Income Tax Appellate Tribunal - Bangalore
M.N. Manjunath, Ramanagar vs Assessee
ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 1
IN THE INCOME-TAX APPELLATE TRIBUNAL
BANGALORE BENCH 'A'
BEFORE SHRI. K. P. T. THANGAL, VICE PRESIDENT
AND
SHRI. A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER
1. I.T.A.No.1464/Bang/2008
(Assessment year : 2005-06)
2. I.T.A.No.1465/Bang/2008
(Assessment year : 2005-06) .
3. I.T.A.No.262/Bang/2009
(Assessment year : 2005-06)
1. Shri. M. N. Manjunath,
Manchanayakana Hally Post,
Bidadi Hobli, Hanumanthanagar,
Ramanagar Taluk
2. Shri. Dasappa,
Kempainapalya, Kenchugaranahalli,
Bidadi Hobli, Ramanagar Taluk
3. Shri. T. Suresh Gowda,
No.65, Vani Vilas Road,
Basavanagudi, Bangalore 560 004 .. Appellants
v.
1. Addl. Commissioner of Income-tax,
Range-2, Mysore
2. ACIT, Range-2, Mysore
3. ITO, Ward -3(4), Bangalore .. Respondents
4. I.T.A.No.177/Bang/2009
(Assessment year : 2005-06)
5. I.T.A.No.178/Bang/2009
(Assessment year : 2005-06)
6. I.T.A.No.305/Bang/2009
(Assessment year : 2005-06)
4. ACIT, Central Circle -1(2), Bangalore
5. ACIT, Central Circle -1(2), Bangalore
6. ITO, Ward -3(4), Bangalore .. Appellants
v.
4. Shri. T. Prasanna Gowda
5. Shri. M. Thimme Gowda,
6. Shri. T. Suresh Gowda,
No.65, Vani Vilas Road,
Basavanagudi, Bangalore 560 004 .. Respondents
ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 2
Assessees by : Shri. Devaraj
Revenue by : Smt. Preeti Garg and Smt. Jacinta Zinik Vashai
ORDER
PER K. P. T. THANGAL, VICE PRESIDENT :
These are five appeals by different assessees and one cross appeal by the revenue for the assessment year 2005-06. Since all these appeals are on identical facts, we dispose of these appeals by this consolidated order for the sake of convenience.
Common facts :
2. Brief facts of the case are as follows. There was a survey u/s.133A in the case of Shri. M. N. Manjunath, proprietor of P. M. Concrete Blocks at his business premises at No.119, Sheshagirihalli, Bidadi Hobli, Ramanagaram Taluk on 25.1.2006. During the course of survey action, certain copies of sale deeds and sale agreements in respect of purchase and sale of property effected by the assessee during the assessment year under consideration was found and they were impounded. There was no regular return for the year under consideration on the date of survey. On the basis of the evidence found, notice u/s.142(1) was issued on 2.2.2006 calling the assessee to file the return on or before 15.2.2006. The assessee filed a belated return on 13.3.2006 declaring income of Rs.7,67,570/-. There was no offer of any income on account of sale of property or investment in property. To the return the assessee appended a note to the effect that ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 3 the assessee sold agricultural land at 77/74, Sheshagiri halli, Bidadi Hobli, Ramanagaram taluk, during April, 2004 for a total consideration of Rs.90,00,000/-. However, it was stated that it does not result in any capital gain since the land sold was agricultural land situated beyond 8 kms from corporation limit of Bangalore city as defined in section 2(14)(iii)(a) of the Act. This land measuring 9 acres was converted for non-agricultural purpose. It was further stated that though the land was converted, agricultural activities were carried on up to the date of sale. Therefore, what was sold was agricultural land within the meaning of section 2(14) and there was no capital gains tax arising out of such sales within the meaning of the definition of the term "capital asset". Since the assessee did not offer any capital gain and claimed that it was agricultural land though it was converted into non-agricultural residential purpose, the case was selected for scrutiny and notice u/s.143(2) was issued on 26.6.2006.
3. The Assessing Officer formed the opinion that the land sold was non-agricultural as evidenced by document impounded during the course of survey and also on the basis of the registered agreement deed dt.25.2.2004. The assessee sold the immovable property held by him as GPA holder to the extent of 9 acres to M/s. Tibetan Childrens' Village having its office at Dharmsala, Centt - 176216, Kangra ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 4 District, Himachal Pradesh, for a consideration of Rs.90 lakhs. The Assessing Officer noticed as per the GPA, the above land was already converted from agricultural land to non-agricultural residential purpose during the financial year 2005-06 itself by the original owners of the land. All the three original owners made an application before the Assistant Commissioner, Ramanagara Sub-division for conversion of the land and the same was approved by orders, dt.15.5.1995 in respect of two owners and order dt.20.12.1995 in respect of the one owner. Subsequent to the conversion of the land, the original owners had formed residential layouts with the approval of the Manchanayakanahalli Grama Panchayat. The relevant portion of the GPAs detailing the ownership of the property, conversion of the land from agricultural to non-agricultural residential purpose are briefly set out by the Assessing Officer in his order at pages 5 to 7. In the GPA executed by Narasimhaiah and Chikkaputtaiah, they stated that they are the owners of the land admeasuring 3 acres each and further stated that they had applied for conversion of the land from agricultural to non-agricultural residential purpose and the Assistant Commissioner, Ramanagara Sub-division, vide his order dt.15.5.95 had granted their request and now the land had been converted to non-agricultural purpose and subsequent to the conversion, they stated they had formed residential layout obtaining from ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 5 Manchanayakanahalli Grama Panchayat and since they were unable to manage the affairs in respect of the sale of the sites, they thought it fit, necessary and convenient to appoint the assessee as their GPA holder to sell their sites. They permitted the assessee to negotiate on terms for and enter upon and conclude any contract, agreement or sale in respect of the scheduled property either in full or in part to any purchaser or purchasers of his choice and gave the assessee an absolute discretion to cancel or repudiate the contracts etc., Further, they authorized the assessee to receive any earnest money or to receive advance and also the full amount and then to sign and execute and deliver the conveyances in favour of the said purchaser/purchasers or their nominee or nominees or assignee or assignees. With respect to two other properties also similar GPA was executed by Shashidhar Reddy and Rachaiah in favour of the assessee almost on the same lines.
4. From the above the Assessing Officer came to the conclusion that the original owners already formed the layout subsequent to the conversion of the agricultural land for non-agricultural residential purpose and the GPA was only for specific and exclusive purpose of making arrangement to sell the sites as mentioned above. The Assessing Officer held that the character of the land has already been ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 6 changed. He further noted as per the conversion orders issued by the Assistant Commissioner, Ramanagara Sub Division, the land so converted were required to be put to the use for the purpose intended (non-agricultural) within two years from the date of the conversion order, otherwise the order was to be treated as null and void automatically. Particularly clause (10) of the conversion order specified as under :
"10. The conversion of land hitherto shall be utilized for the proposed purpose within two years otherwise the land conversion shall be considered as cancelled."
Any lapse on the part of the applicant to fulfill the conditions was a punishable offence u/s.96 of the Karnataka Land Revenue Act, 1964, as per clause 11 of the conversion order. As per clause (12), the land revenue for the converted land would be levied from the date of the order. The Assessing Officer held after the lapse of two years the assessee has not approached the Assistant Commissioner, Ramanagara Sub-Division with fresh application for conversion of the land and it is proved that the land has been put to use for the purpose for which it was converted within the period of two years. He further held this fact has been confirmed by the recital of the agreement entered into between the assessee and the Tibetan Childrens' Village wherein it is clearly stated that the land was ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 7 converted in 1995-96 by virtue of the orders passed by the Assistant Commissioner, Ramanagara Sub-Division. Thereafter the schedule of the properties are detailed out at pages 9 and 10 of the assessment order. This property was purchased by Tibetan Childrens' Village through their representative Mr. Tenzin Chodak Gyalpo. A statement u/s.131 was recorded from him.
5. It was always the case of the assessee that though the land was converted into non-agricultural purpose, the assessee was continuing the agricultural activities and there were standing crops on the land purchased by the Tibetan Childrens' Village and, therefore, in the light of clause (10) of the conversion order, i.e., if the land is not used for the intended purpose within two years from the date of the order, it will be deemed to be restored to the original position, is an established fact. So as to verify the same, in the statement, Mr. Tenzin Chodak Gyalpo, was specifically asked whether at the time of purchase, any amount was paid towards the standing crops. The answer was, he did not remember the position, but he confirmed that Tibetan Childrens' Village had not paid any amount towards the standing crops at the time of sale. Thus the Assessing Officer concluded that since the land was already converted and put to use for formation of layout by the original owners, way back in the financial ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 8 year 1995-96 itself, the assessee's version that the land was being used for non-agricultural purpose, was not justified. The Assessing Officer summoned the Assistant Commissioner, Ramanagara Sub- Division, calling for the original filed in connection with the conversion of the land, for inspection. A sworn statement was recorded u/s.131 on 5.12.2007. The conversion of the land into non- agricultural purpose was confirmed again by the Assistant Commissioner. He was again asked about the specific guidelines given by the State Government while giving permission for use of agricultural land to non-agricultural use. Answering to this question, he stated that there are about 12 conditions stipulated in the conversion order issued to the assessee. He was again asked if the land is not used for the specific non-agricultural residential purposes, what would be the repercussion. Answering to this, he stated that if the land is not used for the specific purpose for which it has been converted within the stipulated period of two years from the order, conversion order is deemed to be cancelled.
6. In the instant case, Assessing Officer noticed from the case records produced by the Assistant Commissioner, the original owners submitted layout plan as approved by the local Grama Panchayat authorities. Subsequent to receipt of the conversion order, the ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 9 original owners gave an undertaking before the Assistant Commissioner that the land would be used for the purpose for which it was converted, i.e., non-agricultural residential purpose, that too within a period of two years. From the above facts, the Assessing Officer came to the conclusion that the land has lost its original agricultural nature and characteristics in April 1999 by virtue of the conversion order. These facts were put before the assessee's representative asking why the land under reference should not be considered as capital asset within the meaning of section 2(14) of the IT Act. The simple reply of the assessee's representative was that though the lands were converted, agricultural activities were going on.
7. The Assessing Officer held though the asessee's representative was harping that the agricultural activities were carried on till the date of the sale, even after availing more than 20 months since the survey action u/s.133A, the assessee could not adduce any evidence in support of the above claim. The Assessing Officer further noted as per the local enquiries conducted by the Income-tax Inspector ('ITI' for short), the land under reference and also the adjacent lands were not put to use for agricultural purposes for quite a long time as formation of layouts were under progress. He held there is no ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 10 strength in the assessee's argument that he had carried on agricultural activities till the date of the sale.
8. Coming to the next point how the lands were utilized subsequent to transfer, he noted that the purchaser Tibetan Childrens' Village, bought the land only for the purpose of non-agricultural activities. The land was to be utilized for construction of schools for Tibetans. Tibetan Childrens' Village had purchased about 160 acres of land located in Sheshagirihalli and Manchanayakanahalli, which includes the land admeasuring 13 acres and 9 guntas held in the name of the assessee, sold for Rs.14 acres during the financial year 2004-
05. He further noted the statement recorded from the buyer, Mr. Tenzin Chodak Gyalpo. In his statement, Mr. Tenzen stated that the intention was to construct building for education like nursing college, degree colleges etc., They were also taking steps to get recognition as a deemed university. The Assessing Officer found that the lands were acquired for the purpose of running educational institutions such as nursing college, degree college and to get recognition as a deemed university which he held proves that the land was purely non- agricultural at the time of purchase by that party. Consequentially, the assessee after conversion sold it as a non-agricultural land. He further noted that the land purchased by the Tibetan Childrens' ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 11 Village had constructed buildings for office premises and construction of hotel building was going on and one building for college building was also under progress. This was found out by the ITI and report by his report dt.28.12.2007 which also established the status of the land at the relevant point of time.
9. Coming to the land surrounded by or adjacent to the land in dispute whether it is urban or rural, the Assessing Officer made the following observations. He found that the land stood adjacent to well-known high traffic density state highway running between Bangalore and Mysore at about 18 kms away from the corporation limits of Bangalore and is also located in the thickly populated industrial belt. It was a fast growing industrial area and hence, the assessee could fetch good price of Rs. 10 lakhs only because of this. The Assessing Officer further found from the enquiry conducted with the land revenue authorities that the jurisdiction for collection of land taxes in respect of agricultural land lies with the Revenue Officer headed by Tahsildar. In other words, collection of taxes from sites and lands converted for non-agricultural purpose lies with the Grama Panchayat. In the instant case taxes were being collected by the Grama Panchayat instead of Tahsildar, which strengthens the departmental stand that the land was non-agricultural. On the basis of ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 12 the above facts, he concluded that the lands under reference were non-agricultural and there cannot be exemption u/s.2(14) from the capital gains tax. These points were considered by the various decisions of the Apex court and High Courts and he, particularly relied on the following decisions :
i) CIT v. Gemini Pictures P. Ltd., (1996) 220 ITR 43 (SC);
ii) Mahaveer Enterprises v. Union of India (2000) 224 ITR 789 (Raj);
iii) CWT v. Officer-in-charge (Court of Wards) Paigah (1976) 105 ITR 133 (SC);
iv) G. M. Omer Khan v. Addl. CIT (1992) 196 ITR 269 (SC);
v) Smt. Sarifabibi Mohmed Brahim v. CIT (1993) 204 ITR 631(SC) On the basis of the above, the assessee was liable to pay capital gains tax. Aggrieved by the above assessee approached the first appellate authority.
10. The Commissioner of Income-tax (Appeals) vide page 3 of his order records the report of the Assessing Officer, dt.13.6.2008 which is as under :
"None of the above factual position as contented by the LAO is disputed. However, what is disputed is his conclusion to contend that there was no agricultural cultivation carried out by the appellant. Though the lands were converted for non-agricultural purposes, it was never ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 13 put to use for such converted purposes. This is evident from the governmental records, in the form of RTC, which consistently showed that there was a cultivation of ragi".
The Commissioner of Income-tax (Appeals) further held that the assessee was not disputing the above facts which was clear from the assessee's rejoinder dt.21.7.08, but only objection of the assessee was that though the assessee's land was converted for non-agricultural purpose, but it was never put to use for such converted purpose which was evident from the Government record in the form of RTC.
11. The assessee's contention was not accepted by the Commissioner of Income-tax (Appeals). He held the criteria for determination whether the land is agricultural or non-agricultural has been amplified in the treatise of Sampath Iyengar which briefly he records vide page 4 and 5 of his order. Accordingly, two tests were adumbrated in different cases, viz., (i) whether the price of land is such that no bonafide agriculturist would purchase the same at such price for genuine agricultural operations, and (ii) whether the price is such at which no prudent owner would agree to sell it even if he worked out the price on the capitalization method, taking into account its optimum yield in most favourable circumstances. In short, the price which the land fetches is an important criteria. The other ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 14 criteria, is whether the land has been assessed to land revenue or not; whether agricultural activities are carried on or not; whether the land is capable of agricultural operations or not; the intention of the owner for which he is retaining the land and such intention not being fluctuating or ambulatory; character of adjoining land; description of the land in the official records, etc.,
12. The Commissioner of Income-tax (Appeals) held that RTC record alone is not the determinative factor of the nature of the land. In the instant case, the land revenue records show that the land was converted and also the tax records show that non-agricultural tax was paid on the land during the relevant period. The Commissioner of Income-tax (Appeals) further held the most of the facts found by the Assessing Officer support the view that the land is non-agricultural. Even if there were some agricultural operations, at best, he held it was a stop-gap arrangement which would not entitle the land for exemption u/s.2(14) of the Act. Aggrieved by the above order, assessee is in appeal before the Tribunal.
13. Except for variations in the dates of issuance of notice by the revenue authorities, area of the land sold, schedule of the property, ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 15 date of conversion of the land etc., the facts are identical in the case of Dasappa in ITA.1465/Bang/2008.
14. The learned representative for the assessee produced a written submission in the case of Dasappa. Briefly his submissions are as under. The assessee sold 13 acres, 29 guntas lands in sy. No.77, Seshagirihalli, Bidadi Hobli on 7.4.2004 for a total consideration of Rs.137.25 lakhs to M/s. Tibetan Childrens' Village. These lands were bought by the assessee in the year 1995. These lands converted to non-agricultural and residential purposes on 29.4.1999 except an area of 31 guntas which was converted on 10.5.2004. The assessee claimed that the lands were sold as agricultural lands and, therefore, the assessee was not exigible to tax within the definition of capital asset as given in section 2(14) of the IT Act. However, the Assessing Officer did not accept the same, for the reason that the lands were not agricultural lands since they were converted for non-agricultural and residential purpose. According to the assessee, Assessing Officer did not consider the following important factors. Though the conversions were done, it was mandatory that the purpose for which it was converted should be implemented within two years from the date of conversion order or else the conversion order becomes null and void. This fact is highlighted by the statement of the State Government ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 16 Officer, Shri. Karigowda, Assistant Commissioner, Ramanagar Sub Division, who appeared on 5.12.2007 and stated that if the land is not used for the specific purpose within two years of conversion, the conversion shall be deemed to have been cancelled. It is further submitted the lands were not put to residential use. This is evidenced by the photographs taken by the ITI at the time of enquiry on 27.12.07 i.e., almost three years and eight months after the sale. The photographs are found at pages 67 to 69 of the department's paper book. There is no sign of residential sites having been formed. The schedule to the sale deed reproduced at pages 4 to 6 of the assessment i.e., pages 1 to 43 of the department's paper book shows that the lands are sold in the measuring form of acres and guntas and not as residential sites. The report of ITI indicates that there is no sign of layout or residential sites having been formed. These factors indicate the lands were not put to use for the purpose for which it was converted. Thus, the lands to the extent of 12 acres and 38 guntas had lost their non-agricultural status as on 28.4.01 i.e., on the completion of two years from the date of conversion order.
15. Coming to the objection of the Departmental authorities that the lands were not used for agricultural activities, the assessee's representative submitted the facts in brief as follows. The lands were ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 17 used for agricultural activities. This is evident by documents like RTC extracts produced before the Assessing Officer and the appellate authorities. This fact of producing RTC is evidenced by the observation of the Assessing Officer at page 18 para 7 and page 24, para 2 of the departmental paper book and also at page 14 last paragraph and page 15 of the Commissioner of Income-tax (Appeals)'s order in the departmental paper book. It is further admitted that the assessees did not maintain any records for the agricultural activities. The assessee's representative submitted RTC is an official record to show that the nature of usage of land situated in the specific revenue jurisdiction of the State Government and this land has thus been shown to have been used for agricultural cultivation. The assessee's representative brought our attention to the paper book dt.27.1.1999, particularly page 4 which is the conversion order issued by the Assistant Commissioner, Ramanagara Sub- Division. He particularly brought our attention to the condition no.5 which stipulates as under :
"5. In terms of Bangalore Mahanagar Regional Development Authority Order No.APABT/14-95-96 dt.22.7.85 prior permission be obtained before commencement of work"
ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 18 and submitted such permission has never been sought and obtained before commencement of the work. He further brought our attention to clause (10) which reads as under :
"It may be construed that this converted land must be utilized for the purpose permission has been accorded within two years."
It is an admitted position that no further action was taken by obtaining permission from the BMRDA or the assessee had complied with condition no.10. No activity was undertaken within the two years. In other words the conversion has been now been deemed to have been cancelled. The assessee's representative further submitted the assessee never paid any amount as tax to the Grama Panchayat. The learned representative for the assessee brought our attention to paper book pages 10 to 13 i.e., RTC form no.16 in which the land revenue authorities have mentioned that the assessee had carried on certain agricultural activities. We find at page 12 the land used was to the extent of 1.38 acres and the crop grown was Ragi. So also at page 14 it is mentioned that the extent of land utilized was two acres for growing Ragi. He reiterated the submission made before the Departmental authorities that RTC form is a record issued by the Government which consistently show that there were agricultural activities going on.
ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 19
16. He further submitted inviting our attention to written submission made before the Commissioner of Income-tax(A) on 21.7.2008 particularly at page 4, briefly which is as under. It was submitted that the LAO has concluded that the sites were formed for formation of layout. This conclusion is wrong for the reason if the sites had been formed by the original owners as held by the LAO at page 4 of the assessment order, the RTC records proves it wrong. Secondly, it was further submitted a very strong denial is also in the form of photographs taken by the ITI wherein one could see the construction of buildings by the Tibetan childrens' Village, but there is no evidence of any sites having been formed in the area. The photographs were taken as late as December, 2007, i.e., almost 3 and half years after the sale of land, and thirdly if the sites had been formed what could have been sold to the Tibetan Childrens' Village should have been in terms of these sites and not the land as a whole without any mention of the site plans. The schedule to the sale deed indicates that the land is sold as a consolidated survey number and only a reference to the conversion order has been made. The above facts clearly proves that the sites were never formed either by the original owners or by the assessee. The assessee owned 12 acres and 29 guntas at Sheshagirihalli. Of these 11 acres and 38 guntas were converted into non-agricultural purpose under conversion order ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 20 dt.29.4.1999, while 31 guntas were converted under conversion order dt.10.5.2004. The assessee transferred the lands on 7.4.2004 and the conversion of 31 guntas was done on 10.5.2004, after the transfer of lands. At least 31 guntas remained agricultural land which is also a fact not taken note off by the Assessing Officer. Within two years of the conversion, the land should have been utilized for the purpose it was intended ie., non-agricultural purpose. It was never acted upon. The assessee utilized the land for agricultural purpose only. On the premises of the above facts the assessee's representative submitted the decision of the Hon'ble Supreme Court in the case of CWT v. Officer- in-charge (Court of Wards) Paigah (1976) 105 ITR 133 is clearly in assessee's favour. The Hon'ble Supreme Court laid down the broad parameters as to what could be considered as agricultural land. He submitted originally the land was an agricultural land. The original owners made a request for conversion in order to fetch good price. But the converted land was never used for the intended purpose as per the conversion order which stipulates that if the land is not put to use for the intended purpose within two years from the date of conversion, then the land reverts to the original status, which was confirmed by the Assistant Commissioner, Ramanagara Sub Division in his sworn statement. In other words, the land on the date of sale was retaining the character of agricultural land. The finding of the ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 21 Assessing Officer that the RTC entries are not relevant is an archaic finding. Inviting our attention to the written submission before the CIT(A), dt.20.10.08, the assessee's representative submitted since the land which was converted to non-agricultural purposes was not put to use for the converted purpose, it retains its original status which is also evident from the statement given by the Assistant Commissioner, Ramanagara Sub Division. The finding of the Assessing Officer that the data was filled year after year without verification is incorrect. The reality is that RTCs are not entered mechanically. The Village Accountants are expected to do the entries by actually carrying out the inspection in the land coming within the jurisdiction during the year. The entries in the RTC are made thereafter. The Commissioner of Income-tax(A) is wrong in confirming the finding of the Assessing Officer to the contrary. It is a government record and it cannot be simply brushed aside. It may be true in stating "...the entries in the RTC alone shall not be considered as conclusive evidence to prove the case of the assessee." In the instant case, the Assessing Officer has not rebutted that assessee carried out the cultivation activities. In the absence of any rebuttal, the recordings in the RTC and also the facts of cultivation, coupled with the lapse of two years brings back the character of agricultural land. He further objected to the Assessing Officer's finding that the assessee had not declared ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 22 agricultural income for the purpose of income-tax. The assessee did not disclose any income because he was having no income from agricultural operations. The character of the adjoining land is not the sole criteria. The assessee fetched high price because of the location of the land. In view of the above, the high price fetched by the assessee cannot be a point against the assessee and it does not change the character of land as such. The learned representative for the assessee has produced a copy of the certificate issued by the Village Accountant, Ramanagara Taluk, dt.22.6.2006, to the effect that the assessee had grown ragi, vegetables and horsegram in sy.no.77:43, 77:44 and 77:43 in a total area of 9 acres during the years 2002-03, 2003-04 and 2004-05.
17. The assessee's representative produced a letter from Tibetan Childrens' Village authorities dt.1.3.2005 that was addressed to Manchanayakanahalli Grama Panchayat to the effect that the Tibetan Childrens' Village authorities purchased land to the extent of 143 acres and 27 guntas and the land was converted for residential purpose between 1996 and 1999 in respect of different parts of the land. Though the conversion order was issued for the purpose of forming residential layout, no such activity was formed by the original owners. The land also remained on the records of the land ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 23 revenue authorities as same. Further the Tibetan Childrens' Village authorities informed that they are intending to carry out educational activity. Therefore, they requested for renewal of the conversion order, because there was no application for renewal from the assessee, after the lapse of two years and therefore, the Tibetan Childrens' Village authorities intimated the concerned authorities that that they are willing to pay the requisite charges and conversion fees for renewal of the orders. Bringing our attention to the agreement for sale, the assessee's representative submitted the sale deed was dated 26.9.1995, therefore, he submitted that from the certificate issued by the competent authority on 22.6.2006, it is clear that the land remained as agricultural land and the conversion took place only after the sale took place. The assessee purchased the land from Smt. Narasamma by deed dt.26.9.95. It is almost similar in the case of other assessee where they have purchased the land from various persons. Though the land was purchased on the basis of the certificate issued by the Village Accountant of Ramanagara taluk dt.22.6.2006 mentioned above, the assessee's representative submitted it is clear that the assessee was cultivating ragi, vegetables and horsegram on the land. Merely because the assessee did not disclose any income, it does not mean that the agricultural activities were not undertaken as claimed by the revenue authorities. ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 24
18. Inviting our attention to the report of the Income-tax Inspector, Ward-3, Mandya, dt.27.12.2007, the representative submitted it is clear that even after conversion of the agricultural land into non- agricultural, assessee has not made any tax payment to Tahsildar or to the Grama Panchayat which is also clear from the letter hereinabove mentioned dt.1.3.2005.
19. Inviting our attention to the written submission at page 44, the learned representative submitted the conclusion of the Assessing Officer that the assessee had not carried out any agricultural activity is wrong. While answering to question no.8, the assessee stated that the assessee carried out agricultural activities. Since the assessee has not made any application, it shows that even after the conversion, the assessee had put the land for agricultural purpose and not for non- agricultural and residential purpose. In the hands of the assessee, the character remains as agricultural land. It is an admitted position that the assessee has not paid any conversion charges as the assessee was using the land for agricultural purpose. The conversion by making the penalty is a subsequent event that is subsequent to the sale of land by the assessee to Tibetan Childrens' Village.
ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 25
20. In the premises of the above facts, the assessee's representative again brought our attention to the decision of the Gujarat high Court decision in the case of Dr. Motibhai D. Patel v. Commissioner of Income-tax (1981) 127 ITR 671 wherein the Hon'ble High Court held that the permission to convert the land to non-agricultural use does not make the land non-agricultural. If the permission is not obtained before the date of sale and fetching of high price is not the potential criteria. He further submitted the smallness of the income derived from sale of agricultural land is also not relevant.
21. The learned counsel further relied on the decision of the Gujarat High Court in the case of Gordhanbhai Kahandas Dalwadi v. Commissioner of Income-tax (1981) 127 ITR 664 and submitted the mere obtaining of conversion order of agricultural land into non- agricultural land is not sufficient to hold that the nature of the agricultural land has been changed. In this case, assessee's representative submitted the assessee obtained permission from the land revenue authorities u/s.63 of the Bombay Tenancy and agricultural Lands Act for putting the land into non-agricultural activities. The land was situated near Amul dairy, Ganesh Dugghalaya and Charotar Tobacco Company. Charotar Iron Factory, Krishna Iron Factory and other industrial concerns were also in the ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 26 vicinity of the land. In the Land Records, no entry of change i.e., from agricultural to non-agricultural was made and, therefore, looking to the claim of the assessee that assessee was doing agricultural activity though on a small scale, the Hon'ble High Court held that the nature of the land had not been changed.
22. The learned representative for the assessee submitted the decision relied by the revenue authorities in the case of Commissioner of Income-tax v. Gemini Pictures Circuit P. Ltd., (1996) 220 ITR 43 is distinguishable on facts as the Hon'ble Supreme Court had referred to Gordhanbhai Kahandas Dalwadi 127 ITR 664 (supra). In the instant case, non-agricultural taxes were collected from the Tibetan Children's Village and it was not the assessee who had paid conversion charges and penalty for failure for using the land for certified purpose. He again invited our attention to the decision of the Supreme Court in Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy (1957) 33 ITR 466.
23. He further submitted that in the case of Prasanna Gowda, one of the assessee's before us, the Commissioner of Income-tax(A) has decided the issue in assessee's favour on facts and particularly assessee's representative relied on the decision at page 5 para 4 of his ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 27 order. In this case, according to the Commissioner of Income-tax(A), the Assessing Officer considered the land as capital asset because of the orders of conversion of land for non-agricultural purpose. However, the Commissioner of Income-tax(A) took note of clause (10) of the conversion order which shows that if the land remains unutilized for the purpose for which it was converted within two years from the date of the order, then the order becomes unoperational. He held the conversion order was not valid on the date of sale, except a portion of the land in the case of the assessee i.e., Prasanna Gowda in ITA.177/Bang/2009. Thus, he held that it is a strong presumption that the status of the land was an urban land. Therefore, in the case of Prasanna Gowda, the Commissioner of Income-tax(A) allowed the appeal partly and in the case of Timme Gowda in ITA 178/Bang/2009, the appeal was allowed. The learned representative thus submitted the facts are identical in all the cases.
24. The main issue involved in this case is whether the land sold by the assessee was agricultural in nature or not. The DR submitted that in order to decide whether a piece of land is agricultural in character or it is a capital asset is essentially a question of fact to be determined by the cumulative effect of all the relevant factors. The burden of establishing the above fact by cogent and reliable evidence that the ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 28 land was used as agricultural land or was capable of being used so at the relevant point of the time is on the assessee. If the assessee carried out agricultural activities on the date of the transfer and if it is proved then it is agricultural land. Otherwise it is a capital asset within the meaning of section 2(14) of the Income tax Act, 1961. Even if at this stage the assessee, the learned DR submitted, is not in a position to prove that he has not carried out any agricultural activity, then it is a conclusive proof that the assessee had not carried out any agricultural activity till the date of transfer. Even after presuming but not admitting that the assessee had carried out agricultural activities, the land has to be treated as non-agricultural in character.
25. The assessee has not produced any evidence in support of the claim that he had carried out agricultural activity on the land under reference till the date of the transfer except furnishing of RTC obtained from village accountant. Though this is prima facie evidence of agricultural holdings in the name of the assessee, but this is not sufficient evidence to prove the case of the assessee that he carried out agricultural activities on the land. The assessee has not adduced any evidence in support of the claim of acticultural activities other than RTC. The assessee was questioned and requested to produce the details of the crops cultivated, yield per acre, expenses ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 29 incurred towards agricultural operations and the gross amount of sale proceeds on account of the sale of agricultural produce. There was no evidence forthcoming from the assessee. On the other hand, the department sufficiently established that no agricultural activities were carried out, as under :
a) Conversion of land from agricultural purposes to non-agricultural purposes, i.e., development of residential layout had taken place in the Financial Year 1995-96, i.e., 10 years before the date of transfer of the land;
b) The assessee has acquired the land in the Financial Year 1995-96 by way of execution of GPA by the original landlords in favour of the assessee for the purpose of sale of sites formed by the landlord. As such, the fact has been clearly highlighted in the registered GPA without any ambiguity;
c) Subsequent to conversion of the land for non- agricultural purposes, the taxes were collected by the Grama Panchayat instead of Tahashildar, indicating that no agricultural activities were conducted subsequent to conversion of the land;
d) At the time of transfer of the land, no standing crop or trace of agricultural activities were found as evidenced from the contents and description of the property recorded in the registered sale deed ;
e) The property under reference is located in the thickly populated industrial belt/suburb of Bangalore which ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 30 is about 18 kms away from the corporation limits of Bangalore;
f) The price fetched i.e., Rs.10 lakhs per acre cannot be construed as high on account of the land being a non- agricultural since the actual cost of acquisition of the lands was Rs.3 lakhs i.e., about Rs.33,000/- per acre in the year 1995-96;
g) The lands under reference were actually acquired by the buyer for the purpose of construction of educational institutions such as nursing college, degree colleges etc., and to get recognition in the long run as deemed university. This once again goes to prove that the land was purely non-agricultural in nature at the time of sale;
h) The assessee had not shown any income from the so-claimed agricultural activity in the return filed by the assessee for Assessment Years 1995-96 to 2004-05. This was sufficient proof to show that no income from agricultural activities was derived by the assessee. In the premises of the above facts, the learned DR relying on the following judgements submitted the appeal by the assessee is liable to be dismissed and the appeal by the revenue is to be allowed :
i) Merchant (ZM) v. Commissioner of Income-tax - 177 ITR 512(Bom);
ii) Fazalbhoy Investment Co. P. Ltd., v. Commissioner of Income-tax - 176 ITR 523 (Bom);
iii) Commissioner of Income-tax v. Shiv Chand Satnam Paul
- 231 ITR 663 (P&H) ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 31
26. Replying to the above, the learned DR submitted the assessee made an application to the land revenue authorities to get the records changed from agricultural to non-agricultural lands. Subsequently, the buyer, the Tibetan Children's Village, paid non-agricultural tax on the land and also the penalty to get the land converted from agricultural to non-agricultural. It shows that the intention of the assessee at the time of selling was that the land should be treated as non-agricultural land, and it is clear from the sale deed. The learned DR submitted the RTC certificate was not in existence and even if it existed, it is not the final word. He invited our attention to para 3.10 of the Commissioner of Income-tax(A)'s order in the case of Suresh Gowda dt.10.2.2009. The facts in para 3.10 narrated therein as under:
3.10 The Hon'ble ITAT, Bangalore in the case of Shri. M. V. Chandrashekar v. DCIT, Circle -2(1),Bangalore (ITA No.663/Bang/2002 dt.6.12.2002), which was also affirmed by the Hon'ble High Court of Karnataka, decided a similar issue vide ITA No.209/2003 dt.2.1.2008. The facts of the case are that the assessee is an agriculturist who purchased agricultural land of about 41 acres between 1977 and 1992 at Goolimangala village, Sarjapur Hobli, Anekal Taluk and the entire land purchased was agricultural land, which was not a converted land. The land so purchased is also in green belt area and even the assessee never applied for conversion of land use. During the previous year relevant to the Assessment Year ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 32 1998-99 the assessee sold about 35 acres of land and the remaining was still with the assessee. Some plantation was made and was converted into smaller size of plots and after incurring development expenses, sold the same to different parties. The Assessing Officer held that the transaction carried by the assessee indicate an intention to earn profit which is in the nature of trade. The view of the Assessing Officer was upheld by the Commissioner of Income-tax(A). In appeal before the ITAT, the assessee raised two grounds.
i) That the surplus on sale of agricultural land would be subject to tax only under the head income from capital gains and not as income from business;
ii) That, as the lands sold being beyond the notified area, the surplus of sale would not be liable to tax under the head income from capital gains.
The Hon'ble ITAT after considering the facts of the case, held that the transaction should be regarded in the nature of capital assets and not a business transaction.
27. The learned DR submitted the facts are identical in the instant case as well. The DR submitted from the date of conversion, the agricultural character of the land has been lost. In the agreement, sale deed etc., it is referred as the sale of non-agricultural land. The learned DR submitted Section 80 the Karnataka Land Reforms Act, 1961, bars transfer of agricultural land to a non-agriculturist. If it is ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 33 violated then u/s.84 of the above Act, uncultivated land may be required to be cultivated at the instance of the government and in the instant case of the assessees, no such steps have been taken by the government which goes to prove that the land was utilized for the converted purpose. In the instant case of the assessee, the purchaser is undisputedly the Tibetan Children's Village and the purchase was for starting educational institutions and in the long run to get recognition as a deemed university.
28. The learned DR further submitted in the case reported in Musthafa Ummer and Another v. Appropriate Authority and Others (2002) 254 ITR 135, the Hon'ble Kerala High Court held that the land ceases to be agricultural land when the assessee agrees to sell the same for use as house sites. The Hon'ble Supreme Court in the case of Sarifabibi Mohmed Ibrahim and Others v. Commissioner of Income-tax (1993) 204 ITR 631, held all these factors must be cumulatively considered. So also in the case of Gemini Pictures (supra).
29. The learned DR invited our attention to page 10 and 11 of the assessee's paper book dt.20.2.95 i.e., order of the Addl.Deputy ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 34 Commissioner, Ramanagaram, particularly the conditions 8 and 9 which read as under :
(8) It may be construed that this converted land must be utilized for the purpose permission has been accorded within two years.
(9) This order is issued as per the written agreement of the individual dt.27.7.94 and the individual is covered by agreement terms. In the event if the individual violates the terms of agreement the government is at liberty to initiate action against such individual as per the provisions of the land revenue act clause 84 of 1996.
30. In reply to the above, assessee's representative briefly submitted as under. The assessee is an agriculturist. Inviting our attention to the decision of the Commissioner of Income-tax(A) in the case of Thimme Gowda (ITA.178/B/09), he submitted the undisputed facts are that the lands are situated beyond 8 kms from the corporation limits. The lands were converted to commercial/residential usage in 1999, but was never put to use for the converted purpose. The land was used for agricultural cultivation. He further submitted that for the land to be treated as agricultural land, carrying on of agricultural activities is of paramount importance. Phani extracts was produced before the Assessing Officer to prove the ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 35 facts that the lands were under cultivation of the crop ragi. Evidence to the effect that the lands were used for agricultural purpose even on the date of sale, in the form of record of rights and Phani extracts (RTC) were issued by the Village Accountant in Form no.2 of the Karnataka Land Reforms Rules, 1966. This is a statutory record maintained by the government as required under the Karnataka Land Reforms Rules, 1966. Though request for conversion was made and order was passed, two years were lapsed and the agricultural activities were continuing. Even the Assessing Officer apparently has not disputed the facts. In the case of T. Prasanna Gowda, 2 acres of land was converted during 1995, 53 acres of land was converted in 1999 and 10 acres; 10 guntas was converted in 2004. Still the facts remain that the lands were never used for non-agricultural purpose. No sites were formed nor any houses were built. The Assessing Officer deputed the Inspector for enquiry only in 2007. Even at this time, there was no layout formed except the building constructed by the Tibetan Children's Village for their office. The land was agreed to be sold to Tibetan Children's Village in the early part of 2003-04. If the land was to be registered in their name, as per the rules the land need to be converted to non-agricultural purpose without which it could not have been registered in their name. The conversion charges were thus paid by them after registration. But what was being held by the ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 36 assessee as on the date of agreement was agricultural land. He further submitted that revenue records were not changed at the time of sale of the land by assessee. This fact is evident from the fact that the land is mentioned by survey number and not the khata number, in the sale deed. The survey numbers is used for agricultural land and revenue khata number is used for non-agricultural land. On the sale date, lands are identified as 'survey numbers' and not 'khata numbers' which leads to an irresistible conclusion that in government records the land remained as agricultural land. The decision of the Supreme Court in the case of Officer-in-charge, Court of Wards (105 ITR 133) (supra) laid down parameters as to what is to be considered as agricultural land. The assessee does not fall into the broad parameters in view of the fact that though the land was converted in 1995, 1999 it was not put to use for the intended purpose within the specified period of two years from the date of conversion. Agricultural land regained the character of agricultural land in 1997, 2001 i.e., after two years. The taxes paid in respect of the land was levied as agricultural land and not as non-agricultural land. This is evidenced by phani extracts in respect of these lands which show that the taxes were levied as agricultural land and not as non-agricultural land. Evidence to this effect was also produced.
ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 37
31. The learned representative for the assessee again brought our attention to the application made by the Tibetan Childrens' Village, dt.1.3.2005 in which it was stated that assessee had not made renewal application after the lapse of time and Tibetan Childrens' Village. It was they who not only paid the penalty but also got the land converted by making renewal application. If the land had been used for intended purpose, there was no need of renewal application and payment of penalty.
32. Inviting our attention to page 5 of the paper book dt.27.1.09, the assessee's representative submitted the report of the Horticultural, Agricultural and Sericultural Departments of the Government of Karnataka is found in the assessment record of Thimme Gowda for earlier years which bears the evidence for existence of grown crops like coconut, sapota and mango which are permanently yielding year after year. The income has been increasing as against reduced expenditure towards maintenance year after year. The income was divided between the land owners ie., Thimme Gowda and Suresh Gowda for the Assessment Year 2005-06, which was estimated at Rs.53 lakhs. During the assessment proceedings for Assessment Year 2004-05, after examining the circumstances pertaining to agricultural income, the ACIT estimated the income of the assessee group at ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 38 Rs.56 lakhs. Condition of cultivation remained almost the same with regard to yield and production and rates. Hence, the assessee's representative submitted appeal by the assessee is liable to be allowed.
33. Hearing the rival submissions, going through order of revenue authorities and relevant materials before us and the cases cited by both the parties, we are of the view that the appeal by all the assessees are to be allowed. The revenue mainly relies among others on Sections 80 and 84 of the Karnataka Land Reforms Act, 1961 to show that agricultural land cannot be transferred to a non-agriculturist. The above section read as under :
Section 80 : Transfer to non-agriculturists barred. -(1)(a). No sale (including sales in execution of a decree of a civil court or for recovery of arrears of land revenue or for sums recoverable as arrears of land revenue), gift or exchange or lease of any land or interest therein, or
(b) no mortgage of any land or interest therein, in which the possession of the mortgaged property is delivered to the mortgagee, shall be lawful in favour of a person. -
(i) who is not an agriculturist, or;
(ii) ..............
By virtue of amendment brought to the section w.e.f.25.11.1980 the word 'valid' was changed to 'lawful'. In other words, prior to the ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 39 amendment, the transfer to non-agriculturist was not valid, whereas after the amendment, the transfer is valid, but sale is unlawful. The intended purpose of the above change is that the transfer is no longer invalid but the person who violates the sale has to face the consequence since it is unlawful. Again, coming to section 84, it deals with the provisions for cultivation of uncultivated lands, which reads as under :
Section 84: Uncultivated land may be required to be cultivated.-- Where the Assistant Commissioner having jurisdiction over any area in which any land is situated is satisfied that any land within such area has remained uncultivated for a period of not less than two consecutive years without sufficient cause, he may be notice served upon the land owner and any other person entitled to be or in possession of the land require such persons to cultivate the land within one year from the date of service of such notice.
Reading of the section makes it clear that if the Assistant Commissioner having jurisdiction over the area is satisfied that the land within his jurisdictional domain remained uncultivated for a period of not less than two consecutive years without sufficient cause, he may issue a notice to the land owner or to any other person entitled to be in possession of the land requiring them to cultivate the land within one year from the date of service of the notice. The case of the ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 40 Department is that no such notice was issued by the competent authority. Therefore, the land was utilized for non-agricultural purpose as intended. We are unable to agree with the above contention. Perhaps this would indicate the other way. If the land has not been used within two years of issue of conversion order, notice should have been issued to utilize the land for agricultural purpose within one year. Since the notice has not been issued, the claim of the assessee that the assessee was doing agricultural activity, prima facie to be accepted, in the light of the papers produced before us. The assessee has produced a letter from the Tibetan Childrens' Village to the Secretary, Manchanayakana Halli Grama Panchayati, to the effect that they had purchased 143 acres and 27 guntas of land in Seshagirihalli, the land was converted for residential purpose between 1996-1999. It further states that "though the conversion certificate was issued for the purpose of formation of residential layout, no such layout was formed by our earlier owners, i.e., the 'assessee' ". It is further stated in the letter that the land remained on the records of Land Revenue authorities. In the absence of renewal application from earlier owners, they requested to renew the conversion granted and further submitted that they are willing to pay the requisite charges and fees for renewal of the conversion orders which impliedly proves the assessees stand that no taxes had been paid towards non-agricultural ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 41 land taxes. There is a specific averment also in the written submission of the assessee (Dasappa), which is also applicable to other cases herein as well) that there was no change in the land records at the time of sale of land and the survey number used in the sale deeds were old survey numbers and not the Khata numbers. Another evidence produced by the assessee to show that the agricultural character of the land had not changed is the certificate issued by the village accountant in all the above assessees' case to the effect that crops were grown in the lands in question during the years under appeal. This will lead to no different conclusion either in assessee's favour or of revenue. This alone cannot lead to a conclusion in favour of neither of the parties.
The next objection of the revenue is that the certificates issued by the village accountant were randomly issued without any physical verification by him. This general and evasive argument of the DR cannot be accepted, in the absence of any proof that the officer in-
charge has not verified the area physically. The material available in the hands of the assessee is enough to show the nature of the land prima facie at the time of the sale and not the use by the subsequent purchaser. In the instant case, the above facts prima facie leads to the conclusion that the character of the agricultural land has not been lost.
It is true the assessee had no case that the entire land was used for agricultural activities. But the RTC certificates produced by the ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 42 assessee also indicates that the lands were used for agricultural activities.
However, we find that there is a specific finding by the Commissioner of Income-tax(A) in the case of Prasanna Gowda in ITA No.177/Bang/09 that 10 acres and 10 guntas of land sold on 2.6.06 converted on 2.4.06 was capital asset and he further directed to compute long -term capital gains on this sale. In the absence of any evidence to the contrary, we confirm the order of the Commissioner of Income-tax(A) in ITA.177/Bang/2009 to this extent on facts.
34. Coming to the decision relied by the DR reported in Merchant (ZM) v. Commissioner of Income-tax - 177 ITR 512(Bom), wherein there was a specific finding by the Tribunal that there was no agricultural activity undertaken by the assessee. In this case, the said City Survey Officer said that the land bearing survey No.1393, 1394 and 1395 was agricultural land. The land fell within the town planning scheme and was also within the municipal limits of Surat city. There was a specific finding by the Tribunal that the City Survey Officer's report was inaccurate when it said that the land bearing the three survey numbers was agricultural land, but not used for agricultural purposes because it was common ground and there was a structure of their own which had been rented out to two tenants. It ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 43 was in these circumstances, the Tribunal held that the land revenue assessment was not determinative of the issue. In these circumstances, the Tribunal held "In the absence of any evidence to show that the land was put to any agricultural use at any point of time prior to the date of sale apart from the activity of growing vegetables and grains for the domestic use of the assessee, it could not be treated as agricultural land. Coming to the instant case of the assessees i.e., Thimmegowda and Suresh gowda for the Assessment Year 2005-06, agricultural income was estimated at Rs.53 lakhs and for Assessment Year 2004-05, ACIT estimated the income of the assessee group at Rs.56 lakhs. Hence, on facts this decision is distinguishable.
35. Coming to the decision relied upon by the DR in the case of Fazalbhoy Investment Co. P. Ltd., v. Commissioner of Income-tax - 176 ITR 523 (Bom), in this case land was acquired by the Government in the year 1951. A certificate was issued to the effect that the land was used for growing paddy during the Assessment Year 1941-42 and 1942-43. The Tribunal held in the absence of any evidence to establish that the land was agricultural, the Hon'ble High Court held that this is a reasonable conclusion because paddy had been grown on the land said land in 1941-42 and 1942-43 and because it ignored the Tahsildar's certificate which indicated that the said land ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 44 was agricultural land till the year 1966. Coming to the instant case, assessee's claim that the assessee was using the land for agricultural purposes is without any evidence as to how much the assessee earned from agricultural activity and related expenses. However, assessee has produced certificate from the competent authorities that during these years assessee had used the land for growing ragi. In the absence of contrary evidence, the evidence adduced by the assessee coupled with the Village Accountant's certificate, we have to come to a reasonable presumption that the assessee's assertion that the land was used for some kind of agricultural activity, is to be accepted.
36. Coming to the decision relied by the learned DR in the case of Commissioner of Income-tax v. Shiv Chand Satnam Paul - 231 ITR 663 (P&H), this was a case wherein the Tribunal held that the land was located within the municipal limits and does not fall within the ambit of capital asset. The Hon'ble High Court held that the Tribunal become coming to such a conclusion should have satisfied itself regarding the remaining two ingredients mentioned in Section 2(14)(iii)(a) regarding population not less than 10,000 according to the last preceding census and the land was situated in any area within such distance, not being more than eight kilometres from the local ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 45 limits. Therefore, this decision relied by the DR is not applicable to the instant case.
37. Coming to the decision reported in CWT v. Officer-in-charge (Court of Wards), Paigah, the issue involved was as to what could mean or what could be treated as agricultural land within the meaning of section 2(e)(i) of the Wealth-tax Act, 1957. The Hon'ble High Court held, the land could be treated as agricultural land for the following reasons :
(i) the area was 108 acres abutting the Hussain Sagar tank;
(ii) the land had two wells in it;
(iii) it was capable of being used for agricultural purposes;
(iv) it had not been put to any use which could change the character of the land by making it unfit for immediate cultivation; and
(v) it was classified and assessed to land revenue as "agricultural land"
under the A. P. Land Revenue Act.
On further appeal the Hon'ble Supreme Court held the first four features considered by the High Court and based upon absence of any user for non-agricultural purposes were inconclusive, and the fifth feature alone provided some evidence of the character of the land from the point of view of its purpose. The property was classified in the revenue records as agricultural land was not conclusive and such ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 46 entries could raise only a rebuttable presumption. The Hon'ble Supreme Court further held, the character of the land and the purpose for which it meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case. What really is to be shown is the 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 which will only affect its valuation as part of "assets", but its actual condition and intender user which has to be seen for purposes of exemption from Wealth-tax. If there is neither anything in its condition, nor anything in the evidence to indicate the intention of its owners or possessors so as to connect it with an agricultural purpose, the land could not be "agricultural land" for the purposes of earning an exemption under the Act. Entries in revenue records are, however, good prima facie evidence, the Hon'ble Supreme Court held.
Coming to the instant case of the assessee, it is not disputed that in the revenue records, the entry is not changed, it continues as agricultural land. According to the revenue, the intention and purpose of the sale is for the use of Tibetan Childrens' Village for the setting up of educational institutions and other related purposes. According to the assessee, the land in his hands had retained the agricultural ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 47 character till the date of sale, for the reason that the assessee was doing agricultural activity. We have hereinabove in para 34 mentioned that the department had estimated the agricultural income at Rs.53 lakhs for 2004-05 and estimated the agricultural income of the group at Rs.56 lakhs. Therefore, it is difficult to come to the conclusion that in the hands of the assessee, the character of the land had changed. Merely because the original owners had made application to change the character of the land from agricultural to non-agricultural and certificate was issued to that effect. Even for the revenue, there is no case that the land has been used for the intended purpose.
38. In the decision of Gujarat High Court relied upon by the DR, in the case of Gordhanbhai Kahandas Dalwadi v. Commissioner of Income-tax (1981) 127 ITR 664, the Hon'ble High Court held that the potential non-agricultural use does not alter the character of the land. This was a case wherein the land was purchased in 1954 and subsequently sold in 1969. The entries in the revenue records showed that the land was agricultural continued to be so. The land revenue paid was for agricultural use, but permission for non-agricultural use was obtained but not before the date of the sale. In these circumstances, the Hon'ble High Court upheld the presumption that ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 48 the land is agricultural. The Hon'ble High Court came to the above conclusion inspite of the fact that this land was situated in an industrially developed area where the potential use of the land as non- agricultural land was very high but the Hon'ble High Court held that the use of the land as non-agricultural is totally immaterial. Entries in the record of rights are good prima facie evidence regarding land being agricultural and if the presumption raised either from actual user of the land or from entries in revenue records is to be rebutted, there must be material on the record to rebut the presumption. The approach of the fact-finding authorities, namely, the income-tax authorities and the Tribunal, should be to consider the question from the point of view of presumption arising from entries in the record of rights or actual user of the land and then consider whether that presumption is dislodged by other factors in the case. While coming to the above conclusion, the Hon'ble High Court considered the following facts. The presumption for non-agricultural use was obtained by the assessee before the sale of the land. Coming to the facts in the instant case, the previous owner made an application for conversion, obtained the permission, but with the condition that the land should be used for the intended purpose within two years, otherwise the original character of the land, i.e., agricultural nature, would be restored. Then the assessee or the subsequent purchased has ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 49 to pay penalty and make a further application to obtain permission to revive the land for intended purpose. The assessee has not done this even according to the revenue. This was done by the subsequent purchaser i.e., Tibetan Childrens' Village, which compels to conclude that what the assessee held at the time of sale was agricultural land. It is true the facts is on border line, but the evidence produced before us in the form of RTC showing agricultural income etc., is in assessee's favour.
Secondly, the Hon'ble Gujarat High Court considered the land revenue paid was for agricultural use of the land. In the instant case of the assessee also what was paid by the assessee was agricultural revenue. The non-agricultural revenue was paid by the subsequent purchaser after making an application for the second time to revive the nature of the land, which is evidenced by the letter dt.1.3.2005 which was written to the Secretary, Manchanayakanahally Gram Panchayat by the Tibetan Childrens' Village. In the case decided by the Hon'ble High Court, it was held that the correct test to be applied was whether on the date of sale of the land whether the land was agricultural or non-agricultural and not the intended purpose and how the purchaser was going to use the land.
ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 50
39. Now, we proceed to deal with the various appeals separately, as under.
ITA.1464/Bang/2008 - By the assessee, Shri. M. N. Manjunath - Assessment Year.2005-06 :
40. In the first effective ground, the assessee's grievance is that the revenue authorities were not justified in bringing to tax the income on sale of land as non-agricultural.
We have elaborately dealt with this issue and given our findings in the paragraphs 33 to 38 above and we have concluded that the land was agricultural on the date of sale and hence, this ground by the assessee is allowed.
41. Coming to the second effective ground, the assessee's representative submitted he is under instruction not to press this ground. Hence, this ground is dismissed as not pressed.
42. Coming to effective ground no.3, which is against bringing to tax an amount of Rs.1,14,000/- as lease rentals when in fact the assessee was not entitled for the same nor had received any amount. This issue has been dealt with by the Commissioner of Income-tax(A) at page 6, by observing as under :
ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 51 "The next issue raised is that the Assessing Officer has erred in bringing to tax an amount of Rs.1,14,000/- as lease rentals as the appellant was not entitled for the same nor received any amount (Ground no.4). It is seen from the assessment order that the addition has been made because as per lease agreement, the appellant was to get Rs.1,14,1000/- as lease income. The appellant's contention is that the lease agreement was not acted upon and therefore, he is not entitled to any income. However, the appellant has led no evidence in support of his contention. He has also not given any confirmation from the other party of the agreement that the lease agreement was not acted upon. Therefore, the action of the Assessing Officer in bringing to tax the above sum on the basis of lease agreement signed by both the parties has to be confirmed. This ground of appeal is, therefore, dismissed."
The ground was dismissed by the Commissioner of Income-tax(A) as no evidence was produced before him, in support of the contention that in spite of the entitlement as per the agreement the assessee did not receive it. Suffice to say that this finding of the Commissioner of Income-tax(A) has not been rebutted before us and no evidence has been produced before us to show that the finding of the Commissioner of Income-tax(A) is wrong. Appeal by the assessee on this ground fails and it is dismissed.
ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 52
43. In the result, appeal by the assessee is allowed in part. ITA.1465/Bang/2008 - By the assessee, Shri. Dasappa - Assessment Year.2005-06 :
44. The first ground is general in nature and does not call for any specific dealing as such.
45. Coming to the second ground which is with regard to the sale of land, we have elaborately deliberated upon the issue and given our findings at paras 33 to 38 above wherein we have held that the revenue authorities were not justified in holding that the land sold by the assessee was not agricultural land and consequentially charging long-term capital gains on such sale.
46. Coming to the third ground which is against charging of interest u/s.234B, we hold that the Assessing Officer may give consequential relief after giving effect to our order.
47. In the result, appeal by the assessee is allowed. ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 53 ITA.262/Bang/2009 - By the assessee, Shri. T. Suresh Gowda - Assessment Year.2005-06 :
48. In this appeal by the assessee, the only effective ground is against charging long term capital gains on the sale of agricultural land. This ground by the assessee has been dealt with by us in the superceding common paragraphs and we have given our findings in paras 33 to 38 and also in the connected appeals of Prasanna Gowda and Manjunath.
49. In the result, appeal by the assessee on this ground is allowed. ITA.177/Bang/2009 - By the Revenue in the case of Shri. T. Prasanna Gowda - Assessment Year.2005-06 :
50. Ground no.1 is general in nature and does not call for any specific dealing as such.
51. Coming to ground nos.2 to 12 which is confined to one issue wherein the revenue is challenging the finding of the Commissioner of Income-tax(A) that a small portion of the land extending to 10 acres and 10 guntas that was sold on 2.4.2006 were agricultural land. We have also mentioned in the preceding para no.33, at page 42 above that the findng of the Commissioner of Income-tax(A) that 10 acres ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 54 and 10 guntas of land was capital asset, is to be confirmed. We dismiss the revenue's appeal on this issue.
As regards the remaining part wherein the revenue is challenging the finding of the Commissioner of Income-tax(A) that what the assessee sold was agricultural land and, therefore, long-term capital gains were not chargeable also, the appeal by the revenue fails and it is dismissed.
52. In the result, appeal by the revenue is dismissed. ITA.305/Bang/2009 - By the Revenue in the case of Shri. T. Suresh Gowda - Assessment Year.2005-06 :
53. The revenue had taken an additional ground that is with regard to taking fresh additional evidence filed by the assessee without giving opportunity to the Assessing Officer. In this case the Assessing Officer noticed that the assessee had sodl land measuring 40 acres and 20 guntas at Seshagirihalli for Rs.4,50,00,000/- on 7.4.04 to Tibetan Childrens' Village and claimed exemption from capital gains which worked out to Rs.3,68,01,771/- on the ground that the land situated in a rural area i.e., 8 kms away from the limits of Bangalore Mahanagara Palike and the land is located as notified u/s.2(14)(iii)(b) of the Act as the transaction relates to sale of ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 55 agricultural land. The Assessing Officer observed that the land was converted for residential purpose before the sale and, therefore, it is immaterial whether the land was situated outside the city limits or beyond 8 kms. He further held that the cultivation of land till disposal is also irrelevant. He further held that no documentary evidence was produced to the effect that the land converted was treated as agricultural land within the meaning of Section 2(14)(iii)(b).
Regarding the sale of shares of SPR Sugars Ltd., on which the assessee claimed loss of Rs.1,03,17,333/-, the claim was disallowed for the reason that no proper evidence was produced.
54. On similar issues in the connected cases, we had held that the evidence produced by the assessee before the Assessing Officer and Commissioner of Income-tax(A) to the effect that assessee was doing cultivation of ragi etc., was sufficient to treat the land as agricultural land in the hands of the assessee, particularly because in the document, the nature of the land has been recorded as non-agricultural under the Karnataka Land Reforms Rules, 1966. While coming to the above conclusion we also held that this is a document maintained by the Government officials and treating the same as not valid in the absence of strict evidence to the contrary cannot be upheld. ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 56
55. On similar set of facts in the connected other cases, we have held that the land sold by the assessee is to be treated as agricultural land and the reasons given is applicable in the instant case of the assessee as the facts are identical. Appeal by the revenue on this ground fails. It is not contended specifically as to what were the fresh evidences filed. According to the assessee, the issue was already discussed and the evidences were before the Assessing Officer. On the Commissioner of Income-tax(A) calling for further evidence, the assessee filed letters written by the Tibetan Childrens' Village which in fact was not additional evidence but in support of the evidences which were already before the Assessing Officer. Hence this additional ground by the revenue is to be dismissed.
56. Apart from the above additional ground, though the revenue has urged as many as eight grounds, in fact it is confined to one effective ground which is against the order of the Commissioner of Income- tax(A) in holding that the assessee is entitled to set off of long-term capital gains of Rs.1,03,17,333/- against the long term capital gains from the sale of land.
57. This ground does not call for any separate dealing in view of the fact that in paras 33 to 38, after elaborately deliberating on the ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 57 issue, we have given our findings by holding that the land sold by the assessee was agricultural in nature and, therefore, it was not exigible to tax. This ground by the revenue is, therefore, dismissed.
58. In the result, appeal by the revenue is dismissed. ITA.178/Bang/2009 - By the Revenue in the case of Shri. M. Thimme Gowda - Assessment Year.2005-06 :
59. Though the revenue has urged as many as 12 grounds in fact, it is confined to one point and against the order of the Commissioner of Income-tax(A), challenging the long-term capital gain to the extent of Rs.16,90,036/- charged on the sale of agricultural land by the Assessing Officer.
60. The facts in the instant case is exactly identical which we have dealt with in the case of Prasanna Gowda (assessee's son) wherein we have allowed the appeal by the assessee. The issue has been dealt with by the Commissioner of Income-tax(A) vide para 4 of the order on the following lines. Though the revenue has urged the same ground that the facts are different from that of assessee's son Prasanna Gowda. It has not been demonstrated before us as to how the facts are distinguishable. While dealing with the case of Prasanna Gowda we ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 58 have upheld the order of the Commissioner of Income-tax(A) to the extent of 10 acres and 10 guntas sold on 2.6.2004 converted on 2.4.2004, on the basis of his finding that the status of the land sold was urban on the date of the sale.
Coming to the instant case of the assessee, therefore, we hold that the Commissioner of Income-tax(A) was correct in holding that the land sold was agricultural in nature and, therefore, it does not result in long-term capital gains since what the assessee sold was not capital asset.
61. In the result, appeal by the revenue is dismissed.
62. In the result, Assessees' appeal in ITA.1464/Bang/2008 is partly allowed; ITA.1465/Bang/2008 and ITA.262/Bang/2009 are allowed. Revenues' appeals in ITA.177 & 178/Bang/2009 and ITA.305/Bang/2009 are dismissed.
Order pronounced in open court on 30th day of December, 2009. Sd/- Sd/-
(A. MOHAN ALANKAMONY) (K. P. T. THANGAL) ACCOUNTANT MEMBER VICE PRESIDENT Bangalore Dated : 30th December, 2009 MCN*
ITA.1464, 1465/B/08; 177, 178, 262 & 305/B/09 Page - 59 Copy to:
1. The assessee
2. The Assessing Officer
3. The Commissioner of Income-tax
4. Commissioner of Income-tax(A)
5. DR
6. GF, ITAT, New Delhi
7. GF, ITAT, Bangalore