SHRI D.DASAPPA,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, BANGALORE

Per Chandra Poojari, Accountant Member These two appeals by the assessee are directed against the common order dated 30.9.2016 of the CIT(Appeals)-11, Bangalore for the assessment years 2008-09 & 2009-10.

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appellant has claimed exemption of long term capital gain on account of transfer of agriculture land measuring 13 Acre and 31 Guntas to the M/s. Good Life Shelters Pvt. Ltd [GSPL]. 3. The assessee contended that the land sold was not taxable as the same not being a capital asset within the meaning of section 2(14) of the Act. The transfer of these lands to the said company was by way of sale deed dated 16.07.2007. Also the lands transferred were not a capital asset, since there were agricultural operations carried on it, on as on the date of transfer. 4. The AO however, was of the view that the lands were converted in the name of the assessee on 21.06.2005, the transferee being company could not own agricultural lands as per section 80 of the Karnataka Land Reforms Act, 1961. Further, the converted lands were transferred by the assessee to the company by way of sale deed dated 16.07.2007. According to the AO, the relevant points for treating the land as a capital asset to be subjected to capital gain tax are as under:- (a) The lands transferred were non-agricultural lands because from the description of schedule of properties that the lands are converted from agricultural to non-agricultural for residential purpose. Therefore, the nature of the lands is non- agricultural when the transfer took place. (b) In view of section 80 of Karnataka Land Reforms Act, 1964, the agricultural land cannot be transferred to a non- agriculturist. The above mentioned lands were transferred to M/s. Goodlife Shelters Pvt Ltd who were non-agriculturists. This was the reason why the lands transferred were converted from agricultural to non-agricultural residential purpose. (c) The assessee was asked to produce the evidence to show that the agriculture operations were carried out till the date of

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transfer. The observations made by the AO are very relevant and they are produced below: i) The agricultural land which is utilised for cultivation has remained constant at 30 acres 3 guntas from AY 2006-07 to AY 2012-13. Even after the sale of the land under consideration, the total land holdings of the assessee under cultivation, as admitted by him, has remained the same. This shows that the land on which cultivation is made is different from the land which is sold by the assessee. Hence, the land sold by the assessee is a land which is not used for agricultural purpose. ii) The assessee provided copies of RTC for the years 2000-2001 to 2004-05. Hence, the assessee has not carried agricultural activity on any land till the date of sale, that is during the year 2007-08 relevant to A Y 2008-09. iii) From the copies of RTC, it is clear that the land used for agricultural purpose is situated at Manchanayakanahalli. Whereas, the land sold by the assessee is situated at Devarakaggalahalli, iv) The assessee has not produced any bills/vouchers for the agricultural produce sold. v) With respect to compensation received on standing crops, the assessee has replied that no compensation was received towards standing crops. Hence, the AO concluded that the appellant has failed to prove that agricultural activity was carried out on the land sold till the date of transfer. (d) The AO also was of the view that after getting the land converted for the intended non agricultural purpose, the assessee has not approached the office of the Deputy Commissioner, Bangalore Rural, Bangalore with a fresh application for conversion of land after the expiry of two

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years from the date of passing the conversion orders. Therefore, by this action also it is deemed that the assessee had put to use the converted land for the intended purposes within two years from the date of order. This fact has once again been confirmed from the recital of the agreement to sell, dated 16.07.2007 entered into b/w the assessee and the, Goodlife Shelters Pvt Ltd. wherein, it is clearly mentioned that the lands which were converted in the year 2005-06 by virtue of orders passed by the Deputy Commissioner, Bangalore Rural, Bangalore. (e) The purchaser M/s. Goodlife Shelters Pvt Ltd had bought the lands only for the purpose of non agricultural activities. (f) This piece of land is located in the thickly populated industrial belt of Bangalore ie., Harohalli Industrial Area This area is fast growing from the industrial point of view. In view of this reason only, the appellant could get good price for his land. As such, at any stretch of imagination, the land under reference cannot be treated as agricultural in character. (g) The assessee got about Rs. 14.16 lakhs per acre whereas had it been agricultural lands, he would not have got that price when the actual cost of acquisition of the lands was reported at Rs. 5.71 lakhs i.e., about Rs. 41,498/- per acre in the year 1993- 94. (h) The AO has observed that there is one more point to be considered for the purpose of deciding the character of land i.e., the nature of the paid by the land owner to the revenue dept., As per the enquiries conducted by the AO with the revenue authorities, it came to light that the jurisdiction for collection of land taxes in respect of agrl. land lies with revenue office headed by concerned Tahasildar. On the other hand, levy and collection of taxes from buildings, sites and lands converted for non- agrl. purposes lies with the Gramapanchayat Office. In the instant case, as per the enquiries conducted revealed that subsequent to conversion of the lands belonging to the assessee, the taxes are being collected by the Gramapanchayat instead of by the O/o.

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Tahasildar. This finding once again strengthens the depts. argument of non agricultural nature of the lands under reference. (i) The assessee has not received any compensation towards standing crops. 5. For the above reasons, therefore, the AO treated it as a capital asset as it is a non-agricultural land. 6. On appeal, the CIT(Appeals) upheld the action of the AO. Against this, the assessee is in appeal before us. 7. The first issue in these appeals is with regard to framing the assessment u/s. 153C of the Act. The ld. AR submitted that in this case, certain documents were seized from the office of SPR Developers P. Ltd., 34/2, 5th Main, Gandhinagar, Bangalore. 8. Consequent to the search action, notice u/s. 153C was issued to the assessee. The ld. AR contended that, however, for framing assessment u/s. 153C r.w.s. 143(3), the AO did not rely on the above documents, but he relied on the Sale Deed dated 16.7.2007 entered into between 1. Sri. T Prasanna Kumar Gowda (aka T. Prasanna Gowda) S/o. Sri. M Thimme Gowda 2. Smt. K Leelavathi W/o. Sri. M Thimme Gowda & 3. Sri. Dasappa, S/o. Late Sri. Singrigowda (The Vendors) and M/s. Goodlife Shelters Pvt Ltd., having its Registered Office at 25/6, AG 6 Brigade Majestic First Main, Gandhinagar, Bangalore-560009. This being the reason for issue notice u/s. 153C, the original reason for issuing notice u/s. 153C did not survive. Assessment under section 153A is bad in law since the additions made do not arise out of any material seized during the search. An assessment can be made under section 153A of the Act only if there is incriminating material. It was submitted that the additions in respect of the agricultural lands do not emerge from the incriminating material seized during the

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course of search. Since the additions are made without any reference to incriminating material, the proceedings under section 153A are bad in law. In relation to the above, reliance is placed on the following rulings: a. Ruling of the Karnataka HC in CIT v. IBC Knowledge Park (69 taxmann.com 108); b. Delhi HC in Best Infrastructure (India) Pvt. Ltd. (397 ITR 82); c. Delhi HC in CIT v. Kabul Chawla (380 ITR 573). Being so, the assessment framed thereafter u/s. 153C r.w.s. 143(3) is bad in law to be quashed.

8.1 The ld. AR further submitted that a search and seizure action was conducted on the premises of M/s SPR Developers Private Limited on 08.12.2011 and certain sale deeds pertaining to lands sold by the assessee situated in Manchanayakanahalli village were found and seized. Pursuant to the search, scrutiny assessment proceedings were initiated under section 153C of the Act. The assessee filed his return for the impugned AYs with a note in the income-tax return claiming that income from sale of certain agricultural lands situated at Devarakagganahalli village to two different vendors as tabulated below are exempt:- AYs Survey Nos. Transferee Sale consideration 2008-09 43 (p. 18 and 33 of PBC) 22 (p. 18 GoodlifeShelters Rs. 1.95 and 34 of PBC) 71 (p. 16 and 35 of Private Ltd. crores PBC) 70 (p. 18 and 36 of PBC) 2009-10 43 (ref. p. 20 and 36 of PBC) Maruti Education Rs. 53.25 Trust lakhs 8.2 The AO sought to tax the proceeds received on sale of agricultural lands situated at Devarakagganahalli stating that the lands were converted for non-agricultural purpose prior to sale and hence taxable as 'Long Term Capital Gains'. The ld. AR submitted that the assessment under section 153C is bad in law since the additions made do not arising out of

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any material seized during the search. An assessment can be made under section 153C of the Act only if there is a satisfaction that the books of account, documents or assets seized or requisitioned have a bearing on the determination of total income of the other person for the block assessment years. 8.3 The ld. AR submitted that the additions in respect of the agricultural lands at Devarakagganahalli do not emerge from the incriminating material seized during the course of search. The assessee had voluntarily disclosed the sale of agricultural land located in Devarakagganahalli as exempt in the return of income. It is on the basis of this disclosure that the addition has been made. Since the additions are made without any reference to incriminating material, the proceedings under section 153C are bad in law.

8.4 In relation to the above, reliance is placed on the following rulings:-

• CIT v. Sinhgad Technical Education Society (397 ITR 344 (SC) • CIT v. RRJ Securities Ltd. (380 ITR 412) (Del) • CIT v. IBC Knowledge Park (287 ITR 261)(Kar) • CIT v. Veerprabhu Marketing Ltd. (288 ITR 574(Cal) • Pr. CIT v. Allied Perfumers P. Ltd. (431 ITR 237 (Del) • Green Range Farms (P.) Ltd. v. DCIT (96 taxmann.com 249

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Gandhinagar, Bangalore. The documents were seized from the office of SPRDPL were as follows:-

Seized material marked as A/SPRDPU19

Page No. Description 165 to 170 Absolute sale deed dated 12/12/2005 by Shri.Dasappa and M/s.SPR Developers Pvt.Ltd., to M/s.VBEHCSL for a consideration of Rs.7,87,650/- for the converted land bearing Sy.No.31 situated at Manchanayakanahalli Village measuring 2 acres 9 guntas.

Seized material marked as A/SPRDPL/5

Page No. Description 61 to 66 Absolute sale deed dated 08/02/1996 by Shri.Arasappa and 2 others to Shri.Dasappa for a consideration of Rs.40,000/- for the land bearing Sy.No.58/3A situated at Manchanayakanahalli village measuring 16 guntas.

Seized material marked as A/SPRDPU18

Page No. Description 34 to 46 Absolute sale deed dated 12/12/2005 by Shri. Dasappa and M/s.SPR Developers Pvt.Ltd., to M/s. VBEHCSL for a consideration of Rs.1,06,400/ for the converted land bearing Sy.No.58/3A situated at Manchanayakanahalli Village measuring 16 guntas.

10.1 Consequently notice u/s. 153C was issued to the assessee on 23.7.2013. Assessee filed return on 19.12.2013 declaring Rs.100/- being income from other sources and agricultural income of Rs.17,500/- on 19.12.2013 for AY 2008-09 and Rs.201/- being income from other sources and agricultural income of Rs. 17,500/- for AY 2009-10. The assessee has not filed returns of income u/s. 139(1) for these two assessment years. Along with returns filed in response to notice u/s. 153C of the Act for these years, a statement of long term capital gain was filed as follows:-

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AY 2008-09 Particulars Sales Price/ Indexed Transfer Indexed Exempt Capital Year cost/year expenses cost of gain improve -ment Sale of 19500000 571635 0 261650 18666715 0 agricultural (1/2/2018) (6/8/1993) land Total 19500000 571635 0 261650 18666715 0

Sale of Agricultural land – Cost : 253138*(551/244) = 5,71,635 Cost of improvement: 1,84,722*(551/389) = 2,61,650 Exempt income : 1,95,00,000 AY 2009-10 Particulars Sales Price/ Indexed Transfer Indexed Exempt Capital Year cost/year expenses cost of gain improv- ement Sale of 5325000 199695 0 0 5125305 0 agricultural (20/01/2009) (6/8/1993) land Total 5325000 199695 0 0 5125305 0

Sale of Agricultural land – Cost : 83721*(582/244) = 199695 Exempt U/S : 5325000

10.2 Later the AO issued a Questionnaire on 8.1.2014 seeking details of property sold during the FY 2008-09 as follows:- “1. Details of land sold during the F Y 2007-08 relevant to A Y 2008-09 alongwith a copy of purchase deed and sale agreement. 2. Provide the details of mode of payment received. If the amount is received through bank account, provide copies of relevant bank statement. 3. Details of cost of improvement claimed with year of improvement. Sources of funds for such improvement.

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“1. Details of land sold during the F Y 2007-08 relevant to A Y 2008-09 alongwith a copy of purchase deed and sale agreement. 2. Provide the details of mode of payment received. If the amount is received through bank account, provide copies of relevant bank statement. 3. Copies of bank account extracts 4. Declaration by the assessee stating that he holds no other bank accounts other than what is stated here.”

