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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI R.S. SYAL & SHRI VIKAS AWASTHY
आदेश / ORDER PER R.S.SYAL, VP : This appeal by the assessee arises out of the order passed by the CIT(A)-5, Pune on 26-02-2016 in relation to the assessment year 2008-09.
First issue raised in this appeal is against not allowing of exemption u/s.54B of the Income-tax Act, 1961 (hereinafter also called ‘the Act’).
Succinctly, the facts of the case are that the assessee, along with two others, transferred certain land admeasuring 81
2 ITA No. 1144/PUN/2016 Murtuza Shabbir Jamnagarwala
Are equal to 8100 sq.mtr (equal to 2 Acres) on
08-12-2007 to one Mr. Dhanraj Malchand Rati, a Builder and
Developer. The assessee computed its share of capital gain at
Rs.27,79,450/-. The said amount of capital gain was claimed
as exempt u/s.54B(1) of the Act on the ground that he had
purchased two agricultural lands on 28-01-2008 and 22-04-
2008 for a total consideration of Rs.57,39,500/-. The
Assessing Officer (AO) noticed that the assessee, along with
other two co-owners, entered into a “Development
Agreement” with Mr. Dhanraj Malchand Rati for transfer of
the land, which was situated within the Municipal Corporation
limits of Pune. He held that the land ceased to be an
agricultural land. On being called upon to explain as to why
the exemption u/s.54B of the Act should not be denied because
the property transferred was not an agricultural land, the
assessee tendered his explanation which has been reproduced
in the assessment order. The crux of the assessee’s submission
was that the land was classified by the land Revenue
authorities as “Jirayat” type of agricultural land and nowhere
in the land records it was mentioned as “Non-agricultural
land”. The assessee further submitted that agricultural income
was earned from such land and as per the 7/12 extract, the
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agricultural land was subjected to cultivation and Jowar crop
was grown. It was further submitted that all the rights in the
land were transferred to Mr. Dhanraj Malchand Rati and the
nomenclature of “Development Agreement” was misleading.
Not convinced with the assessee’s submission, the AO held
that the capital gain arising from the transaction was out of
non-agricultural land and hence, no exemption u/s.54B could
be allowed towards investment made by the assessee in two
agricultural lands. The ld. CIT(A) echoed the action of the
AO on this score.
We have heard both the sides and perused the relevant
material on record. The assessee along with other two co-
owners transferred 2 acres of land to Mr. Dhanraj Malchand
Rati vide agreement dated 08-12-2007. The case of the
assessee is that the land transferred by him was an agricultural
land and since he invested a sum of Rs.57,39,500/- in
purchasing two other agricultural lands, he was entitled to
exemption u/s.54B of the Act. On the other hand, the Revenue
has canvassed a view that since the land transferred by the
assessee was non-agricultural land, there can be no grant of
exemption u/s.54B of the Act.
4 ITA No. 1144/PUN/2016 Murtuza Shabbir Jamnagarwala
Section 2(14) of the Act defines `capital asset’ to mean
property of any kind etc. held by the assessee but does not
include certain assets including “agricultural land in India”,
not being a land situated within 2/6/8 kms, as the case may be,
from the local limits of any Municipality. If an agricultural
land satisfying the conditions as given in section 2(14) of the
Act is transferred, any gain arising from such a transfer is a
capital receipt, not chargeable to tax as the same does not arise
from the transfer of any capital asset. If on the other hand,
certain agricultural land, not satisfying the conditions laid
down in section 2(14), is transferred, any profit arising from
such a transfer is chargeable to tax under the head “Capital
gains”. There is no quarrel over the proposition that the land
transferred by the assessee did not satisfy the conditions given
in section 2(14) of the Act and hence qualified as a “capital
asset”.
Section 54B(1) of the Act provides that if “capital gain”
arises from the transfer of a capital asset, being, land which
was being utilized by the assessee etc. for agricultural
purposes in the two years immediately preceding the date of
transfer and the assessee has within a period of two years after
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that date purchased any other land for being used for
agricultural purposes, then such capital gain, otherwise
chargeable to income-tax as income of the previous year in
which the transfer of the land took place, shall qualify for
exemption subject to the conditions set out in the provision.
