THE COMMISSIONER OF INCOME T vs. P.MAHALAKSHMI

T.C.A.Nos.324 and 325 of 2020 IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated: 24.09.2020 Coram THE HONOURABLE Mr. JUSTICE T.S.SIVAGNANAM AND THE HONOURABLE Mrs. JUSTICE V.BHAVANI SUBBAROYAN T.C.A.No.324 of 2020 and C.M.P. No.10637 of 2020 and T.C.A.No.325 of 2020 The Commissioner of Income Tax, Chennai ... Appellant in both the appeals Vs. P.Mahalakshmi ..Respondent in T.C.A.No.324 of 2020 K.G.Parthasarathy ..Respondent in T.C.A.No.325 of 2020 Tax Case Appeals filed under Section 260-A of the Income Tax Act, 1961, are directed against the Orders passed by the Income Tax Appellate Tribunal, Madras “A” Bench in I.T.A Nos.2358/Chny/2016 and 2359/Chny/2016 dated 26.04.2019 for the assessment year 2009-2010. 1/14 http://www.judis.nic.in T.C.A.Nos.324 and 325 of 2020 For Appellant

: Ms.R.Hemalatha Senior Standing Counsel C O M M ON J U D G M E N T [Common Judgment of the Court was delivered by T.S.SIVAGNANAM, J.] These appeals have been filed by the Revenue under Section 260A of the Income Tax Act, 1961 ['the Act', for brevity] challenging the common order dated 26.04.2019 passed by the Income Tax Appellate Tribunal, Madras 'A' Bench, Chennai ['Tribunal' for brevity] in I.T.A Nos.2358/Chny/2016 and 2359/Chny/2016 for the assessment year 2009-2010. 2. The Revenue has raised the following substantial questions of law for consideration: '1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the capital assets viz., vacant land sold by the Assessee was 2/14 http://www.judis.nic.in T.C.A.Nos.324 and 325 of 2020 agricultural land as defined u/s 2(14)(iii) of the Income Tax Act especially when no agricultural operations was done by the Assessee prior to the sale and the assessee had obtained permission for converting the lands from agriculture use to non agriculture use prior to the date of the sale? 2. Is not the finding of the Tribunal perverse by holding that the land sold did not attract the provisions of Section 45(1) as they were agricultural lands, especially when both the seller and the purchaser did not perform any agricultural activity on the lands? 3. Whether the Tribunal ought to have applied the decision of the Madras High Court in the case of A.Lalichan in TC(A) No.504 of 2018 dated 11.10.2018 which had held that capital gain tax is leviable under similar circumstances?' 3. The respondents / assessees are husband and wife, the issue involved in the instant case is whether the land sold by the assessees was agricultural land, as defined under Section 2(14)(iii) of the Act?. The assessees filed return of income for the assessment year (for brevity 'AY') under consideration 2009-2010 and the returns were 3/14 http://www.judis.nic.in T.C.A.Nos.324 and 325 of 2020 processed under Section 143(1) of the Act and both the assessees were issued refund. Subsequently, the assessment was reopened under Section 147 of the Act on the ground that the assessees along with their family members had sold land measuring 46.88 acres to M/s Agility Logistics Private Ltd., on 03.12.2008 and received a total consideration of Rs.51,56,80,000/- of which, the assessee in TCA No.324 of 2020 received Rs.18,48,00,000/- and the assessee in TCA No.325 of 2020 received Rs.3,13,50,000/- and their two sons have also received the sale consideration. 4. The assessing officer stated that they have received information that the assessees along with their co-owners (sons) had obtained approval from the Joint Director, Directorate of Town and Country Planning [for brevity 'DTCP'] for conversion of the land for non- agricultural purpose vide order dated 23.08.2008, i.e., prior to the execution of sale deed on 03.12.2008. Therefore, the assessing officer opined that on the date of sale, the land is no longer agricultural land and not eligible for claiming exemption for capitalised tax. The above was a reason for issuing notice under Section 148 Act dated 4/14 http://www.judis.nic.in T.C.A.Nos.324 and 325 of 2020 22.06.2012. 