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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI INTURI RAMA RAO & SHRI. LALIET KUMAR
Per Inturi Rama Rao, Accountant Member
Since in all these appeals common issue is involved, we proceed to dispose the same for the sake of convenience vide this consolidated order. For the sake of clarity and convenience, the facts relevant to the in the case of Mr. D. Dasappa are stated herein.
The brief facts of the case are the appellant is an individual and no regular return of incomes have been filed. The search and seize operations were conducted in the case of M/s. SPR Developers Pvt. Ltd., on 8.12.2011. During the course of search and seize operations, it was found that the appellant was owning agricultural lands at Manchanayakanahalli, Bheemanahalli and Hampapura villages and these lands were transferred to M/s. Vijaya Bank Employee’s Cooperative Housing Society Ltd., through M/s. SPR Developers. The gains made on transfer of lands were not offered to tax. Hence, notice u/s 148 was issued to the appellant. The brief facts of the case as set out by the AO are extracted below:
Finally, the claim of the appellant that the agricultural land transferred to M/s. Vijaya Bank Employees’ Housing Cooperative Society Ltd., is an agricultural land was not accepted by the AO by setting out the following reasons militating against the case of the appellant that what was sold is an agricultural land and brought the transaction of sale of the land to tax under the head “capital gains” vide Assessment Order dated 30.03.2013 passed u/s 143(3) r.w.s. 148 of the Act:
Being aggrieved by the AO, the appellant filed the appeal before the CIT(A) contending interalia that the appellant had been cultivating the said land by growing crops like ragi, etc., and in support of this, he also filed the copies of land records. The possession of the said land was handed over to M/s. SPR Developers vide agreement of sale dated 15.01.2004 and the conversion of the said land for non-agricultural purpose also was undertaken by the buyer only and the said land was not situated within the prescribed area of any municipality and hence it does not constitute to the “capital asset” and there was no transfer
Page 11 of 21 undertaken by the appellant after conversion of the said land into non- agricultural purpose as the possession of land was already handed over to the M/s. SPR Developers vide agreement of sale dated 15.01.2004.
Thus it was submitted that the transaction of sale of agricultural land is not exigible to tax. The said contentions have been rejected by the CIT(A) vide para 8 to 10 of his order which reads as under:
Being aggrieved, the appellant is in appeal before the Tribunal in the present appeals. The learned AR of the assessee contended that the subject lands are agricultural lands as the assessee continued to carry on the agricultural activity as evident from the land revenue records.
The possession of the said land was handed over to M/s. SPR Developers on 15.01.2004 pursuant to the agreement of sale entered between the appellant and M/s. SPR Developers in terms of the said agreement the said possession of the land was handed over to M/s. SPR Developers on the said date. He further submitted that the conversion of the land into non-agricultural purpose was undertaken by the purchaser himself and said conversion took place on 08.06.2004. Thus it was submitted that when the lands were actually transferred pursuant to the agreement of the sale, the land was actually agricultural in nature , 1047, 1048, 1058/Bang/2015 Page 14 of 21 and therefore not liable to the capital gains, cannot be brought to tax.
On other hand, the learned Standing Counsel vehemently contended that when the lands were transferred, land was already converted into non-agricultural purpose and therefore the gains made on transfer of such lands is liable to tax.
We heard the rival submissions and perused the material on record. The only issue that arises for our consideration is whether profit arising out of sale of the land situated at Manchanayakanahalli, Bheemanahalli and Hampapura villages sold to M/s. Vijaya Bank Employees’ Housing Cooperative Society Ltd., through M/s. SPR Developers are taxable in the hands of the appellant. The undisputed facts of the case are that the lands are not situated within the prescribed area of any municipality or cantonment. There is also no dispute that the agricultural activities are continued to be carried on the said land till the date of sale to M/s. Vijaya Bank Employees’ Housing Cooperative Society Ltd. No doubt as on the date of execution of sale deed between the appellant and M/s. Vijaya Bank Employee’s Housing Cooperative Society Ltd., and M/s. SPR Developers i.e., 12.12.2005 the lands were converted for non-agricultural purposes on 08.06.2004. definition of the capital asset as defined under the provisions of section 2(14) of the Act, the question of subjecting the profit arising on sale of such land to tax does not arise. The provisions of section 2(14) also excludes the agricultural land from the purview of definition of the capital asset. Therefore once it is proved beyond doubt that the subject land are agricultural in nature, then the question of levying tax on the profits arising on the transfer of such land does not arise. In the present case, the assessee was carrying on the agricultural activity on the said land and the lands were also not situated within the prescribed area of any municipality, the only factor to be considered is as on the date of execution of sale deed when the land was converted for non- agricultural purposes, whether this fact alone can change the character of land. The contention of the learned AR of the appellant that the transfer of the land took place when the possession was handed over pursuant to the agreement of sale entered on 15.01.2004 cannot be accepted, for the reason that agreement of sale was not registered which is a mandatory condition as per the provisions of the Registration Act, 1862. It is an undisputed fact that the lands were converted for non-agricultural purposes on 08.06.2004. It is also an Page 16 of 21 undisputed fact that the conversion fees was paid by the buyer and not by the appellant. Therefore this factor goes to prove that the conversion was taken place at the instance of the buyer of the land.
The only factor as mentioned (supra) is that as on date of execution of sale deeds, the land was already converted for non-agricultural purpose. Therefore, the issue to be adjudicated by us is whether this factor alone can militate against the appellant to claim that it is an agricultural land. The Hon’ble Gujarat High Court in the case of CIT Vs. Vajulal Chunilal 120 ITR 21 (Gujarat) after referring to its earlier decision in the case of Smt. Chandravati Atmaram 114 ITR 302 (Guj.) and the Hon’ble Supreme Court’s decision in the case of CWT V.
Officer-in-Charge (Court of Wards) 105 ITR 133 held that the land does not seem to be agricultural land merely because the permission is granted for non-agricultural use and the land would continue to be agricultural land until the land is put to non-agricultural use by the purchaser himself. The relevant judgment is extracted below:
“The legal position as to when land can be said to be agricultural land has been considered in several decisions of this High Court and by the Supreme Court in CWT v. Officer-in-Charge (Court of Wards) [1976] 105 ITR 133. A decision relating to the law on the point after considering all the decisions available till then, that is, till September 15, 1977, was by this court in Smt. Chandravati Atmatam Patel v. CIT [1978] 114 ITR 302 (Guj.). At page 312, the position was summarised as under : "In this case, the law, therefore, is very clear. If the land is actually used for agricultural purpose as shown by Manilal Somnath's case [1977] 106
ITR 917 (Guj.) and also by the Supreme Court in Commissioner of Wealth-tax v. Officer-in-Charge Court of Wards) [1976] 105 ITR 133, it can be said to be agricultural land, at least, prima facie, as agricultural land could be said to be land which is either actually used or ordinarily used or meant to be used for agricultural purposes. If it is actually used at the relevant date for agricultural purposes and there are no special features, for example, building plot being actually used as a stop-gap arrangement for agricultural purposes or a building site being used for agricultural purposes, actual user or ordinary use or intention to use the land for agricultural purposes or land is meant to be used for agricultural purposes, it would be 'agricultural land'. Secondly, potential use of the lands as agricultural land is totally immaterial. Thirdly, entries in the record of rights are good prima facie evidence regarding agricultural land and if the presumption raised either from actual user of the land or from agricultural use of the land is to be rebutted, there must be material on the record to rebut that 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 