MURTUZA SHABBIR JAMNAGARWALA,,PUNE vs. INCOME-TAX OFFICER,,

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.

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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.

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.

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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”.

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?

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.

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”.

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.

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.

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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.

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 ?

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(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 ?

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.

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.

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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.

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

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“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.

appeal is against treatment of agricultural income of

Rs.1,12,000/- as “income from other sources”.

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

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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”.

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. *