Income Tax Appellate Tribunal - Chennai
Ravikumar (Huf), Chennai vs Department Of Income Tax on 8 September, 1955
IN THE INCOME TAX APPELLATE TRIBUNAL
CHENNAI BENCH 'D' : CHENNAI
[BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND
SHRI HARI OM MARATHA, JUDICIAL MEMBER]
I.T.A No. 1076/Mds/2009
Assessment year : 2006-07
The ITO vs Chandar-HUF
Business Ward XIV(1) 199 St. Mary's Road
Chennai Alwarpet
Chennai 600 018
[PAN - AAQHS1848L]
(Appellant) (Respondent)
I.T.A No. 1078/Mds/2009
Assessment year : 2006-07
The ACIT vs Ravikumar-HUF
Circle XV No.11, Temple Avenue
Chennai Sai Nagar Colony
Saidapet
Chennai 600 015
[PAN - AAGHR5921K]
(Appellant) (Respondent)
I.T.A No. 1079/Mds/2009
Assessment year : 2006-07
The ACIT vs Smt. S. Prabha
Circle XV No.199, St. Mary's Road
Chennai Alwarpet
Chennai 600 018
[PAN - AOVPP2099D]
(Appellant) (Respondent)
:- 2 -: ITA 1076, 1078 to 1080 & 1094 /09
I.T.A No. 1080/Mds/2009
Assessment year : 2006-07
The ACIT vs Smt. S. Rukmini
Circle XV No.11 Temple Avenue
Chennai Sai Nagar Colony
Saidapet, Chennai - 15
[PAN - AJHPR6085N]
(Appellant) (Respondent)
I.T.A No. 1094/Mds/2009
Assessment year : 2006-07
The ITO vs Sekar, HUF
Business Ward XIV(3) 199 St. Marys Road
Chennai Alwarpet
Chennai 600 018
[PAN - AAQHS1849M]
(Appellant) (Respondent)
Appellants by : Shri K.E.B Rengarajan, Jr. Standing
Counsel
Respondent by : Shri S. Sridhar
ORDER
PER HARI OM MARATHA, JUDICIAL MEMBER:
This is a bunch of five appeals filed by the Revenue, for assessment year 2006-07. As the facts and the issues involved in these appeals are entwined and interlinked in such a manner that it would be convenient to dispose of them by a common order for the sake of convenience and brevity.
:- 3 -: ITA 1076, 1078 to 1080 & 1094 /09
2. Briefly stated, the common facts leading to these appeals are that one Shri K. Subramania Mudaliar, now deceased, had purchased lands measuring 60 acres and 4.5 cents during the period from 1963 to 1970 and 32 acres and 52 cents between the years 1982 to 2000. The description of this land(s) is as under:
In Perumbakkam village Document Number Acres 1741/06 13.95 1742/06 00.25 14.20 Document Number Acres 1744/06 36.46 1745/06 21.63 58.09 In Arasankalani village Document Number Acres 1740/06 20.59 20.59
3. The above land(s) as per the land revenue records, as on the date of sale, was shown as 'agricultural land'. Shri K.Subramania Mudaliar died on 23.11.2005, leaving the following six legal heirs namely -
i) Shri K.S.Ravikumar alias S. Ravi,
ii) Smt. S. Rukmini Ammal,
iii) Shri Sekar
iv) Smt.N.Kumari
v) Smt. S.Prabha
vi) Km. Narasingan
:- 4 -: ITA 1076, 1078 to 1080 & 1094 /09
4. The return of income, filed was enclosed with the following documents:
i) The statement of total income.
ii) The income adjusted statement.
iii) Receipts and payment account .
iv) Income and expenditure account
v) Balance Sheet
vi) Depreciation statement.
vii) A note on the receipt of 1/6th sale consideration from the
sale of agricultural land belonging to assessee's father situated at Perumbakkam and Arasankalani villages.
