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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN, VICE PRESEIDENT & SHRI PADMAVATHY S
Per Padmavathy S., Accountant Member These appeals are directed against the separate orders of the CIT(Appeals), Gulbarga, both dated 28.1.2019 for the assessment year 2012-13. They are heard together and disposed of by this consolidated order for the sake of brevity and convenience.
Common grounds of appeal are raised in both the appeals and the grounds in are reproduced below:-
“1. The impugned order passed by the learned Commissioner of Income Tax (Appeals) Gulbarga is opposed to law, arbitrary, unjust and against the facts and circumstances of the case.
2. The learned Commissioner is not justified to have adjudicated upon only ground No (4) as against five grounds urged by the appellant and ought to have adjudicated upon all the grounds urged.
3. The learned commissioner of Income Tax Appeals ought to have appreciated that the original assessment order passed by the learned assessing officer. having been passed without complying with the mandatory requirements of section 148 of the Income Tax Act 1961, was bad in law and void ab-initio.
4. The learned assessing officer as well as the learned Commissioner failed to appreciate that the land sold was agricultural in nature and was located nearly 22 KMS from the nearest municipal limits of Hospet and consequently not a capital asset in terms of CBDT notification no 9447 dated 06.01.1994.
5. The learned Commissioner ought to have appreciated that the sale transaction stood concluded during the assessment year 2010-11 and consequently the same could not be the subject matter assessment proceedings for the assessment year 2012- 13.
6. The learned assessing officer ought to have appreciated that the land having been sold and transferred in favour of the buyer during the financial year 2009-2010, subsequent action of the buyers in getting the end use of the land converted from agricultural to non-.cultural activities did not change the character of the land as on the date of sale.
7. The learned assessing officer ought to have appreciated that the action of the buyer in :he end use of the land converted from agricultural to non-agricultural activities did not result in postponing the date/ year of the sale.
For the above grounds and such other grounds that may he urged at the time of hearing, with kind permission, the appellant prays that the Hon'ble Tribunal may kindly be pleased to allow the appeal in the interest of justice.”
The assessees are agriculturists and residents of Shivapura Village, Koppal Taluk. For AY 2012-13, the AO received information from the Office of Pr. CIT, Kalaburagi that assessees jointly sold non-agricultural land of 10 acres to M/s. Hotel and Allied Traders Pvt. Ltd., Kochi [HATPL] for a sale consideration of Rs.1,50,00,000. In the said property, 7.27 acres and 2.13 acres pertained to both the assessees. The agricultural land was converted into non-agricultural land for commercial purposes vide Dy. Commissioner, Koppal, Order dated 23.5.2011. The AO observed that the sale of non-agricultural land attracts capital gains and assessees have not furnished return of income offering capital gains to tax. He therefore proceeded to compute the assessees’ portion of capital gains as escaped assessment u/s. 143(3) r.w.s. 147 of the Income-tax Act, 1961 [the Act].
On appeal, the CIT(Appeals) upheld the orders of assessment. Aggrieved, the assessees are in appeal before the Tribunal.
The ld. AR submitted that the assessees entered into Sale Agreement on 14.3.2009 and major part of consideration of Rs.1,15,00,000 had been received on 25.1.2010 and the balance Rs.35 lakhs was paid at the time of registration on 24.3.2012. The land in question does not fall within the definition of ‘capital asset’ u/s. 2(14) of the act. At the time of sale, the land retained its character of agricultural and, though the same was converted for non-agricultural purposes by order dated 23.5.2011 and during the intervening period upto the date of conversion order, the status of the land remained as agricultural land only. The subject land is located about 22 Kms. from the nearest notified local area limits i.e., Hospet and it is beyond 8 Kms. from the notified local area in terms of CBDT Notification No.9447 dated 6.1.1994. Therefore, the ld. AR submitted that the lands in question are not capital assets. Without prejudice, he submitted that the transaction in question relates to FY 2009-10 relevant to AY 2010-11 and not relevant to AY 2012-13 under consideration. He drew our attention to the Agreement of Sale and the Absolute Sale Deed in support of his arguments and relied on the decisions of the coordinate Bench of this Tribunal in the case of K.P. Manjunatha Reddy v. ITO in dated 25.3.2022 and M.R. Anandaram (HUF) & Ors. v. ACIT in ITA No.1169 to 1171/Bang/2015 dated 27.5.2016.
On the other hand, the ld. DR submitted that the time gap between the date of conversion i.e., 23.5.2011 and the date of actual registration on 24.3.2012 is very wide, whereas in the case of K.P. Manjunatha Reddy (supra), there was only two days time gap and hence the same cannot be applied in the assessee’s case. He also submitted that the claim of assessee that the land is used for agricultural purposes in the intervening period upto the date of final registration was not proved by the assessee. The ld. DR further submitted that the location of the land claimed to beyond 8 Kms. from the notified local area is not evidenced by any supporting documents furnished by the assessee.
We have considered the rival submissions and perused the material on record. The assessees, husband & wife, entered into an agreement of sale dated 14.5.2009 to sell a part of their land holding totally measuring 10 acres in favour of HATPL for a consideration of Rs.1,50,00,000 and received an advance of Rs.1.15 crores during the FY 2009-10. The balance sale consideration of Rs.35 lakhs was paid on 24.3.2012 at the time of registration of the said land. As per the prevailing provisions of the Karnataka Land Reforms Act, the purchaser company could not own agricultural land in Karnataka and hence the same was required to be converted for commercial utilization. Accordingly, the purchaser got those legal requirements completed vide conversion order dated 23.5.2011. We notice that as per clause (8) of the Agreement of Sale dated 14.5.2009, the assessees had agreed to give an irrevocable Power of Attorney in the name of one, Mr. K.S. Sudarshan Varma, for getting the land converted from agricultural to non-agricultural purposes and to get approval from the revenue department, Urban Development Authority and local authorities. There was inordinate delay in the registration of the said land, which finally happened on 24.3.2012 after about 10 months of the land getting converted as non-agricultural land.
We have considered the decision of the coordinate Bench of this Tribunal in the case of M.R. Anandaram (HUF) (supra), which has been relied upon in the later decision of this Tribunal in the case of K.P. Manjunatha Reddy (supra). In the case of M.R. Anandaram (HUF) (supra), the facts were that though the assessee converted the subject property as non-agricultural land, but continued the agricultural activities deriving agricultural income from the said land until the sale of the said land. The Tribunal in the said case held as follows:-
“7.3.1. It is a fact that the land which was hitherto agricultural land does not automatically become a capital asset upon a mere fact of its conversion to non-agricultural purpose. The land even though converted for non-agricultural purpose, continues to be agricultural land and does not become a capital asset u/s 2 (14) of the Act, if agricultural activities were being carried out on such a land as on the date of its sale despite a fact that the land stands converted for non-agricultural purpose. ***** ***** 7.3.10. Taking into account all the aspects as discussed in the fore-going paragraphs and also in conformity with the judicial pronouncements on the issue (supra), we are of the view that though the subject land was converted into non-agricultural purposes, cultivation of the land for agricultural purposes till the date of sale was continued unabated and as such, the land should have been treated as agricultural land and, thus, exempt from capital gains in view of s. 2 (14) of the Act. It is ordered accordingly."
From the above, it is clear that though land was converted for non- agricultural purposes, agricultural activities continued unabated till the sale of the said land, which is the basis on which the Tribunal held that the registration happened after the conversion of the land as non-agricultural does not result in capital gains. The principle emanating from the above decision of the Tribunal is that :-
(i) Agricultural activity of the converted land ought to be continued until the sale of the land so as to retain its character of agricultural land; & (ii) mere conversion of the land for non-agricultural purposes does change the character of the land being agricultural in nature.
In the instant case, the fact whether the assessee has used the land for agricultural purposes until the Sale Deed was executed is not discussed in detail in the assessment order. It was the submission of the ld. DR that the assessee has not provided any evidence to prove that the land had in fact been used for agricultural purposes. In view of the above, we remit this issue back to the Assessing Officer to consider the facts afresh and examine whether the land is used for agricultural purposes, even after conversion until the Sale Deed was executed. The AO is directed to keep the principles laid down in the aforesaid decisions of the Tribunal while deciding the case afresh on merits in accordance with law. The assessee is directed to provide the required details before the AO and cooperate with the proceedings. It is directed accordingly.
In the result, both the appeals of the assessees are allowed for statistical purposes.
Pronounced in the open court on this 21st day of June, 2022..