MR. JAIRAM G. KIMMANE,BENGALURU vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE- 1(3), BENGALURU

This appeal by the assessee is against the order dated 29.7.2019 of the CIT(Appeals)-11, Bengaluru relating to assessment year 2013-14.

The assessee is an individual. Consequent to search u/s. 132 of the Income-tax Act, 1961 [the Act] conducted in the case of assessee on 24.11.2015, proceedings u/s. 153A of the Act were initiated for AY 2013-14 by issue of a notice dated 21.11.2016. The assessee in response to the said notice filed return of income for AY 2013-14 declaring an income of Rs.14,91,410.

In the course of assessment proceedings, the AO noticed that assessee received a sum of Rs.2 crores on sale of 0.40.0 hectares (ha) of land at Agarsure Village, Alibaug Taluk, Raigad Dist., Maharashtra (hereinafter referred to ‘the property’ or ‘land’). Since capital gain on sale of the property had not been disclosed in the return of income, the AO called upon the assessee to explain why the same was not declared. The assessee took a stand that the property was an agricultural land and therefore was not a capital asset and capital gain on sale of agricultural land was not exigible to tax. The contentions of the assessee in this regard were as follows:- • “Land under contention is situated at Agarsure Village, Alibaug Taluk, Raigad District, Maharashtra. • The subject land is agricultural land both at the time of purchase and sale. • The assessee is an agriculturist. • He sold a parcel of land 0.30 Hectares. • The buyer is another agriculturist. • The population of the place i.e. Agarsure Village is below the threshold limit in terms of Section. 2(14)(iii)(a). • The parcel of land is situated nearly 13 kms away from Alibaug, district headquarters. The land parcel is not a capital asset u/s 2(14) of the Act.”

It is not in dispute that the property was sold by the assessee to one Mrs. Leena Mascarenhas for a sum of Rs.2 Crores, in the previous year relevant to AY 2013-14. The AO accepted the fact that the assessee was an agriculturist and the land in question was an agricultural land as per the revenue records. He was, however, of the view that the main business of assessee was trading in arecanut. In this regard, the AO also found that the assessee had agricultural land at Moodigere, Chikmagalur District, Karnataka and had been declaring huge income from 144 acres of plantation owned by him over the past several AYs. He also found that the person to whom the assessee sold the land was Mrs.Leena Mascarenhas, wife of Shri Rudoph Mascarenhas and that the assessee and the buyer’s husband carried on several real estate projects in Bengaluru. The AO also found that though the Assessee owned the land in question for more than 16 years, he had not offered any agricultural income from the said land. The AO also observed that the assessee has not brought any material on record to show that he has conducted agricultural operations/activities over the property. The AO also found that the lands in the vicinity of assessee’s land were leisure and entertainment spots where there were lot of holiday homes, home stay and resorts. He also observed that the Mandwa Beach which was a week-end destination for people from Mumbai was less than 1 Km of the Assessee’s property and Kihim Beach, which was also a holiday week-end holiday destination for people from Mumbai, was 1½ Kms. from the assessee’s property. He also observed that the sale value of the property @ Rs.2 Crores is not a value which is generally offered by persons who are agriculturists and who purchase agricultural land. The AO also observed that the assessee did not bring any documentary evidence on record to suggest basic agricultural operations like tilling, ploughing, weeding, planting, etc. were conducted during the period of ownership nor was there evidence to show that the assessee deployed peasants to conduct agricultural operations.

Under section 2(14) of the Act, "capital asset" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include – .........

The Assessee pointed out that Agricultural land in India is outside the purview of the definition of capital asset u/s.2(14)(iii) of the Act. The Assessee took a stand that Agricultural activities were carried out on the property and was therefore Agricultural land. The AO did not dispute the fact that the property is not situate within the jurisdiction of a municipality or a cantonment board and therefore did not fall within the exclusion clause (a) mentioned above or that it was within 8 kms from the local limits of any municipality. There is therefore no dispute that the property did not fall within clauses of Sec.2(14)(iii)(a) or (b) of the Act. It needs to be clarified that the mere fact that a land is situate in an area outside the area referred to in clause (a) or (b) of sec.2(14)(iii) of the Act, does not automatically make it an Agricultural land and such land has to be used for agricultural purposes as laid down in several judicial pronouncements.

The AO took the view that to be called an agricultural land, the land must have been used for Agricultural purposes. According to the AO, the Assessee did not establish use of the land for agricultural purpose and other circumstances showed that the Assessee’s land was not agricultural land and was sold as a capital asset and not as agricultural land and hence the gain on sale of the property was chargeable to tax as income under the head “Capital Gain”. The following were the relevant observations of the AO:- “7.16 In summation the assessee's claim of exemption on sale of land at Agarsure is not admissible u/s 2(14) of the Income Tax Act for the following reasons. • The assessee has not merely an agriculturist. Rather he has massive trading operation in Arecanut across India. • Thus the assessee has income from sources other than agricultural operations. • The buyer is also not a mere agriculturist, but is rather involved in real estate activities. • The assessee and Shri.Rudoph Mascarenhas are partners in several real-estate projects like M/s. Royal Park (P) Ltd; M/s. Royal Nandi Resorts (P) Ltd etc. • The assessee has not produced a shred of evidence in favour of conducting agricultural operations at Agarsure Village. • The Agarsure land parcel is in close proximity to several holiday destinations, both on the seaward side and the landward side. • The Agarsure land is too small and too far away from the Chikmagalur-Shimoga hub of his operations to sustain a viable agricultural operation. • The valuation of property in the vicinity is attributed to the entertainment and leisure related nature of land-use. • The sale value of the property at Rs. 3 Crores per Acre is prohibitively costly for fetching a fair return on investment except through commercial exploitation of the land.

On appeal by the Assessee, the CIT(A) concurred with the view of the AO. Hence this appeal by the Assessee before the Tribunal.

The learned counsel for Assessee took us through the reasons assigned by the AO for coming to a conclusion that the property is not Agricultural land. He submitted that none of the factors pointed out by the AO in the order of assessment are sufficient to come to a conclusion that the property is not Agricultural land. He firstly pointed out that the classification of the property in the revenue records is agricultural land and the Assessee has been paying land revenue charges levied by the Government. According to him this factor was a very vital factor in favour of the Assessee. He pointed out that the potential use of the property for non residential purpose due to presence of amusement and recreational activities in the vicinity of the property was an irrelevant consideration. In this regard, he relied on the following passages in the decision of Hon’ble Madras High Court in the case of Mrs.Sakunthala Vedachalam -vs- The Assistant Commissioner of Income Tax, 369 ITR 558 (Madras) :- “13. According to the Tribunal that if the above tests are applied, the assessees could not satisfy any of the conditions except condition Nos.1,5,11 and 12. The Tribunal held that the assessees could not prove that the lands was actually or ordinarily used for agricultural purposes. This reasoning does not appear to be correct in view of the above-said decision of the Gujarat High Court, wherein it was clearly held in Clause (1) in paragraph 11 that whether the land was classified in the revenue records as agricultural and whether it was subject to the payment of land revenue has to be considered for grant of exemption.

The learned counsel for Assessee also placed reliance on decision of Hon’ble Bombay High Court in the case of CIT vs. Smt. Debbie Alemao and Joaquim Alemao, reported in (2011) 331 ITR 59 (Bom.) wherein it was held that where the land is shown in revenue record as agricultural land and no permission was taken for conversion of land, it is immaterial whether any agricultural income is shown in the return or not, the gains from sale are exempt from taxation.

Based on the aforesaid decisions, the ld. counsel for the assessee submitted that the fact that agricultural income was not shown from the property is not of any relevance. His further submission was that the fact that the land in question was capable of being used for agricultural purposes and was used as such by the Assessee. His third submission was that presence of all the factors referred to in the decision of the Hon’ble Supreme Court in the case of Sarifabibi Mohammed Ibrahim & Ors. v. CIT (infra) for considering a land as Agricultural land should not be insisted and only cumulative effect of various circumstances has to be seen. It was submitted by him that the classification of land in the revenue records as ‘agricultural land’ and payment of taxes would be the most relevant factor. In this regard, the ld. counsel for the assessee brought to our notice the tax receipts paid by the assessee which are pages 44 to 49 of assessee’s PB. At page 44 is the receipt dated 30.4.2012 which mentions that grass is the crop over the property in question and at page 45 is another filled Form 12 where it is shown that paddy is cultivated over the land. This receipt is dated 2.6.2004. Another factor pointed out by the ld. counsel for the assessee is that the Sale Deed itself mentions that what was sold by the assessee was not just land, but also standing trees and over the land. According to him, all the aforesaid evidence would be sufficient to come to the conclusion that that the land in question is an agricultural land.

Reliance was also placed on the decision of the Hon’ble Supreme Court in CIT v. Venkateshwara Hospital 106 taxmann.com 263 (SC) wherein a view was taken that merely because adjacent lands were divided into plots for sale, it cannot be concluded that the assessee’s land was not in the nature of agricultural land. The classification of the revenue records was held to be sufficient to conclude that the land in question was agricultural land.

The ld. DR reiterated the stand of revenue as contained in the orders of revenue authorities.

We have given a careful consideration to the rival submissions. There is no dispute in this appeal that the property that was sold by the Assessee did not fall within clauses of Sec.2(14)(iii)(a) or (b) of the Act. The mere fact that a land is situate in an area outside the area referred to in clause (a) or (b) of sec.2(14)(iii) of the Act, does not automatically make it an Agricultural land and such land has to be used for agricultural purposes as laid down in several judicial pronouncements. The Hon’ble Supreme Court in Sarifabibi Mohmed Ibrahim vs. CIT 204 ITR 631 (SC) laid down the principles to be followed in deciding the question as to what can be construed as “Agricultural land” as under:- (i) The first proposition laid down in the said decision was, whether a land is an agricultural land or not is essentially a question of fact. Several tests have been evolved in the decisions of this Court and the High Courts, but all of them are more in the nature of guidelines. The question has to be answered in each case having regard to the facts and circumstances of that case. There may be factors both for and against a particular point of view. The Court has to answer the question on a consideration of all of them - a process of evaluation. The inference has to be drawn on a cumulative consideration of all the relevant facts.

The Hon’ble Supreme Court in the case of Smt. Sarifabibi Mohamed Ibrahim and others (supra) approved the tests laid down by the Hon’ble Gujarat High Court and Hon’ble Bombay High Court in the following cases as under:- “16. The decision of Gujarat High court in Commissioner of Income Tax, Gujarat-II v. Siddharth J. Desai 139 I.T.R. 628, relied upon strongly by the learned Counsel for the appellant, reviewed the several earlier decisions of the Gujarat High Court as well as the decision of this Court in Begumpet Palace and has evolved the following 13 factors/indicators applying which the question has to be answered. The 13 factors are the following :- (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?

The Bench observed that to ascertain the true character and the nature of the land, it must be seen whether it has been put to use for agricultural purposes for a reasonable span of time prior to the relevant date and further whether on the relevant date the land was intended to be put to use for agricultural purposes for a reasonable span of time the future. Examining the facts of the case from the said point of view, the Bench held that the agreement entered into by the assessee with the Housing Society is the crucial circumstance since it showed that the asses-see agreed to sell the land to Housing Society admittedly for utilisation for non-agricultural purposes. The sale-deeds were executed four months after the agreement of sale and even if any agricultural operations were carried on within the said span of four months, - the Bench held - it was evidently in the nature of a stop-gap arrangement. On the date the land was sold, the Bench held, the land was no longer agricultural land which is evident from the fact that the assessee had obtained permission even in August 1966 to convert the said land to non- agricultural purposes.”

