SRI K R UDAYA KUMAR,MYSORE vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2(1), BANGALORE

PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against order dated 11/02/2022 passed by Ld.CIT(A)-2, Panaji for AY 2008-09 on following grounds of appeal: “1. The order passed by the learned authorities, in so far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant's case. 2. The appellant denies himself to be assessed to the income of Rs.26,36,252/-against the assessed income under section 143(3) of Rs. 7,54,71O/- on the facts and circumstances of the case.

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He submitted that in this process of collecting the relevant documents, the delay occurred in filing the present appeal. 4. The Ld.AR then submitted that the impugned order dated 11/02/2022 was received by the assessee on 14/02/2022 and assessee was supposed to file the present appeal before this Tribunal on or before 28/02/2022. The Ld.AR further submitted that the Hon’ble Supreme Court had relaxed the limitation period pursuant to covid pandemic from 30/03/2022 and therefore the delay has to be computed from 30/03/2022 in the present facts of the case. 5. He submitted that the present appeal is filed on 15/06/2022 and thus there is a delay of 47 days in filing the present appeal. 6. He submitted that there was no malafide intention on behalf of the assessee for causing such delay and no benefit is accrued to the assessee by such act. The Ld.AR thus prayed for 47 days delay to be condoned. On the contrary, the Ld.DR though objected could not substantiate the denial for any particular reason. We have perused the submissions advanced by both sides in the light of records placed before us. 7. Before us, the assessee has submitted in the affidavit that the delay occurred in collecting the relevant documents for filing the present appeal. As the documents were originally held by another tax practitioner, and the same was not handed over to the assessee, assessee had to obtain the same which took some time. This submission of assessee cannot be ignored and we are of the opinion that the appeal deserves to be admitted to be decided on merits in order to render justice.

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Accordingly, we condone the delay and admit the present appeal, decide it on merits. 8. Brief facts of the case are as under: 8.1 For the year under consideration, the assessee had filed his return of income on 31.03.2009 declaring an income of Rs.8,84,560/- including agricultural income of Rs.67,650/-. The case was selected for scrutiny under CASS and the Ld.AO completed the assessment u/s. 143(3) of the Act by making an addition of Rs.37,800/-. Thereafter, on perusal of records it was seen that the assessee had sold land amounting to Rs.33,02,772/- during the F.Y. 2007-08 relevant to the A.Y. 2008-09 however the assessee had not declared in the return of income. Subsequently, the case was referred to the CIT, Mysore for revision under Section 263 of the Act. The CIT vide order under Section 263 of the Act dated 28.03.2013 set aside the order under Section 143(3) of the Act dated 24.12.2010 with direction to do the assessment de-novo after providing the opportunity of being heard to the assessee. The AO completed the assessment under Section 143(3) r.w.s. 263 of the Act determining the total income at Rs.28,03,902/-. Against the assessment order, the assessee preferred appeal before Ld.CIT(A). The Ld.CIT(A) partly allowed the appeal. Against the order of Ld.CIT(A), assessee is in appeal before this Tribunal. 9. Before this Tribunal, assessee has raised following additional grounds vide application dated June, 2022. “1. The authorities below failed to appreciate that the appellant ought to have been allowed the deduction under section 54B of the Act, in so far as the investment made

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out of sale proceeds of agricultural lands, on the facts and circumstances of the case. 2. The appellant craves leave to add, alter, modify, delete or substitute any or all of the grounds at the time of hearing the appeal. 3. In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed and appropriate relief may be granted in the interest of justice and equity.” It is submitted that inadvertently, this ground was missed out while filing the original grounds. 10. The Ld.AR submitted that as the issue involved is legal claim, substantial justice would be rendered only if the ground stands admitted. 11. He relied on the decision of Hon’ble Supreme Court in case of NTPC Ltd. vs. CIT reported in 229 ITR 383. The Ld.Sr.DR opposed the additional ground to be admitted. We have perused the submissions advanced by both sides in the light of records placed before us. He referred to the decision of Hon’ble Supreme Court in case of Collector Land Acquisition Vs. Mst. Katiji & Ors., reported in (1987) 167 ITR 471. When substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right for injustice being done because of non deliberate delay. We have to prefer substantial justice rather than technicality in deciding the issue. As observed by Hon’ble Supreme Court in case of Collector Land Acquisition Vs. Mst. Katiji & Ors.(supra), if the application of the assessee for condoning the delay is rejected, it would amount