5. The assessee submitted a detailed reply dated 19.06.2013 supported by the relevant documents. The assessing officer, however, did not accept the stand taken by the assessees and completed the assessment under Section 143(3) read with Section 147 of the Act vide order dated 17.03.2015 and held that on the date of sale, the lands sold are not agricultural lands, thereby falling within the division of 'capital assets' under Section 2(14) of the Act and therefore, the sale consideration received by the assessees is liable for capital gains tax under Section 2(14) read with Section 45 of the Act. 6. Aggrieved by such order, the assessees preferred appeals before the Commissioner of Income Tax Appeals - III, Chennai (for brevity 'CITA'). The CITA by order dated 27.05.2016 allowed the appeals filed by the asseessees. The CITA held that the character of the land are agricultural in nature, which fulfils the conditions laid down in Section 2(14) of the Act and accordingly, direction was issued to the assessing officer to delete the addition made under short term capital 5/14 http://www.judis.nic.in T.C.A.Nos.324 and 325 of 2020 gains. The revenue being aggrieved by such order preferred appeals before the Tribunal. The Tribunal by the impugned order dated 26.04.2019 has dismissed the appeals filed by the Revenue. Challenging the same, the Revenue is before us by way of these Tax Case Appeals. 7. We have elaborately heard Ms.R.Hemalatha, learned senior standing counsel for the appellant and carefully perused the findings recorded by the assessing officer, CITA, the Tribunal and the grounds canvassed before us. 8. The sheet anchor of the arguments of Ms.R.Hemalatha, learned senior standing counsel for the appellant is that the Tribunal ought to have taken note of the fact that the assessees had obtained for conversion of the land from agricultural purpose to non-agricultural purpose prior to execution of the sale deed and this approval given by the competent authority was based upon a certificate issued by the Tahsildar stating that for three previous years, no agricultural activity was done by the assessees. Further, it is submitted that the assessing 6/14 http://www.judis.nic.in T.C.A.Nos.324 and 325 of 2020 officer rightly applied the tests laid down by the Hon'ble Supreme Court in Smt.Sarifabibi Mohmed Ibrahim Vs. Commissioner of Income Tax [1993] 70 Taxman 301 (SC) and held that majority of the 13 questions framed were answered against the assessee and therefore, concluded that the lands, which were sold were non-agricultural lands. 9. Further, it is submitted that more or less, in an identical issue, the Division Bench of this Court in the case of Principal Commissioner of Income Tax, Chennai Vs. A.Lalichan [T.C.A.No.504 of 2018 dated 11.10.2018] held in favour of the revenue on the ground that the lands, which were sold were non-agricultural lands. Further, the learned counsel placed reliance on the decision in the case of Ranchhodbhai Bhaijibhai Patel Vs. Commissioner of Income-Tax reported in [1971] 81 ITR 446 (Guj.); Mahaveer Enterprises Vs. Union of India reported in [1997] 95 Taxman 220 (Raj.) and Sri Ranganatha Enterprises Vs. Commissioner of Income Tax [1998] 100 Taxman 552 (Karnataka). 10. Before we proceed to consider the decisions referred to by Ms.R.Hemalatha, learned senior standing counsel for the appellant, it 7/14 http://www.judis.nic.in T.C.A.Nos.324 and 325 of 2020 would be relevant to take note of factual position, which have been recorded by the two authorities as well as the Tribunal. The reason for treating the land as non agricultural land is the approval granted by the Deputy Director of Town and Country Planning, which approval was granted on 23.08.2008 prior to the execution of sale deed dated 13.12.2008. This aspect of the matter was considered by the CITA, who took note of the various documents placed by the assessees including the report of the Sub-Registrar, who had registered sale deed dated 13.12.2008. After noting the facts, more particularly, the report of the Sub-Registrar in a note appended to the sale document that the land which is the subject matter of sale is going to be converted from cultivated lands into building site. The Sub-Registrar has further directed that the lands were valued in cents and not in square feet. Apart from that, recorded the standing coconut trees, which were valued as per horticultural norms. That apart, the CITA found that the approval granted by the DTCP was no longer valid. 11. Apart from that, the said authority is not the final authority, who is to grant approval for reclassification of a land from agricultural to 8/14 http://www.judis.nic.in T.C.A.Nos.324 and 325 of 2020 non-agricultural category. In fact, the procedure prescribed under the Tamilnadu Town and Country Planning Act, 1971 is a very elaborate procedure and it is ultimately, the Government, which has to take a decision in the matter. 12. The conversion of agricultural land to non-agricultural purpose has been consciously made very rigorous so that the agricultural activities should not be died down. Further, CITA noted that the family members of the assessees had filed a Writ Petition before this Court against M/s Nelcast Limited on the ground that the said company was letting out its trade effluence into the assessees agricultural lands, namely, the lands, which are subject matter in issue. Furthermore, the CITA noted that the assessees had declared the agricultural income and paid agricultural income tax on such receipts. Further, the CITA took note of the decision of Division Bench of this Court in Sakunthala Vedachalam Vs. ACIT reported (2014) 369 ITR 558. After taking note of all these factors and several other facts as recorded, the appeal was allowed. 9/14 http://www.judis.nic.in T.C.A.Nos.324 and 325 of 2020 13. When the correctness of the order of CITA was tested before the Tribunal, once again, the Tribunal made a factual exercise and found that agricultural activities were carried out in the land, there were standing banana crops as well as coconut trees etc., Furthermore, from the revenue records, which were placed before the Tribunal in the form of paper book by the assessees, the Tribunal had recorded a finding of fact that the lands, which was sold were indeed agricultural lands. Furthermore, it is relevant to note that the lands, which are subject matter of consideration are situated 40 Kms away from Thiruvallur Municipality and 30 Kms away from Madhavaram Municipality. Furthermore, the Village Administrative Officer had certified on 01.12.2008, i.e., prior to execution of sale deed that the assessees and their family members were using the land for agricultural purposes. Furthermore, the President of Andal Kuppam Panchayat within whose limits the land is situated, has certified that the assessees and their family members are using the lands for cultivation of paddi, sugarcanes, ground nuts, mango and coconut etc., and the land, as mentioned in the sale deed has to be construed as 'unbuilt land', but not 'non-agricultural land'. This document was placed before the assessing officer. 10/14 http://www.judis.nic.in T.C.A.Nos.324 and 325 of 2020 Furthermore, the statements of neighbouring land owners were also available before the assessing officer. Therefore, on facts, the first appellate authority as well as the Tribunal has concluded in favour of the assessees. 14. After taking note of the factual position, the CITA applied the test laid down by the Hon'ble Supreme Court in Smt.Sarifabibi Mohmed Ibrahim and found that the majority of the test were answered in favour of the assessees. The decision in the case of Ranchhodbhai Bhaijibhai Patel, on facts it was found that the lands seized to bear the character of agricultural land on the date of sale and taking note of this fact, the Court decided in favour of the revenue. However, on facts, the CITA as well as the Tribunal has held that on the date of sale, the land was agricultural, therefore, the said decision cannot be applied to the facts and circumstances of this case. 15. The decision in the case of Mahaveer enterprises also would not assist the case of revenue, since in the said decision, the five co-owners of the agricultural land, joined partnership along with 14 11/14 http://www.judis.nic.in T.C.A.Nos.324 and 325 of 2020 others, sold the land to that partnership firm for consideration. The said land having been included stock in trade and brought into the partnership asset, was held to be never intended to be used for agricultural purpose and therefore, the land has lost its character as an agricultural land. Therefore, not agreeable. 16. The decision in Sri Ranganatha Enterprises on the question as to whether license for tapping and vending of paddy can be treated as agricultural operations, such question does not arise in the instant case and therefore, the decision cannot be applied. 17. In the decision of Principal Commissioner of Income Tax, Chennai Vs. A.Lalichan, the assessee rested his case by relying upon kist payment receipts and contended that the lands were agricultural lands, however, the Court on examining the facts held against the assessee and in favour of the revenue. Therefore, the factual position in Lalichan is entirely different to that of the case of revenue before us. 18. Thus for all the above reasons, we find no grounds to interfere 12/14 http://www.judis.nic.in T.C.A.Nos.324 and 325 of 2020 with the order passed by the Tribunal. Accordingly, the appeals filed by the revenue are dismissed and the substantial questions of law are answered against the revenue. Consequently, connected miscellaneous petition is closed. No costs. (T.S.S.J.) (V.B.S.J.) 24.09.2020 Index :Yes / No Internet :Yes / No Speaking Judgment / Non Speaking Judgment ssd To The Income Tax Appellate Tribunal, Madras “A” Bench, Chennai 13/14 http://www.judis.nic.in T.C.A.Nos.324 and 325 of 2020 T.S.SIVAGNANAM,J., AND V.BHAVANI SUBBAROYAN, J., ssd T.C.A.No.324 of 2020 and C.M.P. No.10637 of 2020 and T.C.A.No.325 of 2020 24.09.2020 14/14 http://www.judis.nic.in