10.4 Consequently, the AO observed that in the AY 2008-09 the assessee sold the agricultural land for Rs.1,95,00,000 by Sale Deed Sale Deed dated 16.7.2007 entered into between 1. Sri. T Prasanna Kumar Gowda (aka T. Prasanna Gowda) S/o. Sri. M Thimme Gowda 2. Smt. K Leelavathi W/o. Sri. M Thimme Gowda & 3. Sri. Dasappa, S/o. Late Sri. Singrigowda (The Vendors) and M/s. Goodlife Shelters Pvt Ltd., having its Registered Office at 25/6, AG 6 Brigade Majestic First Main, Gandhinagar,

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Bangalore-560009. The description of schedule of properties is mentioned as under:- Item No.5 All the piece and parcel of converted land measuring 5 Acres 14 guntas in Sy. No. 70 of Devrakagganahalli village, Maralwadi Hobli,Kanakapura Taluk, converted from agricultural to Non- agricultural residential purpose vide Official Memorandum of Conversion bearing No. ALN(K)SR19/2005-06 dated 21/06/2005 and bounded on the : East by :Survey Nos 69 and 71.; West by :Survey No 206 and 207. ; North by :Survey No 74. ; South by :Survey No 206 and 207. ;

Item No.6 All the piece and parcel of converted land measuring 5 Acres 17 guntas in Sy. No. 71 of Devrakagganahalli village, Maralwadi Hobli, Kanakapura Taluk, converted from agricultural to Non- agricultural residential purpose vide Official Memorandum of Conversion bearing No. ALN(K)SR1912005-06 dated 21/06/2005 and bounded on the : East by :Survey Nos 23.; West by :Survey No 70. ; North by :Survey No 69 and 72 ; South by :Survey No 206 and 207. ;

Item No.7 All the piece and parcel of converted land measuring 2 Acres in Sy. No. 22 of Devrakagganahalli village, Maralwadi Hobli, Kanakapura Taluk, converted from agricultural to Non- agricultural residential purpose vide Official Memorandum of

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Conversion bearing No. ALN(K)SR19/2005-06 dated 21/06/2005 and bounded on the: East by :Survey Nos. 206 and 207.; West by :Survey No 66. ; North by :Survey No 75 ; South by :Kirengere Kere Lake Border;

Item No.8 All the piece and parcel of converted land measuring 1 Acres in Sy. No. 43 of Devrakagganahalli village, Maralwadi Hobli, Kanakapura Taluk, converted from agricultural to Non- agricultural residential purpose vide Official Memorandum of Conversion bearing No. ALN(K)SR19/2005-06 dated 21/06/2005 and bounded on the: East by Survey Nos 74.; West by Survey No 42 and 75 ; North by Survey No 38 and 44 ; South by Survey No 206 and 207. ;

10.5 According to the AO, it is clear from the description of schedule of properties that the lands are converted from agricultural to non agricultural residential purpose. Therefore the nature of the lands is non agricultural when the transfer took place. Further, as per section 80 of the Karnataka Land Reforms Act, 1964, the agricultural land cannot be transferred to a non agriculturist. Hence, in view of the above status of law in Karnataka an agricultural land can be transferred only to an agriculturist. The above mentioned lands were transferred to GSPL It means that the lands were transferred to a person who is other than agriculturist also because of the fact that the lands transferred were converted from agricultural to non agricultural residential purpose.

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10.6 According to the AO, the above land was duly converted as non- agricultural land and sale of above land constitutes capital asset in terms of section 2(14) of the Act. Further the assessee placed following evidence with regard to agricultural income earned from the above property and also produced details of RTC.

SL No. AY Agri Land Holding Income earned 1,75,000/- 1 2006-07 30 Acres 3 Guntas 1,50,000/- 2 2007-08 30 Acres 3 Guntas 1,75,000/- 3 2008-09 30 Acres 3 Guntas 1,75,000/- 4 2009-10 30 Acres 3 Guntas 1,89,000/- 5 2010-11 30 Acres 3 Guntas 1,50,000/- 6 2011-12 30 Acres 3 Guntas 1,30,000/- 7 2012-13 30 Acres 3 Guntas

Survey Year Agri Land Holding in the Village No. name of the assessee 10 2000-2001 1 acre 9 guntas Manchanayakanahalli 10 2001-2002 1 acre 9 guntas Manchanayakanahalli 10 2002-2003 1 acre 9 guntas Manchanayakanahalli 10 2003-2004 1 acre 9 guntas Manchanayakanahalli 10 2004-2005 1 acre 9 guntas Manchanayakanahalli 58/3A 2000-2001 16 guntas Manchanayakanahalli 58/3A 2001-2002 16 guntas Manchanayakanahalli 58/3A 2002-2003 16 guntas Manchanayakanahalli 58/3A 2004-2005 16 guntas Manchanayakanahalli 31 2000-2001 4 acres 10 guntas Manchanayakanahalli 31 2001-2002 4 acres 10 guntas Manchanayakanahalli 31 2004-2005 4 acres 10 guntas Manchanayakanahalli

10.7 Thus, the assessee made a plea that the said land was subject of cultivation from AY 2006-07 to 2012-13. However, the AO disputed that the income disclosed by the assessee as agricultural income is derived

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from the land sold by the assessee. On the other hand, it is from the land situated at Manchanayakanahalli and the land sold by the assessee was situated at Devarakaggalahalli. Further the assessee has not produced any bills and vouchers for carrying out the agricultural activities. The land was sold to GSPL for the purpose of housing project. According to the AO, the land sold by the ass was urban land and on transfer liable for capital gains tax. The plea of the assessee that though the said land was converted into non-agricultural land, the cultivation of land continued till date and income disclosed from the said land. The AO without physical verifying the claim of the assessee outrightly rejected the same holding that the income disclosed by the assessee was situated at Manchanayakanahalli whereas the land sold was situated at Devarakaggalahalli. In our opinion, the AO cannot reject the claim of assessee without due verification. The land was converted by the assessee to sell it to a corporate entity so as to get better price and conversion is only to facilitate the sale and gains arising from such sale could not have been liable for capital gain.

10.8 Similar is the position in AY 2009-10 with regard to property measuring 3 acres 22 guntas Sy.No.43, Devarakagganahalli, Maralwadi Hobli, Kanakapura Taluk, sold to Maruthi Education Trust (Regd.) vide Sale Deed dated 2.5.2008.

10.9 Accordingly, the AO brought the capital gain emanating from the above two transactions as long term capital gain in these two assessment years.

10.10 Now the contention of the ld. AR is that proceedings initiated by the AO u/s. 153C of the Act in the case of assessee is not in accordance with

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law and therefore assumption of jurisdiction is itself not in order, therefore the order framing the assessment not based on incriminating material is bad in law and assessments are liable to be annulled on this count. In this regard, the assessee has raised the following grounds:- “1. The order of the Hon'ble Commissioner of Income Tax (Appeals) is opposed to law and facts of the case. 2. The seized material adverted to in the assessment order having no bearing on the determination of the total income of the assessee as evident from the assessment order itself, the provisions of Section 153C are not at all applicable and the order is without jurisdiction. 3. There being no satisfaction as required in law to sustain an order u/s 153C inspite of being repeatedly contended, and there being no finding either by the Assessing Officer or by the Commissioner of Income Tax (Appeals) of any evidence to indicate the existence of such satisfaction before concluding the assessment or in the assessment order itself, the provisions of Section 153C are inapplicable; the assessment order itself cannot be interpreted as the required satisfaction to act u/s 153C. 4. The learned Commissioner was in error in holding that the satisfaction note had been reproduced in the assessment order which is not factually correct and also in concluding that with respect to the taxed amount, fresh arguments especially legal in character on the basis of the existing records cannot be raised before him without appreciating that the first appeal proceeding are a mere continuation of the assessment proceedings and the powers of the Commissioner of Income Tax (Appeals) are co-terminous with those of the Assessing Officer. 5. Without prejudice and in the alternative even assuming without admitting that the satisfaction envisaged in Section 153C was recorded by the Learned Assessing Officer, the Hon'ble Commissioner of Income Tax (Appeals) ought to

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have held that such satisfaction does not meet the requirements of Section 153C. 6. The Hon'ble Commissioner of Income Tax (Appeals) was in error in holding that if the seized material is incriminating in nature, it is a ground to sustain the order even when it is not in accordance with law.”

10.11 The ld. AR submitted that the material on the basis of which notice u/s. 153C is issued does not belong to the assessee and on that basis, notice u/s. 153C cannot be issued to the assessee. According to him, in the present case, satisfaction recorded by the AO does not conform to the requirements of a valid satisfaction in invoking the provisions of section 153C of the Act. He drew our attention to the judgment of the Supreme Court in the case of CIT v. Singhad Technical Education Society, 397 ITR 344 (SC) wherein it was held as under:-

“17. First objection of the learned Solicitor General was that it was improper on the part of the ITAT to allow this ground to be raised, when the assessee had not objected to the jurisdiction under Section 153C of the Act before the AO. Therefore, in the first instance, it needs to be determined as to whether ITAT was right in permitting the assessee to raise this ground for the first time before it, as an additional ground. 18. The ITAT permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of

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the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred. 19. We, thus, find that the ITAT rightly permitted this additional ground to be raised and correctly dealt with the same ground on merits as well. Order of the High Court affirming this view of the Tribunal is, therefore, without any blemish. Before us, it was argued by the respondent that notice in respect of the Assessment Years 2000-01 and 2001-02 was time barred. However, in view of our aforementioned findings, it is not necessary to enter into this controversy. 20. Insofar as the judgment of the Gujarat High Court relied upon by the learned Solicitor General is concerned, we find that the High Court in that case has categorically held that it is an essential condition precedent that any money, bullion or jewellery or other valuable articles or thing or books of accounts or documents seized or requisitioned should belong to a person other than the person referred to in Section 153A of the Act. This proposition of law laid down by the High Court is correct, which is stated by the Bombay High Court in the impugned judgment as well. The judgment of the Gujarat High Court in the said case went in favour of the Revenue when it was found on facts that the documents seized, in fact, pertain to third party, i.e. the assessee, and, therefore, the said condition precedent for taking action under Section 153C of the Act had been satisfied.

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of the said legal provision suffers from any error apparent on the face of the record. The Delhi High Court judgment, therefore, will not carry the case of the revenue any further." We, thus, do not find any merit in these appeals. 22. We now advert to the implication of the fact which has been emphasised in para 15. As pointed out in the said para, the assessment order passed by the AO covers eight Assessment Years. Assessment done in six Assessment Years is under Section 153C of the Act. Assessment order is set aside only in respect of four such Assessment Years that too on the technical ground, noted above. This objection pertaining to the four Assessment Years in question does not relate to the other two Assessment Years, namely, 2004-05 and 2005-06. Likewise, this decision has no bearing in respect of assessment done qua Assessment Year 1999-2000 as well as Assessment Year 2006- 07. The necessary consequence would be that insofar as the conclusions of the AO in his assessment order regarding the activities of the trust not being genuine and not carried out in accordance with the trust deed or cancellation of registration, denial of benefits of Sections 11 and 12 etc. are concerned, the same would not be affected by this judgment. It is, thus, clarified that this Court has not dealt with the matter on merits insofar as incriminating material found against the assessee or Mr. Navale is concerned. Pithily put, this Court has not given any clean chit to the assessee insofar as the finding of the AO to the effect that the assessee had been indulging in profiteering and collecting capitation fee is concerned. Whatever other repercussions are there, based on these findings, they can follow. This Court was not informed and, therefore, unaware of any challenge to the assessment order in respect of other four Assessment Years and outcome thereof. Wherever any such proceedings are pending, same would be considered without being affected by the outcome of these proceedings. 23. The appeals are dismissed with the aforesaid observations.”

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10.12 It was submitted that the very initiation of proceedings u/s. 153C without proper satisfaction as contemplated under law will make the entire assessment proceedings void ab initio, therefore the assessments for AYs 2008-09 & 2009-10 are to be annulled. 10.13 Further it was submitted that the addition made by AO in these years are not based on any incriminating material found in the course of search of SPRDPL did not belong to the assessee, as such the assessments are to be held as bad in law. 10.14 For better understanding, we will go through the provisions of section 153C of the Act which is as follows:- “153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,— (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub- section (1) of section 153A :” The provisions of Sec.153C of the Act, shown in bold letter and underlined as given above were substituted by the Finance (No.2)

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Act, 2014 w.e.f 1.10.2014 for the following words “and that Assessing Officer shall proceed against each of such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of Section 153A”. 10.15 The Assessments in the present case relate to the period prior to the amendment referred to above. The aforesaid amendment has been held to be clarificatory in nature and therefore has to be held as applicable retrospectively from the inception of Sec.153C of the Act in the statue, by the ITAT Kolkata Bench in the case of Trishul Hi-Tech Industries Vs. DCIT IT(SS)A.Nos.84-86/Kol/2011 (AY 04-05, 05-06 & 06-07) order dated 24.9.2014. In the aforesaid decision the Hon’ble Kolkata Bench of ITAT, after considering the amended provisions of Sec.153C of the Act by the Finance Act, 2014, held that the provisions of Sec.153C of the Act as amended by Finance (No.2) Act, 2014 though is made applicable on and from 1.10.2014, is also relevant for earlier assessment years as it cures the infirmities of the previous legislation and also makes the provisions workable by avoiding absurd consequences. Accordingly, such provision is to be given retrospective operation and is also applicable to pending proceedings. In proceedings u/s.153C of the Act, the Assessee would not be a person who was subjected to a search u/s.132 of the Act and therefore proceedings u/s.153A of the Act could not be initiated against the Assessee. Even if no incriminating material whatsoever are found in the course of a search relating to some other person, in terms of Sec.153-C of the Act, prior to its amendment by the Finance Act, 2014 w.e.f. 1-10-2014, the AO has to proceed to issue notice u/s.153C of the Act for making an assessment of income for the periods referred to in Sec.153A of the Act. This would cause undue hardship. Take for instance in the course of search of a person a copy of sale deed of some other person is found which does not per se indicate any undisclosed income and based on

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which on adverse inference can be drawn, the AO, however, has to make an assessment in the case of the other person u/s.153C of the Act for the six assessment years referred to in Sec.153A of the Act, even if no incriminating material was found in the course of search. This created hardship and this was the reason why the provisions of Sec.153C of the Act were amended by the Finance Act, 2014. With the amendment by the Finance Act, 2014, the AO of the other person after receiving the material from the AO of the Searched person has to make an Assessment based on the material so received by him which has a bearing on the determination of the total income of the other person. This is clear from the amended provisions of the law which reads thus: “and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A :” 10.16 The Kolkatta Bench of the ITAT in the case of Trishul Hi-Tech Industries (supra) dealt with the purpose behind the aforesaid amendment and as to why it should held to be retrospective. The condition precedent for assessing or reassessing income u/s.153C is that the AO has to be satisfied that the seized material in the course of search has a bearing on determination of the total income of the other person i.e., it should be incriminating in nature. 10.17 We are in respectful agreement with the view expressed by the ITAT Kolkata Bench in the case of Trishul Hi-Tech (supra). We may also

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add that it is settled rule of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation. Ordinarily the Courts are required to gather the intention of the legislature from the overt language of the provision as to whether it has been made prospective or retrospective, and if retrospective, then from which date. What happens sometimes is that the substantive provision, as originally enacted or later amended, fails to clarify the intention of the legislature. In such a situation, if subsequently some amendment is carried out to clarify the real intent, such amendment happens to be retrospective from the date the earlier provision was made effective. Such clarificatory or explanatory amendment is declaratory. As the later amendment clarifies the real intent and declares the position as was originally intended, it takes retroactive effect from the date the original provision was made effective. Normally such clarificatory amendment is made retrospectively effective from the earlier date. It may so happen that sometimes the clarificatory or explanatory provision introduced later to depict the real intention of the legislature is not specifically made retrospective by the statute. Notwithstanding the fact that such amendment to the substantive provision has been given prospective effect, nonetheless the judicial or quasi-judicial authorities, on a challenge made to it, can justifiably hold such amendment to be retrospective. The justification behind giving retrospective effect to such amendment is to apply the real intention of the legislature from the date such provision was initially introduced. The intention of the legislature while introducing the provision is gathered, inter alia, from the Finance Bill, Memorandum Explaining the Provision of the Finance Bill. Any amendment to the substantive provision which is aimed at clarifying the existing position or removing unintended consequences to make the provision workable has to be treated as

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retrospective notwithstanding the fact that the amendment has been given effect prospectively. The above principles, if applied to the amendment to the provisions of Sec.153C of the Act by the Finance Act, 2014, can lead to only one conclusion that the said amendment is clarificatory and therefore should be held to be retrospective in operation. 10.18 A plain reading of the amended provisions of section 153C(1) of the Act, would show that the AO is required to arrive at a satisfaction that the seized assets, books of account or documents belongs to or relates to a person other than the person was subjected to search. For arriving at such a satisfaction, it is necessary for the AO to prima facie spell out the nature of seized documents and how it belongs to or relates to the assessee. Before the Hon’ble High Court of Karnataka in the case of IBC Knowledge Park, 385 ITR 346 [Kar] the issue for consideration and adjudication was whether the Tribunal was right in holding that it was not necessary to record a satisfaction to the effect that seized material shows undisclosed income. While deciding this issue, the High Court came to the conclusion at para 50 thereof, that “the detection of seized material leading to an inference of undisclosed income is a sine qua non for invocation of section 153C of the Act”. The Hon’ble Court came to the above conclusion after considering the decision of the Hon’ble Apex Court in the cases of Manish Maheshwari Vs. ACIT (289 ITR 341) and CIT Vs. Calcutta Knitwears (2014) 362 ITR 673 and other judgments of the Hon’ble Apex Court and other Hon’ble High Courts and CBDT, Circular No.24/2015 dated 31.12.2015. The Hon’ble High Court also took the view that the AO is expected to spell out as to how the documents were incriminating in nature and prima facie represent undisclosed income. In this regard, we also find that in the order of assessment, the AO has not proceeded to make any assessment on the basis of material referred to in the satisfaction note. On

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the other hand, he has made additions which are not based on any seized material which pertains to assessee. Such a course is not permissible u/s. 153C of the Act as laid down by the Hon’ble High Court of Karnataka in the case of IBC Knowledge Park (supra). The decision of the Hon’ble Supreme Court in the case of Sinhgad Technical Education Society (supra) also supports the plea of the assessee that additions made cannot be sustained in the absence of any incriminating material. 10.19 In the present case, the assessee has not filed return for AY 2008- 09 and 2009-10 as there was no taxable in the hands of the assessee. The proceedings of these assessments were not pending and did not get abated by virtue of 2nd proviso to section 153A(1) of the Act, which provides that in assessment proceedings for any of these assessment years set out in section 153A(1) of the Act, which is pending as on the date of initiation of search action u/s. 132 of the Act, such assessment proceedings would abate and AO will make assessment after considering the original return of income as well as material found in the course of search. The assessment proceedings which have been completed as on the date of search u/s. 132 however will continue to remain valid. Thus, the former proceedings are referred to as “abated assessment proceedings” and latter proceedings are referred to as “unabated assessment proceedings”. Therefore the scope of making assessment on total income u/s. 153C in an unabated assessment proceedings is limited and can be only of assessing income that is not disclosed which is detected or which emanates from material found in the course of search of some other person and which relate to the assessee.

10.20 In the present case, the impugned addition made by AO is not based on any incriminating material found during the course of search.

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The addition cannot stand since there is no seized material in support of the addition made by the AO. The assessee in the return of income disclosed certain transactions as discussed in the assessment order which is reproduced in earlier part of this order and that cannot be the basis to make addition while framing assessment u/s. 143(3) r.w.s. 153C of the Act. There is no seized material found in the course of search which forms the basis for assessing income in the hands of the assessee for these two AYs. The disclosure made by the assessee in the Note annexed to the return of income filed on 19.12.2013 cannot be considered as seized material so as to induce the AO to make such an addition as undisclosed income of the assessee. 10.21 As per the provisions of section 153C of the Act, incriminating material which was seized had to pertain to the assessment year under consideration. It is an undisputed fact that documents which are seized referred to in para 10 of this order do not establish any co-relation with the additions made in these assessment years. This requirement u/s. 153C of the Act was very essential for assessment u/s. provisions of section 153C which is a jurisdictional fact as held by the Supreme Court in Sinhgad Technical Edn. Society (supra). After taking note of the material as recorded in para 10 of this order, there was no seized incriminating seized material so as to frame assessment for these two assessment years u/s. 153C. Further, the ld. DR could not point out to the contrary. Being so, the judgment of the Supreme Court in the case Sinhgad Technical Edn. Society (supra) is squarely applicable to the facts of the present case. Since the assessment framed u/s. 153C of the Act to be based on material found during the course of search which relate to or belong to the assessee and since we have held that there is no seized material for addition made by the AO, we do not wish to address the arguments made by the ld. AR

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for the assessee that the condition precedent for initiating the proceedings u/s. 153C of the Act having not been satisfied in the present case, therefore the assessment is liable to be annulled. Accordingly, we hold that the addition made by the AO is not based on seized material found in the course of search and therefore the addition cannot be sustained. On merits of the additions made by the AO 11. The other ground is with regard to taxability of capital gain arising out of transfer of land without prejudice to the legal arguments. The ld. AR submitted that submitted that the asset transferred is an agriculture land within the meaning of section 2(14)(iii) of the Act. Although the lands were converted, agricultural activities were carried on by the assessee till the date of transfer. The same can be evidenced from the RTC Copies provided by the competent authorities.

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used for agricultural purpose was situated at Manchanayakanahalli, whereas the land sold is situated at Devarakaggalahalli. The land was converted for non-agricultural purposes and it was sold as non-agricultural land only. The tax has been collected by Gram Panchayat instead of Tahsildar which shows that the land has been converted which was used for non-agricultural purposes. According to the ld. DR, on conversion of agricultural land for non-agricultural purposes, the nature and characteristics of the land has been changed in June 2005 by virtue of conversion of land and it should be considered as transfer of capital asset within the meaning of section 2(14) of the Act. He relied on the orders of the lower authorities.

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mentioned lands were transferred to GSPL It means that the lands were transferred to a person who is other than agriculturist also because of the fact that the lands transferred were converted from agricultural to non agricultural residential purpose. 18. According to the AO, the above land was duly converted as non- agricultural land and sale of above land constitutes capital asset in terms of section 2(14) of the Act. Further the assessee placed following evidence with regard to agricultural income earned from the above property and also produced details of RTC which have been reproduced in the earlier part of this order. 19. Thus, the assessee made a plea that the said land was subject of cultivation from AY 2006-07 to 2012-13. However, the AO disputed that the income disclosed by the assessee as agricultural income is derived from the land sold by the assessee situated at Manchanayakanahalli and on the other hand, the land sold by the assessee was situated at Devarakaggalahalli. No bills and vouchers for carrying out the agricultural activities. The land was sold to GSPL for the purpose of housing project. was urban land and on transfer liable for capital gains tax. The plea of the assessee that though the said land was converted into non-agricultural land, the cultivation of land continued till date and income disclosed from the said land was outrightly rejected by the AO on the ground that the income disclosed by the assessee was situated at Manchanayakanahalli whereas the land sold was situated at Devarakaggalahalli. In our opinion, the AO cannot reject the claim of assessee without due verification. The land was converted by the assessee to sell it to a corporate entity so as to get better price and conversion is only to facilitate the sale and gains arising from such sale could not have been liable for capital gain.

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Tribunal in ITA No.1169 to 1172/Bang/2015, order dated 27.5.2016 in the case of Shri M.R. Anandaram (HUF) & Ors. wherein it was held as under:-

“9. But in the instant case, the issue in dispute is with regard to chargeability of the capital gain on the impugned transaction. Our attention was drawn to the order of the Tribunal in the connected cases i.e., Shri M.R. Seetharam v. ACIT in ITA No.1654/Bang/2012 dated 13.6.2014, in which the Tribunal has held that the agricultural land was transferred to buyer and the issue was raised, whether capital gain has accrued on such transactions. The Tribunal has held that though the subject land was converted into non-agricultural land purpose, but cultivation of land continued till the date of sale. Thus, the land should have been treated as agricultural land and exempt from capital gains in view of section 2(14) of the Act. While holding so, the Tribunal has also observed that had the State Reforms Act permitted the assessee to sell its agricultural lands without conversion to a corporate as in the case of other States, the assessee would not then be required to get the land converted merely to facilitate its sale to a corporate and the gains arising from such sale could not have been exigible to capital gains tax which is the subject of a Central Act. The Tribunal has also observed in that case that, even after conversion the assessee was carrying on agricultural operation and conversion was done only to facilitate sale of subject property to a corporate entity/non-agriculturist. The relevant observations of the Tribunal rendered in that case are extracted hereunder for the sake of reference:- 7.2. We have carefully considered the rival submissions, perused the relevant materials on record and also the various judgments of judiciary on a similar issue relied on by either of the party. The assessee-HUF had sold lands situated at Akklenahalli and Mallennahalli villages of Devanahalli Taluk to an extent of 6 acres and 1 gunta for a total consideration of Rs.45,58,12,500/- vide a registered Sale Deed dated 12.4.2007 and, accordingly, admitted an income of Rs.14,17,87,795/- as Capital Gains from

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the above transaction in its original return of Income furnished to the Department. Subsequently, in its revised return of Income dated 15.6.2009, the assessee had admitted income of Rs.22,90,570/-, on the ground that the capital gains which arose on the sale of the said lands was wrongly offered in the original return in as much as the same was exempt from tax being agricultural lands and hence excluded from the definition of 'capital asset' as per the provisions of s. 2 (14)(iii) of the Act. 7.2.1. The prime issues for consideration before us are two-fold, namely: (i) Whether the land can be treated as agricultural land even after conversion of agricultural land for non- agricultural/residential purpose? (ii) Whether the authorities below were justified in treating 'BIAAPA' as a municipality? 7.2.2. Before analysing the arguments of the assessee on the issue, we shall now proceed to deal with the sequence of events which apparently took place, chronologically, as under: 7.2.3. The assessee had in its possession certain acres of agricultural lands, out of which, lands to the extent of 6 acres and 1 gunta situated at Akkalenally and Mallenahally converted as non- agricultural vide Conversion order No.ALN(D) SR 30/2004- 05 dated 19.7.2004 [source: Page 88 to 92 of PB AR] were sold to M/ s. ETL Corporate Services Private Limited for a sum of Rs.45.58 crores. The subject property was a part of around 600 acres of lands known as 'Gokula Farm' which was originally purchased by Late Sri M.S.Ramaiah, the father of Sri M.R. Seetharam - HUF - way back in 1951 [Source: Page 6 of Sale Deed dt.12.4.2007]. The same has been jointly cultivated by the family, comprising of 10 children of Late M.S.Ramaiah. These lands were, subsequently, partioned in 1970 and after the death of Sri M.S. Ramaiah, the lands were further portioned [Refer: Para 3.2. of the Asst. order]. Even though, the subject property, among others, was converted as non-agricultural lands way back in 2004, agricultural activities, deriving agricultural income from the said

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lands, were continued unabatedly by the assessee and incomes admitted by it from such operations were accepted by the revenue from the AYs 2004-05 to 2009-10, the details of which are as under: Asst. year Agrl. Income [in Rs.] 2004-05 22,00,000 2005-06 22,00,000 2006-07 16,50,000 2007-08 16,50,000 2008-09 16,50,000 2009-10 16,50,000 7.2.4. Though the said land was converted into non-agricultural purposes in the year 2004-05 and one of the mandatory conditions specified in the conversion order dated 19.7.2004 was that if the converted land was not used for the purpose for which it was converted within a period of two years from the date of conversion, the order of conversion stands cancelled. Apparently, the assessee had continued the agricultural operations in the converted lands also which is evident from the fact that incomes derived from such agricultural operations on the said lands declared by the assessee in its returns of Income were accepted by the revenue for the AYs 2004-05 to 2009-10 (supra). No evidence was brought on record by the Revenue to suggest that the subject lands were utilized for any other purposes other than that of cultivation after conversion. This is evident from the fact that the incomes derived from such lands duly declared by the assessee which were accepted by the revenue. 7.2.5. Incidentally, the subject property was inspected on 10-4- 2014 by us accompanied by the learned DR, the AO and the learned AR of the assessee. During the course of inspection, we have noticed that the subject property was a part of large track of land having agricultural operations which consist of fully grown up fruits-yielding trees such as mangoes, sapota, coconut, jack- fruit, apple, guava etc., appear to be existing in the subject property even on the date of sale. This clearly attributes the assessee's assertion that even on the date of transfer, the subject land was held to be agriculture. In this regard, we would like to