viii) The details of lands located at Arasankalani and Perumbakkam villages.
ix) Copy of the Tehsildar's certificate stating that the lands are situated beyond eight kilometers from the nearest municipalities.
x) A copy of the family agreement. 5. The above lands were sold to M/s B.S. Seenaiah & Company, Hyderabad on 1.3.2006 vide five separate sale deeds. In each of the
sale deeds there are six vendors [the assessees/respondents and Km.Narsinghan] who have sold their 1/6th share which was obtained by them by way of a family settlement, a copy of which was placed before the Assessing Officer. The question arose before the Assessing Officer as to whether the lands were 'agricultural lands' or 'capital assets' on the date of sale. As per the records of the revenue Department, these lands were undeniably 'agricultural lands', when these were purchased by the deceased and even upto the date of sale. For a portion of the land situated at Perumbakkam village measuring :- 5 -: ITA 1076, 1078 to 1080 & 1094 /09 21 acres and 63 cents covered by Document No.1744/06 and 1745/06, a layout permission in 6174/94 dated 8.9.1955 and planning permission in No.374 dated 8.9.1995 from St. Thomas Mount Panchayat Union and MMDA authorities and for a portion of land situated in Perumbakkam measuring 36 acres and 46 cents covered in Document No.1744/06 and 1745/06, a layout permission in No.297/95 dated 8.9.1955 and planning permission in No.375 dated 8.9.1955 from St. Thomas Mount Panchayat Union and MMDA authorities, were obtained by Late K.Subramania Mudaliar. However, this permission was admittedly never acted upon and entire land was sold as it existed when it was purchased by Late K.Subramania Mudaliar. To come out of the clutches of section 2(14)(ii) of the Act, it was explained as under:
"First of all the agricultural lands were purchased by Late K.Subramania Mudaliar over a number of years from 1963 up to the year 2000 even after obtaining the permission in the year 1994, not only in his name but also in the name of his Wife, sons and daughters. Hence there could be inference of investment only. The purchases were made in more than 50 documents from different parties. Though the planning and layout permission was obtained in 1995 by K.Subramania Mudaliar only on a portion of lands at Perumbakkam Village and not in the lands at Arasankalani village neither Mr.K.Subramania Mudaliar or the legal heirs have never implemented nor indulge in any activity. Late K.Subramania Mudaliar did not plot out the lands for the purpose of selling them in plots giving scope for inference of business in real estate. Late K.Subramania Mudaliar has enjoyed the property as agricultural lands and the lands were classified as agricultural lands and yielding agricultural income in the Revenue and Income tax records. The agricultural incomes were admitted in the assessments of Late K.Subramania Mudaliar till his death in November :- 6 -: ITA 1076, 1078 to 1080 & 1094 /09 2005, therefore forms part of Income tax records also. There is nothing in the assessment order to show that the appellant did not hold them as agricultural lands. Mr.K.Subramania Mudaliar died without selling any portion of the agricultural lands. All the lands were devolved to the Legal Heirs after the death of K.Subramania Mudaliar in November 2005. Since the investment in agricultural lands were in different names the Legal Heirs entered into a family arrangement, so that the investment in agricultural lands purchased and kept as investment could be sold for a better price by selling them in one lot. All the agricultural lands were kept as agricultural lands only till the date of sale and even the lands wherein the permission was obtained in 1995 were never been exploited by Late K.Subramania Mudaliar nor the Legal Heirs, three of them being ladies and three other male members are not in the real estate business but in the different vocations did not take any step to make it the adventure of trade viz, by selling them in plots. On the other hand the agricultural lands left by Late K.Subramania Mudaliar remained as agricultural lands in Revenue and Registration authorities records till the date of its sale by the Legal Heirs and cultivation has been done on the said lands till the date of sale. The agricultural lands were sold " as is where is "
condition which can be evidenced from the sale deed. Mere obtaining permission for non agricultural purpose does not automatically change the character of land unless it is implemented. The Legal Heirs never took any steps giving room for an inference of adventure in nature of trade in 4 months between K.Subramania Mudaliar's death and the sale of the agricultural lands. The above said facts would clearly show that the Legal Heirs have never indulged in any activity nor had any intention to enter in to transaction which could be turned out as adventure in the nature of trade. Neither Late K.Subramania Mudaliar nor the Legal Heirs were indulged in real estate activity."
6. The Assessing Officer was not convinced and has considered the sale consideration under section 2(14)(iii) of the Act holding that the lands are 'capital assets' as they fell within 8 kms. of Sholinganallur Town Panchayat and such Panchayats are not 'Panchayat' as has been excluded by the Act and explained by the Hon'ble Madras High Court in :- 7 -: ITA 1076, 1078 to 1080 & 1094 /09 its decision rendered in the case of CIT vs P.J. Thomas, 211 ITR 897, on which the assessees have relied. But he did not stop there and further considered these transactions of sale as 'Adventure in the Nature of Trade' so that 'profit' on sale could be taxed as business income. After giving various reasons for and against his proposition to consider this sale relatable to 'Adventure in the Nature of Trade' versus 'investment', he has finally concluded that it was the former and hence, he has taxed the profit under the head 'income from business', instead of capital gains and as against claimed 'NIL' tax as they sold only agricultural land. This action of the Assessing Officer has been challenged before the ld. CIT(A), who has not agreed with the Assessing Officer and has finally concluded that the agricultural land situated in the revenue estate of Perumbakkam and Arasankalani villages will not fall under the definition of 'capital asset' as specified under section 2(14)(iii) of the Act and hence, the gain arising out of the sale of these agricultural lands cannot be taxed as capital gains. He has also taken a clear view that it is not an 'Adventure in the Nature of Trade' either. He has concluded that this is a sale of 'agricultural land' which is not taxable under the Act. The Revenue being aggrieved, filed these appeals, in which identical issues, as discussed above are involved.
:- 8 -: ITA 1076, 1078 to 1080 & 1094 /09
7. We have heard both the parties and have perused the entire record available before us. The circumspection of the evidence available before reveals that there is no dispute between the parties with regard to the following facts:-
(1) That Late Shri K. Subramania Mudaliar had acquired the lands in question which are the subject matter of sale in piecemeal from the year 1964 and he only owned and maintained the same for more than ten years.
(2) As per the family agreement, 1/6th share of the lands were divided and belonging to each of the assessee as has been mentioned herein above after the death of Shri Subramania Mudaliar as stated above. (3) The nomenclature of the lands sold by these assesses/respondents were incorporated as 'agriculture land' when Late Shri Subramania Mudaliar purchased them and till the date of sale by the assesses/respondents.
(4) Agriculture income from the above lands were shown and declared by Shri K. Subramania Mudaliar till the assessment year 2004-05, of course, until his death.
(5) The Revenue Officer, namely, Tehsildar, Tambaram has certified that these lands were agriculture lands and were sold as such without any change in their nomenclature.
(6) These lands were located more than 8 KMs away from Chennai city and even the Municipality limits of Tambaram and Alandur which are the nearby Municipal Corporations.
The Assessing Officer, in our considered opinion, could not say with certitude as to whether the sale proceed in question is to be taxed as capital gain or as a profit from business in the 'Adventure in the Nature of Trade' as has been finally done by him. Initially, he tried to tax this :- 9 -: ITA 1076, 1078 to 1080 & 1094 /09 land treating it as a capital asset. Let us examine whether this entire land can be treated as a capital asset or not. Section 2(14)(iii) of the Act defines 'capital asset' as under:-
"Definitions.
2. In this Act, unless the context otherwise requires,--
...............................
(14) "capital asset" means property 42 of any kind held by an assessee, whether or not connected with his business or profession, but does not include--
............................................................ 45 [(iii) agricultural land46 in India, not being land situate--
(a) in any area which is comprised within the jurisdiction of a municipality 46 (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population 46 of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; or
(b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item
(a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette47;]
8. After accepting the nomenclature of this trade as agricultural land, the Assessing Officer has tried to bring a case under sub-clause
(b) by treating them falling within 8 KMs of Municipality limits. On his enquiries, he found that the lands were situated within the radius of 8 KMs from Sholinganallur Twn Panchayat having population of more :- 10 -: ITA 1076, 1078 to 1080 & 1094 /09 than 10,000. The Town Panchayats are governed by the Tamil Nadu Panchayat Act. The Assessing Officer has tried to enlarge the definition of 'Municipality' by stretching the definition of 'Town Panchayat' to connect with it municipality. This finding of the Assessing Officer has been rejected by ld. CIT(A). We are also in agreement with ld. CIT(A) and not in agreement with the Assessing Officer. The definition of 'Town Panchayats" which are governed by Tamil Nadu Panchayat Act cannot be pulled apart and stretch to be included in the definition of a Municipality. Otherwise, the lands in question are admittedly situated beyond the radius of 8 KMs from the local limits of any Municipality or Cantonment, Municipal Corporation, etc as defined in clauses (a) and (b) of Section 2(14)(iii) of the Act. There is no dispute with regard to the fact that as per the revenue records, the lands in question are agricultural lands. The assessee has filed a certificate issued by Tahsildar, Tambaram Taluk, dated 16.2.2006 as a proof to show that the lands sold by the assessees at Perumbakkam and Arasankalani villages are located more than 8 kms from Chennai City and the municipal limits of Tambaram. The population of Perumbakkam and Arasankalani village as per the latest Census is only 2630 and 527 respectively. As per the revenue records, these lands are marked as 'agricultural land' and their nature has not been changed at all. On verification, the Assessing Officer received :- 11 -: ITA 1076, 1078 to 1080 & 1094 /09 replies from the Village Administrative Officer of both the villages that the lands fall within 8 kms from the local limits of Sholinganallur Town Panchayat and the Executive Officer of the Sholinganallur Town Panchayat has stated in his reply that the population of Sholinganallur Town Panchayat is 15,557. But as per the Act, the provisions of section 2(14) are attracted if the land falls within 8 kms of the 'municipality' and nothing else. Therefore, in our opinion also the Assessing Officer has stretched the definition of 'municipality' in his own manner. Even though Sholinganallur Town Panchayat is notified for Urban Agglomeration, it is not a Municipality. This definition will not at all fall in the definition of 'capital asset' given in section 2(14)(iii)(b) of the Act . Admittedly, Perumbakkam and Arasankalani villages are separate Panchayats having population of less than 10,000 as stated above. Admittedly, the lands sold were agricultural lands and these were agricultural lands and doing cultivation was done thereon till the date of sale. A 'Panchayat' is entirely different from a 'Municipality'. Thus, Sholinganallur Town Panchayat cannot come within the purview of Municipality. The population of both the villages is less than 10,000. Both the villages are not notified by Central Government for urbanization which is a condition precedent for doing so. The intention of the legislature is to exclude transaction relating to agricultural land from capital gains, unless it falls within the notified area of 8 kms of :- 12 -: ITA 1076, 1078 to 1080 & 1094 /09 Municipal or Cantonment Boards. The words used 'municipality', 'municipal corporation, 'notified area committee', 'town area committee' and 'town committee' all refer to urban local self- government institutions. The Panchayats are rural self-government- institutions whether they are Town Panchayats or Village Panchayats. The Municipalities are governed by Municipal Act and the Panchayats are governed by Panchayat Act. The Hon'ble Madras High Court in the case of CIT vs P.J.Thomas, 211 ITR 897, has observed thus:
".... as regards the second question, it is seen that under section 2(14) of the Income-tax Act, 1961, the exclusion of agricultural land as capital asset, would be applicable to land within the limits of a municipality and not a panchayat. The land sold by the assessee was situated in Koshancherry town and that was only a panchayat. Though learned counsel for the Revenue strenuously contended that a panchayat would also be comprehended within section 2(14) of the Income - tax Act, 1961, we are unable to accept the contention. Section 2(14)(iii) refers to the exclusion as capital assets of agricultural lands situate in an area which is comprised within the jurisdiction of a municipality (whether known as municipality or municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment, which has a population of not less than 10,000 according to the last proceeding census. In order that the benefit of exclusion of agricultural land :- 13 -: ITA 1076, 1078 to 1080 & 1094 /09 as capital asset may not be available, the land should be situated within the jurisdiction of a municipality or a cantonment board as stated earlier and is also related to the population.