The case of the assessee is that he transferred the agricultural
land, being, a capital asset and purchased two other
agricultural lands for a sum of Rs.57,39,500/- within two years
and hence, he is entitled to exemption u/s.54B of the Act. The
AO has not disputed that the lands purchased by the assessee
on 21-08-2008 and 22-04-2008 are agricultural lands. Thus,
the second part of the exemption provision, being, purchase of
new agricultural lands within period of two years, stands
satisfied. The dispute is on the first part of the exemption as to
whether or not the land transferred by the assessee was an
agricultural land?
We have noticed above that it is nobody’s case that the
land transferred by the assessee was not a capital asset. Now
the question arises as to whether such capital asset was an
agricultural land or not? If the assessee succeeds in proving
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that the land transferred by him was an agricultural land, his
claim to exemption u/s.54B would be justified.
In order to decide if the land transferred was an
agricultural land, we will first espouse the factors taken note of
by the authorities militating against the claim of agricultural
land. The Revenue has deeply relied on the fact that the
assessee entered into an agreement dated
08-12-2007 with Mr. Dhanraj Malchand Rati for `the
development of land’. We have perused the agreement, a copy
of which has been placed on page 26 of the paper book. The
agreement styled as `Development agreement’ was entered
into between the assessee and two other co-owners, who
transferred the land, on one hand and Mr. Dhanraj Malchand
Rati, a builder and developer, on the other. Clause (1) of the
Agreement provides the description of the property as 00
Hector 81 Are or 8100 sq.mtr situated at Village Kondhwa
Budruk. The assessee and other two co-owners have been
defined as “Owners” in this agreement, while Mr. Dhanraj
Malchand Rati as a `Developer’. It has been mentioned in
clause (2) of the Agreement that the Owners have decided to
develop and construct the said property for which they
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forwarded the proposal to the Developer. Consideration has
been set out in clause (7) of the agreement at Rs.1.70 crore. It
has been mentioned in clause (6) that the Developer will
obtain necessary building plans and sanctioned layouts and
maps and he will appoint Architect and will obtain necessary
permission and sanctions from the Pune Municipal
Corporation. Clause (7) provides that the Developer will
construct the said property as per the sanctioned plans and
layouts from the Pune Municipal Corporation. Clause (8)
states that : “The owners and party of the second part has
delivered the actual possession of the said property for the
development/construction purpose to the Developer and party
of the first part on today”. Clause (9) provides that : “The
owners of the said property are not holding any units in
relation with the said property as per rules of the Urban Land
(Ceiling and Regulation) Act, 1976”. Clause (16) provides
that : “The owners of the said property has given entire rights
to the said Developer to develop the said property”. Clause
(22) provides that: “The owners of the said property has
executed the irrevocable Power of Attorney along with the
said developer in relation to the scheme of the construction
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work as per the sanctioned layouts and plans within the said
property”.
A close scrutiny of various clauses of the Agreement,
described as “Development Agreement”, transpires that
though the nomenclature of “Development Agreement” was
assigned by the parties to the agreement, but it was, in fact, a
case of outright sale of 81 Are of land by the assessee and
other co-owners to Mr. Dhanraj Malchand Rati. The assessee
along with other two co-owners received total consideration of
Rs.1.70 crore in full and did not have any further interest in
the property to be constructed by the Developer. The land
transferred by the assessee was to be utilized by the transferee
for construction of flats to be sold by him at a later date, as
owner. The sum and substance of the above clauses is that the
assessee transferred the land on an outright sale basis and did
not intend to develop the land through Mr. Dhanraj Malchand
Rati by retaining his ownership rights in it.
We have examined the 7/12 extract of the land
transferred by the assessee, whose english translation has also
been provided. The first thing which emerges from the 7/12
extract is that the assessee transferred “Jirayat land”. The
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authorities below have noted from the 7/12 extract that the
land in question was “Jirayat land”. The assessee also stated
before the AO that the land transferred has been classified as
“Jirayat type of agricultural land”. The ld. CIT(A) has noticed
in Para 3.5 of the impugned order that “Jirayat” means `a
barren land’. Similar fact has been recorded at page 18 of the
impugned order, whereby he has held that the “Jirayat land”
means that “the land was a fallow land”. It, therefore, emerges
that the authorities below have proceeded on the premise that
the land transferred by the assessee was a “Jirayat land”,
which as per them means a barren or a fallow land. The
assessee has admitted w.r.t. the 7/12 extract that the land
transferred was a `Jirayat land’. However, we find that the
meaning ascribed to the Jirayat land by the authorities, is not
correct. We have gone through the commentary by A.K.