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refer to the Certificate of Senior Assistant Director of Horticulture (Zilla Panchayat) Devanahalli, Government of Karnataka, dated 23.4.2014 wherein it has been certified as under: "This is to certify that M.R.Seetharam, s/o (of) Late M. S. Ramaiah residing at Gokula House, Dr M. S. Ramaiah Road, Gokula, Bangalore, have, in their land situated in Akkelenahalli - Mallenahalli Village, Kasaba Hobli, Devanahalli Taluk bearing Sy Nos. 29, 30/1, 30/2, 37/1p, 37/4p, 37/6p, 37/7p, 37/10p, 37/13p, 37/ 16p, fruit yielding mango, sapota, coconut, cashew, coco, jack-fruit, rose apple, guava trees aged 25 - 30 years." 7.2.6. Ostensibly, neither the AO nor the CIT (A) had disputed the fact in clear terms that even after the conversion of the land for non- agricultural purposes, the assessee has been carrying on agricultural operations and also admitting incomes from such lands in its returns of income. The AO's stand that once the agricultural lands were converted into non-agricultural, even though agricultural activities continued; the lands cannot be termed as agricultural land is, in our view, not the correct proposition of law. This is apparent from the fact that one of the mandatory conditions contained in the conversion order that "10. The land should be used for the said purpose within two years from the date of this order [Refer: Pages 88 to 92 (including English translation) of PB AR]". 7.2.6. As a matter of perception, s. 2(14) defines 'capital asset'. Capital asset does not include agricultural land. However, agricultural land situated within any municipality, notified area committee, town area committee, town committee will cease to be an agricultural land. Whether the subject land is agricultural or otherwise is essentially a question of fact. In coming to a definite conclusion, a number of tests will have to be undertaken as laid down by the Hon'ble Supreme Court in the case of Sarifabibi Mohamed Ibrahim v. CIT reported in 204 ITR 631 (SC). The tests prescribed by the Hon'ble Supreme Court as under:

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(i) Whether the land was classified in the revenue records as agricultural and whether it was subject to the payment of land revenue? (ii) Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time? (iii) Whether such user of the land was for a long period or whether it was of a temporary character or by any stop gap arrangement? (iv) 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? (v) Whether the permission under Land Revenue Code was obtained for the non-agricultural used 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; (vi) 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 ceaser and / or alterative user was of a permanent or temporary nature; (vii) Whether the land, though entered in the 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? (viii) Whether the land was situated in a developed area; whether its physical characteristics, surrounding situation and use of the lands in the adjoining area were such as would indicate that the land was agricultural? (ix) Whether the land itself was developed by plotting and providing roads and other facilities;

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(x) Whether there were any previous sales of portions of the land for non-agricultural use? (xi) Whether permission under Tenancy and Agricultural Lands Act was obtained because the sale or intended sale was in favour of non-agriculturist, if so, whether the sale or intended sale to such non-agriculturist was for non-agricultural or agricultural user? (xii) Whether the land was sold on yardage or on acreage basis? & (xiii) Whether an agriculturist would purchase the land for agricultural purposes at the price at which the land was sold and whether the owner would have ever sold the land valuing it as a property yielding agricultural produce on the basis of its yield?" 7.2.7. In view of the norms prescribed by the Hon'ble Supreme Court in its judgment (supra), we are of the view that the facts making in the present case, the issue requires to be decided as to whether the subject land was an agriculture land. The land in question was inherited by the assessee (HUF), among others, as the same having been purchased by his father as an investment. As could be seen from earlier documents of purchase which explicitly exhibit that the subject land had put to exclusive use for agricultural purposes only and in fact a grove [orchard] had been grown with fruits-yielding trees such as mangoes, sapota, coconuts, jack-fruits, etc., Incidentally, the surrounding lands were also subjected to agricultural activities as in the case of the property under dispute. Though the present assessee became the legitimate owner of the subject property on inheritance/in a partition/family arrangement as the case may be, the nature of the land use had not, however, undergone any change. Whether the lands which were used as agricultural lands even after its conversion loose its character of agricultural lands?

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7.3. The stand of the AO was that once the agricultural lands were converted into non-agricultural, even though agricultural activity continues, the lands cannot be considered as agricultural lands. Countering the AO's assertion, the learned AR had argued that as per the mandatory conditions mentioned in the Certificate of conversion, if the subject land was not put to non-agricultural use within a period of two years from the date of conversion order, the conversion itself will become null and void. In this connection, the learned AR had placed strong reliance on the judgment of the Hon'ble Jurisdictional High Court in the case of CIT v. Smt. K.Leelavathy (supra). 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. 7.3.2. In the present case, as already discussed, even though the subject property was converted for non-agricultural purpose vide Conversion Order dated 19.7.2004, the assessee continued the agricultural operations in the converted lands which was evident on our site visit and also from the fact that incomes derived from such agricultural operations on the said lands declared by the assessee in its returns of income which were accepted by the Revenue for the AYs 2004-05 to 2009-10. 7.3.3. At this juncture, we would like to refer to the findings of the earlier Bench of this Tribunal in the case of H.S.Vijaya Kumar v, ACIT, Hassan in ITA No.108/Bang/05 dated 28.11.2006. After taking into account the rival submissions of an almost identical issue to that of the present issue under dispute, the Tribunal has held as under: "6.4. In this case also various conditions imposed by the Deputy Commissioner, Hassan were not fulfilled by the assessee prior to the sale of the said land. It is observed

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that permission has been accorded for residential purposes and whereas the sale has been made to Indian Oil Corporation for putting up a service station. This contradiction itself goes to show that the permission accorded does not militate against the land becoming non- agricultural land. The first appellate authority also went by the fact that the land was sold on yardage basis to Indian Oil Corporation. This single circumstance in our considered opinion does not change the character of the land for the reason that no layout plan was obtained, nor the land had been subject to any change in physical characteristics. A person can obtain higher amount by adopting a particular methodology of valuation and this by itself does not result in an asset becoming a capital asset. Non-payment of land revenue for a period of one month and 10 days from 8.2.99 to 20.3.99 cannot also be a circumstance which can be held against the assessee. This is too short period and it is not the case of the revenue that land revenue has (have) not consciously levied agricultural land tax. No adverse inference can be drawn. The ld. Counsel for the assessed tried to demonstrate that as per the Karnataka Land Revenue Act, 1964, section 83(2) read with sec. 95(2) mandates that the land holder should continue to pay the land revenue even after conversion. We need not go into this aspect for the reason that the period is too short a period and it is not a case where the revenue authorities have refused to levy land revenue by showing the reason. of conversion or for the reason that the assessee has refused to pay such land revenue. The AO has recorded a finding that the land revenue records to show that ragi and horse gram were grown on the said land. The reasons recorded by the assessing officer as well as the CIT (A), to our mind, are not relevant for coming to the conclusion as to whether a particular asset is a capital asset within the meaning of sec. 2 (14) of the Income-tax Act. The issue whether a particular land is agricultural land or not has been the subject matter of dispute in many a cases. In each of the judgments broad outlines have been given and it is suffice to say that the unanimous view of all the Hon'ble Courts is that the issue should be decided on the facts and circumstances of the case. As we find that the facts of the case clearly point out that the land in question continued

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to be agricultural land and was put to use as such, prior to sale to Indian Oil Corporation, despite the permission obtained from the concerned authorities, we accept the contention of the assessee and hold that agricultural land in question are not a capital asset and, thus, the levy of capital gains is bad in law. 6.5. Before parting, we feel that mere evidences of Government Notification or orders on a likely use of a particular land would not ipso facto affect or on the same day change the character of the land. For example, the Government has notified many areas for setting up of special economic zones or industrial parks or for infrastructural developments such as road ways and railways. After identifying particular areas, the Government notifies that a particular area would be used for non-agricultural purposes. It is thereafter only that the acquisition start and accordingly the land of farmers are acquired. It would be travesty of justice, if a view has to be taken that when once a Notification is given by the Government, the agricultural land becomes non- agricultural land i.e., even prior to the issue of acquisition notices. As long as there is no change in the physical characteristics of the land in question, we cannot be held that there is a conversion. " 7.3.4. The jurisdictional High Court in the case of CITG v. Smt K. Leelavathy reported in (2012) 21 taxmann.com 148 (Kar) dated 2.1.2012 had an occasion to analyse the provisions of s. 2 (14) read with sections 45 and 48 of the Act. Briefly, the substantial questions of law raised by the Revenue before the Hon'ble Court was that - "1. Whether the appellate authorities were correct in holding that the land which is the subject-matter of sale is agricultural land as on the date of sale without taking into consideration the conversion of land to non-agricultural purpose and consequently recorded a perverse finding? &

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In respect of the sale transaction dated June 2,2004, it was taken as a sale of capital asset as this sale was after the date of permission for non-agricultural use granted by the Asst. Commissioner, viz., after May 10,2004, whereas the earlier sale transaction dated April 7, 2004, is held to be in respect of an agricultural land. We do not find the reasoning and the principle enunciated by the Tribunal for making a distinction as to whether the land was agricultural land or otherwise in the case of T. Suresh (supra) apply to the present case to be obnoxious or violating any statutory provisions and, therefore, we do not find any illegality in the finding recorded by the Appellate Commissioner and the Tribunal." . 7.3.6. In the case of M. ThimmeGowda [(i) Sri M. ThimmeGowda, (ii) Sri M.N. Manjunath, (iii) Sri Dasappa, (iv) Sri T. Suresh Gowda, (v) Sri T. PrasannaGowda v. Department of Income-tax, the earlier Bench of this Tribunal, in its findings in ITA 1464, 1465/B/08; 177,178,262 & 305/B/09 dated 30.12.2009, had dealt with an identical issue to that of the present issue under consideration. The main issue before the earlier Bench was: Whether the land sold by the assessee was agricultural in nature or not? .After duly analysing the rival submissions and also various judgements of judiciary as mentioned in its findings and also deliberating upon the sections 80 and 84 of the Karnataka Land Reforms Act, 1961, the earlier Bench had recorded its findings as under: "37 ............................................................................................... .... .......... (On page 22) ............................................................ Coming to the instant case of the assessee, it is not disputed that in the revenue records, the entry is not changed, it continues as agricultural land. According to the revenue, the intention and purpose of the sale is for the use of Tibetan Childrens' Village for the setting up of educational institutions and other related purposes. According to the assessee, the land in his hands had retained the agricultural character till the date of sale, for

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the reason that the assessee was doing agricultural activity. We have hereinabove in para 34 mentioned that the department had estimated the agricultural income at Rs.53 lakhs for 2004-05 and estimated agricultural income of the group at Rs.56 lakhs. Therefore, it is difficult to come to the conclusion that in the hands of the assessee, the character of the land had changed. Merely because the original owners had made application to change the character of the land from agricultural to non- agricultural and certificate was issued to that effect. Even for the revenue, there is no case that the land has been used for the intended purpose. 38. In the decision of Gujarat High Court relied upon by the DR, in the case of Gordhanbhai Kahandas Dalwadi v. Commissioner of Income-tax (1981) )27 ITR 664, the Hon'ble High Court held that the potential non- agricultural use does not alter the character of the land. This was a case wherein the land was purchased in 1954 and, subsequently, sold in 1969. The entries in the revenue records showed that the land was agricultural continued to be so. The land revenue paid was for agricultural use, but permission for non- agricultural use was obtained but not before the date of the sale. In these circumstances, the Hon'ble High Court upheld the presumption that the land is agricultural. The Hon'ble High Court came to the above conclusion in spite of the fact that this land was situated in an industrially developed area where the potential use of the land as non- agricultural land was very high but the Hon'ble High Court held that the use of the land as non-agricultural is totally immaterial. Entries in the record of rights are good prima facie evidence regarding land being agricultural and if the presumption raised either from actual user of the land or from entries in revenue records is to be rebutted, there must be material on the record to rebut the presumption. The approach of the fact-finding authorities, namely, the income-tax authorities and the Tribunal, should to consider the question from the point of view of presumption arising from entries in the record of rights or actual user of the land and then consider whether that presumption is dislodged by other facts in the case. While coming to the above conclusion, the Hon'ble High Court

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considered the following facts. The presumption for non- agricultural used was obtained by the assessee before the sale of the land. Coming to the facts in the instant case, the previous owner made an application for conversion, obtained the permission, but with the condition that the land should be used for the intended purpose within two years, otherwise the original character of the land, i.e., agricultural nature, would be restored. Then the assessee or the subsequent purchased has to pay penalty and make a further application to obtain permission to revive the land for intended purpose. The assessee has not done this even according to the revenue. This was done by the subsequent purchaser i.e., Tibetan Childrens' Village, which compels to conclude that what the assessee held at the time of sale was agricultural land. It is true the facts is on border line, but the evidence produced before us in the form of RTC showing agricultural income etc., is in assessee's favour. Secondly, the Hon'ble Gujarat High Court considered the land revenue paid was for agricultural use of the land. In the instant case of the assessee also what was paid by the assessee was agricultural revenue. The non-agricultural revenue was paid by the subsequent purchaser after making an application for the second time to revive the nature of the land which is evidenced by the letter dt 1.3.2005 which was written to the Secretary, Manchanayakanahally Gram Panchayat by the Tibetan Childrens' Village. In the case decided by the Hon'ble High Court, it was held that the correct test to be applied was whether on the date of sale of the land whether the land was agricultural or non- agricultural and not the intended purpose and how the purchaser was going to use land. ............................................................................. ITA.305/Bang/2009 - By the Revenue in the case of T. Suresh Gowda A Y 2005-06 53. The revenue had taken an additional ground that is with regard to taking fresh additional evidence filed by the assessee without giving opportunity to the assessing

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officer. In this case, the assessing officer noticed that the assessee had sold land measuring 40 acres and 20 guntas at Seshagirihalli for Rs. 4, 50, 00, 000/ - on 7.4.04 to Tibetan Childrens' village and claimed exemption from capital gains which worked out to Rs.3,68,01,771/- on the ground that the land situated in a rural area i.e., 8 Kms away from the limits of Bangalore Mahanagara Palike and the land is located as notified u/ s 2 (14)(iii)(b) of the Act as the transaction relates to sale of agricultural land. The assessing officer observed that the land was converted for residential purpose before the sale and, therefore, it is immaterial whether the land was situated outside the city limits or beyond 8 KMs. He further held that the cultivation of land till disposal is also irrelevant. He further held that no documentary evidence was produced to the effect that the land converted was treated as agricultural land within the meaning of s. 2 (14)(iii)(b). ............................................................................................... .......... 54. On similar issues in the connected case, we had held that the evidence produced by the assessee before the assessing officer and Commissioner of Income-tax (A) to the effect that assessee was doing cultivation of ragi etc., was sufficient to treat the land as agricultural land in the hands of the assessee, particularly because in the document, the nature of the land has been recorded as non-agricultural under the Karnataka Land Reforms Rules, 1966. While coming to the above conclusion we also held that this is a document maintained by the Government officials and treating the same as not valid in the absence of strict evidence to the contrary cannot be upheld. 55. On similar set of facts in the connected other cases, we have held that the land sold by the assessee is to be treated as agricultural land and the reasons given is applicable in the instant case of the assessee as the facts are identical ............."

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7.3.7. The fact that the assessee had continued the agricultural operations unabated in the subject property on the date of sale even though the said land was converted for non-agricultural purposes by a Conversion Order of the State Government way back in 19.7.2004 with a rider that the land should be used for the purpose for which the conversion was granted within two years from the date of issue of the said order. However, on the date of sale i.e., on 12.4.2007,the subject land was under active cultivation for agricultural purpose only. This is evident from the fact that when we inspected the same on 10.4.2014, the said land - a part of large track of land - was having agricultural operations with fully grown up fruits-bearing trees. Thus, the conversion order dated 19.7.2004 had lost its sanctity since the said property was not put use for non-agricultural purposes within two years for which conversion was granted.

7.3.8. Finally, the most important aspect which requires to be considered is that agriculture is a State subject and different States have different reforms (laws) as to who can purchase / own agricultural lands in the respective States. To illustrate further, in Karnataka, non- agriculturists and industrial companies are prohibited from purchasing of lands which are classified as 'agricultural' in the revenue records. If an agriculturist intends to sell his agricultural lands to a company /non- agriculturist for the use of non-agricultural purposes, he must possess a conversion order obtained from the revenue authorities to utilise the subject land for non-agricultural purposes. However, the same law/rule is not prevalent in the neighbouring States of Tamil Nadu, Andhra Pradesh or in Maharashtra, Delhi etc. In other words, the agriculturists of the said States are free to sell their lands as shown in the revenue records to non-agriculturists /Corporates without obtaining a conversion order.

7.3.9. Thus, it is evident from the fact that the agriculturists in other States can sell their agricultural lands without getting the same converted whereas the agriculturists in Karnataka cannot do

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so due to the Land Reforms Act prevailing in the State. As such, an agriculturist in Karnataka is on a different footing from his counterparts in other States. If one were to conclude that since the present assessee had obtained a conversion order to enable it to sell its lands to a non- agriculturist (a Corporate), the subject land ceased to be a non- agricultural and, thus, become a Capital asset, though the subject land remains an agricultural land, the assessee then stands discriminated in the eyes of law vis-a-vis its counter- parts in other States. Had the State Reforms Act permitted the assessee to sell its agricultural lands without conversion to a Corporate as in the case of other States (supra), the assessee would not then be required to get the land converted merely to facilitate its sale to a corporate and the gains arising from such sale would not have been exigible to Capital Gains tax which is the subject of a Central Act (Income-tax Act).In the instant case as mentioned earlier even after conversion, assessee was carrying on agricultural operation and conversion was done only to facilitate sale of subject property to a corporate entity/non agriculturist. In substance, the Income-tax Act - a Central Act - is to be administered in such a manner to ensure that an assessee IS not subjected to suffer due to different State laws. 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." 10. Moreover, in the instant case, the JDA was also finally cancelled vide Deed of Cancelation dated 5.5.2015 and copy of which is available at pages 240 to 254 of the compilation and the refundable security received by the assessee was returned back to the developer. Through JDA, though it was agreed to hand over possession of land to the developer, but in fact possession was never handed over to the developer for further activities of development. Therefore, there was no transfer of

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asset in favour of the developer at any point of time. In the instant case, undisputedly agricultural activities are being undertaken on the disputed land till date. Therefore, from any angle, it cannot be said that there is any transfer of capital asset on which capital gain has accrued to the assessees. In light of these facts, we are of the view that the CIT(Appeals) has properly adjudicated the issue and we do not find any mistake therein. We accordingly confirm the order of the CIT(Appeals).” 22. Further, in assessee’s own case, the issue came before this Tribunal in ITA No.1464 & 1465/B/2008 & 262/B/2009 wherein vide order dated 30.12.2009 it was held as under:-

“2. Brief facts of the case are as follows. There was a survey u/s.133A in the case of Shri. M. N. Manjunath, proprietor of P. M. Concrete Blocks at his business premises at No.119, Sheshagirihalli, Bidadi Hobli, Ramanagaram Taluk on 25.1.2006. During the course of survey action, certain copies of sale deeds and sale agreements in respect of purchase and sale of property effected by the assessee during the assessment year under consideration was found and they were impounded. There was no regular return for the year under consideration on the date of survey. On the basis of the evidence found, notice u/s.142(1) was issued on 2.2.2006 calling the assessee to file the return on or before 15.2.2006. The assessee filed a belated return on 13.3.2006 declaring income of Rs.7,67,570/-. There was no offer of any income on account of sale of property or investment in property. To the return the assessee appended a note to the effect that the assessee sold agricultural land at 77/74, Sheshagiri halli, Bidadi Hobli, Ramanagaram taluk, during April, 2004 for a total consideration of Rs.90,00,000/-. However, it was stated that it does not result in any capital gain since the land sold was agricultural land situated beyond 8 kms from corporation limit of Bangalore city as defined in section 2(14)(iii)(a) of the Act. This land measuring 9 acres was converted for non-agricultural purpose. It was further stated that though the land was converted, agricultural activities were carried on up to the date of sale. Therefore, what was sold was agricultural land within the

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meaning of section 2(14) and there was no capital gains tax arising out of such sales within the meaning of the definition of the term “capital asset”. Since the assessee did not offer any capital gain and claimed that it was agricultural land though it was converted into non-agricultural residential purpose, the case was selected for scrutiny and notice u/s.143(2) was issued on 26.6.2006. 2. The Assessing Officer formed the opinion that the land sold was non-agricultural as evidenced by document impounded during the course of survey and also on the basis of the registered agreement deed dt.25.2.2004. The assessee sold the immovable property held by him as GPA holder to the extent of 9 acres to M/s. Tibetan Childrens’ Village having its office at Dharmsala, Centt – 176216, Kangra District, Himachal Pradesh, for a consideration of Rs.90 lakhs. The Assessing Officer noticed as per the GPA, the above land was already converted from agricultural land to non-agricultural residential purpose during the financial year 2005-06 itself by the original owners of the land. All the three original owners made an application before the Assistant Commissioner, Ramanagara Sub-division for conversion of the land and the same was approved by orders, dt.15.5.1995 in respect of two owners and order dt.20.12.1995 in respect of the one owner. Subsequent to the conversion of the land, the original owners had formed residential layouts with the approval of the Manchanayakanahalli Grama Panchayat. The relevant portion of the GPAs detailing the ownership of the property, conversion of the land from agricultural to non-agricultural residential purpose are briefly set out by the Assessing Officer in his order at pages 5 to 7. In the GPA executed by Narasimhaiah and Chikkaputtaiah, they stated that they are the owners of the land admeasuring 3 acres each and further stated that they had applied for conversion of the land from agricultural to non-agricultural residential purpose and the Assistant Commissioner, Ramanagara Sub- division, vide his order dt.15.5.95 had granted their request and now the land had been converted to non-agricultural purpose and subsequent to the conversion, they stated they had formed residential layout obtaining from Manchanayakanahalli Grama Panchayat and since they were unable to manage the affairs in

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respect of the sale of the sites, they thought it fit, necessary and convenient to appoint the assessee as their GPA holder to sell their sites. They permitted the assessee to negotiate on terms for and enter upon and conclude any contract, agreement or sale in respect of the scheduled property either in full or in part to any purchaser or purchasers of his choice and gave the assessee an absolute discretion to cancel or repudiate the contracts etc., Further, they authorized the assessee to receive any earnest money or to receive advance and also the full amount and then to sign and execute and deliver the conveyances in favour of the said purchaser/purchasers or their nominee or nominees or assignee or assignees. With respect to two other properties also similar GPA was executed by Shashidhar Reddy and Rachaiah in favour of the assessee almost on the same lines. 4. From the above the Assessing Officer came to the conclusion that the original owners already formed the layout subsequent to the conversion of the agricultural land for non- agricultural residential purpose and the GPA was only for specific and exclusive purpose of making arrangement to sell the sites as mentioned above. The Assessing Officer held that the character of the land has already been changed. He further noted as per the conversion orders issued by the Assistant Commissioner, Ramanagara Sub Division, the land so converted were required to be put to the use for the purpose intended (non- agricultural) within two years from the date of the conversion order, otherwise the order was to be treated as null and void automatically. Particularly clause (10) of the conversion order specified as under : “10. The conversion of land hitherto shall be utilized for the proposed purpose within two years otherwise the land conversion shall be considered as cancelled.”

Any lapse on the part of the applicant to fulfill the conditions was a punishable offence u/s.96 of the Karnataka Land Revenue Act, 1964, as per clause 11 of the conversion order. As per clause (12), the land revenue for the converted land would be levied

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from the date of the order. The Assessing Officer held after the lapse of two years the assessee has not approached the Assistant Commissioner, Ramanagara Sub-Division with fresh application for conversion of the land and it is proved that the land has been put to use for the purpose for which it was converted within the period of two years. He further held this fact has been confirmed by the recital of the agreement entered into between the assessee and the Tibetan Childrens’ Village wherein it is clearly stated that the land was converted in 1995-96 by virtue of the orders passed by the Assistant Commissioner, Ramanagara Sub-Division. Thereafter the schedule of the properties are detailed out at pages 9 and 10 of the assessment order. This property was purchased by Tibetan Childrens’ Village through their representative Mr. Tenzin Chodak Gyalpo. A statement u/s.131 was recorded from him. 5. It was always the case of the assessee that though the land was converted into non-agricultural purpose, the assessee was continuing the agricultural activities and there were standing crops on the land purchased by the Tibetan Childrens’ Village and, therefore, in the light of clause (10) of the conversion order, i.e., if the land is not used for the intended purpose within two years from the date of the order, it will be deemed to be restored to the original position, is an established fact. So as to verify the same, in the statement, Mr. Tenzin Chodak Gyalpo, was specifically asked whether at the time of purchase, any amount was paid towards the standing crops. The answer was, he did not remember the position, but he confirmed that Tibetan Childrens’ Village had not paid any amount towards the standing crops at the time of sale. Thus the Assessing Officer concluded that since the land was already converted and put to use for formation of layout by the original owners, way back in the financial year 1995-96 itself, the assessee’s version that the land was being used for non-agricultural purpose, was not justified. The Assessing Officer summoned the Assistant Commissioner, Ramanagara Sub-Division, calling for the original filed in connection with the conversion of the land, for inspection. A sworn statement was recorded u/s.131 on 5.12.2007. The conversion of the land into non-agricultural purpose was confirmed again by the Assistant

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Commissioner. He was again asked about the specific guidelines given by the State Government while giving permission for use of agricultural land to non-agricultural use. Answering to this question, he stated that there are about 12 conditions stipulated in the conversion order issued to the assessee. He was again asked if the land is not used for the specific non-agricultural residential purposes, what would be the repercussion. Answering to this, he stated that if the land is not used for the specific purpose for which it has been converted within the stipulated period of two years from the order, conversion order is deemed to be cancelled. 6. In the instant case, Assessing Officer noticed from the case records produced by the Assistant Commissioner, the original owners submitted layout plan as approved by the local Grama Panchayat authorities. Subsequent to receipt of the conversion order, the original owners gave an undertaking before the Assistant Commissioner that the land would be used for the purpose for which it was converted, i.e., non-agricultural residential purpose, that too within a period of two years. From the above facts, the Assessing Officer came to the conclusion that the land has lost its original agricultural nature and characteristics in April 1999 by virtue of the conversion order. These facts were put before the assessee’s representative asking why the land under reference should not be considered as capital asset within the meaning of section 2(14) of the IT Act. The simple reply of the assessee’s representative was that though the lands were converted, agricultural activities were going on. 7. The Assessing Officer held though the asessee’s representative was harping that the agricultural activities were carried on till the date of the sale, even after availing more than 20 months since the survey action u/s.133A, the assessee could not adduce any evidence in support of the above claim. The Assessing Officer further noted as per the local enquiries conducted by the Income-tax Inspector (‘ITI’ for short), the land under reference and also the adjacent lands were not put to use for agricultural purposes for quite a long time as formation of layouts were under progress. He held there is no strength in the

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assessee’s argument that he had carried on agricultural activities till the date of the sale. 8. Coming to the next point how the lands were utilized subsequent to transfer, he noted that the purchaser Tibetan Childrens’ Village, bought the land only for the purpose of non- agricultural activities. The land was to be utilized for construction of schools for Tibetans. Tibetan Childrens’ Village had purchased about 160 acres of land located in Sheshagirihalli and Manchanayakanahalli, which includes the land admeasuring 13 acres and 9 guntas held in the name of the assessee, sold for Rs.14 acres during the financial year 2004-05. He further noted the statement recorded from the buyer, Mr. Tenzin Chodak Gyalpo. In his statement, Mr. Tenzen stated that the intention was to construct building for education like nursing college, degree colleges etc., They were also taking steps to get recognition as a deemed university. The Assessing Officer found that the lands were acquired for the purpose of running educational institutions such as nursing college, degree college and to get recognition as a deemed university which he held proves that the land was purely non-agricultural at the time of purchase by that party. Consequentially, the assessee after conversion sold it as a non- agricultural land. He further noted that the land purchased by the Tibetan Childrens’ Village had constructed buildings for office premises and construction of hotel building was going on and one building for college building was also under progress. This was found out by the ITI and report by his report dt.28.12.2007 which also established the status of the land at the relevant point of time. 9. Coming to the land surrounded by or adjacent to the land in dispute whether it is urban or rural, the Assessing Officer made the following observations. He found that the land stood adjacent to well-known high traffic density state highway running between Bangalore and Mysore at about 18 kms away from the corporation limits of Bangalore and is also located in the thickly populated industrial belt. It was a fast growing industrial area and hence, the assessee could fetch good price of Rs. 10 lakhs only because of this. The Assessing Officer further found from the enquiry conducted with the land revenue authorities that the

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jurisdiction for collection of land taxes in respect of agricultural land lies with the Revenue Officer headed by Tahsildar. In other words, collection of taxes from sites and lands converted for non- agricultural purpose lies with the Grama Panchayat. In the instant case taxes were being collected by the Grama Panchayat instead of Tahsildar, which strengthens the departmental stand that the land was non-agricultural. On the basis of the above facts, he concluded that the lands under reference were non-agricultural and there cannot be exemption u/s.2(14) from the capital gains tax. These points were considered by the various decisions of the Apex court and High Courts and he, particularly relied on the following decisions : i) CIT v. Gemini Pictures P. Ltd., (1996) 220 ITR 43 (SC); ii) Mahaveer Enterprises v. Union of India (2000) 224 ITR 789 (Raj); iii) CWT v. Officer-in-charge (Court of Wards) Paigah (1976) 105 ITR 133 (SC); iv) G. M. Omer Khan v. Addl. CIT (1992) 196 ITR 269 (SC); v) Smt. Sarifabibi Mohmed Brahim v. CIT (1993) 204 ITR 631(SC) On the basis of the above, the assessee was liable to pay capital gains tax. Aggrieved by the above assessee approached the first appellate authority. 10. The Commissioner of Income-tax (Appeals) vide page 3 of his order records the report of the Assessing Officer, dt.13.6.2008 which is as under : “None of the above factual position as contented by the LAO is disputed. However, what is disputed is his conclusion to contend that there was no agricultural cultivation carried out by the appellant. Though the lands were converted for non-agricultural purposes, it was never

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put to use for such converted purposes. This is evident from the governmental records, in the form of RTC, which consistently showed that there was a cultivation of ragi”. The Commissioner of Income-tax (Appeals) further held that the assessee was not disputing the above facts which was clear from the assessee’s rejoinder dt.21.7.08, but only objection of the assessee was that though the assessee’s land was converted for non-agricultural purpose, but it was never put to use for such converted purpose which was evident from the Government record in the form of RTC. 11. The assessee’s contention was not accepted by the Commissioner of Income-tax (Appeals). He held the criteria for determination whether the land is agricultural or non-agricultural has been amplified in the treatise of Sampath Iyengar which briefly he records vide page 4 and 5 of his order. Accordingly, two tests were adumbrated in different cases, viz., (i) whether the price of land is such that no bonafide agriculturist would purchase the same at such price for genuine agricultural operations, and (ii) whether the price is such at which no prudent owner would agree to sell it even if he worked out the price on the capitalization method, taking into account its optimum yield in most favourable circumstances. In short, the price which the land fetches is an important criteria. The other criteria, is whether the land has been assessed to land revenue or not; whether agricultural activities are carried on or not; whether the land is capable of agricultural operations or not; the intention of the owner for which he is retaining the land and such intention not being fluctuating or ambulatory; character of adjoining land; description of the land in the official records, etc., 12. The Commissioner of Income-tax (Appeals) held that RTC record alone is not the determinative factor of the nature of the land. In the instant case, the land revenue records show that the land was converted and also the tax records show that non- agricultural tax was paid on the land during the relevant period. The Commissioner of Income-tax (Appeals) further held the most of the facts found by the Assessing Officer support the view that the land is non-agricultural. Even if there were some agricultural

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operations, at best, he held it was a stop-gap arrangement which would not entitle the land for exemption u/s.2(14) of the Act. Aggrieved by the above order, assessee is in appeal before the Tribunal. 13. Except for variations in the dates of issuance of notice by the revenue authorities, area of the land sold, schedule of the property, date of conversion of the land etc., the facts are identical in the case of Dasappa in ITA.1465/Bang/2008. 14. The learned representative for the assessee produced a written submission in the case of Dasappa. Briefly his submissions are as under. The assessee sold 13 acres, 29 guntas lands in sy. No.77, Seshagirihalli, Bidadi Hobli on 7.4.2004 for a total consideration of Rs.137.25 lakhs to M/s. Tibetan Childrens’ Village. These lands were bought by the assessee in the year 1995. These lands converted to non-agricultural and residential purposes on 29.4.1999 except an area of 31 guntas which was converted on 10.5.2004. The assessee claimed that the lands were sold as agricultural lands and, therefore, the assessee was not exigible to tax within the definition of capital asset as given in section 2(14) of the IT Act. However, the Assessing Officer did not accept the same, for the reason that the lands were not agricultural lands since they were converted for non-agricultural and residential purpose. According to the assessee, Assessing Officer did not consider the following important factors. Though the conversions were done, it was mandatory that the purpose for which it was converted should be implemented within two years from the date of conversion order or else the conversion order becomes null and void. This fact is highlighted by the statement of the State Government Officer, Shri. Karigowda, Assistant Commissioner, Ramanagar Sub Division, who appeared on 5.12.2007 and stated that if the land is not used for the specific purpose within two years of conversion, the conversion shall be deemed to have been cancelled. It is further submitted the lands were not put to residential use. This is evidenced by the photographs taken by the ITI at the time of enquiry on 27.12.07 i.e., almost three years and eight months after the sale. The photographs are found at pages 67 to 69 of the department’s

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paper book. There is no sign of residential sites having been formed. The schedule to the sale deed reproduced at pages 4 to 6 of the assessment i.e., pages 1 to 43 of the department’s paper book shows that the lands are sold in the measuring form of acres and guntas and not as residential sites. The report of ITI indicates that there is no sign of layout or residential sites having been formed. These factors indicate the lands were not put to use for the purpose for which it was converted. Thus, the lands to the extent of 12 acres and 38 guntas had lost their non-agricultural status as on 28.4.01 i.e., on the completion of two years from the date of conversion order. 15. Coming to the objection of the Departmental authorities that the lands were not used for agricultural activities, the assessee’s representative submitted the facts in brief as follows. The lands were used for agricultural activities. This is evident by documents like RTC extracts produced before the Assessing Officer and the appellate authorities. This fact of producing RTC is evidenced by the observation of the Assessing Officer at page 18 para 7 and page 24, para 2 of the departmental paper book and also at page 14 last paragraph and page 15 of the Commissioner of Income-tax (Appeals)‘s order in the departmental paper book. It is further admitted that the assessees did not maintain any records for the agricultural activities. The assessee’s representative submitted RTC is an official record to show that the nature of usage of land situated in the specific revenue jurisdiction of the State Government and this land has thus been shown to have been used for agricultural cultivation. The assessee’s representative brought our attention to the paper book dt.27.1.1999, particularly page 4 which is the conversion order issued by the Assistant Commissioner, Ramanagara Sub- Division. He particularly brought our attention to the condition no.5 which stipulates as under : “5. In terms of Bangalore Mahanagar Regional Development Authority Order No.APABT/14-95-96 dt.22.7.85 prior permission be obtained before commencement of work”

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and submitted such permission has never been sought and obtained before commencement of the work. He further brought our attention to clause (10) which reads as under : “It may be construed that this converted land must be utilized for the purpose permission has been accorded within two years.” It is an admitted position that no further action was taken by obtaining permission from the BMRDA or the assessee had complied with condition no.10. No activity was undertaken within the two years. In other words the conversion has been now been deemed to have been cancelled. The assessee’s representative further submitted the assessee never paid any amount as tax to the Grama Panchayat. The learned representative for the assessee brought our attention to paper book pages 10 to 13 i.e., RTC form no.16 in which the land revenue authorities have mentioned that the assessee had carried on certain agricultural activities. We find at page 12 the land used was to the extent of 1.38 acres and the crop grown was Ragi. So also at page 14 it is mentioned that the extent of land utilized was two acres for growing Ragi. He reiterated the submission made before the Departmental authorities that RTC form is a record issued by the Government which consistently show that there were agricultural activities going on. 16. He further submitted inviting our attention to written submission made before the Commissioner of Income-tax(A) on 21.7.2008 particularly at page 4, briefly which is as under. It was submitted that the LAO has concluded that the sites were formed for formation of layout. This conclusion is wrong for the reason if the sites had been formed by the original owners as held by the LAO at page 4 of the assessment order, the RTC records proves it wrong. Secondly, it was further submitted a very strong denial is also in the form of photographs taken by the ITI wherein one could see the construction of buildings by the Tibetan childrens' Village, but there is no evidence of any sites having been formed in the area. The photographs were taken as late as December, 2007, i.e., almost 3 and half years after the sale of land, and thirdly if the sites had been formed what could have been sold to

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the Tibetan Childrens' Village should have been in terms of these sites and not the land as a whole without any mention of the site plans. The schedule to the sale deed indicates that the land is sold as a consolidated survey number and only a reference to the conversion order has been made. The above facts clearly proves that the sites were never formed either by the original owners or by the assessee. The assessee owned 12 acres and 29 guntas at Sheshagirihalli. Of these 11 acres and 38 guntas were converted into non-agricultural purpose under conversion order dt.29.4.1999, while 31 guntas were converted under conversion order dt.10.5.2004. The assessee transferred the lands on 7.4.2004 and the conversion of 31 guntas was done on 10.5.2004, after the transfer of lands. At least 31 guntas remained agricultural land which is also a fact not taken note off by the Assessing Officer. Within two years of the conversion, the land should have been utilized for the purpose it was intended ie., non- agricultural purpose. It was never acted upon. The assessee utilized the land for agricultural purpose only. On the premises of the above facts the assessee's representative submitted the decision of the Hon'ble Supreme Court in the case of CWT v. Officer-in-charge (Court of Wards) Paigah (1976) 105 ITR 133 is clearly in assessee's favour. The Hon'ble Supreme Court laid down the broad parameters as to what could be considered as agricultural land. He submitted originally the land was an agricultural land. The original owners made a request for conversion in order to fetch good price. But the converted land was never used for the intended purpose as per the conversion order which stipulates that if the land is not put to use for the intended purpose within two years from the date of conversion, then the land reverts to the original status, which was confirmed by the Assistant Commissioner, Ramanagara Sub Division in his sworn statement. In other words, the land on the date of sale was retaining the character of agricultural land. The finding of the Assessing Officer that the RTC entries are not relevant is an archaic finding. Inviting our attention to the written submission before the CIT(A), dt.20.10.08, the assessee’s representative submitted since the land which was converted to non-agricultural purposes was not put to use for the converted purpose, it retains its original status which is also evident from the statement given

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by the Assistant Commissioner, Ramanagara Sub Division. The finding of the Assessing Officer that the data was filled year after year without verification is incorrect. The reality is that RTCs are not entered mechanically. The Village Accountants are expected to do the entries by actually carrying out the inspection in the land coming within the jurisdiction during the year. The entries in the RTC are made thereafter. The Commissioner of Income- tax(A) is wrong in confirming the finding of the Assessing Officer to the contrary. It is a government record and it cannot be simply brushed aside. It may be true in stating “...the entries in the RTC alone shall not be considered as conclusive evidence to prove the case of the assessee.” In the instant case, the Assessing Officer has not rebutted that assessee carried out the cultivation activities. In the absence of any rebuttal, the recordings in the RTC and also the facts of cultivation, coupled with the lapse of two years brings back the character of agricultural land. He further objected to the Assessing Officer’s finding that the assessee had not declared agricultural income for the purpose of income-tax. The assessee did not disclose any income because he was having no income from agricultural operations. The character of the adjoining land is not the sole criteria. The assessee fetched high price because of the location of the land. In view of the above, the high price fetched by the assessee cannot be a point against the assessee and it does not change the character of land as such. The learned representative for the assessee has produced a copy of the certificate issued by the Village Accountant, Ramanagara Taluk, dt.22.6.2006, to the effect that the assessee had grown ragi, vegetables and horsegram in sy.no.77:43, 77:44 and 77:43 in a total area of 9 acres during the years 2002-03, 2003-04 and 2004-05. 17. The assessee’s representative produced a letter from Tibetan Childrens’ Village authorities dt.1.3.2005 that was addressed to Manchanayakanahalli Grama Panchayat to the effect that the Tibetan Childrens’ Village authorities purchased land to the extent of 143 acres and 27 guntas and the land was converted for residential purpose between 1996 and 1999 in respect of different parts of the land. Though the conversion order was issued for the purpose of forming residential layout, no such activity was

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formed by the original owners. The land also remained on the records of the land revenue authorities as same. Further the Tibetan Childrens’ Village authorities informed that they are intending to carry out educational activity. Therefore, they requested for renewal of the conversion order, because there was no application for renewal from the assessee, after the lapse of two years and therefore, the Tibetan Childrens’ Village authorities intimated the concerned authorities that that they are willing to pay the requisite charges and conversion fees for renewal of the orders. Bringing our attention to the agreement for sale, the assessee’s representative submitted the sale deed was dated 26.9.1995, therefore, he submitted that from the certificate issued by the competent authority on 22.6.2006, it is clear that the land remained as agricultural land and the conversion took place only after the sale took place. The assessee purchased the land from Smt. Narasamma by deed dt.26.9.95. It is almost similar in the case of other assessee where they have purchased the land from various persons. Though the land was purchased on the basis of the certificate issued by the Village Accountant of Ramanagara taluk dt.22.6.2006 mentioned above, the assessee’s representative submitted it is clear that the assessee was cultivating ragi, vegetables and horsegram on the land. Merely because the assessee did not disclose any income, it does not mean that the agricultural activities were not undertaken as claimed by the revenue authorities. 18. Inviting our attention to the report of the Income-tax Inspector, Ward-3, Mandya, dt.27.12.2007, the representative submitted it is clear that even after conversion of the agricultural land into non-agricultural, assessee has not made any tax payment to Tahsildar or to the Grama Panchayat which is also clear from the letter hereinabove mentioned dt.1.3.2005. 19. Inviting our attention to the written submission at page 44, the learned representative submitted the conclusion of the Assessing Officer that the assessee had not carried out any agricultural activity is wrong. While answering to question no.8, the assessee stated that the assessee carried out agricultural activities. Since the assessee has not made any application, it

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shows that even after the conversion, the assessee had put the land for agricultural purpose and not for non-agricultural and residential purpose. In the hands of the assessee, the character remains as agricultural land. It is an admitted position that the assessee has not paid any conversion charges as the assessee was using the land for agricultural purpose. The conversion by making the penalty is a subsequent event that is subsequent to the sale of land by the assessee to Tibetan Childrens' Village. 20. In the premises of the above facts, the assessee's representative again brought our attention to the decision of the Gujarat high Court decision in the case of Dr. Motibhai D. Patel v. Commissioner of Income-tax (1981) 127 ITR 671 wherein the Hon'ble High Court held that the permission to convert the land to non-agricultural use does not make the land non-agricultural. If the permission is not obtained before the date of sale and fetching of high price is not the potential criteria. He further submitted the smallness of the income derived from sale of agricultural land is also not relevant. 21. The learned counsel further relied on the decision of the Gujarat High Court in the case of Gordhanbhai Kahandas Dalwadi v. Commissioner of Income-tax (1981) 127 ITR 664 and submitted the mere obtaining of conversion order of agricultural land into non-agricultural land is not sufficient to hold that the nature of the agricultural land has been changed. In this case, assessee's representative submitted the assessee obtained permission from the land revenue authorities u/s.63 of the Bombay Tenancy and agricultural Lands Act for putting the land into non-agricultural activities. The land was situated near Amul dairy, Ganesh Dugghalaya and Charotar Tobacco Company. Charotar Iron Factory, Krishna Iron Factory and other industrial concerns were also in the vicinity of the land. In the Land Records, no entry of change i.e., from agricultural to non- agricultural was made and, therefore, looking to the claim of the assessee that assessee was doing agricultural activity though on a small scale, the Hon'ble High Court held that the nature of the land had not been changed.

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question of fact to be determined by the cumulative effect of all the relevant factors. The burden of establishing the above fact by cogent and reliable evidence that the land was used as agricultural land or was capable of being used so at the relevant point of the time is on the assessee. If the assessee carried out agricultural activities on the date of the transfer and if it is proved then it is agricultural land. Otherwise it is a capital asset within the meaning of section 2(14) of the Income tax Act, 1961. Even if at this stage the assessee, the learned DR submitted, is not in a position to prove that he has not carried out any agricultural activity, then it is a conclusive proof that the assessee had not carried out any agricultural activity till the date of transfer. Even after presuming but not admitting that the assessee had carried out agricultural activities, the land has to be treated as non- agricultural in character. 25. The assessee has not produced any evidence in support of the claim that he had carried out agricultural activity on the land under reference till the date of the transfer except furnishing of RTC obtained from village accountant. Though this is prima facie evidence of agricultural holdings in the name of the assessee, but this is not sufficient evidence to prove the case of the assessee that he carried out agricultural activities on the land. The assessee has not adduced any evidence in support of the claim of acticultural activities other than RTC. The assessee was questioned and requested to produce the details of the crops cultivated, yield per acre, expenses incurred towards agricultural operations and the gross amount of sale proceeds on account of the sale of agricultural produce. There was no evidence forthcoming from the assessee. On the other hand, the department sufficiently established that no agricultural activities were carried out, as under : a) Conversion of land from agricultural purposes to non- agricultural purposes, i.e., development of residential layout had taken place in the Financial Year 1995-96, i.e., 10 years before the date of transfer of the land; b) The assessee has acquired the land in the Financial Year 1995-96 by way of execution of GPA by the original

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landlords in favour of the assessee for the purpose of sale of sites formed by the landlord. As such, the fact has been clearly highlighted in the registered GPA without any ambiguity; c) Subsequent to conversion of the land for non- agricultural purposes, the taxes were collected by the Grama Panchayat instead of Tahashildar, indicating that no agricultural activities were conducted subsequent to conversion of the land; d) At the time of transfer of the land, no standing crop or trace of agricultural activities were found as evidenced from the contents and description of the property recorded in the registered sale deed ; e) The property under reference is located in the thickly populated industrial belt/suburb of Bangalore which is about 18 kms away from the corporation limits of Bangalore; f) The price fetched i.e., Rs.10 lakhs per acre cannot be construed as high on account of the land being a non- agricultural since the actual cost of acquisition of the lands was Rs.3 lakhs i.e., about Rs.33,000/- per acre in the year 1995-96; g) The lands under reference were actually acquired by the buyer for the purpose of construction of educational institutions such as nursing college, degree colleges etc., and to get recognition in the long run as deemed university. This once again goes to prove that the land was purely non-agricultural in nature at the time of sale; h) The assessee had not shown any income from the so- claimed agricultural activity in the return filed by the assessee for Assessment Years 1995-96 to 2004-05. This was sufficient proof to show that no income from agricultural activities was derived by the assessee. In the premises of the above facts, the learned DR relying on the following judgements submitted the appeal by the assessee is

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liable to be dismissed and the appeal by the revenue is to be allowed : i) Merchant (ZM) v. Commissioner of Income-tax - 177 ITR 512(Bom); ii) Fazalbhoy Investment Co. P. Ltd., v. Commissioner of Income-tax - 176 ITR 523 (Bom); iii) Commissioner of Income-tax v. Shiv Chand Satnam Paul - 231 ITR 663 (P&H) 26. Replying to the above, the learned DR submitted the assessee made an application to the land revenue authorities to get the records changed from agricultural to non-agricultural lands. Subsequently, the buyer, the Tibetan Children's Village, paid non-agricultural tax on the land and also the penalty to get the land converted from agricultural to non-agricultural. It shows that the intention of the assessee at the time of selling was that the land should be treated as non-agricultural land, and it is clear from the sale deed. The learned DR submitted the RTC certificate was not in existence and even if it existed, it is not the final word. He invited our attention to para 3.10 of the Commissioner of Income-tax(A)'s order in the case of Suresh Gowda dt.10.2.2009. The facts in para 3.10 narrated therein as under: 3.10 The Hon'ble ITAT, Bangalore in the case of Shri. M. V. Chandrashekar v. DCIT, Circle -2(1),Bangalore (ITA No.663/Bang/2002 dt.6.12.2002), which was also affirmed by the Hon'ble High Court of Karnataka, decided a similar issue vide ITA No.209/2003 dt.2.1.2008. The facts of the case are that the assessee is an agriculturist who purchased agricultural land of about 41 acres between 1977 and 1992 at Goolimangala village, Sarjapur Hobli, Anekal Taluk and the entire land purchased was agricultural land, which was not a converted land. The land so purchased is also in green belt area and even the assessee never applied for conversion of land use. During the previous year relevant to the Assessment Year 1998-99 the assessee sold about 35 acres of land and the remaining was still with the assessee. Some plantation was made and was converted into smaller size of plots and after

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incurring development expenses, sold the same to different parties. The Assessing Officer held that the transaction carried by the assessee indicate an intention to earn profit which is in the nature of trade. The view of the Assessing Officer was upheld by the Commissioner of Income-tax(A). In appeal before the ITAT, the assessee raised two grounds. i) That the surplus on sale of agricultural land would be subject to tax only under the head income from capital gains and not as income from business; ii) That, as the lands sold being beyond the notified area, the surplus of sale would not be liable to tax under the head income from capital gains. The Hon'ble ITAT after considering the facts of the case, held that the transaction should be regarded in the nature of capital assets and not a business transaction. 27. The learned DR submitted the facts are identical in the instant case as well. The DR submitted from the date of conversion, the agricultural character of the land has been lost. In the agreement, sale deed etc., it is referred as the sale of non- agricultural land. The learned DR submitted Section 80 the Karnataka Land Reforms Act, 1961, bars transfer of agricultural land to a non-agriculturist. If it is violated then u/s.84 of the above Act, uncultivated land may be required to be cultivated at the instance of the government and in the instant case of the assessees, no such steps have been taken by the government which goes to prove that the land was utilized for the converted purpose. In the instant case of the assessee, the purchaser is undisputedly the Tibetan Children's Village and the purchase was for starting educational institutions and in the long run to get recognition as a deemed university. 28. The learned DR further submitted in the case reported in Musthafa Ummer and Another v. Appropriate Authority and Others (2002) 254 ITR 135, the Hon'ble Kerala High Court held that the land ceases to be agricultural land when the assessee agrees to sell the same for use as house sites. The Hon'ble

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Supreme Court in the case of Sarifabibi Mohmed Ibrahim and Others v. Commissioner of Income-tax (1993) 204 ITR 631, held all these factors must be cumulatively considered. So also in the case of Gemini Pictures (supra). 29. The learned DR invited our attention to page 10 and 11 of the assessee's paper book dt.20.2.95 i.e., order of the Addl.Deputy Commissioner, Ramanagaram, particularly the conditions 8 and 9 which read as under : (8) It may be construed that this converted land must be utilized for the purpose permission has been accorded within two years. (9) This order is issued as per the written agreement of the individual dt.27.7.94 and the individual is covered by agreement terms. In the event if the individual violates the terms of agreement the government is at liberty to initiate action against such individual as per the provisions of the land revenue act clause 84 of 1996. 30. In reply to the above, assessee's representative briefly submitted as under. The assessee is an agriculturist. Inviting our attention to the decision of the Commissioner of Income-tax(A) in the case of Thimme Gowda (ITA.178/B/09), he submitted the undisputed facts are that the lands are situated beyond 8 kms from the corporation limits. The lands were converted to commercial/residential usage in 1999, but was never put to use for the converted purpose. The land was used for agricultural cultivation. He further submitted that for the land to be treated as agricultural land, carrying on of agricultural activities is of paramount importance. Phani extracts was produced before the Assessing Officer to prove the facts that the lands were under cultivation of the crop ragi. Evidence to the effect that the lands were used for agricultural purpose even on the date of sale, in the form of record of rights and Phani extracts (RTC) were issued by the Village Accountant in Form no.2 of the Karnataka Land Reforms Rules, 1966. This is a statutory record maintained by the government as required under the Karnataka Land Reforms Rules, 1966. Though request for conversion was made and order

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was passed, two years were lapsed and the agricultural activities were continuing. Even the Assessing Officer apparently has not disputed the facts. In the case of T. Prasanna Gowda, 2 acres of land was converted during 1995, 53 acres of land was converted in 1999 and 10 acres; 10 guntas was converted in 2004. Still the facts remain that the lands were never used for non-agricultural purpose. No sites were formed nor any houses were built. The Assessing Officer deputed the Inspector for enquiry only in 2007. Even at this time, there was no layout formed except the building constructed by the Tibetan Children's Village for their office. The land was agreed to be sold to Tibetan Children's Village in the early part of 2003-04. If the land was to be registered in their name, as per the rules the land need to be converted to non- agricultural purpose without which it could not have been registered in their name. The conversion charges were thus paid by them after registration. But what was being held by the assessee as on the date of agreement was agricultural land. He further submitted that revenue records were not changed at the time of sale of the land by assessee. This fact is evident from the fact that the land is mentioned by survey number and not the khata number, in the sale deed. The survey numbers is used for agricultural land and revenue khata number is used for non- agricultural land. On the sale date, lands are identified as 'survey numbers' and not 'khata numbers' which leads to an irresistible conclusion that in government records the land remained as agricultural land. The decision of the Supreme Court in the case of Officer-in-charge, Court of Wards (105 ITR 133) (supra) laid down parameters as to what is to be considered as agricultural land. The assessee does not fall into the broad parameters in view of the fact that though the land was converted in 1995, 1999 it was not put to use for the intended purpose within the specified period of two years from the date of conversion. Agricultural land regained the character of agricultural land in 1997, 2001 i.e., after two years. The taxes paid in respect of the land was levied as agricultural land and not as non-agricultural land. This is evidenced by phani extracts in respect of these lands which show that the taxes were levied as agricultural land and not as non- agricultural land. Evidence to this effect was also produced.

