THE ITO, WARD-2(1), TVM, TVM vs. SMT.G.S.LEKHA, KOLLAM

Per CHANDRA POOJARI, AM:

This appeal by the Revenue and the Cross Objection by the assessee are

directed against the order of the CIT(A), Trivandrum dated 08/03/2018 and

pertains to the assessment year 2012-13.

(i) Land is situated in area covered by section 2(14)(iii)(a) or (b)and was used for agricultural purposes.

(ii) Such land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purposes.

(iii) Transfer is by way of compulsory acquisition.

(iv) Income has arisen from the compensation of consideration for such transfer.

The decision of the Supreme Court in Civil Appeal no. 1607/2010 covers only condition (iii) above.

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 As per Minutes of District Level Purchase Committee, dated 04.06.2010, the assessee's land comes in Category 'A', and is "dry land facing Vizhinjam-Balaramapuram Road". The assessee relies on a certificate from "agricultural officer" to state that the land is "agricultural". The "Agricultural Officer" is not the authority competent to declare a land as "agricultural", it is a Revenue authority to do so. In the property document also, it is mentioned that the character of land is "purayidom" (indicating dry land). This being the background, there is no proof that land is agricultural. There is no proof to establish that land was used for agricultural purpose for two years prior to transfer.

Thus clause (i) and (ii) are not satisfied in this case and CIT(A) passed the order without examining all the above aspects.

2.1 The assessee has raised the following grounds of cross objection:

at Vizhinjam village and sold the same during the year under consideration to

Vizhinjam International Seaport for a consideration of Rs.1,70,98,612/-. In the

return of income filed for the year under consideration, she claimed that the

entire amount of sale consideration received was exempted from tax as the land

sold was an agricultural land and compulsorily acquired by the Government of

Kerala for the development of the said seaport which in turn is covered by the

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 provisions of sections 2(14)(iii) and 10(37) of the Act. Contradicting the

assessee, the Assessing Officer had worked out the long term capital gain at

Rs.1,65,31,119/- over the sale consideration received and brought the same to

tax since the land transferred falls within the limits of Trivandrum Municipal

Corporation and the assessee's claim for exemption under sections 2(14)(iii) and

10(37) are not admissible. The Assessing Officer was of the further view that the

land which was sold was not an agricultural land and it was not compulsorily

acquired by the Government. The Assessing Officer in this regard relied on the

decision of the High Court of Kerala in the case of Infopark Kerala vs ACIT(TDS)

(187 Taxman 1). Thus, he brought to tax a sum of Rs.1,65,31,119/- as long term

capital gain.

income which cannot be included in the total income. Section 10(37) of the Act

provides for exclusion from total income, capital gains arising from transfer of

agricultural land which is compulsorily acquired and the land which is situated in

areas referred to in section 2(14) clause(iii)(a)(b). As per the provisions of

section 10(37), in order to get the benefit, the land acquired should have been

used for agricultural operations atleast for a period of two years prior to the date

of acquisition. According to the CIT(A), the Assessing Officer himself had agreed

in para 5.3 of the assessment order to the fact that the impugned land was an

agricultural land as confirmed by the Agricultural Officer, Krishibhavan,

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 Trivandrum and Village Officer, Vizhinjam Village, Trivandrum vide certificates

issued on 11.12.2015 and 08.12.2015 respectively. The CIT(A) observed that the

land which was acquired under the provisions of Land Acquisition Act might have

been acquired only under compulsory acquisition and never can be with the

complete consent and concurrence of the assessee. The CIT(A) held that on

transfer of agricultural land situated at Vizhinjam village by way of compulsory

acquisition under Land Acquisition Act, no capital gain tax need be paid by

relying on the judgment of the Supreme Court in the case of Balakrishnan vs

Union of India & Ors (81 taxman.com 51).

the land is not an agricultural land in terms of section 10(37) r.w.s. 2(14) of the

I.T. Act.

actual user of the land for agricultural purposes and the only reason why the

capital gains on transfer was not exempted by the AO was due to the fact it was

located within Trivandrum Municipal Corporation limits and that there was no

compulsory acquisition but a sale in favour of Vizhinjam International Seaport

Ltd. The Ld. AR relied on the judgment of the Supreme court in the case of

Balakrishnan Vs Union of India (391 ITR 178) wherein it was held that though a

sale deed was executed, it was only a compulsory acquisition and based on the

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 decision, the CIT(A) had allowed the appeal filed. The Ld. AR also relied on the

decision of the Cochin Bench in the case of ITO, Ward 1(4),Trivandrum Vs. Smt.

Girijakumari M.(ITA No, 236/Coch/2018 dated 10/10/2018) and ACIT Vs. Smt.

Jayasree Sreedharan (ITA No. 96/Coch/2018 dated 24/10/2018).

6.1 Moreover, it was submitted that the department had totally erred on facts

when it mentioned in the grounds that the land as per Minutes of the District

Level Purchase Committee dated 04.06.2010, the assessee's land comes in

category " A ". For Category A land the compensation fixed by the committee

was Rs 3,30,000/- per cent whereas the compensation paid in this case was only

Rs 2,00,000/- per cent which is for category " E " land which is clear from G.O

(MS)No.74/10/F&PD dated 12/10/2010. It was submitted that the sale deeds in

favour of Vizhinjam International Sea Ports Ltd. were executed by the land

owners at the rates fixed as per the above Government Order. It was contended

that the department had mentioned that the Agricultural Officer was not the

authority competent to declare a land as agricultural but it is the Revenue

authority. But in the case of the assessee, the land owned was surveyed by the

Special Thahsildar (LA) for fixing the compensation and the status of the land as

agricultural has been accepted by the Special Thahsildar (LA) also. So, it was

submitted that this ground taken by the department was not factually correct.

Further, the assessee submitted that the Chief Secretary of Kerala State had

taken up the issue of the exemption of land owned by the assessee along with

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 the land of some other owners also with the Member (I&T) CBDT. According to

the Ld. AR, it was clearly mentioned in the letter of the Chief Secretary that the

land is agricultural at the time of notification and exemption u/s 10(37) was

recommended to the assessee along with the other owners which was done as

there was a commitment from the Government before the acquisition

proceedings were started that there would be no income tax liability on

compensation received on transfer of the agricultural land . Similarly, it was

submitted that the Chief Minister of Kerala had also sent a written request to the

Union Finance Minister requesting that exemption be granted to the land owners

at Vizhinjam as the land transferred was agricultural land. According to the Ld.

AR, a follow up request was forwarded by the Principal Secretary, Fisheries &

Ports (E) Department to The Member (IT), Department of Revenue , CBDT,

informing that most of the land owners who had transferred the land were poor

farmers and to take steps to ensure exemption u/s 10(37) to them on the

compensation received on transfer of their land holdings. It was submitted that

all these documents prove without doubt that the land of the assessee was

agricultural and that it was used for cultivation till it was transferred.

reads as follows:

10(37) In the case of an assessee, being an individual or a Hindu undivided family, any income chargeable under the head “Capital gains” arising from the transfer of agricultural land, where –

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 (i) such land is situate in any area referred to in item (a) or item (b) of sub- clause (iii) of clause (14) of section 2;

(ii) such land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purposes by such Hindu undivided family or individual or a parent of his;

(iii) such transfer is by way of compulsory acquisition under any law, or a transfer of the consideration for which is determined or approval by the Central Government or the Reserve Bank of India;

(iv) such income has arisen from the compensation or consideration for such transfer received by such assessee on or after the 1st day of April, 2004.

Explanation – For the purposes of this clause, the expression “compensation or consideration” includes the compensation or consideration enhanced or further enhanced by any court, Tribunal or other authority;

Section 2(14)(iii)(a) and section 2(14)(iii)(b) reads as under

Section 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) …….

(ii) …….

(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 kilometers, from the local limits of any municipality or cantonment board referred to in item 9a), as the Central Government may, having regard to the extent of, and scope for, urbanization of that area and

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 other relevant considerations, specify in this behalf by notification in the Official Gazette;

7.1 Section 2(14)(iii)(a) shows that the assessee’s case is not covered by this

section as the land in question was within the municipal limit as recorded by the

Assessing Officer in para 6.3 of his order. This fact was not controverted by the

Ld. AR. Further, it is also not covered u/s. 2(14(iii)(b) of the Act because there

was to be a notification by the central government that the area is an agricultural

land and non urban land. No such notification has been presented by the

assessee before any of the authorities below or even before us. Regarding

section 10(37)(ii), the condition is that the land should be used for agricultural

purpose during the period of two years immediately preceding the date of

transfer. The assessee herein had not placed an iota of evidence regarding

carrying out of agricultural operations in the impugned land. On the other hand,

the assessee is relying on the certificate issued by the Agricultural Officer, Krishi

Bhavan, Trivandrum and Village Officer, Vizhingam stating that the land is

agricultural land. The following documents were also filed before us.

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 4. Letter from the Chief Secretary dated 16.03.2016 to Member, CBDT stating that the land was agricultural and seeking exemption under section 10(37).

7.2 In our opinion, evidence regarding carrying out of agricultural operations

cannot be replaced or substituted by the above evidences. No agricultural

operations were carried out and no agricultural income was derived from the said

land by the assessee. The Ld. AR pleaded before us that the assessee is not

liable for income tax. As such, she had not filed any income tax return. It is to

be noted that we are not concerned about the income chargeable to tax. We are

concerned about the agricultural operations carried out by the assessee. Section

10(37)(ii) states that if the individual derives any capital gain on transfer of

agricultural land, it is exempt from tax on acquisition by the Central Government

on the condition that the said land should have been used for agricultural

purposes during the period of two years immediately preceding the date of

transfer. The documents produced by the assessee before us herein above does

not show the actual carrying out of agricultural activities by the assessee in the

impugned land.

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 7.3 In our opinion, the land entered as agricultural land in the revenue records

and assessed as such under the Land Revenue Act, would be a circumstance in

favour of conclusion that it is an agricultural land. The land situated in an urban

area or the agricultural land situated within the municipal limits are not outside

the ambit of “capital assets”. This should raise only a prima facie presumption

and the said presumption can be destroyed by other circumstances pointed out

to the contrary. In the present case, there is no evidence of carrying out

agricultural operations by the assessee. Being so, the assessee has not fulfilled

the condition laid down in section 10(37)(ii) of the Act. Accordingly, we hold

that the assessee is liable for capital gains tax on transfer by compulsory

acquisition. Thus, this ground of appeal of the Revenue is allowed. The appeal

of the Revenue is allowed.

raised by the assessee is that the land was not put to use for non agricultural

purpose. As we have observed that the land is situated within the municipal

limits of Trivandrum Municipal Corporation and the assessee has not fulfilled the

conditions laid down u/s. 10(37)(ii) of the Act and section 2(14)(iii)(b) of the Act,

this ground of appeal of the assessee is rejected.

was non agricultural land, the value as on 1/4/1981 should have been adopted at 1/10th of the transfer value. Admittedly, this ground is not emanating from the

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 order of the CIT(A). However, there is no basis for valuation of the impugned land as on 1/4/1981 at 1/10th of the transfer value of the said asset. Thus, this

ground of appeal of the assessee is also rejected. Thus, the Cross objection of

the assessee is dismissed.

Objection filed by the assessee is dismissed.

Order pronounced in the open Court on this November, 2018.

Sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: November, 2018 GJ

Copy to: 1. Smt. G.S. Lekha, Qtrs. 19, Ext. Training Centre, Kottarakara, Kollam. 2. The Income Tax Officer, Ward-2(1), Trivandrum. 2. The Commissioner of Income-tax(Appeals), Trivandrum. 4. The Pr. Commissioner of Income-tax, Trivandrum. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI CHANDRA POOJARI, AM & GEORGE GEORGE K., JM

I.T.A. No.194/Coch/2018 Assessment Year : 2012-13

The Income Tax Officer, Ward- Vs. Smt. G.S. Lekha, 2(1), Trivandrum. Qtrs. 19, Ext. Training Centre, Kottarakara, Kollam. [PAN:AHZPL 9038K] (Revenue-Appellant) (Assessee-Respondent)

Revenue by Smt. A.S. Bindhu, DR Assessee by Shri Surendranath Rao, CA

Date of hearing 14/11/2018 Date of pronouncement /12/2018

O R D E R

Per George George K., JM

I have gone through the draft order of the Hon’ble Accountant Member. I

respectfully differ from the conclusions reached by the Hon’ble Accountant

Member. The facts are elaborately narrated in the order of the Hon’ble

Accountant Member, hence the same is not reiterated here.

cents of land, which was acquired by the Government for the Vizhinjam

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 International Seaport was agricultural land or not. Admittedly, the said land was

a family property inherited by the assessee in the year 1997 (settlement deed

No.902/1997).

land on the date of transfer was situated within the limits of the Trivandrum

Municipal Corporation whose local limit was extended during year 2013 in a

delimitation exercise by the Government of Kerala and by which process

Vizhinjam village was included in theTrivandrum Corporation limits. The denial of

exemption from capital gains was on the ground that there was no compulsory

acquisition but a sale by execution of sale deed by the assessee in favour of

Vizhinjam International Seaport Ltd. The Ld. AM in his order had stated (para

7.1) that the impugned land is not covered u/s. 2(14)(iii)(a) or 2(14)(iii)(b) of

the I.T. Act. According to me this finding of learned AM is immaterial. If a land

is not notified u/s. 2(14)(iii)(a) or 2(14)(iii)(b) and is an agricultural land, same

would not be a capital asset u/s. 2(14) of the I.T. Act liable for capital gains.

Only urban agricultural land notified u/s. 2(14)(iii)(a) or 2(14)(iii)(b) and

compulsorily acquired would be entitled to exemption u/s. 10(37) of the I.T. Act.

Therefore, only point in dispute in this case is whether the impugned land is an

agricultural land and agricultural operation was carried out on it.

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 4. Subsequent to the introduction of the Kerala Agricultural Income-tax Act,

1991 (KAIT Act), the person holding less than 5 acres of land, is exempted from

paying tax under the KAIT Act. Therefore, marginal farmers having agricultural

land less than 5 acres of land are not required to maintain any account for his

agricultural operation. Even individual land owners having more than 5 acres of

agricultural land need not maintain the account for agricultural operation when

he is paying taxes under the KAIT Act on presumptive basis. The agricultural

income is not taxable under the Central Income-tax Act, however, the same is to

be taken into computation/aggregation for the rate purpose under the Central

Income-tax Act. Under the Central Income-tax Act, when assessee declares

agricultural income for the rate purpose, the Income-tax Rules, prescribe

maintenance of accounts of the agricultural operation. Therefore, it is clear that

a person having less than 5 acres of agricultural land and was not having Central

Income, liable to taxation was not required to maintain any accounts as regards

the agricultural operation undertaken by him. If the books of accounts are

maintained, evidence can easily be produced for proving that agricultural

operation was carried on the land. Evidences such as bills for fertilizer, manual

labour cost, sales invoices of agricultural products etc. can be produced to prove

the agricultural operations on the land. Big plantations and persons having

large land holdings would be maintaining such accounts for their agricultural

operations. Large plantations would also require registration under the Rubber

Board, Spices Board depending upon the agricultural operation undertaken on

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 the land. In other words, a marginal farmer having less than five acres of land

cannot be expected to maintain books of accounts for his agricultural operations

foreseeing that his land would be compulsorily acquired some day, especially

when no law mandates him to maintain such books of accounts. In such cases,

one has to go by the primary evidence whether there was any agricultural

operation when small land holdings are taken over/compulsorily acquired. The

primary evidence such as narration of land in the revenue records, certificate of

the authorities certifying the land as agricultural land or not etc. are only

evidence that can be made available by a marginal land owner who is doing

agricultural operations.

assessee would not be liable for agricultural income tax Act. Therefore, there

would be no evidence maintained by the assessee for the agricultural operation

that was undertaken by her. In the instant case, the Assessing Officer admitted

that assessee had produced certificate of the village officer dated 08/12/2015

stating that the impugned land is agricultural land (par 5.3 of the order of the

Assessing Officer). Moreover, when the land acquisition proceedings were

initiated under the Land Acquisition Act, the Special Thahasildhar had accepted

the Agricultural Officer’s certificate that the above said land as on the date of

acquisition was an agricultural land. Copy of the certificate issued by the

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 Agricultural Officer, Krishi Bhavan, Vizhinjam, which was accepted by the Special

Thahasildhar, land Acquisition, reads as follows:-

From Date : 22.11.2011 The Agricultural Officer Krishi Bhavan, Vizhinjam Kottappuram P.O.

To: Special Tehsildhar (LA) Vizhinjam International Sea Port Vizhinjam.

Sir,

Sub : Land Acquisition for Sea Port – Certificate as Agricultural Land regarding.

Sl. LAC No. Survey No. Remarks No. 1 530/10 425/4 Agricultural Land 2 531/10 425/5 Agricultural Land with building 3 532/10 425/6 Agricultural Land 4 544/10 425/24 Agricultural Land 5 547/10 425/25 Agricultural Land 6 533/10 425/7B Agricultural Land 7 533/10A 425/7A Agricultural Land with building 8 407/10 271/3 Agricultural Land with building

I confirm that the land mentioned against the above survey Nos. are Agricultural Land.

Your’s faithfully, Certified True Copy.

Sd/- Sd/- Sd/- Agricultural Office r Special Tehsildhar (LA) V.Prabhakaran Nair Krishi Bhavan, Vizhinjam International Advisor (Land Matters) Vizhimjam Sea Port, Vizhinjam Vizhinjam International Kottappuram PO Thiruvananthapuram. Sea Port, Trivandrum.

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 6. The above documents clearly prove that the said land was agricultural

land at the time of its acquisition and the same was certified by the Special

Thahasildhar (LA). Moreover the AO in the assessment order had analysed the

claim of the assessee for construction,installation and improvements of

agricultural facilities on the land owned by the assessee and allowed a part of

the same in arriving at the cost of acquisition of the property. The AO has

treated a part of the expenses incurred by the assessee on the following as part

of the cost of

improvement of the property while computing the taxable capital gains:

(i) Stone and Iron Rope fencing (ii) Cattle shed (iii) Manure Storage Tank (iv) Bio Gas Plant (v) Land Development (vi) Pump House & Water tank (vii) Water Delivery system.

storage tank, Water delivery system, Pump House, etc which undoubtedly goes

to prove that the land was used for the purposes of agriculture. The AO has

clearly mentioned in his order that the claim for improvements were verified by

analyzing the same and comparison of the amount claimed with the similar cases

in the neighborhood and accepted 50% of the claim made. Thus it is clear that

the AO had never doubted the actual user of the land for agricultural purposes

and the only reason why the capital gains on transfer was not exempted by the

AO was due to the fact it was located within Trivandrum Municipal Corporation

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 limits and that there was no compulsory acquisition but a sale in favor of the

Vizhinjam International Seaport Ltd. This point was decided by the Hon’ble

Supreme court in favour of the assessees in the case of Balakrishnan Vs Union of

India (3911TR 178) (SC). The Hon’ble Apex Court held that though a sale deed

was executed, it was only a compulsory acquisition. It was based on the above

judgment of the Hon’ble Supreme Court that the appeal of the assessee was

allowed by the CIT(A). It was also to be mentioned that the orders of the

Cochin Bench of the Tribunal in the case of ITO, Ward 1(4), Trivandrum Vs. Smt.

Girijakumari in ITA No.236/Coch/2018 (order dated10.10.2018) and ACIT Vs.

Smt. Jayasree Sreedharan in ITA No.96/Coch/2018 (order dated 24.10.2018)

had held that land acquired for Vizhinjam port is urban agricultural land entitled

to the benefit of section 10(37) of the I.T. Act.

Minutes of the District Level Purchase Committee dated 04.06.2010, the

assessee's land comes in category “A”. For Category A land the compensation

fixed by the committee was Rs.3,30,000 per cent whereas the compensation

paid in this case was only Rs.2,00,000/- per cent which is for category “E” land.

This is clear from G.O (MS)No.74/10/F&PD dated 12/10/2010 (The GO is placed

on record).The sale deeds in favour of Vizhinjam International Sea Ports Ltd.

were executed by the land owners at the rates fixed as per the above

Government Order.

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018

Officer is not the authority competent to declare a land as agricultural but it is

the Revenue authority. As mentioned earlier, the land owned by the assessee

was surveyed by the Special Thahsildar (LA) for fixing the compensation and the

status of the land as agricultural has been accepted by the Special Thahsildar

(LA) also.Therefore the said ground taken by the department is not factually

correct.

10 It is also to be mentioned that the Chief Secretary of Kerala State had

taken up the issue of the exemption of land owned by the assessee along with

the land of some other owners also with the Member (IT) CBDT. It is clearly

mentioned in the letter of the Chief Secretary that the land is agricultural at the

time of notification and exemption u/s 10(37) has been recommended to the

assessee along with the other owners. This was probably done as there was a

commitment from the Government before the acquisition proceedings were

started that there would be no income tax liability on compensation received on

transfer of the agriculturalland. Similarly the Chief Minister of Kerala , had also

sent a written request to the Union Finance Minister requesting that exemption

be granted to the land owners at Vizhinjam as the land transferred was

agricultural land. A follow up request was forwarded by the Principal secretary I

Fisheries & Ports (E) Department, to the Member (IT), Department of Revenue,

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 CBDT,

informing that most of the land owners who had transferred the land were poor

farmers and to take steps to ensure exemption u/s 10(37) to them on the

compensation received on transfer of their land holdings. Copies of the above

mentioned letters are on record.

was agricultural and that it was used for cultivation till it was transferred.

Therefore, I hold that the assessee is entitled to the benefit u/s 10(37) of the

I.T. Act with regard to acquisition of her 93.56 cent land for Vizhinjam

International Seaport.

The order pronounced on day of December, 2018

sd/- (George George K) Judicial Member

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN

Before Shri N.V.Vasudevan, Vice-President (As Third Member)

ITA No.194/Coch/2018 :Asst.Year2012-2013

The Income Tax Officer Smt.G.S.Lekha Ward 2(1) Vs. Qrs 19, Extension Trivandrum. Training Centre ETC P.O. Kottarakkara Kollam. PAN :AHZPL9038K. (Appellant) (Respondent)

CO No.51/Coch/2018 :Asst.Year2012-2013

Smt.G.S.Lekha The Income Tax Officer Qrs 19, Extension Training Vs. Ward 2(1) Centre Trivandrum. ETC P.O. Kottarakkara Kollam. (Cross Objector) (Respondent)

Revenue by :Smt.A.S.Bindhu, Sr.DR Assessee by :Sri. G.Surendranatha Rao, CA

Date of Pronouncement : 29.03.2019 Date of Hearing : 29.03.2019

O R D E R

Per N.V.Vasudevan, VP (As Third Member):

As there was a difference of opinion between the Members, who heard the aforesaid appeal and cross objection,

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 the Members referred the following question for consideration by a Third Member. “Whether the assessee’s land, which was acquired by the Government for Vizhinjam International Seaport, is an agricultural land so as to grant exemption u/s 10(37) of the Income-tax Act?”

The Hon’ble President has nominated me for a decision as Third Member on the point of difference between the members constituting the Division Bench.

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 meetings between the land owners and Thiruvananthapuram District Collector. Several proposals were exchanged between the parties and finally the Assessee agreed for compensation of Rs.2 lakh per cent on the basis that the lands of the assessee would fall under E category. According to the Assessee lands categorized as “E” in the settlement process between the Government and the land owners werein the nature of Agricultural lands.

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 5. U/s 10(37) of the Act, capital gains arising from transfer of agricultural land were exempt from tax and had to be regarded as income which do not form part of total incomeunder the Act.

“(37) in the case of an assessee, being an individual or a Hindu undivided family, any income chargeable under the head "Capital gains" arising from the transfer of agricultural land, where- (i) such land is situate in any area referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of section 2; (ii) such land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purposes by such Hindu undivided family or individual or a parent of his; (iii) such transfer is by way of compulsory acquisition under any law, or a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India; (iv) such income has arisen from the compensation or consideration for such transfer received by such assessee on or after the 1st day of April, 2004.

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 Explanation.-For the purposes of this clause, the expression "compensation or consideration" includes the compensation or consideration enhanced or further enhanced by any court, tribunal or other authority;”

“Sec.2: Definitions: In this Act unless the context otherwise requires: …… (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) (ii) (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

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 preceding census of which the relevant figures have been published before the 1st 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;”

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 previous year. (The municipality referredto here is a body whether known as municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name); (b) agricultural land situate in any area within such distance, not more than eight kilometres, from the local limits of any municipality (by whatever name called) or cantonment board as the Central Government may specify by a notification in the Official Gazettee. (The Central Government in specifying this area, has to take into account the extent of and scope for urbanisation of that area and other relevant considerations).

