.4 So in the facts and circumstances of the case, we find that the land was not actually or ordinarily used for agricultural operations on or around the relevant time of sale and there was no agricultural activities carried on by the assessee in the said land so as to hold it as agricultural land. Further, when the basic nature of the land is found to be of non agricultural land, the other argument of the assessee regarding the status of the property whether it is situated within the municipal limits or outside the municipal limits is irrelevant. A non agricultural land whether inside the municipal limits or outside the municipal limits or even in a remote village is a capital asset and transfer of the same for generating income is liable for capital gains tax. In the facts and 14 I.T.A. No.82/C/2016 circumstances of the case, we are inclined to uphold the order of the lower authorities and dismiss this ground of the assessee. Thus this ground of appeal of the assessee is dismissed.
7. The next ground for our consideration is that the Ld. CIT(A) erred in rejecting the appeal filed by the assessee without adjudicating the following grounds raised before him:
2. The learned Income-tax Officer has erred in not taking into consideration the indexed value of compound wall of Rs.26,333/- in calculating Capital Gain on sale of item No. 2 property, even though the said document clearly shows the existence of compound wall.
5. The learned Income-tax Officer has erred in estimating the market value of residential house in measuring 2000 sq. ft. at Rs.1,00,000/- and determining the indexed cost at Rs.4,75,187/- only as against the indexed cost of Rs.9,48,000/- claimed by the appellant.
8. These grounds were raised by the assessee before the CIT(A). However, the CIT(A) omitted to consider these grounds while adjudicating the appeal of the assessee. Hence, these two grounds are remitted to the file of the CIT(A) to give a finding on this issue. Thus Ground No. 2 and Ground No. 5 are partly allowed for statistical purposes.
15
I.T.A. No.82/C/2016
9. In the result, the appeal filed by the assessee is partly allowed for statistical purposes .
Order pronounced in the open Court on this 17th April, 2018.
sd/- sd/-
(GEORGE GEORGE K.) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Place:
Dated: 17th April, 2018
GJ
Copy to:
1. Shri Jik George, IC, Tropicana Zion Apartment, Railway Station P.O., Thiruvalla-689 111.
2. The Income Tax Officer, Ward-2, Thiruvalla
3. The Commissioner of Income-tax(Appeals), Kottayam.
4. The Pr. Commissioner of Income-tax, Kottayam.
5. D.R., I.T.A.T., Cochin Bench, Cochin.
6. Guard File.
By Order (ASSISTANT REGISTRAR) I.T.A.T., Cochin 16