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court or for recovery of arrears of land revenue or for sums recoverable as arrears of land revenue), gift or exchange or lease of any land or interest therein, or (b) no mortgage of any land or interest therein, in which the possession of the mortgaged property is delivered to the mortgagee, shall be lawful in favour of a person. - (i) who is not an agriculturist, or; (ii) ….. By virtue of amendment brought to the section w.e.f.25.11.1980 the word 'valid' was changed to 'lawful'. In other words, prior to the amendment, the transfer to non-agriculturist was not valid, whereas after the amendment, the transfer is valid, but sale is unlawful. The intended purpose of the above change is that the transfer is no longer invalid but the person who violates the sale has to face the consequence since it is unlawful. Again, coming to section 84, it deals with the provisions for cultivation of uncultivated lands, which reads as under : Section 84: Uncultivated land may be required to be cultivated.-- Where the Assistant Commissioner having jurisdiction over any area in which any land is situated is satisfied that any land within such area has remained uncultivated for a period of not less than two consecutive years without sufficient cause, he may be notice served upon the land owner and any other person entitled to be or in possession of the land require such persons to cultivate the land within one year from the date of service of such notice. Reading of the section makes it clear that if the Assistant Commissioner having jurisdiction over the area is satisfied that the land within his jurisdictional domain remained uncultivated for a period of not less than two consecutive years without sufficient cause, he may issue a notice to the land owner or to any other person entitled to be in possession of the land requiring them to cultivate the land within one year from the date of service

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of the notice. The case of the Department is that no such notice was issued by the competent authority. Therefore, the land was utilized for non-agricultural purpose as intended. We are unable to agree with the above contention. Perhaps this would indicate the other way. If the land has not been used within two years of issue of conversion order, notice should have been issued to utilize the land for agricultural purpose within one year. Since the notice has not been issued, the claim of the assessee that the assessee was doing agricultural activity, prima facie to be accepted, in the light of the papers produced before us. The assessee has produced a letter from the Tibetan Childrens' Village to the Secretary, Manchanayakana Halli Grama Panchayati, to the effect that they had purchased 143 acres and 27 guntas of land in Seshagirihalli, the land was converted for residential purpose between 1996-1999. It further states that "though the conversion certificate was issued for the purpose of formation of residential layout, no such layout was formed by our earlier owners, i.e., the 'assessee' ". It is further stated in the letter that the land remained on the records of Land Revenue authorities. In the absence of renewal application from earlier owners, they requested to renew the conversion granted and further submitted that they are willing to pay the requisite charges and fees for renewal of the conversion orders which impliedly proves the assessees stand that no taxes had been paid towards non-agricultural land taxes. There is a specific averment also in the written submission of the assessee (Dasappa), which is also applicable to other cases herein as well) that there was no change in the land records at the time of sale of land and the survey number used in the sale deeds were old survey numbers and not the Khata numbers. Another evidence produced by the assessee to show that the agricultural character of the land had not changed is the certificate issued by the village accountant in all the above assessees' case to the effect that crops were grown in the lands in question during the years under appeal. This will lead to no different conclusion either in assessee's favour or of revenue. This alone cannot lead to a conclusion in favour of neither of the parties. The next objection of the revenue is that the certificates issued by the village accountant were randomly issued without

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any physical verification by him. This general and evasive argument of the DR cannot be accepted, in the absence of any proof that the officer in-charge has not verified the area physically. The material available in the hands of the assessee is enough to show the nature of the land prima facie at the time of the sale and not the use by the subsequent purchaser. In the instant case, the above facts prima facie leads to the conclusion that the character of the agricultural land has not been lost. It is true the assessee had no case that the entire land was used for agricultural activities. But the RTC certificates produced by the assessee also indicates that the lands were used for agricultural activities. However, we find that there is a specific finding by the Commissioner of Income-tax(A) in the case of Prasanna Gowda in ITA No.177/Bang/09 that 10 acres and 10 guntas of land sold on 2.6.06 converted on 2.4.06 was capital asset and he further directed to compute long -term capital gains on this sale. In the absence of any evidence to the contrary, we confirm the order of the Commissioner of Income-tax(A) in ITA.177/Bang/2009 to this extent on facts. 34. Coming to the decision relied by the DR reported in Merchant (ZM) v. Commissioner of Income-tax - 177 ITR 512(Bom), wherein there was a specific finding by the Tribunal that there was no agricultural activity undertaken by the assessee. In this case, the said City Survey Officer said that the land bearing survey No.1393, 1394 and 1395 was agricultural land. The land fell within the town planning scheme and was also within the municipal limits of Surat city. There was a specific finding by the Tribunal that the City Survey Officer's report was inaccurate when it said that the land bearing the three survey numbers was agricultural land, but not used for agricultural purposes because it was common ground and there was a structure of their own which had been rented out to two tenants. It was in these circumstances, the Tribunal held that the land revenue assessment was not determinative of the issue. In these circumstances, the Tribunal held "In the absence of any evidence to show that the land was put to any agricultural use at any point

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of time prior to the date of sale apart from the activity of growing vegetables and grains for the domestic use of the assessee, it could not be treated as agricultural land. Coming to the instant case of the assessees i.e., Thimmegowda and Suresh gowda for the Assessment Year 2005-06, agricultural income was estimated at Rs.53 lakhs and for Assessment Year 2004-05, ACIT estimated the income of the assessee group at Rs.56 lakhs. Hence, on facts this decision is distinguishable. 35. Coming to the decision relied upon by the DR in the case of Fazalbhoy Investment Co. P. Ltd., v. Commissioner of Income- tax - 176 ITR 523 (Bom), in this case land was acquired by the Government in the year 1951. A certificate was issued to the effect that the land was used for growing paddy during the Assessment Year 1941-42 and 1942-43. The Tribunal held in the absence of any evidence to establish that the land was agricultural, the Hon'ble High Court held that this is a reasonable conclusion because paddy had been grown on the land said land in 1941-42 and 1942-43 and because it ignored the Tahsildar's certificate which indicated that the said land was agricultural land till the year 1966. Coming to the instant case, assessee's claim that the assessee was using the land for agricultural purposes is without any evidence as to how much the assessee earned from agricultural activity and related expenses. However, assessee has produced certificate from the competent authorities that during these years assessee had used the land for growing ragi. In the absence of contrary evidence, the evidence adduced by the assessee coupled with the Village Accountant's certificate, we have to come to a reasonable presumption that the assessee's assertion that the land was used for some kind of agricultural activity, is to be accepted. 36. Coming to the decision relied by the learned DR in the case of Commissioner of Income-tax v. Shiv Chand Satnam Paul - 231 ITR 663 (P&H), this was a case wherein the Tribunal held that the land was located within the municipal limits and does not fall within the ambit of capital asset. The Hon'ble High Court held that the Tribunal become coming to such a conclusion should have satisfied itself regarding the remaining two

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ingredients mentioned in Section 2(14)(iii)(a) regarding population not less than 10,000 according to the last preceding census and the land was situated in any area within such distance, not being more than eight kilometres from the local limits. Therefore, this decision relied by the DR is not applicable to the instant case. 37. Coming to the decision reported in CWT v. Officer-in-charge (Court of Wards), Paigah, the issue involved was as to what could mean or what could be treated as agricultural land within the meaning of section 2(e)(i) of the Wealth-tax Act, 1957. The Hon'ble High Court held, the land could be treated as agricultural land for the following reasons : (i) the area was 108 acres abutting the Hussain Sagar tank; (ii) the land had two wells in it; (iii) it was capable of being used for agricultural purposes; (iv) it had not been put to any use which could change the character of the land by making it unfit for immediate cultivation; and (v) it was classified and assessed to land revenue as "agricultural land" under the A. P. Land Revenue Act. On further appeal the Hon'ble Supreme Court held the first four features considered by the High Court and based upon absence of any user for non-agricultural purposes were inconclusive, and the fifth feature alone provided some evidence of the character of the land from the point of view of its purpose. The property was classified in the revenue records as agricultural land was not conclusive and such entries could raise only a rebuttable presumption. The Hon'ble Supreme Court further held, the character of the land and the purpose for which it meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case. What really is to be shown is the connection with an agricultural purpose and user and not the

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mere possibility of user of land, by some possible future owner or possessor, for an agricultural purpose. It is not the mere potentiality which will only affect its valuation as part of "assets", but its actual condition and intender user which has to be seen for purposes of exemption from Wealth-tax. If there is neither anything in its condition, nor anything in the evidence to indicate the intention of its owners or possessors so as to connect it with an agricultural purpose, the land could not be "agricultural land" for the purposes of earning an exemption under the Act. Entries in revenue records are, however, good prima facie evidence, the Hon'ble Supreme Court held. Coming to the instant case of the assessee, it is not disputed that in the revenue records, the entry is not changed, it continues as agricultural land. According to the revenue, the intention and purpose of the sale is for the use of Tibetan Childrens' Village for the setting up of educational institutions and other related purposes. According to the assessee, the land in his hands had retained the agricultural character till the date of sale, for the reason that the assessee was doing agricultural activity. We have hereinabove in para 34 mentioned that the department had estimated the agricultural income at Rs.53 lakhs for 2004-05 and estimated the agricultural income of the group at Rs.56 lakhs. Therefore, it is difficult to come to the conclusion that in the hands of the assessee, the character of the land had changed. Merely because the original owners had made application to change the character of the land from agricultural to non-agricultural and certificate was issued to that effect. Even for the revenue, there is no case that the land has been used for the intended purpose. 38. In the decision of Gujarat High Court relied upon by the DR, in the case of Gordhanbhai Kahandas Dalwadi v. Commissioner of Income-tax (1981) 127 ITR 664, the Hon'ble High Court held that the potential non-agricultural use does not alter the character of the land. This was a case wherein the land was purchased in 1954 and subsequently sold in 1969. The entries in the revenue records showed that the land was agricultural continued to be so. The land revenue paid was for

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agricultural use, but permission for non-agricultural use was obtained but not before the date of the sale. In these circumstances, the Hon'ble High Court upheld the presumption that the land is agricultural. The Hon'ble High Court came to the above conclusion inspite of the fact that this land was situated in an industrially developed area where the potential use of the land as non-agricultural land was very high but the Hon'ble High Court held that the use of the land as non-agricultural is totally immaterial. Entries in the record of rights are good prima facie evidence regarding land being agricultural and if the presumption raised either from actual user of the land or from entries in revenue records is to be rebutted, there must be material on the record to rebut the presumption. The approach of the fact-finding authorities, namely, the income-tax authorities and the Tribunal, should be to consider the question from the point of view of presumption arising from entries in the record of rights or actual user of the land and then consider whether that presumption is dislodged by other factors in the case. While coming to the above conclusion, the Hon'ble High Court considered the following facts. The presumption for non-agricultural use was obtained by the assessee before the sale of the land. Coming to the facts in the instant case, the previous owner made an application for conversion, obtained the permission, but with the condition that the land should be used for the intended purpose within two years, otherwise the original character of the land, i.e., agricultural nature, would be restored. Then the assessee or the subsequent purchased has to pay penalty and make a further application to obtain permission to revive the land for intended purpose. The assessee has not done this even according to the revenue. This was done by the subsequent purchaser i.e., Tibetan Childrens' Village, which compels to conclude that what the assessee held at the time of sale was agricultural land. It is true the facts is on border line, but the evidence produced before us in the form of RTC showing agricultural income etc., is in assessee's favour. Secondly, the Hon'ble Gujarat High Court considered the land revenue paid was for agricultural use of the land. In the instant case of the assessee also what was paid by the assessee

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was agricultural revenue. The non-agricultural revenue was paid by the subsequent purchaser after making an application for the second time to revive the nature of the land, which is evidenced by the letter dt.1.3.2005 which was written to the Secretary, Manchanayakanahally Gram Panchayat by the Tibetan Childrens' Village. In the case decided by the Hon'ble High Court, it was held that the correct test to be applied was whether on the date of sale of the land whether the land was agricultural or non- agricultural and not the intended purpose and how the purchaser was going to use the land. 39. Now, we proceed to deal with the various appeals separately, as under. ITA.1464/Bang/2008 - By the assessee, Shri. M. N. Manjunath - Assessment Year.2005-06 : 40. In the first effective ground, the assessee's grievance is that the revenue authorities were not justified in bringing to tax the income on sale of land as non-agricultural. We have elaborately dealt with this issue and given our findings in the paragraphs 33 to 38 above and we have concluded that the land was agricultural on the date of sale and hence, this ground by the assessee is allowed. 41. Coming to the second effective ground, the assessee's representative submitted he is under instruction not to press this ground. Hence, this ground is dismissed as not pressed. 42. Coming to effective ground no.3, which is against bringing to tax an amount of Rs.1,14,000/- as lease rentals when in fact the assessee was not entitled for the same nor had received any amount. This issue has been dealt with by the Commissioner of Income-tax(A) at page 6, by observing as under : "The next issue raised is that the Assessing Officer has erred in bringing to tax an amount of Rs.1,14,000/- as lease rentals as the appellant was not entitled for the same nor received any amount (Ground no.4). It is seen from the assessment order that the addition has been made

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because as per lease agreement, the appellant was to get Rs.1,14,1000/- as lease income. The appellant's contention is that the lease agreement was not acted upon and therefore, he is not entitled to any income. However, the appellant has led no evidence in support of his contention. He has also not given any confirmation from the other party of the agreement that the lease agreement was not acted upon. Therefore, the action of the Assessing Officer in bringing to tax the above sum on the basis of lease agreement signed by both the parties has to be confirmed. This ground of appeal is, therefore, dismissed." The ground was dismissed by the Commissioner of Income- tax(A) as no evidence was produced before him, in support of the contention that in spite of the entitlement as per the agreement the assessee did not receive it. Suffice to say that this finding of the Commissioner of Income-tax(A) has not been rebutted before us and no evidence has been produced before us to show that the finding of the Commissioner of Income-tax(A) is wrong. Appeal by the assessee on this ground fails and it is dismissed. 43. In the result, appeal by the assessee is allowed in part. ITA.1465/Bang/2008 - By the assessee, Shri. Dasappa - Assessment Year.2005-06 : 44. The first ground is general in nature and does not call for any specific dealing as such. 45. Coming to the second ground which is with regard to the sale of land, we have elaborately deliberated upon the issue and given our findings at paras 33 to 38 above wherein we have held that the revenue authorities were not justified in holding that the land sold by the assessee was not agricultural land and consequentially charging long-term capital gains on such sale. 46. Coming to the third ground which is against charging of interest u/s.234B, we hold that the Assessing Officer may give consequential relief after giving effect to our order.

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the revenue records, it would only enure in favour of the assessee as agricultural land and assessee is entitled to get exemption from tax.,

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treated as exempt from capital gain in terms of section 2(14) r.w. sections 45 & 48 of the Act. Accordingly, this ground of the assessee is allowed.

Pronounced in the open court on this 9th day of February, 2022.

Sd/- Sd/-

( BEENA PILLAI ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER

Bangalore, Dated, the 9th February, 2022. /Desai S Murthy /

Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order

Assistant Registrar ITAT, Bangalore.