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to legalise injustice on technical ground when the Tribunal is capable of removing injustice and to do justice. Accordingly the additional grounds raised by assessee stands admitted. 12. The Ld.AR at the outset, submitted that assessee during the year had sold lands which were agricultural and revenue has treated the same to be adventure in the nature of trade. It is the submission of Ld.AR that assessee had never any intention to convert agricultural land into non-agricultural purposes before sale. The Ld.AR also submitted that from the sale proceeds of such agricultural lands, assessee further invested in agricultural land itself. It is submitted by Ld.AR that all the agricultural lands sold by the assessee are beyond the principle limits as prescribed u/s. 2(14) of the Act and therefore cannot be treated as capital asset for the purpose of computing capital gains. He submitted that assessee by way of an affidavit under Rule 10 and 29 of the Income Tax Rules has filed additional evidences to substantiate the claim. 13. It is the submission of Ld.AR that the above documents were inadvertently missed out to be placed before the Ld.CIT(A) and it took some time to collect all these evidences for assessee. The Ld.AR submitted that these documents are relevant to determine the correct nature of the sale proceeds in the hands of assessee. He also relied on the decision of Coordinate Bench of this Tribunal in case of G.N. Venugopal vs. ACIT in ITA Nos. 215, 303 to 306/Bang/2020 vide order dated 11/04/2022 for A.Ys. 2010-11 to 2014-15 wherein a similar situation has been dealt with.

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It is the case of the revenue that, the land that were sold by assessee for a particular value were not forming part of the return of income . For this reason, the Ld.PCIT initiated 263 proceedings and remanded the issue to the Ld.AO for denovo consideration.

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The Ld.AR is submitted that the lands sold were agricultural land beyond the principle limits and therefore cannot be construed as capital asset. It is also submitted that assessee had treated the land sold as investments. We note that the documents filed before us by way of additional evidence in such circumstances are relevant to be considered. 17. We also refer to the observations of Coordinate Bench of this Tribunal, which is reproduced a under: “9.5. Now the question as to whether a land is agricultural land or not is essentially a question of fact. The question has to be answered in each case having regard to the facts and circumstances of that case. There may be factors both for and against a particular point of view. We have to answer the question on a consideration of all of them, a process of evaluation and the inference has to be drawn on a cumulative consideration of all the relevant facts. It may be stated here that not all the factors or tests would be present or absent in any case and that in each case one or more of the factors may make appearance and that ultimate decision will have to be reached on a balanced consideration of the totality of the circumstances. 9.6. The expression 'agricultural land' is not defined in the Act, and now, whether it is agricultural land or not has to be determined by using the tests or methods laid down by the Courts from time to time. 9.7. The Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim v. CIT [1993] 204 ITR 631/70 Taxman 301 has approved the decision of a Division Bench of the Gujarat High Court in the case of Siddharth J. Desai (supra) and has laid down 13 tests or factors which are