In the light of the principles laid down as above let us examine the facts of the present case to decide the case as to whether the land that was sold by the Assessee was “Agricultural land”. In the present case, the claim of the Assessee that agricultural operations were carried out over the property and the property was actually used for agricultural purpose was sought to be established by relying on the classification of the property in revenue records. The Revenue contends that there is no evidence of the Assessee having carried out agricultural activities over the property. The Assessee has not established as to how agricultural activities were carried out and what expenses were incurred in carrying out agricultural operations over the property. The revenue also contends that the Assessee has not declared any income from Agriculture from the property in question. There is no evidence of availability of Agricultural produce and how they were dealt utilized. The Revenue also contends that the burden of proof that the property was agricultural land at the time of transfer to claim exemption was on the Assessee. As already observed, the question whether the land was Agricultural land has to be decided on facts of each case and decided cases are only guidelines to be kept in mind. Facts and all the circumstances are to be considered as a whole and an overall view is to be taken in deciding whether the land was an agricultural land. In a given case, large number of circumstances may be indicative of agricultural character, but one circumstance may outweigh all of them and on its basis the land would be held to be a non-agricultural land.

We will now apply the tests laid down by the Hon’ble Gujarat High Court in the case of Sarifabibi Mohammed Ibrahim (supra) which was approved by the Hon’ble Supreme Court, to the facts and circumstances of the case:- 18. Factors in favour of the Assessee: (i) The land in question is entered as agricultural land in revenue records and is assessed as such. (ii) The land is not converted to non-agricultural user. (iii) The Assessee as well as the purchaser are Agriculturalist.

Factors against the Assessee: (i) The land is too small for carrying out agricultural operations, considering the fact that the Assessee is basically a trader in betel nuts and carries on agricultural operation in Chikamagalur-Shimoga, a place far away from the land at Agarsure. (ii) The land is sold at a price comparable to the price fetched by building sites.

As already mentioned, the question whether land was used for agricultural purpose or not to be considered as Agricultural land is a question of fact to be decided on the basis of facts and circumstances of a given case. The decisions cited by the learned counsel for Assessee in the case of Venkateswara Hospital (supra) is a case where the Hon’ble High Court of Madras refused to entertain an appeal on the ground that the question whether a property is Agricultural land or not is essentially a question of fact which action was confirmed by the Hon’ble Supreme Court. The decision does not per se lay down any proposition that classification of land in the revenue record as Agricultural land is conclusive to hold that the land in question is agricultural land, as is sought to be canvassed by the learned counsel for the Assessee before us. As far as the decision of the Hon’ble Madras High Court in the case of Sakuntunala Vedachalam (supra) it was held that the user of adjacent lands for non agricultural purposes cannot be the basis to conclude that the Assessee’s lands cannot be regarded as Agricultural lands. No such conclusion has been drawn in the present case on the basis of potential use for of the land for non agricultural purpose. As far as the decision of Hon’ble Bombay High Court in the case of CIT vs. Smt. Debbie Alemao and Joaquim Alemao,(supra) is concerned, the ratio laid down therein is that where the land is shown in revenue record as agricultural land and no permission was taken for conversion of land, it is immaterial whether any agricultural income is shown in the return or not. The basis on which revenue authorities came to a conclusion that the property is not Agricultural land in the present case is different from the facts of the case decided by the Hon’ble Bombay High Court viz., the fact that agricultural income from the property had not been declared by the Assessee.

If one considers the facts and circumstances of the present case as a whole and an overall view is to be taken in deciding whether the land was an agricultural land, one would come to a conclusion that the property cannot be considered as Agricultural land. Though the circumstance that the land is classified as Agricultural in the revenue records is in favour of the assessee, in our view, the other circumstances pointed out above outweighs all of the circumstances in favour of the Assessee and on the basis of those circumstances, we are inclined to conclude that the property was not an agricultural land. We therefore find no merits in this appeal and hence dismiss the same. 22. In the result, the appeal is dismissed.