Income Tax Appellate Tribunal - Delhi
M.V. Chandrashekar (Huf) vs Asstt. Cit, Circle 4(1) on 29 September, 2005
Equivalent citations: [2006]5SOT960(DELHI)
ORDER
P. Mohanarajan, J. M. These appeals are by the assessee directed against the orders of the learned Commissioner (Appeals)-II, Bangalore, dated 10-2-2004.
2. We have heard both sides and perused the records. The assessee-HUF declared capital gains on sale of plantation land and claimed exemption from taxation contending that the assets sold was agricultural land and accordingly was not a capital asset as defined under section 2(14) of the Income Tax Act (hereinafter referred to as 'the Act'). Apart from capital gains other income/loss was also declared in the returns for the relevant years. For the assessment year 1995-96 original return was filed belatedly and was reaularized by issue of notice under section 148 of' the Act. For the assessment years 1995-96 to 1997-98 original returns filed were processed under section 143(1)(a). Subsequently notices under section 148 were issued to reopen the assessments. Thereafter the assessments were completed by the assessing officer denying the claim of the assessee.
3. On appeal before the learned Commissioner (Appeals) the assessee submitted that the finding of the Tribunal for the assessment year 1998-99 is required to be followed as the facts were identical. Further all the evidences furnished before the Tribunal were available to the assessing authority and accordingly there could be no deviation from the order of the Tribunal. The learned Commissioner (Appeals) has sought for a remand report from the assessing authority on the basis of the submissions made by the assessee. The learned Commissioner (Appeals) after obtaining the remand report held as follows:
"4.4 As has been mentioned above the copy of the above remand report was sent to the appellant for further comments and evidences. But it is seen that in his written response filed on 2.04 the appellant has repeatedly failling back upon is repeated arguments during the course of the assessment and the appellate proceeding by citing the comparable paragraphs of the decision of the Hon'ble ITAT in his case for the assessment year 1998-99. Conveniently the appellant has evaded to answer the outcome and comments of the assessing officer emanating from the physical inspection of the land and plots under consideration by the assessing officer and his consequent observations and arguments that were certainly not the subject matter of consideration or argument before the Hon'ble Tribunal relied upon by the appellant.
4.5 Under the facts and circumstances of the case it can thus be conclusively said that the ratio of the Hon'ble ITAT in its decision in the case of the Appellant referred to above does not apply in view of the additional facts and arguments that have been thrown up for these assessment years under consideration. In any case each assessment year is independent and therefore it is not necessary that the facts and circumstances as well as arguments and evidences independent of each other would necessarily mean a commonality of decision and applicability. Therefore, considering the facts and arguments freshly emanating from the Remand Report referred to above it is felt that the Appellant's arguments cannot be accepted. Therefore, there is no need to interfere with the assessment orders for all the assessment years under consideration and the appeals are dismissed."
Thus the assessments were upheld. Hence, the assessee is in appeal before this Tribunal.
4. The learned counsel Shri Parthasarathi submitted that the facts for the relevant years were in all force with the facts as found for the assessment year 1998-99. The assessing authority and the learned Commissioner (Appeals) tried to distinguish the facts by alleging that on inspection there were houses, there were roads and electrification etc., which would go to show that there was a planned layout and accordingly there was an activity in the nature of adventure. it was alleged that these facts were not available to the Tribunal when the order for assessment year 1998-99 was passed by the Hon'ble Tribunal. It was further submitted that these allegations were without substance since all these facts were available to the Tribunal when the order was passed for the assessment year 1998-99. In fact, the Tribunal had gone into the detail and also perused all the evidences before drawing conclusion as to the nature of activity of the assessee. It was also brought to the notice of the Tribunal that construction of houses in the agricultural land by the prospective buyers was of no consequence as far as the assessee was concerned when the assets were sold and it was an undisputed fact that the assets sold were only agricultural land though in small segments. The assessee had not even converted the land and at the same time, the assessee had not discontinued the agricultural activity. The inspection done by the Inspector of revenue in 2003 when reassessments were made for the relevant years was of no consequence since the situation as relevant to the assessment year were not available on account of various developments and there was no conclusive evidence in the hands of the revenue to show that the assessee had developed the land by itself with a motive to carry on the activity of business. On the other hand, it was established that the assessee had lands and the assessee had loans which were required to be discharged and in the circumstances the assessee was forced to sell the lands and what was sold was also agricultural land though in small segments in order to augment more funds and this activity could never be held to be a business activity or activity in the nature of business. Further, reliance was placed on the order of the Tribunal in the assessee's own case and also the judgment of the Supreme Court in the case of CIT v. H. HoIck Larsen (1986) 160 ITR 671 (SC).
5. On the other hand, the learned departmental Representative submitted that even when the assessee had purchased the land as early as in 1977-78, the assessee was aware of the potential of the land and these lands were abetting the area which were industrially developed and that there could be motive to encash at the appropriate time and that there was intention to carry on business. The assessee had planned layout of small segments of land only with a view to develop residential layout and not as agricultural land or plantation which is evident from the fact that the assessee had made provision for club in the vicinity of the layout. Further, the quantum of expenditure incurred by the assessee in the development of small segments of lands would suggest that these lands were developed to have commercial benefit and the lands having come within the industrial belt there was obvious reason for the assessee to sell the land commercially. These facts, according to the learned departmental Representative were not considered by the Tribunal, while passing the appellate order for the assessment year 1998-99. In light of the above, it was submitted that the orders of the authorities below are required to be upheld. It was also submitted that the principles of natural justice were not applicable. Reliance was placed on various case laws. The learned departmental Representative also filed detailed written submission narrating the facts of the case. He also relied on the decisions of the Tribunal in Smt. G. Krishnammal v. Dy. CIT (1998) 66 ITD 83 (Mad.) and Shriram Transport Finance Co. Ltd. v. Asstt. CIT (1999) 70 ITD 406 (Mad.) arguing that the order in the assessee's case for relevant year need not be followed for these assessment years. He submitted that the Tribunal might reach a different conclusion in a particular case if after considering all the aspects of the case and other material on record which are not considered earlier. He also relied on the decision for highlighting the principles of res judicata as not applicable to the income-tax proceedings. He also relied on various decisions in his notes on arguments to emphasize the proposition that what constitutes adventure in the nature of trade.
6. In reply, the assessee's counsel submitted that none of the case laws would apply to the assessee's case and in all these cases there was a proximity of purchase of land and conversion and sale to evidence the activity of profit. On the other hand, in the assessee's case the compulsion for sale of lands had been established, which was otherwise being used by the assessee for cultivation. The lands purchased were under cultivation by the assessee for several years. The development expenditure incurred were only to make the lands saleable in order to maximize the funds to discharge the commitments as aforesaid which could not be considered to be a commercial activity. Further, the order of the Tribunal in the assessee's own case under similar circumstances would remain the same and the distinction sought to be made by the revenue was unwarranted.
7. We have heard the rival submissions and perused the records. in fact, it was submitted that the evidence available before the Tribunal at the time of passing the order for the assessment year 1998-99 would show that there was no adventure as alleged by the revenue. In fact, the other arguments of the revenue that the land was in the vicinity of industrial belt and was supposed to be developed were of no consequence since what was purchased by the assessee was only agricultural lands and they continued to be agricultural lands and the assessee had also as an agriculturalist cultivated the lands. Moreover, the lands were held by the assessee for more than a decade during the course of which he had incurred heavy losses resulted in borrowal which had forced the assessee to part away the lands to certain extent. In fact, the assessee is still holding agricultural lands and agricultural activity is being carried on. Thus, on the facts, it was submitted that there was no adventure in the nature of trade and gains on sale of lands are required to be assessed only under the head 'Income from capital gains'.
8. Under similar circumstances, for the assessment year 1998-99 the assessee offered capital gains on sale of plantation land and claimed exemption from tax on capital gains derived holding that the assets sold were not capital assets. For the assessment year 1998-99 the assessing authority had held that the assessee having made plots of lands and sold, there was 'adventure in the nature of trade' and the profit, derived therefrom was required to be assessed under the head 'income from business'. The assessee disputed the assessment and the first appellate authority had also upheld the assessment. On further appeal, the Tribunal, it was submitted that the assessee family is engaged in agricultural activity for several years and agricultural lands were purchased as early as in 1977-78 and they were under cultivation and the agricultural income was declared. On account of certain loans required to be discharged, the assessee desired to sell some part of the lands to discharge the loans since there was poor yield from agricultural activity, Further, the assessee also desired to carry certain business activity and for funding the same, it was desired to sell part of the lands. In order to maximize the return, the assessee had made smaller segments of agricultural land and they were being sold from time to time and rightly the income earned therefrom was only in the capital field and the lands sold continued to be agricultural lands and not converted lands and accordingly, no capital gain was liable to be assessed since the assets sold were not capital assets as provided under section 2(14) of the Act. Reliance was sought on various judicial pronouncements, which have been considered by the Tribunal in its order for the assessment year 1998-99. The assessee had also contended that it did not discontinue the agricultural activity and even in the later years there were agricultural operations and the income derived therefrom was being declared. Details in this regard had also been furnished. The revenue, on the other hand, argued that the assessee had made investments in shares, estate club and resorts etc., and thus it was not exclusively an agriculturist. The assessee purchased seven acres of adjoining lands to the lands held by it in the year 1992 only with a view to make plots which would show that there was intention to carry on business activity and the income was to be rightly assessed as income from business. In reply, the assessee had submitted that its main activity was agriculture and incidentally there were some other activity carried on which would not mean that it was not an agriculturist. Further, it was contended that purchase of additional acres in 1992 was only with a view to maximize generation of funds in order to discharge the loan and there was no intention to carry on any activity of business. The details in this regard was also submitted that the lands could not be sold earlier on account of the bar of dividing the lands and only after permission was granted for division of land under Karnataka Prevention of Fragmentation and Consolidation of Holding (Repeal) Act of 1990 it could sell the lands to generate income to reduce its loss and also to repay the loans. The fact that it incurred heavy losses had also been established.
9. In the decision of the Tribunal dated 6-12-2002 in ITA No. 663/Bang./02, for assessment year 1998-99, Tribunal held that there was no business or adventure in the nature of trade in the case of the assessee when the lands were sold and the gains therefrom was required to be assessed only under the head 'Capital gains'. Accordingly, the appeal of the assessee was allowed. The facts are identical for the years under consideration. Further the sale of land by the assessee is also as agricultural lands. This fact is not in dispute. The land was purchased before decades as agricultural lands. The facts prevailing at the relevant point of time has to be taken into consideration. Subsequent inspection done by the revenue at a much later date (say year after) cannot be a yardstick to conclude the issue. The city of Bangalore in recent years has grown wide due to the advent of investments made by the multi-national enterprises. Therefore, we do not find any force in the arguments advanced by the learned departmental Representative Shri Arun Bhatnagar.
10. The Tribunal, in the order dated 6-12-2002 had considered the reply dated 7-1-2000 extracting the various relevant portions and considering the same meticulously. In the aforesaid order, the Tribunal also distinguished the various decisions relied on by the learned DR. As the facts are identical, the arguments advanced before us by the learned departmental Representative do not have any force. We have had the benefit of going through the entire order of the Tribunal dated 6-12-2002 wherein it has been held as under:
'The ITAT, Pune Bench in the case of Baramati Taluka Sahakari Doodh Purvatha Sangh Ltd. v. Asstt. CIT 75 ITD 284 wherein the assessee was engaged in the business of collecting milk from primary members and supplies the same to the Government. They purchased a land for erecting cattle feed factory. The said land could not be used for constructing factory due to certain circumstances and was converted into plots which was treated by the assessing officer as profit arising out of the sale of land into business income treating the profit as arising from adventure in the nature of trade. The Tribunal held that mere taking plots and sale cannot be considered as adventure in the nature of trade because the intention of the assessee was to put up a factory and it was not the intention to sell the land by making plots, also supports the case of the assessee. Certainly in the present case, before us the assessee purchased the land from 1977 onwards so we do not agree with the argument of the learned counsel for revenue that the intention of the assessee was to develop the land for plotting etc. Even during argument before us the learned counsel for assessee opined that the land can be inspected even today. As the assessee was incurring huge losses and incurred huge liabilities and to clear such liabilities, the land was made into plantation/plots/smaller plots and was sold because every time the availability of purchaser may not be so easier for bigger plots.
The ITAT, Hyderabad Bench in the case of Smt. Sujeet Kaur v. ITO 119 Taxman 33 (Hyd) wherein the assessee received certain amount on sale of land, which the assessee claimed to be exempt because any capital gains arising of sale of agricultural land is not liable for taxation. In this case the land was purchased in 1968, the assessee was carrying on agricultural operation and due to certain circumstances the assessee sold the land. The Tribunal held that the test for treating the land as agricultural or non-agricultural is:
(a) Acquisition and assessment of land to land revenue
(b) whether agricultural operations are carried on
(c) intention of the owner
(d) character of the adjoining land In this case the revenue records classify the land as agricultural land and it was being used for agricultural operations and the land was not sold as agricultural land to a company. It was held that just because the buyer was a company could not alter the character of the land as on the date of transfer. The Tribunal held that the capital gains arising on transfer of land is not taxable.
The Hon'ble High Court of Delhi in the case of CIT v. Krishna Kumar Kapur 169 CTR (Del) 70 held that when the revenue records show that the land was agricultural land and transfer is also made as agricultural land, the capital gains should be considered as exempt being capital gains on sale of agricultural land. We do not agree with the contention of the learned counsel for revenue that some of the purchasers have erected building/farm house, has changed the character of the land. Just because the building has been put up by the purchaser cannot change the character of the land as on the date of sale. As the assessee has incurred huge losses and having huge liabilities in order to acquire the same, plots were made and sold as agricultural land it cannot be considered as adventure in the nature of trade .... We have also gone through the copy of Circular No. R0411 1.M.0.7 dated 2-4-1987 regarding clarification on farm house, from the office of the Special Dy. Commissioner, Bangalore (N) District and the restriction or prohibition on transfer of agricultural land less than minimum standard extent, which is reproduced as under:
'Prior to 5-2-1991, the agricultural land could not be transferred less than minimum standard fragments. Through Karnataka Prevention of Fragmentation and Consolidation of Holding (Repeal) Act, 1990 (Karnataka Act of 1991), Karnataka P&C of Holding Act, 1966 (Karnataka Act of 1967) has been repealed from 5-2-1991. Therefore, now there is no bar for transfer of agricultural land by sale by mortgage or gift etc., irrespective of the extent. Because of repeal of the said Act, now the agricultural land can be transferred to even the extent of one gunta or less also.' Construction of Farm House in Agricultural land 'Under section 95(1) of the Karnataka Land Revenue Act of 1964, the occupant and owner of an agriculture land is entitled by himself, his servants, tenants, agents or other legal representatives to erect farm buildings for the better cultivation of the land or its more convenient use for the purpose of agriculture/improvement of the land.' For construction of Farm House in agricultural land no sanction or permission is required under the relevant rules and as such no authority is invested with the powers of giving permission for construction of farmhouse on agricultural land.
As per the Karnataka Land Reforms Act, 1961, the purchase of agricultural land by the following persons is prohibited under section 80 of the Karnataka Land Reforms Act:
(1) One who is not an agriculturist (2) One being an agriculturist holds land exceeding ceiling limits (54 acres - 'D' Class land) (3) One who is not an agricultural labourer (4) One whose annual income from non-agricultural sources exceeds Rs. 50,000 (earlier the limit was Rs. 12,000) the same has been increased through KLR (2nd Amendment) 1950 Karnataka Act of 1991 with effect from 5-2-199). New limit 2 lakhs.
The learned counsel for the assessee has also produced before us a decision dated 10-3-1978 ordered by the Karnataka Appellate Tribunal, Bangalore regarding Karnataka Land Revenue Act, 1964 as per section 95, Farm Building, that is 'Any building constructed on the land for enabling better cultivation and management of the land ought to be treated as a "Farm Building". As long as the predominant purpose of the building constructed on the land is its user by the cultivator for the purposes of dwelling, tethering of the cattle, storing of the agriculture implements and the agricultural produce, the nature of the building the material used, its size or the comforts provided therein will be immaterial. Farm building used in section 95 of the Land Revenue does not mean a poor agriculturist but without amenities. It can be a modern structure with all facilities.' The order further assess "Under section 95 of the Land Revenue Act, an occupant of land assessed or held for the purpose of agriculture is entitled to erect Farm buildings construct wells or tank or make any other improvements thereon for the better cultivation of the land or its more convenient use for the purpose aforesaid. The phrase "Farm building" is not defined anywhere. The analogous provision section 65 of the Bombay Land Revenue Code also uses the phrase "Farm building". "Farm buildings" we think is not one which is used by very poor agriculturists. Any building constructed on the land for enabling better cultivation and management of the land ought to be treated as a "Farm building". As long as the predominant purpose of the building constructed on the land is its user by the cultivation for the purpose of dwelling, tethering of the cattle, storing of the agricultural implements and the agricultural produce, the nature of the building, the material used, its size or the comforts provided therein will all be immaterial. "Farm Building" used in section 95 of the Land Revenue Act does not mean a poor agriculturist's hut without amenities. It can be a modern structure with all facilities. It is enough if the occupier is engaged in the cultivation of the land on or near which the building is erected. The Bombay Revenue Tribunal has held in case No. 698/41 that two pucca houses erected by the holder of an Inam Village, one for his own use and the other for tethering cattle were purely "Farm Houses" .
11. All these vital details and materials have been meticulously considered by the Tribunal while passing the order dated 6-12-2002. Considering all the aforesaid facts and submissions and in view of the discussions in the foregoing paragraphs, we are not inclined to accept the arguments put forth by the learned departmental Representative On the other hand, we find much force in the stand taken by the assessee. Therefore, we are inclined to accept the claim of the assessee. Further applying the ratio laid down by this Tribunal in the order dated 6-12-2002, we allow the claim of the assessee. It is ordered accordingly.
In the result, the appeals are allowed.