the presence of other factors in the case." This decision in Smt. Chandravati Atmaram's case [1978] 114 ITR 302 (Guj.) has been subsequently followed in the case of Chhotalal Prabhudas (HUF) (Income- tax Reference No. 105 of 1975) (since reported in [1979] 116 ITR 631 (Guj.)). The Tribunal, in the instant case, in the course of its order, has referred to the fact that the entries in panipatraks, that is, revenue records, show that this land was agricultural land and was being used for agricultural purposes. As we have pointed out earlier, permission for non-agricultural use was obtained by the co- operative housing society after it had purchased the land from Devidas. In para. 9 of its order, the Tribunal has observed : "Now, it appears from the record of rights and the aforesaid accounts produced by the assessee that grass and vegetables were grown on the land. There were also fruit bearing trees on the land. There is no evidence as to show who was cultivating this land and growing grass and vegetables thereon. Therefore, the only evidence which we have regarding the agricultural operations carried on on the land consists of the entries made in the record of rights and the aforesaid accounts produced by the assessee. The accounts do not appear to be regularly maintained. We do not know as to who maintained the accounts which are produced before us. In our opinion, the accounts are not reliable. We are then left with the entries made in the record of rights. In our opinion, these entries are not sufficient to establish that agricultural operations were carried on on the land." The question that has to be decided in the present case is not whether who was carrying on agricultural operations on the land, but whether the land was agricultural land or not, that is, whether the land was being put to agricultural use or not. Secondly, as pointed out by the Supreme Court in CWT v. Officer-in- Charge ( Court of Wards) [1976] 105 ITR 133 (SC), the presumptive value of the entries in the record of rights must be borne in mind and if evidence is not led by the department or if the evidence is not available on the record to rebut the presumption arising from the actual user of the land as agricultural land or from the entries in the record of rights, the revenue's case must fail. The Tribunal has proceeded on the footing that agricultural operations appear to have been carried on by way of temporary arrangement. In the instant case, it must be borne in mind that the land was purchased by the original holder, Vajulal Chunilal, as far back as 1929 and, since that date, it was being used as agricultural land. The entries in the record of rights consistently go to show that, over several years, crops are being grown, plantations of Khajura trees, Chiku trees and other crops were being reared and nurtured on the land in question, and it cannot be said that from 1929 to 1966 it was a temporary arrangement. In Himatlal Govindji v. CWT [1977] 106 ITR 658 (Guj.) a plot of land which was already converted to non-agricultural use for the purpose of the Land Revenue Code was being cultivated pending the finalisation of the transaction of sale. In the instant case, the land was put to agricultural use right till the date of sale and was being used for agricultural purposes. Crops were being grown, grass, vegetables and other materials were being grown on the four survey numbers as shown by the panipatraks. The circumstance that the land was surrounded by residential locality would not render the land non- agricultural, if, in fact, continuously during the years from 1929 it was being used for agricultural purposes. The question of the land under consideration being wanted by a co-operative society or being surrounded by housing development was considered by this court in CIT v. Manilal Somnath [1977] 106 ITR 917 and that factor of development coming up to the land in question was discounted by the court. In Manilal Somaath's case [1977] 106 ITR 917 (Guj.), this court also pointed out that though the land might have potential non- agricultural value, that factor did not mean that the land had ceased to be agricultural land or that it had lost the character of agricultural land. In this case, the Tribunal has observed at the end of para. 9 : "In any case, we have no doubt that the character of the land changed to that of a non-agricultural one when the assessee obtained permission under section. 63 of the Bombay Tenancy and Agricultural Lands Act." At page 929 of the report in Manilal Somnath's case [1977] 106 ITR 917 (Guj.), it has been pointed out : "Under section 63 of the Tenancy Act, no sale of any land or interest therein shall be valid in favour of a person who is not an agriculturist unless the Collector or an officer authorised by the State Government in this behalf grants permission for such sale on such conditions as may b prescribed. Under section 2, sub-section (8) of the Tenancy Act, 'land' means land which is used for agricultural purposes and it is, therefore obvious that it was for the sale of land used for agricultural purpose for which the City Deputy Collector acting under section 63 of the Bombay Tenancy and Agricultural Lands Act granted permission. There is nothing to show that between the date of the permission, namely, March 24, 1967 and April 7, 1967, that is, the execution of the sale deed by the assessee in favour of Tarakkunj Co-operative Housing Society Ltd., agricultural operations which were being carried on were by way of stop-gap arrangement. We are not, in the present case, concerned with the question whether agricultural operations were such as a prudent agriculturist would carry out. The sole question that we have to decide is whether on the date of the sale by the assessee-Hindu undivided family to Tarakkunj Co-operative Housing Society Ltd. on April 7, 1967, the land was agricultural land or not. As T.U. Mehta J. has pointed out in Narandas Motilal's case [1971] 80 ITR 39 (Guj.), the fact that the land was being used for agricultural purposes till the date of the sale raises a prima facie presumption that it was agricultural land." At page 931, it was further observed : "It is true that permission to sell the land to Tarakkunj Co-operative Housing Society Ltd. was granted on condition that the land would be used for residential purposes and the application for permission under section 63 of the Bombay Tenancy and Agricultural Lands Act was applied for on the footing that, after the sale, the land would be used for residential purposes. Bat that only goes to show that, after the date of the sale, this land was to cease to be agricultural land. The permission granted by the City Deputy Collector under section 63 of the Bombay Tenancy and Agricultural Lands Act clearly goes to show that in case the land did not cease to be agricultural land, the permission would be treated as cancelled and, therefore, the sale in favour of Tarakkunj Co-operative Housing Society Ltd. would be infructuous and the land would revert back to the assessee. In such an eventuality, the land would still continue to be agricultural land because the permission to sell to a non-agriculturist would be treated as cancelled. That eventuality has not happened and as pointed out it was some time in February, 1969, that the permission for non-agricultural use was granted to the purchaser..." The same reasoning would also apply to the facts of the present case. It is axiomatic under the Bombay Tenancy and Agricultural Lands Act that when permission is granted by the authorities concerned for sale of agricultural land to a non-agriculturist, the land does not cease to be agricultural land merely because of such permission being granted. If the conditions of the permission are not complied with, the land in respect of which permission was granted under section 63 would revert to its original character of agricultural land. Therefore, the land was agricultural land at the date of the sale and would continue to be agricultural land until permission for non-agricultural use is granted and the land is put to non-agricultural use by the purchaser, as was contemplated by the permission under section 63 itself. But, as emphasised in Manilal Somnath's case [1977] 106 ITR 917 (Guj.) mere granting of the permission under section 63 does not alter the agricultural character of the land and on that aspect of the matter, the Tribunal has obviously erred in law and the legal position has now been explained in Manilal Somnath's case [1977] 106 ITR 917 (Guj.) and Chandravati Atmaram's case [1978] 114 ITR 302 (Guj.). The Tribunal's conclusion is, therefore, based on two errors in law. Error No. 1 is that the presumption arising from the actual user of the land for agricultural purposes has not been given proper effect and, further, the presumption arising from the entries in the record of rights has not been considered at all. The Tribunal has not considered, nor is there any material on the record to show, whether the presumption arising from these twin factors of actual user and entries in the record of rights is rebutted or not. Secondly, the Tribunal has erred in law in considering the effect of permission granted under section 63 of the Bombay Tenancy and Agricultural Lands Act.”
7. There is no dispute that the agricultural operations continued to be carried on the said land till the date of execution of the sale deed in favour of M/s. Vijaya Bank Employees’ Housing Cooperative Society Ltd., and the fact that the permission was obtained for non-agricultural purposes does not militate against the claim of the appellant that it is agricultural land, in the light of the above decisions. Therefore, we hold that the profit arising on sale of this land cannot be brought to tax.
Therefore, the appeal filed by the assessee is allowed.
The facts in these appeals are identical and therefore for the parity of the reasoning given in the above orders, we hold the profit arising on sale of lands cannot be brought to tax. The appeals in ITA No.1048/Bang/2015 and ITA No.1058/Bang/2015 in the cases of Shri. T. Suresh Gowda, Shri. T. Prasanna Gowda and Shri. T. Raghavendra Gowda are allowed.
In the result, the appeals filed by the assessee are allowed.
Pronounced in the open court on this 17th day of May, 2017.