“Capital gains arising from transfer of agricultural land in urban areas 29. Capital gains arising from the transfer of a capital asset have been chargeable to income-tax for several years past. Where the transfer of the capital asset is effected within a period of 24 months from the date of its acquisition by the assessee, the capital gain is treated on a par with ordinary income and charged to tax on that basis. Gains arising from the transfer of a capital asset held by the assessee for more than 24 months are charged to tax on a concessional basis. In the case of companies, such gains are taxed at the rate of 40% where they relate to lands and buildings, and at 30% where they relate to other assets. In the case of non- corporate taxpayers, only a certain portion of the capital

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 gains in excess of Rs. 5,000 is included in the taxable income. This proportion is 55% where the gains relate to lands and buildings and 35% where they relate to other assets. 30. Prior to the amendment made by the Finance Act, 1970, the definition of the term "capital asset" in s. 2(14) of the IT Act excluded from its scope, inter alia, agricultural land in India. Accordingly, no liability to tax arose on gains derived from transfer of agricultural land in India. This exemption of the agricultural land from the scope of levy of tax on capital gains has a historical origin and is not due to any bar in the Constitution on the competence of Parliament to legislate for such levy. Agricultural land situated in municipal and other urban areas is essentially similar to non-agricultural land in such areas in its potentialities for use due to the progress of urbanization and industrilisation. The Finance Act, 1970, has accordingly amended the relevant provisions of the IT Act so as to bring within the scope of taxation capital gains arising from the transfer of agricultural land situated in certain areas. For this purpose, the definition of the term "capital asset" in s. 2(14) of the IT Act has been amended so as to exclude from its scope only agricultural land in India which is not situate in any area comprised within the jurisdiction of a municipality or cantonment board and which has a population of not less than ten thousand persons according to the last preceding census for which the relevant figures have been published before the first day of the previous year. The Central Government has been authorised to notify in the Official Gazette any area outside the limits of any municipality or cantonment board having a population of not less than ten thousand, up to a minimum distance of 8 kilometers from such limits, for the purposes of this provision. Such notification will be issued by the Central Government having regard to the extent of, and scope for, urbanisation of such area, and, when any such area is notified by the Central Government, agricultural land

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 situated within such area will stand included within the term "capital asset". Agricultural land situated in rural areas, i.e., areas outside any municipality or cantonment board hgving a population of not less than ten thousand and also beyond the distance notified by the Central Government from the limits of any such municipality or cantonment board, will continue to be excluded from the term "capital asset". 31. The amendment to s. 2(14), as stated in the preceding paragraph, applies from 1st April, 1970, i.e., for and from the asst. yr. 1970-71. However, by an amendment to s. 47 of the IT Act, it has been specifically provided that no capital gain or loss will be computed with reference to any transfer of agricultural land in India effected before 1st March, 1970. 32. The effect of the amendments to s. 2(14) and s. 47, as stated above, will be that capital gains arising from transfer of agricultural lands situated in the municipal and other urban areas on or after 1st March, 1970, will become liable to taxation even where such land was held for bona fide agricultural purposes, often as the main source of livelihood. With a view to relieving the burden of taxation on the capital gains in such cases, a provision has been made, in a new s. 54B of the IT Act, for exempting from tax the capital gain arising from the transfer of agricultural land in certain circumstances. Under the new s. 54B, where the capital gain arises from transfer of land which in the two years immediately preceding the date of transfer was being used by the assessee or a parent of his for agricultural purposes, and the assessee has, within a period of two years after that date, purchased any other land (whether in the same area or elsewhere) for being used for agricultural purposes, then the capital gain will not be charged to tax to the extent that it has been utilised for acquiring the fresh land. Where the amount of the capital gain exceeds the cost of acquisition of the fresh land, only the excess

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 will be chargeable to tax. The concession will, however, be forfeited if the assessee transfers the fresh land acquired by him within a period of three years from the date of its purchase.” 10. According to the A.O., the primary condition for claiming exemption u/s 10(37) of the Act was that the capital gain should have arisen on transfer of agricultural land. Since the land in question was not an agricultural land, the A.O. came to the conclusion that the basic condition for allowing deduction u/s 10(37) of the Act has not been satisfied. Another reason given by the A.O. was that provisions of section 10(37) would be applicable only if the land in question was transferred by way of compulsory acquisition. According to him, since the assessee in present case conveyed the property to VISL under the sale deed after due negotiation, the transfer in question was not by way of compulsory acquisition under any law. On that basis, the A.O. denied the benefit of deduction u/s 10(37) of the Act.

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 was not an assessee in the past as her income was below the taxable limit, and therefore, the question of the assessee disclosing agricultural income in her return did not arise for consideration at all. Therefore, this reason assigned by the A.O. was not proper. This fact will be material while considering the question whether the land in question can be regarded as an agricultural land.

(a) Stone & Iron Rope fencing, Cattle shed, Manure storage tank etc. Fin. Year 1998-99 : Rs.2,33,500/- (b) Bio gas plant construction, land development, Pump house & water tank, house maintenance, replanting entire plot, manure storage tank etc.

Fin. Year 1999-2000: Rs.7,39,500/- (c) Replanting entire plot, manure storage tank, water delivery system etc. Fin. Year 2000-01 Rs.37,800/- (d) Water delivery system etc. Fin. Year 2001-02 Rs.18,500/- (e) Water delivery system etc. Fin. Year 2002-03 Rs.19,500/- (f) Water delivery system, replanting entire plot, manure storage tank etc. 32

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 Fin. Year 2003-04 Rs.41,600/- (g) Water delivery system etc. Fin. Year 2004-05 Rs.21,000/- (h) Water delivery system, replanting entire plot, manure storage tank etc. Fin. Year 2005-06 Rs.44,300/- (i) Water delivery system etc. Fin. Year 2006-07 Rs.22,500/-

(j) Water delivery system, replanting entire plot, manure storage tank etc. Fin. Year 2007-08 Rs.45,400/- (k) Water delivery system etc. Fin. Year 2008-09 Rs.24,000/- (l) Water delivery system, house maintenance, replanting entire plot, manure storage tank etc. Fin. Year 2009-10 Rs.2,59,600/- (m) Manure storage tank etc. Fin. Year 2010-11 Rs.2,800/-

Total amount claimed by assessee as cost ofimprovement :Rs.15,10,000/-.

(i) In respect of stone and iron rope fencing, cattle shed, manure storage tank at Rs.2,33,500 and 33

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 (ii) Bio gas plant, land development, pump house and water tank, water delivery system at Rs.2,23,500.

Sale consideration 1,70,98,612 Cost of acquisition – 1997-98 34,101 (40,000 * 32.20/37.77) Indexed cost of Acquisition 80,874 (34,101*785/331) Cost of improvement – 1998-99 1,16,750 (2,33,500/ 50%) Indexed cost of improvement 2,61,108 (116750*785/351) Cost of improvement – 1999-2000 1,11,750 (2,23,500/50%) Indexed cost of improvement 2,25,511 (111750*785/389) Total cost 5,67,493 Net Taxable Capital Gain 1,65,31,119

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 incoming to the contrary conclusion, placed reliance on the judgment of the Hon’ble Kerala High Court in the case of Infopark Kerala v. ACIT [(2010) 187 taxman 1 (Ker.)]. But that decision was overruled by the decision of the Hon’ble Supreme Court in the case of Balakrishnan (supra). Accordingly, the claim of the assessee was directed to be allowed by the CIT(A).

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 Officer, KrishiBhavan, Vizhinjam accepted the nature of land as agricultural land in his communication dated 22.11.2011 to the Special Tahsildhar, Land Acquisition. Third aspect the learned JM has noticed is the fact that the AO while allowing the expenses on improvement, while computing capital gain, has considered allowing 50% of expenses of the claim on the following heads:-

(i) Stone and Iron Rope fencing (ii) Cattle shed (iii) Manure Storage Tank (iv) Bio Gas Plant (v) Land Development (vi) Pump House & Water tank (vii) Water Delivery system. The forth aspect noticed by the Hon’ble JM was the fact that the assessee’s lands were categorized as category E for fixing land acquisition compensation and category E was with reference to lands which are agricultural lands.

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 the subsequent inclusion of Vizhinjam Village as part of Thiruvananthapuram Corporation, the compensation received on acquisition of land would suffer capital gain tax. Since the owners of the lands were taken by surprise because of the inclusion of Vizhinjam Village as part of Thiruvananthapuram Corporation and consequent income tax liability, The Hon’bleChief Ministry of Kerala, Principal Secretary, Government of Kerala have had addressed letters to the CBDT as well as the Union Finance Minister seeking appropriate relief to the land owners who would suffer irreparable losses.

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 aforesaid appeals relate to assessment year 2012-2013, which is incidentally the assessment year involved in the present appeal before me as well.

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 is not agricultural and therefore, one should not look at the provisions of section 10(37) of the Act at all. It is clear from reading of clause (i) (ii) (iii) of section 10(37) of the Act that the character of the land in the past has to be seen.

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 initial burden to prove that land in question was being used for agricultural purpose at the relevant time is on the assesse. Where the assessee has produced evidence to prove that land was agricultural land, Department has to lead evidence to controvert it. When the land is classified as agricultural land in revenue papers and agricultural operations are found to have been carried on the date of transfer, there is a presumption that land is an agricultural land and the burden is then on the Department to rebut it

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 gain. A perusal of the nature of this expense, which we have extracted in the earlier part of the order, shows that the same are all in relation to agricultural activities. The absence of declaration of agricultural income, as I have mentioned in the earlier part of this order, would not in my view negate the fact that the lands were used for agricultural purpose. The admitted position is that the assessee does not have taxable income in the past and there was no occasion for her to file her return of income in which she can declare her agricultural income.

"Whether, on the facts and circumstances of the case, the High Court was justified in denying the claim for exemption under Section 10(37) of the Income Tax Act, 1961 to the appellant?" The factual background was that the Assessee was the owner of 27.70 Acres of land in Sy. No. 18.60 hectares of paddy field in Block No. 17 of Attippra village in Thiruvananthapuram District comprised in Sy. No. 293/8. This was agricultural land. The assessee was using the same to grow paddy.The 41

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 Government of Kerala sought to acquire the aforesaid property of the appellant for the public purpose namely, ’3rd phase of development of Techno Park’. For this purpose, Notification under Section 4(1) of the Land Acquisition Act, 1894 (hereinafter referred to as the ’LA Act’) was issued on 01.10.2005. It appears that the amount of compensation fixed by the Land Acquisition Collector was not acceptable to the asessee. Ultimately it was agreed by the Techno Park, for whom the property in question was acquired, to pay a sum of Rs. 38,42,489/-. After this amount was agreed upon between the parties, the assessee agreed to execute a sale deed of the property in question in favour of Techno Park. Such sale deed was executed on 08.05.2008 and duly registered with the Sub- Registrar, Kazhakkootam. The question was whether no capital gain was payable on the aforesaid amount in view of Section 10(37) of the Income Tax Act, 1961 (hereinafter referred to as ’the Act’). The stand which was taken by the Revenue in this notice was that the amount of compensation/consideration received by the appellant against the aforesaid land was not the result of compulsory acquisition and on the contrary it was the voluntary sale made by the appellant to the Techno Park and, therefore, the provisions of Section 10(37) of Act were not applicable. The Hon’ble Supreme Court held that notwithstanding sale by Assessee under a sale deed, the transfer was on account of

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 compulsory acquisition. The following were the observations of the Hon’ble Supreme Court:

“9. In our view, insofar as acquisition of the land is concerned, the same was compulsorily acquired as the entire procedure prescribed under the LA Act was followed. The settlement took place only qua the amount of the compensation which was to be received by the appellant for the land which had been acquired. It goes without saying that had steps not been taken by the Government under Sections 4 & 6 followed by award under Section 9 of the LA Act, the appellant would not have agreed to divest the land belonging to him to Techno Park. He was compelled to do so because of the compulsory acquisition and to avoid litigation entered into negotiations and settled the final compensation. Merely because the compensation amount is agreed upon would not change the character of acquisition from that of compulsory acquisition to the voluntary sale. It may be mentioned that this is now the procedure which is laid down even under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 as per which the Collector can pass rehabilitation and resettlement award with the consent of the parties/land owners. Nonetheless, the character of acquisition remains compulsory. 10. This Court has doubts about the correctness of the judgment in the case of Info Park Kerala vs. Assistant Commissioner of Income Tax (2008) 4 KLT 782. The Court in the said case took the view that since the title in the property was passed by the land owners on the strength of sale deeds executed by them, it was not a compulsory acquisition. We are not in agreement with the aforesaid view. It is clear that but for Notification under Section 4 and Award under Section 9 of the LA Act, the appellant would not have entered into any negotiations for the compensation of the consideration

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 which he was to receive for the said land. As far as the acquisition of the land in question is concerned, there was no consent. The appellant was put in such a condition that he knew that his land had been acquired and he cannot reiterate the same. The appellant, therefore, only wanted to salvage the situation by receiving as much compensation as possible commensurate with the market value thereof and in the process avoid the litigation so that the appellant is able to receive the compensation well in time. If for this purpose the appellant entered into the negotiations, such negotiations would be confined to the quantum of compensation only and cannot change or alter the nature of acquisition which would remain compulsory. We, therefore, overrule the judgment of the Kerala High Court in Info Park Kerala vs. Assistant Commissioner of Income Tax (2008) 4 KLT 782. 11. As a result the appeal of the appellant is allowed and proceedings under Section 148 of the Act are quashed.”

Cochin ; Dated : 19th March, 2019. Devdas*

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN

Before Shri Chandra Poojari, AM & Shri George George K, JM

ITA No.194/Coch/2018 :Asst.Year2012-2013

The Income Tax Officer Smt.G.S.Lekha Ward 2(1) Vs. Qrs 19, Extension Trivandrum. Training Centre ETC P.O. Kottarakkara Kollam. PAN :AHZPL9038K. (Appellant) (Respondent)

CO No.51/Coch/2018 :Asst.Year2012-2013

Smt.G.S.Lekha The Income Tax Officer Qrs 19, Extension Training Vs. Ward 2(1) Centre Trivandrum. ETC P.O. Kottarakkara Kollam. (Cross Objector) (Respondent)

Revenue by :Smt.A.S.Bindhu, Sr.DR Assessee by :Sri. G.Surendranatha Rao, CA

Date of Pronouncement : 05.04.2019 Date of Hearing : 05.04.2019

O R D E R

Per George George K, JM :

As there was a difference of opinion between the Members in respect of the aforesaid appeal and cross

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018 objection, the Members referred the following question for consideration by a Third Member.

“Whether the assessee’s land, which was acquired by the Government for Vizhinjam International Seaport, is an agricultural land so as to grant exemption u/s 10(37) of the Income-tax Act?”

I.T.A. No.194 /Coch/2018& CO No. 51/Coch/2018

Order pronounced on this 05th day of April, 2019.

Sd/- Sd/- (Chandra Poojari) (George George K) ACCOUNTANT MEMBER JUDICIAL MEMBER

Cochin ; Dated : 05th April, 2019. Devdas*

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The Pr.CIT, Trivandrum. 4. The CIT(Appeals) Trivandrum. 5. DR, ITAT, Cochin 6. Guard file.

BY ORDER, (Asstt. Registrar) ITAT, Cochin