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Income Tax Appellate Tribunal, DELHI BENCH “SMC”, NEW DELHI
Before: SHRI S.V. MEHROTRA
O R D E R PER S.V. MEHROTRA, A.M :
This is an appeal filed by the assessee against the order dated 12.07.2016 passed by the Commissioner of Income Tax (Appeals)-34, Delhi, u/s 143(3) of the Income Tax Act, 1961 (in short “the Act”) relating to assessment year 2011-12.
Brief facts of the case are that in the relevant assessment year, the assessee worked as Manager at Reserve Bank of India, Lucknow and declared salary income from RBI apart from interest income earned from bank accounts. He had filed his return of income declaring total income at Rs.13,73,240/-. In the course of assessment proceedings, the Assessing Officer noticed from the bank statement of Bank of India, Savings Bank A/c No.603110100006432 that assessee had received a sum of Rs.4,00,000/- through account payee cheque credited into his account on 24.08.2010. He further noticed from statement of assets as on March 31, 2009 submitted during the course of assessment proceedings that assessee had declared ‘deposit to Green Field Samuhik Sehkari Krishi Samiti Ltd. for allotment of farm house land’ amounting to Rs.40,000/-. The assessee in response to show-cause notice pointed out that he had received compensation of Rs.4 lakh from Greater Noida Development Authority. The Assessing Officer has reproduced contents of assessee’s reply in his assessment order at page 2, which is reproduced hereunder :-
“That I have deposited Rs 40,000/- for allotment of land in the society during the period 1983-1987 and the membership date was 17/07/1983 and first payment was made during financial year 1983-84. That I was under the honest impression that no capital gain will be on the said compensation. However I offer to levy the capital gain on compensation of Rs 4 lakh by applying indexation on Rs 40,000/- from Financial Year 1983-84."
Subsequently, vide his letter dated 11.03.2014 the assessee submitted that sale of land was agricultural land and, therefore, the compensation received was exempt from taxation, relevant part of reply has been quoted at page 2 of assessment order, which is reproduced hereunder :-
“...Further, as informed to me and the copy of award (the copy enclosed herewith) for the compensation given to me by the society, the society was having agricultural land in village Amnabad Tehsil Dadri Distt Gotam Budh Nagar which is beyond 8 kilometer from the Nagar Palika Dadri limit against which compensation was received. To justify the same a copy duly certified by 'Lekhpal" Tehsil Dadri and Tehsildar Dadri is enclosed herewith. The agricultural land was acquired by Greater Noida Development Authority, hence the compensation received was against agricultural land beyond municipal limits which is non taxable as the same is not a capital asset."
The Assessing Officer treated the sum of Rs.4 lakh received by the assessee in the capacity of member of Green Field Samuhik Sehkari Krishi Samiti Ltd. as taxable under the head “income from other sources”, inter- alia, observing as under :-
“(a) That the income earned by way of compensation in no way qualifies as Capital Gain in view of the clear failure on the part of the assessee to establish that valid transfer of assets has been taken place and valid execution of sale/purchase/conveyance deed was executed during purchase of land and further during sale of land. (b) That the assessee has failed to prove with sufficient evidence regarding the quantum of compensation received by the Society and further distribution of compensation to each member. The only fact that was brought into record was that the assessee has received a sum of Rs 4,00,000/- from the Society, in lieu of membership fee of Rs 40,000/- deposited in F Ys 1983-87. (c) That the compensation received is only for parting away of right on particular purchase of land venture which always remained a non starter as proper execution of conveyance deed with the Seller or owners of the Land was never executed. (d) That in fact the ownership of land was not transferred fully to the Society. If at all the compensation towards agricultural land was to be claimed to be exempt from Income Tax, it may be at the hands of villagers or real land owners subject to fulfillment of other conditions as envisaged in the Act who are holding the agricultural land and not on the Society or to its members. The real land owners are agriculturalist whose land has been acquired by the Greater Noida Authority. ..........
To prove that the land acquired by the Greater Noida Authority from the Society are agricultural land and compensation received are exempt to tax, the assessee has to prove basic ingredient regarding agricultural activities undertaken in the said land. The assessee has miserably failed to establish the true nature of land and claim that compensation received is exempt from Tax. To establish the claim, following ingredients are failed in the case of the assessee :- (i) Purchase deed and sale deed of the sale of the land. (ii) Certificate issue showing the characterization of land. (iii) The certificate of Talati regarding crops grown whether the land is irrigated or not and the income from the land as shown in the land revenue records. (iv) Jantri rates prevailing in the area. (v) Evidences of income arising from agricultural operations in the form of sale bills etc. (vi) Evidences of expenditure having been incurred on agricultural operations by calculating bills of expenditure etc. (vii) Distance of the land from the areas specified in Section 2(14)(iii)(a) & (b) of the I.T. Act. (viii) Any permission has been obtained from the revenue authorities to convert the land use to non agriculture. Whether the permission has been obtained by the vendor or vendee. (ix) Whether land itself was developed by plotting and provided with roads and other facilities. (x) The land use in the surrounding area to indicate whether the land was agricultural or not? (xi) Whether there were any previous sales of portions of the land for non- agricultural use? The assessee has failed to provide any of the above documentary evidence to establish that the assessee has received compensation out of sale of agricultural land. ……….
