Madras High Court
Mrs.Sakunthala Vedachalam vs The Assistant Commissioner Of Income ... on 6 August, 2014
Author: G.M.Akbar Ali
Bench: R.Sudhakar, G.M.Akbar Ali
IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 06.08.2014 Coram The Honourable Mr.Justice R.SUDHAKAR and The Honourable Mr.Justice G.M.AKBAR ALI Tax Case (Appeal) Nos.566 and 567 of 2013 & M.P.Nos.1 and 1 of 2014 Mrs.Sakunthala Vedachalam ... Appellant in T.C.(A) No.566/2013 Mrs.Vanitha Manickavasagam ... Appellant in T.C.(A) No.567/2013 -vs- The Assistant Commissioner of Income Tax, Business Circle XIV, Chennai - 600 034. ... Respondent in both C.M.As Appeals filed under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Chennai B Bench, dated 11.4.2013 in ITA.Nos.2164 & 2165/Mds/2012. For Appellants : Mr.C.Ramakrishnan for Mr.R.Sivaraman For Respondents: Mr.J.Narayanasamy Standing Counsel for Income Tax Dept. ----------- C O M M O N J U D G M E N T
(Judgment of the Court was delivered by G.M.AKBAR ALI,J.) The appellants/assessees, who are mother and daughter, sold their agricultural lands situated at Mahabalipuram Village, Thirukkalikundram Taluk, Kancheepuram District vide document Nos.7970/2007 and 519/2008 for a sale consideration of Rs.25,20,000/- and 64,80,000/- respectively. They claimed exemption from tax on capital gain on the ground that they were agricultural lands. However, the Assessing Officer observed that though the lands were claimed to have been agricultural lands, the assessees have not furnished any evidence in support of their claim. Hence, he deputed one Inspector to examine the lands, who, in turn, reported that the lands were dry lands and no agricultural activities were undertaken by the assessees. Hence, the Assessing Officer rejected their claim holding that the lands sold were not agricultural lands and brought the entire sale consideration to tax under the head "Long Term Capital Gains". The Assessing Officer also invoked the provisions of Section 50C of the Income Tax Act and adopted the guideline value for such assessment. Aggrieved by the order of the Assessing Officer, the assessees preferred appeals before the Commissioner of Income Tax (Appeals).
2. Before the Commissioner of Income Tax (Appeals), the assessees furnished a copy of the Adangal extract and also claimed that there were casuarina crops grown in those lands as shown in the chitta adangal, which indicates that the lands were agricultural lands. Since there was an additional evidence filed, the same was forwarded to the Assessing Officer for his verification with a request to submit a remand report. The Commissioner of Income Tax (Appeals) found that in the remand report dated 18.5.2012 the Assessing Officer confirmed that the lands were agricultural lands, as casuarina crops were grown as certified by the Tahsildar .
3. On going through the various provisions of the Act, the Commissioner of Income Tax (Appeals) also found that once the lands were classified as agricultural lands as per the revenue records, namely, Chitta and Adangal, and the lands, which were not falling within the territorial limits of any Municipality or cantonment or within the distance of not more than 8 km from outer limits of the nearest municipality/cantonment, the same squarely fell within the definition of agricultural lands and therefore they were exempted from capital gains tax. Accordingly, the appeals filed by the assessees were allowed. Aggrieved by the order of the Commissioner of Income Tax (Appeals), the Revenue filed appeals before the Income Tax Appellate Tribunal.
4. The Tribunal primarily relying on the decision reported in 139 ITR 628 (CIT V. Siddharth J. Desai), where various tests have been laid down by the High Court of Gujarat and applying those tests, found that the assessees could not prove that the lands were actually or ordinarily used for agricultural purposes. Hence, the Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and restored the order of the Assessing Officer, thereby allowed the appeals filed by the Revenue. Aggrieved by which, the assessees have preferred the present Tax Case (Appeals) before this Court.
5. At the time of admission, this Court framed the following substantial questions of law for consideration:
"T.C.(A)No.566 of 2013:
"1. Whether, on the facts and circumstances of the case, the Tribunal was right holding that the lands were not agricultural lands, ignoring the Certificate of the Tahsildar and the certified extract of the Adangal Register, according to which these lands were agricultural lands?
2. Whether the Tribunal was right in ignoring the violation of principles of natural justice by Assessing Officer while making the assessment by:
(i) not furnishing to the appellant, the report of the Inspector and the report of the Tahsildar to the appellant before the assessment and not giving an opportunity to the appellant to rebut the findings of the Inspector; and
(ii) not giving an opportunity to the appellant to refer the matter under Section 50C of the Act?"
T.C.(A)No.567 of 2013:
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the lands in question were not agricultural lands for the purpose of application under Section 2(14)(iii)(b) of the Income Tax Act, thereby confirming the addition of long term capital gain tax?
2. Whether, on the facts and circumstances of the case, the Tribunal was right in ignoring the Certificate of the Tahsildar and the certified extract of the Adangal Register, according to which these lands were agricultural lands?
3. Whether the Tribunal was right in ignoring the violation of principles of natural justice by Assessing Officer while making the assessment by:
(i) not furnishing to the appellant, the report of the Inspector and the report of the Tahsildar to the appellant before the assessment and not giving an opportunity to the appellant to rebut the findings of the Inspector; and
(ii) not giving an opportunity to the appellant to refer the matter under Section 50C of the Act?"
6. Heard Mr.C.Ramakrishnan, barrister learned counsel appearing for the appellants/assessees and Mr.J.Narayanasamy, learned standing counsel appearing for the Revenue and perused the materials placed before this Court.
7. Learned counsel appearing for the appellants/assessees submits that in the revenue records the lands were classified as agricultural lands and in support of that, a copy of the Adangal register has also been produced. He also submits that the Assessing Officer in his remand report had stated that the Deputy Tahsildar had certified that the lands in question are agricultural lands. Hence, taking note of the remand report, the Commissioner of Income Tax (Appeals) allowed exemption. But the Tribunal, taking note of the adjacent lands, which had been divided into plots, rejected exemption. In this connection, he relied on the decision reported in (1957) 32 ITR 466 (Commissioner of Income Tax V. Raja Benoy Kumar Sahas Roy). He further submits that since the assessees have produced evidence showing that the lands sold are agricultural lands, they have to be granted exemption.
8. Per contra, learned Standing Counsel appearing for the Revenue submits that that there were no agricultural operations prior to the date of sale. Hence, the lands are not agricultural in nature. Accordingly, the Tribunal is correct in coming to the conclusion that the assessees are not eligible for exemption.
9. The issue involved in the above Tax Case (Appeals) lies on the narrow compass, viz., whether the lands sold by the assessees are agricultural lands and whether they are entitled to the benefit of exemption from capital gains tax.
10. It is on record that in a report has been submitted by the revenue authorities, it is admitted that the lands are classified as agricultural lands in the revenue records and they are dry lands. The remand report of the Assessing Officer in this regard reads as follows:
"During the time of assessment proceedings itself, a confirmation was obtained from the Headquarters Deputy Tahsildar, Thirukazhukundram who has certified in his letter dated 23.12.2010, referred to at 2 above, that in the lands in question casuarinas are grown for the pas one and a half year and hence the same are agricultural lands. He has also confirmed in the said letter that the lands are situated at one kilometer distance fromthe Town Panchayat of Mamallapuram (i.e. within the specified distance from the outer limits of the nearest municipality/town panchayat) and the population of the Mamallapuram Town Panchayat as per 2001 census was 12,345".
11. The assessee has also produced a copy of the adangal and the letter from the Tahsildar, which showed that the lands were agricultural in nature and the Revenue has also accepted that the lands are falling within the restricted zone in terms of Section 2(14) of the Income Tax Act.
12. Hence, the only point that has to be considered is that whether the test as laid down in the decision reported in 139 ITR 628 (CIT V. Siddharth J. Desai) has been satisfied by the assessees. In the said decision, in paragraph 11, it is held as follows:
"On a conspectus of these cases, several factors are discernible whichwere considered as relevant and which were weighed against eachother while determining the true nature and character of the land. It maybe useful to extract from those decisions some of the major factors which were considered as having a bearing on the determination of the question. Those factors are:
(1) Whether the land was classified in the revenue records as agricultural and whether it was subject to the payment of land revenue ?
(2) Whether the land was actually or ordinarily used for agriculturalpurposes at or about the relevant time ?
(3) Whether such user of the land was for a long period or whetherit was of a temporary character or by way of a stop-gap arrangement ?
(4) Whether the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land ?
(5) Whether, the permission under s. 65 of the Bombay Land Revenue Code was obtained for the non-agricultural use of the land ? If so, whenand, by whom (the vendor or the vendee)? Whether such permission wasin respect of the whole or a portion of the land ? If the permission was in respect of a portion of the land and if it was obtained in the past, what was the nature of the user of the said portion of the land on the material date ?
(6) Whether the land, on the relevant date, had ceased to be put to agricultural use ? If so, whether it was put to an alternative use ? Whether such cesser and/or alternative user was of a permanent, or temporary nature ?
(7) Whether the land, though entered in revenue records, had never been actually used for agriculture, that is, it had never been ploughed or tilled ? Whether the owner meant or intended to use it for agricultural purposes ?
(8) Whether the land was situate in a developed area ? Whether its physical characteristics, surrounding situation and use of the lands in the adjoining area were such as would indicate that the land was agricultural ?
(9) Whether the land itself was developed by plotting and providing roads and other facilities ?
(10) Whether there were any previous sales of portions of the land for non-agricultural use ?
(11) Whether permission under s. 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, was obtained because the sale or intended sale was in favour of a non-agriculturist ? If so, whether the sale orintended sale to such non-agriculturist was for non-agricultural or agri-cultural user ?
(12) Whether the land was sold on yardage or on acreage basis ?
(13) Whether an agriculturist would purchase the land for agricultural purposes at the price at which the land was sold and whether the owner would have ever sold the land valuing it as a property yielding agricultural produce on the basis of its yield ?
At the risk of repetition, we may mention that not all of these factors would be present or absent in any case and that in each case one or more of those factors may make appearance and that the ultimate decision will have to be reached on a balanced consideration of the totality of circumstances."
13. According to the Tribunal that if the above tests are applied, the assessees could not satisfy any of the conditions except condition Nos.1,5,11 and 12. The Tribunal held that the assessees could not prove that the lands was actually or ordinarily used for agricultural purposes. This reasoning does not appear to be correct in view of the above-said decision of the Gujarat High Court, wherein it was clearly held in Clause (1) in paragraph 11 that whether the land was classified in the revenue records as agricultural and whether it was subject to the payment of land revenue has to be considered for grant of exemption.
14. Thus it is evident from the above, which clearly states that any one of the above factors can be present in a case to qualify for the benefit of classification as agricultural lands. In this case, the assessees have qualified under clause 11(1) since as per the adangal records, these lands were classified as agricultural lands and the assessees have also paid revenue kist, namely, revenue payment. Therefore, the Tribunal has misconstrued the judgment of the Gujarat High Court (supra) that all conditions laid down in paragraph 11 should be satisfied, which is not a correct interpretation.
15. To get exemption, the assessee has to satisfy the conditions laid down in Section 2(14) of the Income Tax Act, which reads as follows:
2(14) "capital asset" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include--
(i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession ;
(ii) personal effects, that is to say, movable property (including wearing apparel and furniture, but excluding jewellery) held for personal use by the assessee or any member of his family dependent on him:
Explanation.--For the purposes of this sub-clause, "jewellery" includes --
(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel ;
(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel ;
(iii) agricultural land in India, not being land situate --
(a) in any area which is comprised within the jurisdiction of a municipality (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 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 Gazette ;
(iv) 6. per cent. Gold Bonds, 1977, or 7 per cent. Gold Bonds, 1980, or National Defence Gold Bonds, 1980, issued by the Central Government ;
(v) Special Bearer Bonds, 1991, issued by the Central Government ;
(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government "
16. Once the Tribunal has accepted that the classification of lands as per the reveue records are agricultural lands, which are evidenced by the adangal and the letter of the Tahsildar and satisfies other conditions of Section 2(14) of the Income Tax Act, we are of the view that the Tribunal has misdirected itself as stated above.
17. Yet other reason given by the Tribunal is that the adjacent lands are put to commercial use by way of plots and therefore, the very character of the lands of the assssees is doubted as agricultural in nature. The manner in which the adjacent lands are used by the owner therein is not a ground for the Tribunal to come to a conclusion that the assessees' lands are not agricultural in nature. The reason given by the Tribunal that the adjacent lands have been divided into plots for sale would not mean that the lands sold by the assessees were for the purpose of development of plots. Also the reasoning given by the Tribunal "No agriculturists would have purchased the land sold by the assessee for pursuing any agricultural activity" is based on mere conjectures and surmises.
18. The plea of the learned standing counsel appearing for the Revenue that there was no agricultural operations prior to the date of sale is of no avail as the definition under Section 2(14) of the Income Tax Act has the answer to such a plea raised. Further more, it is also on record that the lands are agricultural lands classified as dry lands, for which kist has been paid.
19. The view of the assessee is fortified by the decision reported in (1937) 32 ITR 466 (Commissioner of Income-tax V. Raja Benoy Kumar Sahas Roy), wherein, it is held as follows:
"There was authority for the proposition that the expression "agricultural land" mentioned in Entry 21 of List II of the Seventh Schedule to the Government of India Act, 1935, should be interpreted in its wider significance as including lands which are used or are capable of being used for raising any valuable plants or trees or for any other purpose of husbandry (See Sarojinidevi v. Shri Krishna Anjanneya Subrahmanyam and other(1) and Megh Raj v. Allah Rakhia (2))."
20. For the foregoing reasons, we pass the following order:
(i)On the question of law raised, we are of the view that the Tribunal was not justified in rejecting the exemption. Accordingly, the questions of law are answered in favour of the assessees;
(ii)Consequently, the order of the Tribunal dated 11.4.2013 is set aside.
In the result, both the above Tax Case (Appeals) are allowed. No costs. Consequently, connected Miscellaneous Petitions are closed.
Index: Yes/No (R.S.,J) (G.M.A.,J) Internet:Yes/No 06.08.2014 To 1.The Income Tax Appellate Tribunal "B" Bench, Chennai. 2.The Commissioner of Income Tax (Appeals)-XII Chennai. 3.The Assistant Commissioner of Income Tax, Business Circle - XIV, Chennai - 34. R.SUDHAKAR,J. AND G.M.AKBAR ALI,J. sl T.C.(A) Nos.566 and 567 of 2013 & M.P.Nos.1 and 1 of 2014 06.08.2014