Delhi High Court
Cit vs Krishan Kumar Kapoor on 12 April, 2001
Equivalent citations: (2001)169CTR(DEL)70
Author: Arijit Pasayat
Bench: Arijit Pasayat
JUDGMENT Arijit Pasayat, C.J.
These two reference applications involve the following common question, which has been referred by the Income Tax Appellate Tribunal Delhi Bench-D (hereinafter referred to as the Tribunal') pursuant to the direction given by this court under section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act'), for the opinion of this court "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the land in question was agricultural land and, therefore, the capital gains arising out of the sale of the land was not taxable."
The dispute relates to assessment year 1972-73.
2. Factual position in nutshell is as follows : assesseds Krishan Kumar Kapoor and R. K. Kapoor who are the sons of one Murlidhar Kapoor, inherited separate pieces of land from their father wherein agricultural operations were carried on till 1949-50, when in each case assessed's land was requisitioned by the Punjab Government for extracting earth for manufacture of bricks. Extraction was continued up to 1953-54 though no brick kiln was created on the said land, which continued to be in possession of the Punjab Government till 1963, when a notification for acquisition of the land was issued. But there was derequisition and the land was released in 1970. Prior to the release, in the year 1966, assessed in each case entered into agreement to sell the land to Delhi Land and Finance Corporation (hereinafter referred to as the DLFC). Sale deed in each case was executed in June, 1971. Out of the total consideration paid, assesseds' share in each case in the sale proceeds was claimed as exempt and was so indicated in Part-III of the return of the income filed. In the case of K.K. Kapoor the amount was taken at Rs. 80.561 and in the case of R. K. Kapoor, the amount was Rs. 80,205. Both the assesseds claimed that as surplus received was on account of sale of agricultural land, there is no question of levy of any tax. The Income Tax Officer however, added Rs. 73,618 and Rs. 71.974, respectively, in the income of the two assesseds as capital gains after getting off the cost of acquisition of land as per valuation on 1st Jan., 1954 i.e. Rs. 8.587 in each case. Matter was carried in appeal before the Appellate Assistant Commissioner (hereinafter referred to as the 'Appellate Assistant Commissioner'). In the case of R. K. Kapoor, Appellate Assistant Commissioner held by his order dated 2-12-1978, that land remained in possession of the Government right from 1949-50 to 1970 and agricultural operations were not carried on in the land in question, and there was change in character, and it became non-agricultural. Therefore, at the time of sale it lost its character as agricultural land and exemption as claimed was not available. In the case of R.K. Kapoor assessed's appeal was allowed. It was held that the land was taken over by the Punjab Government as agricultural land and, therefore, the sale did not attract capital gains. Appeal was filed by R. K. Kapoor challenging the conclusions of the Appellate Assistant Commissioner in his case., while questioning correctness of the decision rendered in K.K. Kapoor's case, revenue filed appeal. Both the appeals were taken up together and Tribunal held as follows :
"After hearing both the parties, we are of the view that the assessed must succeed in the case of Shri R.K. Kapoor and the department fails in the case of Shri Krishan Kumar Kapoor. It is common ground that the land was an agricultural land in village Majeser, District Gurgaon and it was requisitioned by the Punjab Government as agricultural land as early as in 1949-50, only earth was excavated and never a brick kiln was set up on the land. It can also not be denied that the provisions of the Punjab Scheduled Roads and Controlled Areas (Restriction of Unregulated Development) Act, 1963, prohibited any change of the character of the land. Therefore, even if the earth had been excavated the character of the land remained the same i.e. agricultural. It is a different thing that by combination of circumstances, the assessed could not perform any agricultural operation till the land was released but that could not make much of difference. Therefore, keeping in view the statutory provisions of the Punjab Act as mentioned above, we are of the view that the land continued to be agricultural till the date of sale and the judgment of their Lordships of the Supreme Court in CWT v. Officer-In -Charge (Court of Wards) Paigah (1976) 105 ITR 133 (SC) does not help the revenue . As we have found that the character of the land did not change with the passage of time and it remained agricultural in nature, we also hold that at the time of sale, the land was agricultural in nature. We, therefore, hold that the surplus available in the hands of both the persons was exempt from capital gains being sale proceeds of agricultural land."
3. Revenue moved an application for reference under section 256(1) of the Act before the Tribunal which was rejected. However, as indicated above, on being moved this court directed reference of the question as set out above for opinion of this court.
4. We have heard learned counsel for revenue. There is no appearance on behalf of assessed in spite of notice. The main plank of learned counsel for revenue's argument was that the mere fact that rent was paid as agricultural land or that there was prohibition under the Punjab Scheduled Roads and Controlled Areas (Restriction or Unregulated Development) Act, 1963 regarding change of character of the land did not make the land in question agricultural land. According to him the fact that there was no agricultural operation for more than two decades clearly indicates that the land did not continue to be agricultural in nature.
5. Whether the land is agricultural or not is essentially a question of fact. Several tests have been evolved in the decisions of the Apex Court and various High Courts, but all of them are more in the nature of guidelines. The question has to be answered in each case having regard to the facts and circumstances of that case. There may be factors both for and against on a particular point of view. Therefore, the court has to answer the question of a consideration of all of them, by a process of evaluation. Inference has to be drawn on a cumulative consideration of all the relevant facts. In CWT v. Officer-in-Charge (Court of Wards), Paigah (1976) 105 ITR 133 (SC) (normally referred as 'Begumpet Palace case') the Apex Court tested the guidelines indicated by a Full Bench of the Andhra Pradesh High Court in Officer-In -Charge (Court of Wards) v. CWT (1969) 72 ITR 552 (AP). The Full Bench evolved eight indicators to determine whether a land is agricultural. They are as follows :
"(1) The words "agricultural land" occurring in section 2(e)(i) of the Wealth Tax Act should be given the same meaning as the said expression bears in entry 86 of List-I and given the widest meaning;
(2) The said expression not having been defined in the Constitution, it must be given the meaning which it ordinarily bears in the English language and as understood in ordinary parlance,-
(3) The actual user of the land for agriculture is one of the indicators for determining the character of the land as agricultural land., (4) Land which is left barren but which is capable of being cultivated can also be "agricultural land" unless the said land is actually put to some other nonagricultural purpose, like construction of buildings or an aerodrome, runway, etc., thereon, which alters the physical character of the land rendering it unfit for immediate cultivation., (5) If land is assessed to land revenue as agricultural land under the State Revenue Law, it is a strong piece of evidence of its character as agricultural land;
(6) Mere enclosure of the land does not by itself render it a non- agricultural land., (7) The character of the land is not determined by the nature of the products raised, so long as the land is used or can be used for raising valuable plants or crops or trees or for any other purpose of husbandry;
(8) The situation of the land in a village or in an urban area is not by itself determinative of its character."
The Apex Court in Begumpet Palace case (supra) characterised indicators Nos. 6, 7 and 8 as merely negative in character. It disagreed with indicators No. 1 & 4 and observed that only the fifth indicator was relevant one, though not conclusive. There was no controversy regarding indicator No. 3 inasmuch as the matter was not examined from the correct point of view. It was remitted to the High Court for a fresh consideration.
6. The determination of the character of land according to the purpose for which it is meant or set apart can be used as a matter which ought to be determined on the facts of each of the cases. As observed by the Apex Court in Begumpet Palace case (supra) entries in revenue records are good prima facie evidence.
7. So far as the factual background of the present case is concerned, it is to be noted that the factors which weighed with the Tribunal to hold the land to be agricultural are as follows :
(i) land was taken as agricultural land by the Punjab Government as evident from the records;
(ii) land was assessed to land revenue and was indicated in the revenue records as agricultural land;
(iii) there was a statutory ban on change of character of the land in view of the provisions contained in the Punjab Scheduled Roads and Controlled Areas (Restriction of Unregulated Development) Act, 1963;
(iv) there was no evidence to show that the character of the land changed with the passage of time.
In view of the aforesaid conclusions, which are essentially factual and are not in dispute, Tribunal was justified in its conclusion that the land was agricultural in nature and, therefore, the surplus available was exempt from capital gains being sale proceeds or agricultural land. That being the position, the question referred is answered in each case in the affirmative, in favor of assessed and against revenue .
The references stand disposed of accordingly.