Notwithstanding all above, as per provisions of Section 10(37) of the Act, the Exemption of Capital Gains on compensation received on compulsory acquisition of agricultural land situated within specified urban limits is only available to individual or a Hindu Undivided Family and not to SOCIETY (Green Field Farms Society). With a view to mitigate the hardship faced by the farmers whose agricultural land situated in specified urban limits has been compulsorily acquired, the Finance (No.2) Act, 2004 has inserted a new clause (37) in Section 10 so as to exempt the capital gains (whether short-terms or long-term) arising to an individual or a Hindu undivided family from transfer of agricultural land by way of compulsory acquisition where the compensation or the enhanced compensation or consideration, as the case may be, is received on or after 1-4- 2004. The exemption is available only when such land has been used for agricultural purposes during the preceding two years by such individual or a parent of his or by such Hindu Undivided Family.”
The Assessing Officer, accordingly, included Rs.3,60,000/- under the head ‘income from other sources’. Ld. CIT(A) partly allowed the assessee’s appeal, inter-alia, observing as under :-
“6. At the appellate stage the appellant reiterated the contentions raised at the assessment stage. There is no dispute that the land owned by the above society was compulsorily acquired. There is not dispute that the appellant was a member of the said society. The land acquired was an agricultural land in the land revenue records. However, no evidence of agricultural operations on the said land or the khasra could be filed. Though the receipts and payment a/c of the society does show sale of crops and corresponding profits, the society has not filed any return of income.
7. Though the matter was remanded to the AO and the remand report dated 18.04.2016, objected to admission of additional evidence regarding papers of society, the said issue is irrelevant now in view of findings in para 8.
8. Without prejudice to the above, the issues raised by the AO are relevant in the case of the assessment of the cooperative society. As far as appellant is concerned it has received profit in respect of the shares of the said cooperative society and not the agricultural land. The issue of exemption from capital gains tax in respect of sale of land is not relevant in the case of the appellant. This can be explained with an illustration. A private limited company may earn taxable income or exempt income. But the profit from the sale of shares of the said company or the distribution of profits by way of dividends or the payment made for buy back of shares is taxable in the hands of the shareholders. By the same reasoning the amount of Rs. 4,00,000/- received by the appellant is taxable in his hands. However, the appellant is entitled to deduction of indexed cost of acquisition. Since the AO has admitted that the last payment was made in the year 1987, the indexation benefit is to be allowed from FY 1886-87 and the amount received is to be taxed under the head Long Term Capital Gain and not under the head other sources.”
Ld. counsel for the assessee reiterated the submissions made before lower revenue authorities and submitted that the agricultural land was located beyond 8 kilometers from the Nagar Palika Dadri and, therefore, it was an asset exempt from capital gains tax because it did not come within the definition of capital asset. To support his contentions, he referred to page 59 of the Memorandum of Green Field Samuhik Sehkari Krishi Samiti Ltd. to demonstrate that it was carrying on agricultural activity. He submitted that since the assessee had received the compensation being member of society, therefore, the nature of receipt in the hands of the assessee remained the same as was in the hands of society and it cannot be disputed that the amount of compensation received by society was in respect of agricultural lands. He, therefore, submitted that compensation received by assessee was also exempt being for agricultural land. Ld. DR relied on the order of lower revenue authorities.
I have considered the submissions of both the parties and perused the record of the case. Admittedly, the assessee has received the compensation in his capacity as a member of the society and not as an agriculturist, therefore, assessee cannot get the benefit of section 10(37) which exempts capital gains arising from the transfer of agricultural lands in the hands of individual or HUF. The amount received by assessee has to be taxed as capital gains and not under the head ‘income from other sources’ because assessee had parted with the membership of society. As rightly held by ld. CIT(A), however, the indexation is to be allowed with reference to the dates of payments made by assessee towards deposit of Rs.40,000/-. In the result, ground nos.1 to 4 are dismissed and ground no.5 is allowed.
Resultantly, the appeal of the assessee is partly allowed. Order pronounced in the open court on this 03rd day of February, 2017.