DE vs. HIBHAI DESAI,SURATVS.THE INCOME TAX OFFICER, WARD-03(1)(2), SURAT

Devshibhai Desai Vs. ITO, Ward-3(1)(2), Surat /ITA No.92/SRT/2018 : A.Y.2012-13 Page 1 of 12

आयकर अपील�य अ�धकरण,सुरत �यायपीठ, सुरत IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER आ.अ.सं./I.T.A. No.92/SRT/2018 �नधा�रण वष�/Assessment Year : 2012-13 Devshibhai Desai, Vs. The Income Tax Officer, 26-27, Amardeep Society, Ward-3(1)(2), Surat. Nana Varachha Road, Surat – 395 006. [PAN: AGVPD 7362 B] अपीलाथ� Appellant ��यथ�/Respondent �नधा�रती क� ओर से /Assessee by Shri Mehul R Shah – CA राज�व क� ओर से /Revenue by Shri S.R.Meena – Sr.DR

सुनवाई की तारीख/ Date of hearing: 24.07.2019 उ�घोषणा क� तार�ख/Pronouncement on: 26.07.2019 आदेश /O R D E R PER O.P.MEENA, AM: The appeal filed by the Assessee is directed against the order 1. of ld. Commissioner of Income Tax(Appeals)-3, Surat(in short “the CIT(A)”) dated 28.11.2017 pertaining to Assessment Year 2012-13.

The grounds raised by the Assessee read as under : 2. “1. On the facts and circumstances of the case and in law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of assessing officer in making addition of Rs.2,42,91,150/- on account of Long Term Capital Gain by treating therural agricultural land as capital asset u/s.2(14) of the Act. 2. Without prejudice to the above, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of assessing officer by rejecting the deduction claimed to the tune of Rs. 39,53,490/- u/s. 54B of the I.T.Act.

Devshibhai Desai Vs. ITO, Ward-3(1)(2), Surat /ITA No.92/SRT/2018 : A.Y.2012-13 Page 2 of 12

Devshibhai Desai Vs. ITO, Ward-3(1)(2), Surat /ITA No.92/SRT/2018 : A.Y.2012-13 Page 3 of 12

by the assessee and has taxed the entire gain as long term capital gain in the hands of the assessee.

In appeal, it was submitted that the issue is whether the 4. income from sale of agricultural land situated in village Utran has recorded as agricultural land in the land revenue record is chargeable tax or not itself is debatable. The assessee has filed required details and under the bonafide impression that the agricultural land located at village Utran is not subject to long term capital gain for the reasons that the assessee land is covered by Clause (b) sub-clause (iii) of section 2(14) of the I.T.Act.

The ld.CIT(A) observed that the only issue involved in the 5. appeal is the addition of Rs.2,42,91,150/- under the head LTCG there have been claims, revised claims, additional claims by the appellant before the ld.Assessing Officer and before the ld.CIT(A). The appellant filed the Return of Income showing capital gain and claimed deduction u/s.54F and 54B against same. Subsequently, the assessee filed revised return showing ‘Nil’ capital gain claiming that the sold by him is agricultural land exempt from development of capital asset u/s.2(14) of the Act. The Assessing Officer has written letter to local authorities i.e. SUDA and SMC to ascertain the distance of the land from Surat Municipality Limits. From the report

Devshibhai Desai Vs. ITO, Ward-3(1)(2), Surat /ITA No.92/SRT/2018 : A.Y.2012-13 Page 4 of 12

of SUDA of local authorities, the Assessing Officer found that the land of the appellant falls within the limits of SMC, so he rejected the claim of the assessee and also denied the deduction u/s.54F & 54B of the Act. The ld.CIT(A) further observed that as per the certificate issued by the SUDA who were the authority of in-charge of Town Planning as jurisdiction IS co-terminus with SMC, therefore as per their report the land sold is situated within 8 kms of the Municipal Corporation, hence the above ground of the assessee was dismissed.

Being aggrieved, the assessee filed this appeal before this 6. Tribunal. The ld.Counsel for the assessee repeated the same arguments as taken before the Lower Authorities. The ld.Counsel submitted that the assessee was under bonafide belief that land was situated beyond 8 kms from SMC limits, hence, claim of exemption u/s.2(14) of the Act was genuine. However, we find that as per the certificate received from SUDA regarding the distance of land situated within the limit of the SMC, we find that impugned land situated within the limit of SMC, therefore it is chargeable to long term capital gain. Accordingly, this ground of appeal of the assessee is dismissed.

Devshibhai Desai Vs. ITO, Ward-3(1)(2), Surat /ITA No.92/SRT/2018 : A.Y.2012-13 Page 5 of 12

Ground No.2: As facts emerged from the Ground No.1 above 7. that the assessee has claimed deduction 54B on the ground that he has purchased agricultural land from the sale proceeds. The deduction u/s.54B was not granted by Assessing Officer and there is no discussion regarding the same in the assessment order. However, this was referred to the Assessing Officer during appellate proceedings who rejected the claim of deduction with the single line by stating that “the amount of capital gains has neither been utilised through section 54B nor through section 54F of the Act”. However, it was claimed before the ld.CIT(A) that the assessee has invested Rs.39.53 lakhs for the purchase of new agricultural land and furnished the details and same were forwarded to the Assessing Officer for remand report. However, the Assessing Officer has objected to the same on two grounds that the appellant had not filed these details in the assessment proceedings, hence he objected the admission of additional evidence. Further, the land sold and new land purchased was not used for agricultural purposes as is evident from the Return of Income of the appellant for assessment years 2012-13, 2013-14 and 2014-15. The ld.CIT(A) considered the facts and observed that the additional evidences needs to be allowed in the interest of justice. Section 54B is aimed to providing relief to the assessee who sell agricultural land and reinvest the

Devshibhai Desai Vs. ITO, Ward-3(1)(2), Surat /ITA No.92/SRT/2018 : A.Y.2012-13 Page 6 of 12

same sale proceeds in another agricultural land, hence a liberal approach is required. Further, the Assessing Officer has based on his observation of the Return of Income of subsequent assessment years and not earlier years. No comments have been offered regarding the extract of land records in Form No.7/12 of both the lands. The lands may be used for agricultural purpose even then the assessee may not derive agricultural income. The authentic and primary document to be seen in this regard is land revenue records, as per the Form No.7/12 produced the old land was used for growing Ghas/Grass and also had irrigational facilities of well. The new land is used for growing sugarcane/shirdi. Therefore, the issue is to be decided is whether grass or ghas mentioned in Form No.7/12 indicates agricultural use of the land. The ld.CIT(A) opined that unlike the mention of agricultural crops such as maize, sugarcane etc., the mention of Ghas/Grass in Form No.7/12 does not automatically prove the agricultural activities unless some corroboration is provided by the appellant, hence ld.CIT(A) held that conditions u/s.54B are not fulfilled, therefore, the claim for deduction u/s.54B was denied.

Being aggrieved, the assessee filed this appeal before this 8. Tribunal. The ld.Counsel for the assessee referred page 110 of

Devshibhai Desai Vs. ITO, Ward-3(1)(2), Surat /ITA No.92/SRT/2018 : A.Y.2012-13 Page 7 of 12

paper book which is a copy of Form No.7/12 which indicates agricultural use of land and submitted that entries in the revenue record are prima facie evidence to indicate that the land in question is agricultural land. It was submitted that the revenue reports showed the crops name as Ghas and also shows that it is irrigated land on which a well is located. It was further contended that the land was never converted into stock in trade or assessee never tried to get it converted into non-agricultural land. The ld.Counsel further submitted that in the revenue records, land is agricultural and never showed to be use for non-agricultural purposes by the assessee till it was sold by the assessee and hence the same is to be treated as agricultural land. Further Ghas/Grass should not be construed as non-cultivation of land. In considering the connotation of the term agricultural activity the cultivation of land is to be considered in the wider sense. It was submitted that the agricultural produce arising from agricultural activity may be grain or vegetable or fruit which are necessary for sustenance of human beings including plantation and grows Grass / Pasture for comparison. The ld.Counsel for the assessee further submitted the written submissions as under : e. A reference could be made to the case of CWT vs. Officer-in charge (Court of Wards) (105 ITR 138) (SC) wherein the

Devshibhai Desai Vs. ITO, Ward-3(1)(2), Surat /ITA No.92/SRT/2018 : A.Y.2012-13 Page 8 of 12

Constitution Bench Hon'ble Supreme Court stated that the term ‘agriculture’ and ‘agriculture purpose’ was not defined in the Indian IT Act and that we must necessarily fall back upon the general sense in which they have been understood in common parlance. f. It is to be appreciated that the agriculture activity is not defined in the Income tax Act but now the same is defined as Ind As 411 is attached herewith and the relevant definitions are also reproduced below i. It is submitted that as per Ind AS 41, agricultural activity means: “Agriculture activities refers to the management by an entity of the biological transformation and harvest of biological assets for sale or for conversion into agricultural produce or into additional biological assets.” ii. As per Ind AS 41 Biological asset means: Biological asset is defined as a living plant or animal iii. It is further submitted that as per Lexico Oxford dictionary, “plant” means: A living organism of the kind exemplified by trees, shrubs, herbs, grasses, ferns, and mosses, typically growing in a permanent site, absorbing water and inorganic substances through its roots, and synthesizing nutrients in its leaves by photosynthesis using the green pigment chlorophyll. g. Considering the above definition, it is clear that grass is a biological asset and when there is transformation of soil into grass i.e from one biological asset to another biological asset, it shall be construed to be through agricultural activity more so when it is also mentioned in revenue records that the irrigation is through well and other irrigation methods which is accepted by the Ld CIT(A) and hence the deduction may please be allowed u/s.54B. h. Further, it is to be appreciated that Further, reliance is also placed on the decision of Emperor vs Probhat Chandra Barua dated 08.06.1921 (1924) ILR 51 Cal 504] wherein it was held that the activity of pasturing ie growing of grass for fodder would be agricultural income. 10. The Division Bench in Narandas Motilal’s case [1971] 80ITR 39 (Guj.) pointed out that “throughout the relevant period the lands had been so situated that they could not have been put to any other use except for agriculture. It was an admitted position that in the area round about, there was no building activity. The land was not approachable by any road to the residential locality of Navrangpura and other societies to which reference was made

Devshibhai Desai Vs. ITO, Ward-3(1)(2), Surat /ITA No.92/SRT/2018 : A.Y.2012-13 Page 9 of 12

by the Appellate Assistant Commissioner in his order in that case. It was further in evidence that neither the assessee nor the person to whom the assessee had sold different plots of land had, at any time, made any attempt to put the land to non-agriculture use” 11. In the present case also, it is to be noted that it is not the case where there were any high rise in near vicinity or the land was situated in industrial area. The location Utran-Kosad is in village area and in near vicinity also there were agriculture activities being carried out, In fact the Photo of land at the time of sale given in Sale deed at Paper Book – Pg No 100 clearly shows that there are parallel lanes of grass with water logging in between indicating irrigational activities being conducted. Even the 7/12 at Pg No 10 to 109 mentions that irrigation activities are carried out with the help of “well” and “other apparatus” and the Ld. CIT(A) has also accepted the same and hence no adverse view should be drawn and the ground of appeal may be please be allowed. 12. In view of the above, the appeal may please be allowed or additions may please be reduced as your Honour may deem fit. Per contra, the ld.Senior Departmental Representative 9. submitted that no such claim was made before the Assessing Officer. Further the Grass shown in extract of 7/12 cannot be considered as the assessee was not deriving agricultural income and no such agricultural income was shown in subsequent assessment years. Therefore, the ld.CIT(A) was justified in rejecting the claim of the assessee.

We have heard the rival submissions and perused the material 10. available on record. The perusal of extract of 7/12 Forms placed at paper book, page 110 shows that the land under consideration is of agricultural land on which grass is grown and same is irrigated

Devshibhai Desai Vs. ITO, Ward-3(1)(2), Surat /ITA No.92/SRT/2018 : A.Y.2012-13 Page 10 of 12

through a well. Further, the ld.Counsel also submitted copy of sale deed placed at paper book, page 87 to 106 in which page 100 contains a photograph of land under consideration. The perusal of which shows that the land was being cultivated. The ld.Counsel further referred decision of Hon'ble Calcutta High Court in the case of Emperor vs. Probhat Chandra Barua [1924] 1 ITC 2874 (CAL) in which a question was arosed wherein the commissioner was of the opinion that pasturage being a branch of agriculture rent received from the use of assessee’s forest as pasture was not assessable. However, it was held that income from pasturage was derived from land which was used for agricultural purposes and was, therefore in the case of a permanently settled state within the exemption given by section 4(3)(viii) of 1922 Act to agricultural income as defined by section 2(1)(viii). Income from pasturage was ‘derived from land which was used for agricultural purposes’ and was, therefore, in the case of permanently settled estate, within the exemption given by section 4(3)(viii) of 1922 Act to ‘agricultural income’ as defined by section 2(1)(a). In the circumstances that such income was derived from fees realized from graziers who grazed their cattle in the forest

Devshibhai Desai Vs. ITO, Ward-3(1)(2), Surat /ITA No.92/SRT/2018 : A.Y.2012-13 Page 11 of 12

areas and was waste lands there was nothing to render inapplicable the definition of ‘agricultural income’ contained in clause (a).

Therefore, we find that the use of grass for grassing of the 11. cattle is in the nature of agricultural income, therefore the land under consideration is in the nature of agricultural land in the light of above case. The ld.Counsel further relied in the case of Commissioner of Wealth Tax Vs. Narandas Motilal [1971] 80 ITR 0039 Gujarat wherein it was pointed out that through the relevant period the land had been so situated that they could not have been put to any other use except for agriculture. It was an admitted position that in the area round about, there was no building activity. The land was no building activity. The land was not approachable by any road to the residential locality of Navrangpura and other societies to which reference was made by the Appellate Assistant Commissioner in his order in that case. It was further in evidence that neither the assessee nor the person to whom the assessee had sold different plots of land had, at any time, made any attempt to put the land to non-agricultural use.

Devshibhai Desai Vs. ITO, Ward-3(1)(2), Surat /ITA No.92/SRT/2018 : A.Y.2012-13 Page 12 of 12

Therefore, in the light of above facts and circumstances, we 12. are of the considered opinion that the impugned land on which Ghas is shown as per revenue record was in the nature of agricultural land on which agricultural activities were being carried out in the form of grass and same was irrigated by ‘well’. Therefore, the assessee is entitled for deduction u/s.54B of the Act, accordingly this ground of appeal is allowed in the appeal of the assessee.

In the result, appeal of the assessee is partly allowed. 13.

The order pronounced in the open court on 26.07.2019. 14.

Sd/- Sd/- (BHAVNESH SAINI) (O.P.MEENA) (�याियकसद�यतथा/JUDICIAL MEMBER) (लेखासद�यकेसम� /ACCOUNTANT MEMBER) सुरत/ Surat, �दनांक Dated: 26th July, 2019/S.Gangadhara Rao, Sr.PS Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat