Calcutta High Court
Commissioner Of Income-Tax vs Shree Hanuman Sugar And Industries Ltd. on 14 June, 1991
Equivalent citations: [1992]195ITR625(CAL)
JUDGMENT Ajit K. Sengupta, J.
1. In this reference under Section 256(2) of the Income-tax Act, 1961, for the assessment year 1972-73, the following questions of law have been referred to this court :
"1. Whether the finding of the Tribunal that the lands sold by the assessee during the relevant previous year were all agricultural lands was based on proper evidence and materials ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that no capital gains arose on the transfer of plots of land, building and tubewells therein by the assessee 1
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals) deleting the capital gains of Rs. 15,49,581 on the transfer of plots of land, building and tubewells therein included by the Income-tax Officer in the total income of the assessee-company ?"
2. We reframe the second and third questions as follows :
"2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that no capital gains arose on the transfer of plots of land by the assessee ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals) deleting the capital gains of Rs. 15,49,581 on the transfer of plots of land, included by the Income-tax Officer in the total income of the assessee-company ?"
3. The facts leading to this reference are that the assessee, a limited company, during the previous year ending on June 3, 1971, sold certain lands and buildings, structures thereon and a tubewell for a total sum of Rs. 20,35,230. Those assets had a book value of Rs. 4,19,669. Accordingly, the assessee recovered a sum of Rs. 16,16,581 in excess of the book value. The Income tax Officer wanted to charge the above amount under the head "Capital gains". The assessee pleaded that no capital gains accrued to the assessee as the assets sold were agricultural lands and not 'capital asset'. The buildings and tubewells on the above land were also being used for agricultural operations. The Income-tax Officer did not accept the above contention as there was no evidence to support the claim of carrying on agricultural operations on the land sold. He, therefore, held that the lands and other assets sold were not agricultural assets. He allowed Rs. 72,000 towards expenses on account of legal fees, stamps, registration, etc., and brought the balance amount of Rs. 15,49,581 to tax as capital gains.
4. The assessee challenged the above order in appeal before the Commissioner of Income-tax (Appeals) and contended that the lands sold were all along utilised for purposes of cultivation of sugarcane. It was pointed out that the land revenue had been debited in the respective accounts. Reliance was placed on the decision of the Calcutta High Court in the case of Sutton and Sons [1981] 127 ITR 57. It was further contended that the Income-tax Officer was wrong in coming to the conclusion that capital gains arose on the transfer of agricultural lands and structures thereon. A copy of the assessment order passed by the Agricultural Income-tax Officer, Champaran, Motihari, was produced before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals), after considering the submissions made before him, held that the Income-tax Officer was in error in computing the capital gains in respect of sale of the agricultural lands. Coming to the sale of building and tubewells, the Commissioner of Income-tax (Appeals) observed that there was no evidence to show that the building and tubewells were situated on the sole land. He, however, found that no depreciation had ever been allowed on the building and tubewells and that the Income-tax Officer had allowed deduction of Rs. 72,000 as expenses in connection with the sale of lands, building and tubewells. On a consideration of these facts, the Commissioner of Income-tax (Appeals) came to the conclusion that the capital gains on sale of buildings, tubewells, etc., should be computed having regard to the actual cost of the buildings and tubewells and not the book value of the assets. Thus, he determined the net profit on sale of building and tubewells at Rs. 5,221 as detailed in his order. But the Commissioner of Income-tax (Appeals) was of the opinion that proportionate expenses in respect of the sale of building and tubewells could not be less than Rs. 5,221. Therefore, according to him, there was no capital gain on sale of building and tubewells. He, accordingly, deleted the entire addition.
5. The Revenue being aggrieved challenged the above order of the Commissioner of Income-tax (Appeals) before the Appellate Tribunal and contended that the assessee could produce no satisfactory evidence before the Income-tax Officer in support of its claim that the lands so transferred were agricultural lands. The departmental representative submitted that, after the amendment of Section 2(14) of the Income-tax Act, 1961, with effect from April 1, 1970, the agricultural land situated in municipal or other urban areas came under the definition of "capital assets". The learned departmental representative urged that the Commissioner of Income-tax (Appeals) had not examined the fact whether the agricultural lands were situated within the municipal or urban or notified area. The learned departmental representative further submitted that, in view of the aforesaid fact, the order of the Commissioner of Income-tax (Appeals) on this point should not be sustained. Learned counsel for the assessee, on the other hand, furnished before the Tribunal the details of agricultural lands as also evidence in support of the assessee's claim to carrying on of agricultural operations on the disputed lands. He also furnished before the Tribunal a copy of the assessment order made by the Agricultural Income-tax Officer, Motihari, dated September 1, 1978, in which different kinds of agricultural products were found to be sold by the assessee. He also relied on the decision of the Calcutta High Court cited by the Commissioner of Income-tax (Appeals). Learned counsel for the assessee pointed out that the Commissioner of Income-tax (Appeals) observed that there was no capital gain on transfer of building and tubewells which were situated on the aforesaid lands. He, deleted the capital gains on transfer of these assets on the ground that there was no capital gain on transfer of these assets after considering the cost of acquisition as also proportionate expenses that were incurred for transfer of these assets.
6. The Appellate Tribunal, after considering the submissions of both the parties and the material on record, upheld the order of the Commissioner of Income-tax (Appeals) with the following remarks :
"There is no dispute about the fact that the assessee was carrying on agricultural operations on the land so transferred during the previous year relevant to the assessment year under appeal inasmuch as the assessment order made by the Agricultural Income tax Officer, Motihari, clearly went to suggest that the assessee produced several varieties of crops on the disputed lands and derived income out of the sale proceeds of those crops. It was an undisputed fact that the assessee was debiting the land revenue paid by it in its accounts regularly. In this view of the matter, it can be held that the lands so transferred by the assessee during the relevant previous year were agricultural lands. The learned departmental representative, however, argued that the amended provision of Section 2(14) which came into force with effect from April 1, 1970, had application to the facts of the case. However, we find that no material could be brought by the Income-tax Officer on record from which it can be inferred that the agricultural lands were situated within the municipal or urban or notified areas in the definition of "capital assets" as given in the amended provision of Section 2(14) of the Income-tax Act, 1961. Moreover, the details of sale of lands placed on record clearly go to indicate that the lands were situated in a village under the jurisdiction of the Police Station of Motihari. The schedule of lands as mentioned in the sale deed shows that these lands were situated in a village within the sub-registry office of Police Station Motihari, in the District of Champaran, Bihar. All these facts go to suggest that the lands so transferred were not situated within the municipal or urban or notified area as defined in the amended provision of Section 2(14) of the Act. We, therefore, uphold the order of the Commissioner of Income-tax (Appeals) in deleting the capital gains added by the Income-tax Officer."
7. At the hearing, Mr. Dey appearing for the assessee has contended that the facts which have been found by the Tribunal are all findings of fact, and, accordingly, on that basis, the Tribunal came to a correct conclusion. He has drawn our attention to the order passed by the Tribunal which we have already extracted hereinbefore. On the first question which has been referred to us, the findings of the Tribunal have been challenged. Merely because the assessee produced several varieties of crops on the disputed land, the land would be not treated as agricultural land, nor is the fact of payment of land revenue in respect of the land decisive. Section 2(14)(iii) which deals with the agricultural land has been amended by the Finance Act, 1970, with effect from the assessment year 1970-71. Before the said amendment, agricultural income arising from the transfer of agricultural land was exempt from tax but, by the amendment, the capital asset being the agricultural land which is situated in the urban areas specified in the sub-clause or in their vicinity notified by the Central Government would come within the purview of the 'capital gains tax. It was, therefore, absolutely necessary for the Tribunal to find out whether having regard to the amendment effected in Section 2(14)(iii), the land in dispute would come within the mischief of the aforesaid amendment or not. Admittedly, the notification was not issued until February 6, 1973, and, therefore, cannot be applied retrospectively to the assessment year in question. In other words, section 2(14)(iii)(b) will have no application to the facts of this case. However, the Tribunal did not properly apply its mind as to whether section 2(14)(iii)(a) would be applicable or not. We, therefore, answer the first question in the affirmative (sic) and in favour of the Revenue.
8. We, however, decline to answer the second and third questions as reframed. We direct the Tribunal to determine these questions in the light of the amendment of Section 2(14)(iii)(a). If necessary, the Tribunal can call for fresh evidence and the parties will be at liberty to adduce such evidence as they may be advised. Upon considering the materials on record and fresh evidence and material, if any, to be placed before the Tribunal, the Tribunal will dispose of the appeal within six months from the date of service of this judgment and order.
9. There will be no order as to costs.
Shyamal Kumar Sen, J.
10. I agree.