Gupte on “Maharashtra Land Revenue Code, 1966”, relevant
pages from which have been placed on record. Certain
classification has been given in this commentary, as per which
“Jirayat or Jirait” means ‘land appropriated to or fit for
agriculture’. The term “Jirayat” has been defined on page
20 of the commentary to mean dry crop land, which means
“the cultivation mainly depends upon annual rainfall”. Even
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otherwise, a Jirayat land is used for seasonal crops like
Khariff and Rabi, where cultivation depends upon annual
rainfall. In this commentary, it has been mentioned that “land
unfit for cultivation” or a barren land is described by the
expression “Kharaba”. This discussion shows that the
bedrock of the opinion formed by the authorities below, being,
the meaning of the term “Jirayat” land as a barren or fallow
land, is erroneous. We have examined the english translation
of the 7/12 extract of the land transferred by the assessee,
which also declares the land in question as “Jirayat land”,
which means that it was a cultivable land as against the view
of the authorities of the same being a barren or fallow land.
The 7/12 extract which deals with the possession/ownership
and crops on the land in question provides details of crop
grown on it. There is a reference to the years 2004-05 to
2007-08 in this extract and the name of the cultivator has been
given as “Self”. The crop grown has been written as “Jowar
crop” in all the four years. These facts amply prove that not
only the land was a cultivable land, but “Jowar crop” was also
raised by the assessee on it during the year under consideration
and immediately preceding three years as well.
11 ITA No. 1144/PUN/2016 Murtuza Shabbir Jamnagarwala
It is further pertinent to note from the 7/12 extract that
the land Revenue of the said property has been determined at
33 paise. This fact proves that the land was subjected to land
revenue. Another factor which weighs in favour of the
assessee is that the land was transferred for a consideration of
Rs.1.70 crore determined by 00 Hector 81 Are area, i.e. 8100
sq.mtr and not by rate of square feet or square yard.
At this juncture, it would be pertinent to note the
landmark judgment rendered by the Hon’ble Supreme Court in
Smt. Sarifabibi Mohmed Ibrahim and others Vs. CIT (1993)
204 ITR 637(SC). In that case, the dispute was as to whether
the land transferred by the assessee was a capital asset or not?
The Hon’ble Supreme court, considering certain other
judgments in which some tests for determining the nature of
land were set out, came to the conclusion that the land
transferred by the assessee was not an agricultural land. The
tests so considered and set out in the judgment are reproduced
verbatim, as under :-
"(1) Whether the land was classified in the revenue records as agricultural and whether it was subject to the payment of land revenue ? (2) Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time ?
12 ITA No. 1144/PUN/2016 Murtuza Shabbir Jamnagarwala
(3) Whether such user of the land was for a long period or whether it was of a temporary character or by way of a stop- gap arrangement ? (4) Whether the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land ? (5) Whether the permission under s. 65 of the Bombay Land Revenue Code was obtained for the non-agricultural use of the land ? If so, when and by whom (the vendor or the vendee) ? Whether such permission was in respect of the whole or a portion of the land ? If the permission was in respect of a portion of the land and if it was obtained in the past, what was the nature of the user of the said portion of the land on the material date ? (6) Whether the land, on the relevant date, had ceased to be put to agricultural use? If so, whether it was put to an alternative use ? Whether such cesser and/or alternative user was of a permanent or temporary nature ? (7) Whether the land, though entered in revenue records, had never been actually used for agriculture, that is, it had never been ploughed or tilled ? Whether the owner meant or intended to use it for agricultural purposes ? (8) Whether the land was situate 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 ? (9) Whether the land itself was developed by plotting and providing roads and other facilities ? (10) Whether there were any previous sales of portions of the land for non-agricultural use ? (11) Whether permission under s. 63 of the Bombay Tenancy & Agricultural Lands Act, 1948, was obtained because the sale or intended sale was in favour of a non-agriculturist was for non- agricultural or agricultural user ? (12) Whether the land was sold on yardage or on acreage basis ?
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(13) 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 ?
Holding the land in question as a non-agricultural land
and hence a `capital asset’, their Lordships further held that the
question as to whether a land is agricultural land or not needs
to be tested on the facts and circumstances of each case. There
may be factors both for and against a particular point of view
and the question needs to be answered on a cumulative
consideration of all the relevant facts.
When we examine the facts of the instant case on the
touchstone of the tests enshrined above, it becomes manifest
that the following important factors weigh for and against the
assessee:
For: -
(i) the land was classified in the revenue records as “agricultural land” and was subject to land revenue. (ii) the land was actually used for agricultural purposes at the relevant time. (iii) user of such land was not temporary and was for at least 4 years in a row, as emerged from 7/12 extract. (iv) the land was not sold on yardage basis.
14 ITA No. 1144/PUN/2016 Murtuza Shabbir Jamnagarwala
Against : - (i) the land was situated in a developed area. (ii) after transfer, it was to be developed by plotting and providing road facilities etc.
On a cumulative consideration of all the relevant factors
prevailing in the instant case, both for and against the
treatment of land transferred by the assessee as agricultural
land, we have no hesitation in holding that the assessee
transferred `agricultural land’ to Mr. Dhanraj Malchand Rati.
It is so for the reason that the land was classified as
“agricultural land” in land revenue records; subjected to land
revenue; was being cultivated on which “Jowar crop” was
grown. Reliance placed by the ld. DR on a Tribunal order
dated 27.5.2015 passed in the case of Abhijit Subhash
Gaikwad (ITA Nos. 699/Pn/2013 etc.) is misplaced in as much
as the Tribunal returned a categorical finding in that case that
the concerned Talathi had stated : “that the land was never
used for agricultural activity”. This position is contrary to the
extant case. Here the concerned Talathi of the land transferred
by the assessee has certified in the 7/12 extract that the “Jowar
Crop” was grown on the land in last four years in line. It is,
therefore, held that the land transferred by the assessee was an
15 ITA No. 1144/PUN/2016 Murtuza Shabbir Jamnagarwala
“agricultural land” and the capital gain arising from such land
is eligible for exemption u/s.54B of the Act. We, therefore,
overturn the impugned order on this issue and uphold the
assessee’s point of view.
The only other ground raised by the assessee in his
appeal is against treatment of agricultural income of
Rs.1,12,000/- as “income from other sources”.
It is noticed that the assessee offered agricultural income
at Rs.1.12 lakh. The AO treated the same as chargeable to tax,
which view came to be upheld in the first appeal. We have
held in earlier paras of this order that the land transferred by
the assessee was an agricultural land on which jowar crop was
raised. However, in order to claim exemption for a particular
sum as an agricultural income, it is sine qua non for the
assessee to prove the quantum of agricultural income claimed
with relevant evidence. Existence and quantum of agricultural
income are two separate things. The ld. AR fairly conceded
that no formal sale of crop receipts were available as the
“Jowar crop” was sold directly without routing it through
commission agents. In view of the foregoing and in the
absence of direct evidence of quantum of income, we estimate
16 ITA No. 1144/PUN/2016 Murtuza Shabbir Jamnagarwala
the existence of agricultural income in the peculiar facts of this
case at half of the amount declared at Rs. 56,000/- and the
remaining half is held to be “Income from other sources”.
In the result, the appeal is partly allowed.
Order pronounced in the Open Court on 08th February, 2019.
Sd/- Sd/- (VIKAS AWASTHY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT
पुणे Pune; �दनांक Dated : 08th February, 2019 सतीश
आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to: अ�ेिषत
अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / 3. The CIT (Appeals)-5, Pune 4. The Pr.CIT-4, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “ए” / DR 5. ‘A’, ITAT, Pune; गाड� फाईल / Guard file. // True copy // 6.
आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार आदेशानुसार
// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune
ITA No. 1144/PUN/2016 Murtuza Shabbir Jamnagarwala
Date 1. Draft dictated on 07-02-2019 Sr.PS 2. Draft placed before author 08-02-2019 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *