Bombay High Court
Lilavati M. Amin vs Commissioner Of Income-Tax on 17 March, 1990
Equivalent citations: [1993]201ITR293(BOM)
Author: Sujata Manohar
Bench: Sujata V. Manohar
JUDGMENT Mrs. Sujata Manohar, J.
1. This is a reference under section 256(1) of the Income-tax Act, 1961. The assessment year involved is 1967-68 for which the previous year ended on March 31, 1967. The following question has been referred to us by the Income-tax Appellate Tribunal :
"Whether, on the facts and circumstances of the case, the land in question owned by the assessee is agricultural land and exempt from liability to pay capital gains tax ?"
2. The reference pertains to land situate in the City of Ahmedabad within the municipal limits. The land formed a part of a larger piece of land bearing Survey No. 3/1 admeasuring 1 acre 34 gunthas and Survey No. 1 admeasuring 1 acre in Changispur area of the City of Ahmedabad Municipal Corporation. The then owner of this land entered into an agreement to sell this land to one Ramanlal Lalbhai Seth and others. The purchasers under the contract represented themselves as well as several other persons including the assessee. All these persons purchased this land collectively. The actual conveyance was executed on January 10, 1945.
3. From March 15, 1945, the Elis Bridge Town Planning Scheme was extended to this land. The land was divided into several plots, which were then renumbered. The land was divided by the co-owners into 14 plots after making a provision for roads. The plots were also fenced. The plan for division of the land into plots was approved by the Ahmedabad Municipal Corporation on January 14, 1949. Out of 14 plots, plot No. 8 admeasuring 1,594 square yards came to the share of the assessee and was transferred to her name in the Government records on December 13, 1951.
4. By a sale deed, which has been registered on August 22, 1966, the assessee sold this plot No. 8 along with the wire fencing and along with the right to use the roads running between plots Nos. 9 and 7 as well as plot No. 11 and plot No. 12 and plot No. 6 and plot No. 7. to one Alarkha Gulamrasul Mansoori at the rate of Rs. 65 per square yard. The total sale consideration received by her was Rs. 1,03,610.
5. For the assessment year 1966-67, the assessee submitted a return of income in which the assessee disclosed in Part II of the return, inter alia, a sum of Rs. 99,800 as sale proceeds of agricultural property at Ahmedabad and stated that the amount was not taxable because the land was agricultural land and therefore any gains made on the sale of the land were not taxable to capital gains tax in view of the definition of "capital asset" as given in section 2, sub-section (14), of the Income-tax Act, 1961. The Income-tax Officer considered the transaction of sale and the capital gains arising therefrom as income arising from an adventure in the nature of trade. He brought the amount to tax as income from business. The Appellate Assistant Commissioner, however, held that the Income-tax Officer's finding was incorrect. He said that this income was not in connection with any adventure in the nature of trade nor was it capital gains subject to tax because it was in respect of agricultural land. Being aggrieved by the order of the Appellate Assistant Commissioner, the Revenue preferred an appeal before the Tribunal. The Tribunal upheld the contention of the Appellate Assistant Commissioner that this was not income arising by reason of adventure in the nature of trade. The Tribunal, however, held that the land could not be considered as agricultural land and hence the capital gains arising from the sale of this land were subject to income-tax. The Tribunal restored the matter to the Income-tax Officer to determine the fair market value of the property as on January 1, 1954, in order to compute the quantum of capital gains. From this decision of the Tribunal, the above question has been referred to us.
6. In the reference, on the application of the assessee which was granted, certain additional documents have been brought on record. These are extracts from the record of rights pertaining to this land certificate dated November 24, 1970, issued by the Mamlatdar at Ahmedabad and the relevant portion of the sale deed dated August 22, 1966, executed by the assessee in favour of Mansoori.
7. From the documents on record it seems that the land, right up to the date of its sale was shown in the record of rights as agricultural land. Accordingly, it was assessed to land revenue as agricultural land. 7 X 12 extracts in respect of this plot of land show in the cultivation column that, for the years 1960-61 to 1963-64, grass was growing on this land. Thereafter, from 1963-64 till 1966-67, the land was lying fallow. No application was ever made by the assessee to change the user of this land from agricultural to non-agricultural. The assessee has sold this plot of land to an individual and she has not sold it to a housing society or to any industry. The certificate of the Mamlatdar dated November 24, 1970, which is based on 7 X 12 extracts and the report made by the Circle Inspector dated November 6, 1970, states that this survey number has remained fallow from 1960-61 to 1967-68. During these years, no non-agricultural use is made of this survey number. There is some discrepancy between the record of rights and the certificate of the Mamlatdar as to the period during which the land remained fallow. But, in any case, both as per the record of rights and as per the Mamlatdar's certificate, from the year 1964-65 till the year 1967-68, the land was lying fallow. In the sale deed of August 22, 1966, also the land is described as agricultural land.