Though the expression, "municipality, municipal corporation, notified area committed town area committee, town committee" , etc., have been used they refer only to certain specific entities either known by that name or by any other name and that cannot be taken to apply to a panchayat which is and has also always been understood as distinct and different from municipality, etc. In the absence of clear or specific words in the section to take in a panchayat, we are unable to countenance the argument of learned Counsel for the Revenue. We are satisfied that the Tribunal was quite justified in deleting the tax arising on capital gains on account of the sale of the agricultural lands by the assessee."
9. The above decision applies mutatis mutandis to the facts of the given cases and the lands in question cannot be treated as a 'capital asset'. Even if the deceased Late Shri K. Subramania Mudaliar had sought permission to develop this land but without taking any further action in that direction, the character of the land will not change and it will not become Adventure in the Nature of Trade. Even though the approval had been obtained the land to certain purchaser of the land in the year 1994 but it was admittedly abandoned and Late Shri K. :- 14 -: ITA 1076, 1078 to 1080 & 1094 /09 Subramania Mudaliar never implemented nor acted upon the same. Even after forming layout, agricultural activities were done and all the lands were mentioned as agriculture lands only. Undisputedly, after layout approval, no plot was sold till the year 2005. It is also not the case of the Assessing Officer that the assessees had sold any such plot. The entire lands were sold as agricultural land only as has been certified by Tehsildar and which was further recognised by the Sub- Registrar for stamp duty value. In our opinion, mere obtaining permission for the layout does not change the character of the lands from agricultural lands. Had the deceased's intention to do business, no prudent businessman after obtaining layout permission will keep the lands without selling for more than 12 years. In our considered opinion, the sale of the land by all the assessees simultaneously to one person cannot be treated as a single or isolated incidence of sale bringing the sale under the expression 'Adventure in the Nature of Trade'. While discussing this issue, the Assessing Officer has wrongly interpreted certain decisions. In the case of Estate Investment Pvt. Ltd. 121 ITR 580, it has been held that "even a single transaction of purchase and sale outside the assessee's line of business may constitute as Adventure in the Nature of Trade", has been wrongly interpreted to fit in the facts of this case. Admittedly, no such single or isolated example of sale is evident in this case. The Assessing :- 15 -: ITA 1076, 1078 to 1080 & 1094 /09 Officer has confused the term 'investment' with the term 'business'. If any person makes an investment particularly in agricultural land and if the entire land is sold after its value is appreciated, it would not become Adventure in the Nature of Trade. It is the nature of the transaction which defines the actual nature of the transaction. The Assessing Officer has himself discussed this issue by relying on the decision of Hon'ble Supreme Court in the case of Narain Swadeshi Weaving Mill, 26 ITR 765, wherein it has been held that the term 'business' connotes some real, substantial and systematic and organized course of activity or conduct with a set of purpose. A single and isolated transaction can be called capable of falling within the definition of 'business' as being adventure in the nature of trade provided the transaction bears indicia of trade. Further reliance by ld. Assessing Officer on the decision of Smt. Minal Ramesh Chandra, reported in 167 ITR 507, is misplaced. Going by the dictum of this decision, this purchase of land and sale would simply amount to investment by the assessee. Since the Act specifically excludes sale consideration arising from sale of agriculture land, no amount of discussion and reasons can bring such a sale under the definition of either capital asset or business. The land in question was definitely agricultural land at the time of sale and nothing else. The sale in question if the sale of entire joint property which is agricultural land :- 16 -: ITA 1076, 1078 to 1080 & 1094 /09 consisting of 9263 cents situated in two villages, as discussed above, then the sale proceed is not exigible to any tax under the Act. In this regard, two decisions of Hon'ble Madras High Court, namely, CIT v. Kasturi Estate Pvt. Ltd. 62 ITR 512 and CIT vs A.Mohammed Mohideen, 176 ITR 393 (Mad.) are directly applicable. Further, the decisions of Hon'ble Madras High Court in the case of CIT vs P.J.Thomas, 211 ITR 897 and CIT vs E.Udayakumar, 284 ITR 511, are relevant. In these decisions, it has been held that a subsequent treatment of land sold has no relevance while considering a capital asset. The purpose of the transferor has to be looked into and not that of the purchaser. If the purchaser in this case has purchased the lands for any of the purpose other than agriculture purpose, this would not be relevant to decide the taxability of the sale consideration in question. The Hon'ble Punjab and Haryana High Court in the case of CIT vs Sushila Devi Jain, 259 ITR 671, has held that the properties are not purchased to sell but inherited and hence the transaction was not in the nature of adventure in the nature of trade. Because in this case, all the assessees have inherited this property which was admittedly sold jointly by them, this decision directly applies to the facts of the case.
10. Now, coming to the contention of the ld.DR that the portions of the land sold were being planned to be sold after developing that area :- 17 -: ITA 1076, 1078 to 1080 & 1094 /09 as mentioned above. There is no dispute with regard to the factum of obtaining permission to do so, but it is also an undeniable and undisputed fact by the Revenue that neither Late K.Subramania Mudaliar or his legal heirs indulged in any activity nor had any intention to enter into transaction which could be termed as an adventure in the nature of trade. Late K.Subramania Mudaliar never plotted out the land. The lands retained the character of agricultural lands till the date of sale in 2005. Admittedly, cultivation has been done till the date of sale of the said lands as per the revenue records also. The lands were sold on the basis of 'as is where is' condition which is evidenced from the sale deeds. The Sub-Registrar has also considered these lands as 'agricultural lands' while registering the sale deeds. There is no evidence which has been recorded by the Assessing Officer on record whereby it can be inferred that the assessees ever ventured to do adventure in the nature of trade after the death of K.Subramania Mudaliar. The lands regarding which permission was obtained in the year 1995 were never acted upon by K.Subramania Mudaliar in his life time. The three male members of the family were never in the real estate business but were pursuing different vocations. The legal heirs never carried out any activity for converting the lands into plots before sale. But to the contrary, they have sold all the agricultural lands inherited on a single day within four :- 18 -: ITA 1076, 1078 to 1080 & 1094 /09 months of the death of their ancestor. When the entire facts of this case are recapitulated cumulatively, only one inference can be drawn therefrom that on the date of sale, the entire piece of land was agricultural land. It was neither subjected to adventure in the nature of trade nor it was a 'capital asset'. Although the ld.DR tried to convince us with reference to the permission sought and various other arguments which were based on the reasonings taken on the lines of Assessing Officer, but as discussed above, we are convinced on the reasonings given by the ld. CIT(A) in his order. Consequently, all the grounds raised in these appeals stand dismissed and accordingly, all the appeals of the Revenue stand dismissed.
11. In the result, all the appeals of the Revenue stand dismissed.
Order pronounced in the open court on 26.4.2011.
Sd/- Sd/-
(DR. O.K. NARAYANAN) (HARI OM MARATHA)
VICE-PRESIDENT JUDICIAL MEMBER
Dated: 26th April, 2011
RD
Copy to:
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR