Bombay High Court
Commissioner Of Income-Tax vs S.N. Desai on 22 November, 1988
Equivalent citations: [1989]177ITR151(BOM)
Author: S.P. Bharucha
Bench: S.P. Bharucha
JUDGMENT T.D. Sugla, J.
1. The only question of law referred to this court at the instances of the Department is:
"Whether, on the facts and in the circumstances of the case, the sums of Rs. 5,98,527, Rs. 1,37,328 and Rs. 2,47,300 were exempt from assessment to tax as capital gains on the ground that the relevant lands were agricultural lands ?"
2. The assessment years involved in this reference are 1963-64, 1965-66 and 1966-67, for which the relevant previous years ended on March 31, 1963, March 31, 1965, and March 31, 1966, respectively. The assessee had extensive lands in the villages of Pahadi, Oshivara, Dindoshi, Goregaon, etc., with the area of Greater Bombay. For the assessment year 1957-58 to 1959-60, the value of these lands was not assessed to wealth-tax on the ground that these were agricultural lands to which the Wealth-tax Act, 1957, was not applicable. For the next two assessments years, i.e., 1960-61 and 1961-62, the Wealth-tax Officer took the view that circumstances had changed and the lands in dispute had ceased to be agricultural lands (i) as the assessee had entered into several agreements for sale of these lands with different parties, (ii) as except the area of land admeasuring about 1 acre 33 1/2 gunthas, the remaining lands were not used for agricultural purposes during the previous years relevant to the assessment years 1960-61 and 1961-62 and (iii) as these remaining lands were likely to be used for the construction of industrial units by the purchasers. The said wealth-tax assessments were divided into two groups. The first group related to the lands for which agreements for sale had been entered into by the assessee with three different concerns, i.e., Ciba of India, New Standard Engineering Co. Ltd., and Nanubhai Industries, and which lands were ultimately purchased by the said concerns. The second related to the lands which were lying follow. The Wealth-tax Officer held that except for an area admeasuring 1 acre and 33 1/2 gunthas, which was used for agricultural purposes, all other lands had ceased to be agricultural lands and were liable to be changed to Wealth-tax, the wealth-tax assessments ultimately reached the stage of the Tribunal which, after elaborately considering the facts and case law cited before it, came to the conclusion that the lands to be sold to the aforesaid three concerns were agricultural lands and the value thereof could not, therefore, be included in the assessment of the assessee as they continued to be agricultural lands. As regards the fallow land also, the Tribunal further held that the character of this land had ceased to be that of agricultural land and its value was calculated for the purpose of wealth-tax. The matter was taken to this court and by its judgment dated July 25, 1975, in CWT v. Sitaram N. Desai [1977] 109 ITR 13, this court took the view that the decision of the Tribunal involved findings of fact only and, that therefore, the decision required to be upheld, not being perverse.
3. During the previous year relevant to assessment year 1963-64, the assessee sold hands measuring 1,64,862 sq. yds., for a sum of Rs. 10,93,113. The Income-tax Officer did not accept the assessee's that these were agricultural lands and that surplus, if any, was not liable to tax as capital gains. He also did not accept the assessee's alternative claim that the fair market value of the lands in dispute was higher than the sale price as on January 1, 1954. According to him, the fair market value of these lands as on January 1, 1954, could reasonably be estimated at Rs. 3 per sq. yd. In this manner, he computed the capital gains for the assessment year 1963-64 at Rs. 5,98,572. For the assessment year 1965-66, the Income-tax Officer computed the capital gains at Rs. 1,38,951. However, for this assessment year. There are no details in the assessment order as regards the area and the price for which the lands were sold. For the assessment year 1966-67, the Income-tax Officer found that the assessee had sold 2,16,322 sq. yds., of lands for a consideration of Rs. 9,15,920. Rejecting the assessee's contention that the fair market value of these lands as on January 1, 1954, was higher than the sale price or that the lands were agricultural lands, the Income-tax Officer computed the capital gains at Rs. 2,47,300 by estimating the fair market value of the lands as on January 1, 1954, at Rs. 3 per sq. yd.
4. The Appellate Assistant Commissioner as well as the Tribunal accepted the assessee's claim that the lands were agricultural lands and that, therefore, the surplus arising on their sale, if any, was not liable to tax. The Tribunal, however, did not accept the assessee's alternative contention that the fair market value of the lands was higher on January 1, 1954, than the sale price. In fact, a question sought to be raised on behalf of the assessee as regards the estimate of the fair market value of the lands as on January 1, 1954, as a question of law was rejected by the Tribunal holding that the question involved a finding of fact.
5. The question that arises in this reference, therefore, is whether or not the lands were agricultural lands in the hands of the assessee during the relevant previous year. In this context, it is desirable to mention that so far as the lands sold during the previous year relevant to the assessment year 1963-64 are concerned, the dates of the agreements of sale are not available on record. It is, however, common ground that the possession of the lands was handed over on September 21, 1961, and the deed of conveyance was executed on May 14, 1962. It is also more or less agreed that the lands in dispute were used for agricultural purposes up to March 31, 1959, for the assessment year 1965-66, there is no material on record indicating the dates of the agreements or the date of conveyance or the area of the land and the price for which these were sold. The only material available is that the surplus treated as capital gains was computed at Rs. 1,38,951. For the assessment year 1966-67, the facts were some what different. The assessee had entered into an agreement with Nanubhai Industries for sale of certain lands at Rs. 4.50 per sq. yd., on April 29, 1959. Nothing happened further under that agreement. In the meantime, land acquisition proceedings were initiated by issue of notice under section 4 of the Land Acquisition Act, 1894, on January 24, 1960, and completed under section 17 on June 1, 1960. The possession of the lands was given on December 1, 1960. It appears that in the year 1964, a Supreme Court decision was published. According to the buyers, the Supreme Court expressed some doubt as to whether the acquisition proceedings conferred valid title upon the company for whom the lands were acquired. In this background, Nanubhai Industries who had, in the meanwhile, changed the name of their company into Nirlon Synthetic Fibres and Chemicals Ltd., entered into a freed agreement with the assessee on September 22, 1964. The total consideration received by the assessee amounted to Rs. 7,04,022. It is an admitted position that a part of the consideration was received during the previous year. This transaction pertained to the sale of 1,71,215 sq. yds., only. The total sale of lands during the previous year was of 2,16,322 sq. yds., for a consideration of Rs. 9,15,920.
6. After considering relevant facts on record and on going through the cases cited before it and referred to in paragraphs 10 to 17 of its order, the Tribunal, while dealing with the transactions relevant to the assessment year 1963-64, observed that the lands were admittedly agricultural lands up to March 31, 1959. Apart from entering into an agreement, the assessee had not done anything to convert the nature and character of the lands. There was no evidence to show that at the time when the sale deed was the lands into non-agricultural lands. In the above circumstances, the Tribunal upheld the finding of the Appellate Assistant Commissioner that the lands in dispute continued to be agricultural lands even at the time when the deed of sale was executed.
7. As regards the assessment year 1965-66, facts are almost nil on record. However, the Tribunal has proceeded on the assumption that the facts are identical. Observing in paragraphs 18 and 19 of its judgment that there was no material to show that the nature and/or character of lands had altered. The Tribunal held that the Income-tax Officer was in error in treating the surplus arising out of the transaction as capital gain and agreed with the finding of the Appellate Assistant Commissioner.
8. Regarding the assessment year 1966-67, the Tribunal, laying main stress on the facts that the assessee had not done anything to convert the lands from agricultural into non-agricultural and agreeing with the Appellate Assistant Commissioner's finding, held that the lands were agricultural and that the surplus arising from the transaction was, therefore, not liable to tax as capital gain.
9. Shri Jetley, learned counsel for the Department, drew our attention to the Supreme Court decision in the case of CWT v. Officer-in-Charge (Court of Wards), Paigah, [1976] 105 ITR 133, for the purpose of showing that the decisions relied upon by the Tribunal were not of much relevance after the aforesaid Supreme Court decision, it was pointed out that the determination of the character of the land, according to the purpose for which it is meant or set apart, whether if was kept fallow or used, was a matter which ought to be determination on the facts and circumstances of each particular case. What was really required to be shown was it connection with the agricultural purpose and actual user and not the mere possibility of user of the land, by some possible future owner or purchaser or possessor, for an agricultural purpose. It was not the mere potentiality, which would affect its valuation as part of the assets, but its actual condition and intended user which had to be seen. One of the objects of the exemption was stated to be to encourage cultivation or actual utilisation of land for agricultural purposes. If there was neither anything in its condition, nor anything in evidence to indicate the intention of its owners or possessors, so as to connect it with an agricultural purpose, the land could not be treated as agricultural for obtaining exemption under the Act. Further, according to Shri Jetley, this court's decision in the case of CIT v. Universal Cine Traders Pvt. Ltd. [1986] 161 ITR 696, to which one of us was a party, practically clinched the issue against the assessee. He invited our attention to the observations made in this case at pages 702 and 703. He also placed reliance on the observations at page 102 in another decisions of this court in the case of CIT v. V. A. Trivedi [1988] 172 ITR 95:
"To ascertain the true character or nature of the land, it must be seen whether if has been put to use for agricultural purposes for a reasonable span of time prior to the relevant date. It must also be seen whether, on the relevant date, the land was intended to be put use for agricultural purposes for a reasonable span of time in the further. That this last criterion is also necessary is indicated by the decisions now mentioned."
10. It was stated that all these transactions of sale by the assessee were with persons who had purchased these lands with the intention to put up industries, it was stated that, in the circumstances obtaining, the fact that the assessee had himself not applied for the conversion of the land from agricultural to non-agricultural use was of not much consequence. It was clear that once the lands were sold, they were likely to be used by the purchasers for setting up industries and certainly not for an agricultural purpose. The lands sold during the pervious year relevant to the assessment year 1966-67, in particular, it was further stated, were not put to agricultural use after March 31, 1959. Except for a vague observation that the lands were treated as agricultural lands, there was no specific finding that the lands continued to be assessed to land revenue up to the time of the sale. These circumstances, according to Shri Jetley, clearly indicated that the Tribunal was in error in treating them as agricultural lands.
11. Shri Dalvi, learned counsel for the assessee, on the other land, reiterated that the lands in dispute were assessed to land revenue and that the lands sold during the previous years relevant to the assessment years 1963-64 and 1966-67 were used for agricultural purposes till March 31, 1959, whereas the lands sold during the previous year relevant to the aassessment year 1965-66 were put to agricultural use till March 31, 1961. He strongly relied on the negative fact, namely, that no application for conversion of the land from agricultural to non-agricultural use was admittedly made on behalf of the assessee. He stated that merely because for a few years, the lands were not put to agricultural use, the character of the lands would not change. Shri Dalvi then placed reliance on another decision of this court in the assessee's own case [1977] 109 ITR 13, where a major portion of these lands was held to be agricultural lands. According to Shri Dalvi, the facts remained almost identical except that during the relevant previous years, the sale transactions were completed. Shri Dalvi next relied on another decision of this court in the case of CWT v. H. V. Mungale [1984] 145 ITR 208. In particular, he invited our attention to the first paragraph at page 215 of the judgment where, after analysing the decision of the Supreme Court in CWT v. Officer-in-Charge (Court of Wards) [1976] 105 ITR 133, it was observed that the decision of the Supreme Court required to be read in the light of the fact that the Supreme Court was dealing with an exclusive piece of land which was a part of the palace estate which had never been used for agricultural purposes and the mere possibility that it could be used for agricultural purposes was treated as insufficient to qualify it as agricultural land. It was stated that this court did ultimately hold that the land was entered in the land revenue records as agricultural land and was assessed to land revenue. It was used for agricultural purposes till 1963 and that merely because the land remained fallow after 1963, it did not cease to be agricultural land during the previous year relevant to the assessment years 1965-66 to 1969-70 during which the sales took place.
12. It may not be out of place to mention that, by way of an alternative argument, Shri Dalvi stated that so far as the computation of capital gains for the assessment year 1966-67 is concerned, his client was entitled to succeed also on the ground that the transaction of sale had not taken place during the previous year. In this context, he pointed out that the land was also given long before the previous year. The conveyance deed was, no doubt, executed during the provisos year but that was that was only as a matter of precaution.
13. We do not think that such a contention can be considered at this stage. Firstly, this is not the question of law referred to this court by the Tribunal and, therefore, it is not possible for us to look into that aspect of the matter in this reference. Moreover, paragraph 24 of the Tribunal's order clearly shows that the Tribunal had also not entertained such a contention. The Tribunal's observations in this regard are:
"The assessee offered the said amount for assessment in this year and the assessee now cannot seek to go back on his own conduct. If the assessee had taken up this point at the stage of assessment, there would have been scope for taking other proceedings for the earlier years or years so as to bring the relevant amount to tax in the earlier year or years. The assessee cannot seek to prejudice the Revenue by offering the amount for assessments in 1966-67 and then finding that the proceeding for the earlier year could be barred, trying to go back on the admission."
14. We do not think that it is really necessary to examine each every decision considered by the Tribunal in its judgment or cited before us by the parties. It is sufficient to say that after the Supreme Court decision in the case of Officer-in-Charge (Court of Wards) [1976] 105 ITR 133, the legal position is that the mere fact that certain lands are shown as agricultural lands in the revenue records and are assessed to land revenue is no longer sufficient though it continues to be a relevant factor to be taken into account. Similarly, judicial notice has to be taken of the fact that one of the objects of the exemption is to encourage cultivation or actual utilisation of the land for agricultural purposes. Of course, each circumstance by itself may not be conclusive one way or the other and it is the cumulative effect of all attending circumstances that will have to be weighed for the purpose of coming to the conclusion whether certain lands, when sold, were agricultural lands or not.
15. For this purpose, what we consider necessary to bear in mind is that the lands sold during the provision year relevant to the assessment year 1963-64 were not put to agricultural use after March 31, 1959. There is no positive evidence on record to suggest that these lands were agricultural lands and were assessed to lands were assessed to land revenue up to the date of their sale. Possession of these lands was handed over on September 21, 1961, i.e., much prior to the commencement of the previous year relevant to that assessment year. The major portion of the land was sold to Ciba of India. It is, thus, clear that the land was not going to be used for agricultural purposes. No doubt, the assessee himself had not applied for converting the lands from agricultural lands into non-agricultural lands. However, having regard to the facts mentioned by us above, we are of the view that the Tribunal was in error in holding that the lands in question continued to be agricultural lands during the previous year relevant to the assessment year 1963-63 and, that therefore, the surplus arising from the transaction was not liable to tax as capital gains.
16. For the assessment year 1966-67, the position is still worse for the assessee. Possession of the land was handed over to the purchaser in 1961 itself. Naturally, therefore, the assessee did not, rather could not, have continued agricultural operations after March 31, 1959. Here again, the lands were sold to business concerns who were not going to put them to agricultural use.
17. For the reasons stated above, for the assessment year 1963-64, we hold that the lands sold during the previous year relevant to the assessment year 1966-67 were not agricultural lands and the surplus computed by the Income-tax Officer was accordingly liable to tax.
18. For the assessment year 1956-66, however, as stated by us earlier, there is no material on record to suggest that the nature and/or character of the lands which were treated as agricultural lands for the assessment years 1960-61 and 1961-62 had changed in any manner whatsoever. On the material before us, therefore, we do not see any justification for interference so far as the finding of the Tribunal in regard to the assessment year 1965-66 is concerned.
19. In the result, the question of law which is a composite question of law is answered thus:
In so far as the assessment years 1963-64 and 1966-67 are concerned, the sums of Rs. 5,98,527 and Rs. 2,47,300, respectively, are not exempt from assessment to tax as capital gains on the ground that the relevant lands were not agricultural lands.
20. In so far as the assessment year 1965-66 is concerned, the sum of Rs. 1,37,328 is exempt from assessment to tax as capital gain on the ground that the relevant lands was agricultural lands.
21. The question is so answered.
22. No order as to costs.