8. Are these facts sufficient to establish that the land is agricultural land ? Under section 2, sub-section (14), of the Income-tax Act, as in force at the relevant time, capital asset does not include agricultural land in India. The term "agricultural land" is not defined under the Income-tax Act. under section 2, sub-section (1), however, "agricultural income" is defined to mean "any rent or revenue derived from land which is situated in India and is used for agricultural purposes. Sub-clause (b) includes any income derived from such land by (i) agriculture; or (ii) the performance by a cultivator of any process ordinarily employed by a cultivator to render the produce raised or received by him fit to be taken to market; or (iii) the sale by a cultivator of the produce raised or received by him in respect of which no process has been performed other than a process of the nature described in paragraph (ii). We are not concerned with the other parts of this definition of "agricultural income". In the present case, we are not concerned with what constitutes "agricultural income". But, in order to decide whether an income is derived from land by agriculture, courts have gone into the question as to what constitutes "agriculture". These decisions are relevant in order to determine whether any land can be called "agricultural land" because, unless the land is used for agriculture, it cannot be designated as "agricultural land".
9. In the case of CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466, the Supreme Court considered at length the meaning of the term "agriculture" in connection with the definition of "agricultural income" under the Indian Income-tax Act, 1922. The Supreme Court said that "agriculture" in its primary sense denotes the cultivation of the field and is restricted to cultivation of the land in the strict sense of the term, meaning thereby tilling of the land, sowing of the seeds, planting and similar operations on the land as also other allied operations. It noted that, in the course of time, the word "agriculture" had acquired an extended meaning and, as per the definition of "agriculture" in various dictionaries (which were referred to by the Supreme Court in its judgment), the term "agriculture" in a wider sense has come to include horticulture, growing of fruits as also pasture land used for feeding and rearing of livestock, poultry farming and so on. It, however, observed that, in all cases, for a land to be used for agriculture, some expenditure of human skill and labour on the land or produce of the land was required. The Supreme court observed (at page 490) : "Where, however, the products of the land are of wild or spontaneous growth involving no expenditure of human labour and skill, there is unanimity of opinion that no agricultural operations were at all involved and there is no agricultural income. "The Supreme Court, however, made it clear that, in order that the land may be considered as used for agricultural purposes, one has to consider cultivation of land in its wider sense as comprising within its scope the basic as well as the subsequent operations regardless of the nature of the products raised on the land. These products may be grain or vegetables or fruits which are necessary for the sustenance of human beings including plantations and groves, or grass or pasture for consumption of beasts, or articles of luxury such as betel, coffee, tea, spices, tobacco etc. All these are products raised from the land and the term "agriculture" cannot be confined merely to the production of grain and food products for human beings and beasts.
10. In the case of CWT v. Officer-in-Charge (Court of Wards), Paigah [1976] 105 ITR 133, the Supreme Court referred to the definition of "agriculture" as considered in Raja Benoy Kumar Sahas Roy's case [1957] 32 ITR 466 (SC). The Supreme Court in this case was required to consider for the purpose of wealth-tax as to whether the property 'Begumpet Place' within the municipal limits of Hyderabad consisting of about 108 acres of land and also buildings enclosed in compound walls, constituted "agricultural land" within the meaning of clause (i) of section 2(e) of the Wealth-tax Act, 1957. The Supreme Court said that the determination of the character of the land, according to the purpose for which it is meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case. What is really required to be shown is its connection with an agricultural purpose and user and not the mere possibility of user of land by some possible future owner or possessor for an agricultural purpose. It is not the mere potentiality alone, which will affect its valuation as part of "asset", but its actual condition and intended user which has to be seen for the purposes of exemption from wealth-tax.
11. In the case of CWT v. H. V. Mungale [1984] 145 ITR 208, our High Court also considered the meaning of "agricultural land" under the Wealth-tax Act. In the case before the Bombay High Court, the land was entered in the revenue records as agricultural land and was assessed to land revenue. The land was used for agriculture till 1963. The court said that merely because the land remained fallow after 1963, it did not cease to be agricultural land. The court, therefore, held that the land was agricultural land within the meaning of section 2(e)(l)(i) on the valuation date.
12. The test, therefore, in order to decide whether the land is agricultural or not, depends upon the actual condition of the land at the date of valuation and its intended user-as laid down by the Supreme Court in CWT v. Officer-in-Charge (Court of Wards), Paigah [1976] 105 ITR 133 above.
13. We have, therefore, to consider in the present case as to what was the actual condition of the land at the time of sale and its intended user. In the present case, it is undoubtedly true that, in the revenue records, the land is classified as agricultural land and land revenue is paid on this land on that basis. There is, however, in the present case no positive evidence to show that the land was ever used for agricultural purpose. In the revenue records for the years 1960-61 to 1963-64, it is shown that grass was growing on the land. There is no positive evidence that there was actual cultivation of grass or that this was meant as pasture land for cattle. The Appellate Assistant Commissioner in his order said that there were actual agricultural operations on the land in the form of producing grass and a man was keeping cattle on this land and was using the grass growing for feeding the cattle. The Tribunal, however, said that, apart from the statement of the assessee, there is no material on record to show that grass was being grown on the land or that a "Rabari" (cattle farmer) was using the land for grazing his cattle. But the record of rights does indicate that grass was growing on this land from 1960-61 to 1963-64, it is shown that grass was growing on the land. There is no positive evidence that there was actual cultivation of grass or that this was meant as pasture land for cattle. The Appellate Assistant Commissioner in his order said that there were actual agricultural operations on the land in the form of producing grass and a man was keeping cattle on this land and was using the grass growing for feeding the cattle. The Tribunal, however, said that, apart from the statement of the assessee, there is no material on record to show that grass was being grown on the land or that a "Rabari" (cattle farmer) was using the land for grazing his cattle. But the record of rights does indicate that grass was growing on this land from 1960-61 to 1963-64. The Tribunal, however, was grass in pointing out that there was no material on record to indicate that grass was being grown by anybody; and more important still, this grass was being utilised for feeding cattle. In other words, there is no material on record to indicate that this land was used for pasturing cattle.
14. In these circumstances, even if we take the additional record which is produced by the assessee into consideration, it is difficult for us to come to a finding that the land had been used for any agricultural purpose. The land is undoubtedly shown in the record of rights as agricultural land. At the time of sale, it was assessed to land revenue on that basis. But as against this revenue record, there is absence of material indicating any agricultural use of this land. There are also several factors which point to a contrary conclusion. The land is within the municipal limits of Ahmedabad City. From March, 1945, the Town Planning Scheme has been extended to this land. As a result, the larger piece of land which was originally purchased by a number of persons including the assessee was divided into smaller plots. One such plot has been transferred to the name of the assessee. The area of the plot is only 1,590 square yards. This plot has been fenced. Under the Town Planning Scheme, roads have been developed for the purpose of giving access to these plots of land. Each plot is of less than 1 acre. There are no wells or canals on it. There are buildings around the plot. The price at which the plot has been sold in higher than the price which an agricultural land would fetch. There is no evidence that any agricultural operations have been carried on this land. When all these factors are taken into account to determine the character of the land at the date of its sale, in our view, the land must be considered as non-agricultural on the date of sale. There is also no evidence either way as to the intention either of the seller or of the buyer in purchasing this land. The land is sold by the assessee to an individual. In these circumstances, it is not possible to hold that the land is agricultural land.
15. The same test of actual condition of land and its intended user was applied by this High Court in the case of CIT v. Universal Cine Traders Pvt. Ltd. [1986] 161 ITR 696. The question of capital gains arising from the sale of land under the Income-tax Act was directly before the High Court in this case. The court was required to consider whether capital gains arising from the sale of land in question would be exempt from capital assets under section 2(14) of the Income-tax Act, 1961. The court, therefore, examined whether the land in question was agricultural. It said that as against the factor of payment of land revenue on the footing of agricultural land, there were several important factors leading to a contrary conclusion. It took into account the fact that no agricultural operations had been carried on on the land for several years. In fact, there was no positive evidence that any such operations were carried on on the land at any time. In fact, the only use to which the land was put was for shooting films. It could not, therefore, be regarded as having been used for an agricultural purpose. Secondly, the intention of the original purchaser in purchasing the land was to put it to non-agricultural use. This intention could not be carried out fully because the Collector refused to grant permission to use the land for a non-agricultural purpose. In these circumstance, the court held that the land was not agricultural land. Capital gains earned on the sale of it were liable to tax under section 45 of the Income-tax Act, 1961.
16. The other decisions to which our attention has been drawn are : CIT v. V. A. Trivedi [1988] 172 ITR 95 (Bom); Fazalbhoy Investment Co. P. Ltd. v. CIT [1989] 176 ITR 523 (Bom); CIT v. S. N. Desai [1989] 177 ITR 151 (Bom) as also Z. M. Merchant v. CIT [1989] 177 ITR 512 (Bom). Each has been decided on the basis of the facts in that case.
17. Mr. Dastur, learned counsel for the assessee, also relied upon a Departmental circular relating to assessment of such land, being Circular No. 2 (WT) of 1968, dated March 16, 1968, issued by the Central Board of Direct Taxes. The circular is to the effect that land in a Town Planning Scheme may be treated as agricultural land provided the following conditions are satisfied :
(i) land revenue/agricultural cess is paid;
(ii) agricultural operations have been carried on from year to year; and
(iii) it has not been put to non-agricultural use.
18. In the present case, while conditions (i) and (iii) are satisfied, condition No. (ii) is not satisfied because there is no material which would indicate that agricultural operations were carried on on this land from year to year. A reference to grass growing on the land in the record of rights for some years, in our view, is not sufficient to establish that the land was used as pasture land for cattle, or that agricultural operations were carried on on this land from year to year. The circular therefore does not help the assessee. As repeatedly stated by our High Court as well as the Supreme Court in a number of judgments, whether the land is agricultural land or not will depend on the facts of each case. Looking to the facts in the present case, in our view, the land cannot be considered as agricultural land on the date of the sale. Capital gains arising from the sale of such land will, therefore, not be excluded under section 2(14) of the Income-tax Act, 1961.
19. In the premises, the question referred to us is answered in the negative and in favour of the Revenue.
20. In the circumstances, there will be no order as to costs.