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required to be considered and upon consideration of which, the question whether the land is an agricultural land or not has to be decided or answered. We reproduce the said 13 tests as follows: “1. Whether the land was classified in the Revenue records as agricultural and whether it was subject to the payment of land revenue? 2. Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time? 3. Whether such user of the land was for a long period or whether it was of a temporary character or by any of a stopgap arrangement? 4. Whether the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land? 5. Whether, the permission under s. 65 of the Bombay Land Revenue Code was obtained for the non-agricultural use of the land? If so, when and by whom (the vendor or the vendee)? Whether such permission was in respect of the whole or a portion of the land? If the permission was in respect of a portion of the land and if it was obtained in the past, what was the nature of the user of the said portion of the land on the material date? 6. Whether the land, on the relevant date, had ceased to be put to agricultural use? If so, whether it was put to an alternative use? Whether such lesser and/or alternative user was of a permanent or temporary nature? 7. Whether the land, though entered in Revenue records, had never been actually used for agriculture, that is, it had never been ploughed or tilled? Whether the owner meant or intended to use it for agricultural purposes? 8. Whether the land was situated in a developed area? Whether its physical characteristics, surrounding situation and use of the land in the adjoining area were such as would indicate that the land was agricultural? 9. Whether the land itself was developed by plotting and providing roads and other facilities? 10. Whether there were any previous sales of portions of the land for non-agricultural use? 11. Whether permission under s. 63 of the Bombay Tenancy and Agricultural Land Act, 1948, was obtained because the sale or intended sale was in favour of a non- agriculturist? If so, whether the sale or intended sale to such nonagriculturists was for non-agricultural or agricultural user? 12. Whether the land was sold on yardage or on acreage basis?

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9.8. A reference could be made to the case of CWT v. Officer- incharge (Court of wards) [1976] 105 ITR 133(SC) wherein the Constitution Bench of the Supreme Court stated that the term 'agriculture' and 'agricultural 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. The Supreme Court has observed that the term 'agriculture' is thus understood as comprising within its scope the basic as well as subsequent operations in the process of agriculture and raising on the land all products which have some utility either for someone or for trade and commerce. It will be seen that the term 'agriculture' receives a wider interpretation both in regard to its operation as well as the result of the same. Nevertheless there is present all throughout the basic idea that there must be at the bottom of its cultivation of the land in the sense of tilling of the land, sowing of the seeds, planting and similar work done on the land itself and this basic conception is essential sine qua non of any operation performed on the land constituting agricultural operation and if the basic operations are there, the rest of the operations found themselves upon the same, but if the basic operations are wanting, the subsequent operations do not acquire the characteristics of agricultural operations. The Constitution Bench of the Supreme Court in the aforesaid case observed that the entries in Revenue records were considered good prima facie evidence.

9.9. The Gujarat High Court in the case of Dr. Motibhai D. Patel v. CIT [1981] 127 ITR 671/5 Taxman 147 referring to the Constitution Bench of the Supreme Court had stated that if agricultural operations are being carried on in the land in question at the time when the land is sold and further if the entries in the Revenue records show that the land in question is agricultural land, then, a presumption arises that the land is agricultural in character and unless that presumption is rebutted by evidence led by the Revenue, it must be held that the land was agricultural in character at the time when it was sold. The Division Bench of the Gujarat High Court further held that there was nothing on record to show that the presumption rose from

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the long user of the land for agricultural purpose and also the presumption arising from the entries of the Revenue records are rebutted.

9.10. The Bombay High Court in the case of CWT v. H.V. Mungale [1984] 145 ITR 208/12 Taxman 201 held that the Supreme Court had pointed out that the entries raised only a rebuttable presumption and some evidence would, therefore, have to be led before taxing authorities on the question of intended user of the land under consideration before the presumption could be rebutted. The Court further held that the Supreme Court had clearly pointed out that the burden to rebut the presumption would be on the Revenue. The Bombay High Court held that the ratio of the decision of the Supreme Court was that what is to be determined is the character of the land according to the purpose for which it was meant or set apart and can be used. It is, therefore, obvious that the assessee had abundantly proved that the subject land sold by them was agricultural land not only as classified in the Revenue records, but also it was subjected to the payment of land revenue and that it was actually and ordinarily used for agricultural purpose at the relevant time.

9.11. We may also refer to the case of CIT v. Manilal Somnath [1977] 106 ITR 917(Guj.), wherein the Division Bench of the Gujarat High Court observed that the potential non- agricultural value of the land for which a purchaser may be prepared to pay a large price would not detract from its character as agricultural land on the relevant date of sale.

9.12. We may also refer to the case of Gopal C. Sharma v. CIT [1994] 209 ITR 946/72 Taxman 353(Bom), in which, the case of Smt. Sarifabibi Mohamed Ibrahim (supra) was referred to and relied, amongst other cases. In this case, the Division Bench of the Bombay High Court has stated that the profit motive of the assessee selling the land without anything more by itself can never be decisive for determination of the issue as to whether the transaction amounted to an adventure in the nature of trade. In other words, the price paid is not decisive to say whether the land is agricultural or not.

9.13. We may refer to a judgment of the Madras High Court in the case of CIT v. E. Udayakumar [2006] 284 ITR 511 where the Madras High Court has referred to the decision of the Punjab & Haryana High Court in the case

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of CIT v. Smt. Savita Rani [2004] 270 ITR 40/[2003] 133 Taxman 712and has observed and held as under : "8. It is well settled in the case of CIT v. Smt. Savita Rani (2004) 186 CTR (P&H) 240: (2004) 270 ITR 40(P&H), wherein it is held that the land being located in a commercial area or the land having been partially utilised for nonagricultural purposes or that the vendees had also purchased it for non-agricultural purposes, were totally irrelevant consideration for the purposes of application of s. 54B. 9. In the abovesaid case, the assessee an individual sold 15 karnals, 18 marlas of land out of her share in 23 karnals, 17 marlas land during the financial year 1990-91, relevant to the asst. yr. 1991-92, the sale was effected by three registered sale deeds. While filing her return of income, she claimed exemption from levy of capital gains under s. 54B of the Act on the ground that the land sold by her was agricultural land and the sale proceeds were invested in the purchase of agricultural land within two years. The AO rejected the claim of the assessee holding that the land sold by the assessee was not agricultural land and this was upheld by the CIT(A). On further appeal, the Tribunal accepted the claim of the assessee holding that the transaction in question duly fulfilled the conditions specified for relief. On further appeal to the High Court, the Punjab & Haryana High Court found that the finding that the land had been used for agricultural purposes was based on cogent and relevant material. The Revenue record supported the claim. Even the records of the IT Department showed that the assessee had declared agricultural income from this land in her returns for the preceding two years. The land being located in commercial area or the land having been partially utilised for nonagricultural purposes or that the vendees had also purchased it for nonagricultural purposes, were totally irrelevant consideration for the purposes of application of s. 54B. 10. It is seen from the aforesaid decision that the agricultural land sold by the assessee with an intent to purchase another land within two years had also been permitted to claim exemption under s. 54B of the IT Act, 1961. In the instant case, even though there was no sale as such, the assessee owned agricultural land within the limits of Tirunelveli Corporation and he had not put up any construction thereon, the assessee is entitled to claim exemption from the WT Act for the

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assessment of wealth-tax. That the land in question is adjacent to the hospital is totally irrelevant."

9.14. Adverting to the facts of the present case, the land in question is classified in the Revenue records as agricultural land and there is no dispute regarding this issue and actual cultivation has been carried on this land and income was declared from this land in the return of income filed by the assessee for the earlier years as agricultural income. It is also an admitted fact that the AO has not brought on record any evidence to show that the agricultural land was used for nonagricultural purposes and the assessee has not put the land to any purposes other than agricultural purposes. It is also an admitted fact that neither the impugned property was subject to any developmental activities at the relevant point of time of sale of the land.

9.15. The Hon'ble Karnataka High Court in the case of CIT v. Madhukumar N. (HUF) [2012] 208 Taxman 394/23 taxmann.com 341held as follows: "9. An agricultural land in India is not a capital asset but becomes a capital asset if it is the land located under Section 2(14)(iii)(a) & (b) of the Act, Section 2(14) (iii) (a) of the Act covers a situation where the subject agricultural land is located within the limits of municipal corporation, notified area committee, town area committee, town committee, or cantonment committee and which has a population of not less than 10,000. 10. Section 2(14)(m)(b) of the Act covers the situation where the subject land is not only located within the distance of 8 kms from the local limits, which is covered by Clause (a) to section 2(14)(iii) of the Act, but also requires the fulfilment of the condition that the Central Government has issued a notification under this Clause for the purpose of including the area up to 8 kms, from the municipal limits, to render the land as a "Capital Asset. 11. In the present case, it is not in dispute that the subject land is not located within the limits of Dasarahalli City Municipal Council therefore, Clause (a) to section 2(14][iii] of the Act is not attracted. 12. However, though it is contended that it is located within 8 knits,, within the municipal limits of Dasarahalli City Municipal Council in the absence of any notification issued under Clause (b) to section 2(14)(iii) of the Act, it cannot be looked in as a capital

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asset within the meaning of Section 2(14)(iii)(b) of the Act also and therefore though the Tribunal may not have spelt out the reason as to why the subject land cannot be considered as a 'capital asset' be giving this very reason, we find the conclusion arrived at by the Tribunal is nevertheless the correct conclusion."

9.16. Further the word "Capital Asset" is defined in Section 2(14) to mean property of any kind held by an assessee, whether or not connected with his business or profession, but does not include "(iii) agricultural land in India, not being land situated (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 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, urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;" 9.17. It is very clear from the above that the gain on sale of an agricultural land would be exigible to tax only when the land transferred is located within the jurisdiction of a municipality. The fact that all the expressions enlisted after the word municipality are placed within the brackets starting with the words 'whether known as' clearly indicates that such expressions are used to denote a municipality only, irrespective of the name by which such municipality is called. This fact is further substantiated by the provisions contained under clause (b) wherein it has been clearly provided that the authority referred to in clause (a) was only municipality.

9.18. From the facts and circumstances of the case, as narrated before us, it is important to note that what was the intention of the assessees at the time of acquiring the land or interval action by the assessee between the period from purchase and sale of the land and the relevant improvement/development taken place during this time is

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relevant for deciding the issue whether transaction was in the nature of trade. Though intention subsequently formed may be taken into account, it is the intention at the inception is crucial. One of the essential elements in an adventure of the trade is the intention to trade; that intention must be present at the time of purchase. The mere circumstances that a property is purchased in the hope that when sold later on it would leave a margin of profit, would not be sufficient to show, an intention to trade at the inception. In a case where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it, the presence of such an intention is a relevant factor and unless it is offset by the presence of other factors it would raise as strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive and it is conceivable that, on considering all the facts and circumstances in the case, the court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. The presumption may be rebutted. In the present case, considering the facts and circumstances of the case it cannot be considered as an adventure in the nature of trade. The intention of the assessee from the inception was to carry on agricultural operations and even there was no intention to sell the land in future at that point of time. It was due to the boom in real estate market came into picture at a later stage, the assessee has sold the land. Merely because of the fact that the land was sold for profit, it cannot be held that income arising from the sale of land was taxable as profit arising from the adventure in the nature of trade. The period of holding should not suggest that the activity was an adventure in the nature of trade.

9.19. Further, we make it clear that when the land which does not fall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations in such agricultural land and also being specified as agricultural land in Revenue records, the land is not subjected to any conversion as non-agricultural land by the assessee or any other concerned person, transfers such agricultural land as it is and where it is basis, in such circumstances, in our opinion, such transfer like the case before us cannot be considered as a transfer of capital asset or the transaction relating to sale of land was not an adventure in the nature of trade so as to tax the

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income arising out of this transaction as business income.” We direct the Ld.AO to verify the additional evidences filed by assessee in the light of the observations by Coordinate Bench of this Tribunal reproduced hereinabove in case ofGN Venugopal vs. ACIT (supra). 18. In the event, on verification it is found that the lands sold were in the nature as defined u/s. 2(14) of the Act, benefit u/s. 54B is to be granted to assessee. After verifying the necessary conditions for the purposes of this claim. Accordingly, the grounds raised by assessee stands allowed for statistical purposes. In the result, the appeal filed by assessee stands allowed for statistical purposes. Order pronounced in the open court on 1st December, 2022.

Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member

Bangalore, Dated, the 1st December, 2022. /MS /

Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file

By order

Assistant Registrar, ITAT, Bangalore