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Income Tax Appellate Tribunal, ‘ A’ BENCH : CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI ABRAHAM P. GEORGE]
आदेश / O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER:
These are appeals filed by the assessees directed against orders dated 12.05.2017 of Commissioner of Income Tax (Appeals)-19, Chennai.
ITA 1519 to 1523/Mds/2017. :- 3 -:
The facts leading to all these appeals lie within the same compass. Assessees were partners/directors in a group of concerns known as Diamond Sea Foods (in short ‘’DSF Group’’) engaged in the business of procuring, processing and exporting sea food items. There was a search operations u/s. 132 of the Income Tax Act, 1961 (in short ‘’the Act’’) in the premises of the said group as well as residential premises of the assessees on 17.12.2013. During the course of this search, copy of a sale agreement dated 02.08.2012 entered by these assesses and five others with one Shri. N. Rathinavel S/o. K.S.P. Natarajan, who was acting in the capacity as the Managing Director of one M/s. Sahagaymatha Salters Pvt. Ltd was found. This agreement was for sale of 383.42 acres of land at Oppilan, Periyakulam Village, Kadaladi S.R.O. Ramanathapuram District held by these ten persons, of which five alone are appellants here.
The consideration agreed as per the said agreement was �10,92,74,700/- viz @ �2,85,000/- per acre. As per this agreement, a sum of �3.06 crores, changed hands from Shri. N. Rathinavel to the DSF group. The share of Smt.A. Ebenesar Jeya Anbu in the land came to 23.38 acres that of Shri. D.S. Solomon Raja came to 23.88s acres, that of Shri. P. Panchavarna came to 27.80 acres, that of Shri.Chandra Gnana Sironmani came to 24.145 acres and that of Shri. D.
ITA 1519 to 1523/Mds/2017. :- 4 -: Gnanoopasugritham came to 25.835 acres. Balance land were held by the other five persons who are not appellant before us.
In the returns filed by the respective assessees pursuant to notices issued u/s. 153C r.w.s. 153A(a) of the Act, receipts from sale of land were shown as under:-
Name of the seller Share of consideration as per sale deed (Rs) T. Gnanapoo Sugirtham 19,96,440 P. Panchavarnam 21,96,810 D.S. Solaman Raja 18,97,208 Chandra Gnana Sironmani 18,83,970 A. Ebanezer Jeya Anbu 18,74,010 Assessees claimed such receipts to be not exigible to capital gains since according to them, what was sold were agricultural lands situated far away from the limits of the Oppilan Village. Ld. Assessing Officer put the assessee’s on notice as to why the surplus receipts on sale of lands should not be treated as capital gains and also why the consideration as mentioned in the agreement for sale dated 02.08.2012 should not be adopted for the purpose of working out such capital gains. Thereupon the assessees contended that the land was purchased originally on 05.03.2003 from various persons and was intended for starting a Aqua farm. As per the assessees, in the classification of the land given by the Tahsildar, Kadaladi Taluk, it was ‘’Tharisu’’ or ‘’barren’’ and hence construed as agricultural land.
ITA 1519 to 1523/Mds/2017. :- 5 -: Contention of the assessees was that value admitted in financial statement furnished alongwith returns was the actual amount received. Contention of the assessee was that the original agreement dated 02.08.2012 was entered only with an intention of enabling the purchaser to get financial assistance from the bank and was never acted upon. Classification of the land was agricultural, and, according to assessees there was no attempt to convert the land to a non agricultural one. Assessee also filed an affidavit from the buyer to substantiate its contention that agreement dated 02.08.2012 was not acted upon and no cash was paid at the time of entering into that agreement.
However, ld. Assessing Officer was not impressed by the 4. above arguments. According to him, the sale agreement dated 02.08.2012 seized during the course of search was signed by ten members of the DSP Group and the price was clearly mentioned as �10,92,74,700/- determined @ �2,85,000/- per acre. As per ld. Assessing Officer, receipt of �3.06 Crores in cash was also clearly mentioned in the said agreement. Further, as per ld. Assessing Officer assessees could not produce any evidence to show that the agreement was sham. Ld. Assessing Officer also noted that actual registration of the land was done in the months of Feb, March and April, 2013, which was within six months from the date of agreement. Further, as per ld.
ITA 1519 to 1523/Mds/2017. :- 6 -: Assessing Officer, the certificate produced by the assessees did not specify the agricultural crop. Ld. Assessing Officer also relied on local enquires which according to him showed the presence of Kattukaruvelam trees which were spontaneous in nature. Again according to ld. Assessing Officer assessees themselves had admitted that there were no agricultural operations carried on. Relying on the judgment of Hon’ble Gujarat High Court in the case of CIT vs. Siddharth J. Desai 139 ITR 628, ld. Assessing Officer held that the land in question could not be considered as agricultural. He computed the capital gains adopting the rate mentioned in the agreement for sale dated 02.08.2012 found at the time of search.
Aggrieved, assessees moved in appeals before the ld. Commissioner of Income Tax (Appeals). Assessees brought to the attention of the ld. Commissioner of Income Tax (Appeals) that the other five owners who were also signatories to the agreement had moved before the Settlement Commission. However, as per assessees, order of the Settlement Commission did not have any bearing on the appeals, since Settlement Commission had clearly stated that the view taken by them would not adversely affect the case of the assessees.
ITA 1519 to 1523/Mds/2017. :- 7 -: On the nature of the land, submission of the assesseed was that 6. not conducting any agricultural operations would not convert an agricultural land to a non agricultural one. As per assessees, Tahsildar had certified the land as agricultural with agricultural income and this could not be disbelieved. Further, as per the assessees, nothing more than what were mentioned in the registered conveyance deeds were received.
However, ld. Commissioner of Income Tax (Appeals) was not impressed by the above arguments of the assessee. As per ld. Commissioner of Income Tax (Appeals), unless agricultural activities were carried out, the land could not be considered as agricultural.
Further, as per ld. Commissioner of Income Tax (Appeals) once the land was sold for a non agricultural purpose it could not deemed as agricultural land. In the opinion of the Ld. Commissioner of Income Tax (Appeals), the tests laid down by the Hon’ble Gujarat High Court in the case of Siddharth J. Desai (supra) stood satisfied. As to the question on sale price being substituted with consideration mentioned in the agreement for sale, ld. Commissioner of Income Tax (Appeals) was of the opinion that excess consideration above what was stated in the conveyance deed had to be considered as on-money and ought to have been taxed u/s. 68 of the Act and not as long term capital gains. Assessee when it was put on notice, on this opinion of the ld.
ITA 1519 to 1523/Mds/2017. :- 8 -: Commissioner of Income Tax (Appeals), its reply was that even if any excess was presumed to have been received, land being agricultural surplus was not exigible to capital gains tax. Ld. Commissioner of Income Tax (Appeals) rejected these contentions and held that if consideration received was held by any appellate forum as not giving rise to any long term capital gains, then the surplus should be considered as income under the head income from other sources.
With these observations, the ld. Commissioner of Income Tax (Appeals) dismissed the appeals of the assessees.
Now before us, ld. Authorised Representative strongly assailing the orders of the ld. Commissioner of Income Tax (Appeals) submitted that agreement for sale dated 02.08.2012 was never acted upon by the concerned parties. According to him, there was a confirmation in the form of an affidavit dated 18.03.2016 of the buyers, wherein it was clearly stated that the said agreement was not acted upon and higher consideration mentioned therein was only for the purpose of obtaining financial assistance. As per the ld. Authorised Representative, lower authorities placed undue reliance on the agreement for sale, when the conveyance deed executed in favour of the buyer and his nominees in the months of February, March and April, 2013 reflected the actual and correct figure. Further, according to him, by virtue of the judgment of Hon’ble Jurisdictional
ITA 1519 to 1523/Mds/2017. :- 9 -: High Court in the case of Mrs. Sakunthala Vedachalam vs. ACIT, (2015) 369 ITR 558, classification of agricultural land as per Revenue record was the only requirement to be met, for proving the agricultural nature of the land sold. Ld. Authorised Representative pointed out that the Judgment of Hon’ble Gujarat High Court in the case of Siddharth J. Desai (supra) was duly considered by the Hon’ble Jurisdictional High Court in the above case. In any case, according to him, when no payment of on-money was proved to have been made over and above the consideration mentioned in the registered conveyance deeds, substitution of the latter with a hypothetical figure was uncalled for. Alternatively, according to the ld. Authorised Representative, the land in question, once considered as agricultural, the question of exigiblity to capital gains tax did not arise. Argument of the ld. Authorised Representative was that even accepting for a moment receipt of any on-money, the surplus retained the character of consideration on sale of agricultural land.
Per contra, ld. Departmental Representative strongly 9.
supporting the orders of the authorities below submitted that the time gap between the agreement for sale and registration of conveyance deeds was only about six months and therefore the consideration mentioned in the agreement would not have been negotiated down so drastically within such an insignificant time gap. On the claim of the ITA 1519 to 1523/Mds/2017. :- 10 -: assessees that the land was agricultural in nature, contention of the ld. Departmental Representative was that the land abutted the sea and there was no scope for an agricultural operations. According to him, only Kattukaruvelam trees were found in the land, and this proved that it was not fit for any agricultural operations. The land according to the ld. Departmental Representative was barren since last ten years. Further, according to ld. Departmental Representative, consideration for sale was rightly taken as per the agreement for sale entered on 2nd August, 2012. According to him, assessees could not show any evidence, as to why and how the agreed consideration went down drastically within a period of six months.
Ad libitum reply of the ld. Authorised Representative was that 10. no evidence was shown by the Revenue for any on-money receipts or any consideration in excess of what was stated in the conveyance deeds. As per the ld. Authorised Representative presence of Kattukaruvelam trees itself proved that agricultural operations were possible. Thus, according to him, the lower authorities fell in error in treating the land as non agricultural land and in substituting the actual consideration with the one mentioned in an agreement which was never acted upon.
ITA 1519 to 1523/Mds/2017. :- 11 -: We have considered the rival contentions and perused the 11. orders of the authorities below. The first question is to be answered is whether the land sold was agricultural in nature or not. Assessees have placed considerable reliance on a certificate dated 22.09.2015 issued by the Village Administrative Officer, Periyakulam Taluk placed at paper book page no.33. Certificates issued to the assessees are similarly worded except for extend of land area. One such certificate is reproduced hereunder for brevity:-
This is to Certify that Smt.Chandra GnanaSironmani, residing in 2nd Street, No. 3C, Innasiyapuram, Tuticorin Town, Tuticorin district, has 23.485 Acres of dry land at RamanathapuramDistrict, KaladiTaluk, Periyakulam group, Opilaan village with the survey numbers given below, and that the above land yields an income of RS.4000 per annum, per one Acre of land and so a total income of approximately Rs.1,00,000(One Lakh) is received.
Details of Survey number
448/1-3.52 Acre, 448/2-1.00, 448/3-0.49, 448/4- 2.59, 448/5-0.58, 448/6-3.51Ac, 448/7-2.17, 449/1A-1.43, 449/1B-4.405, 449/2-1.07, 449/3/A-1.53, 449/3B -1.19 Acre(Total 23.485 Acres)
No doubt the certificate does mention that the land was dry in nature. However, the certificate does not say that the land was agricultural in nature. All dry land necessarily need not be agricultural.
ITA 1519 to 1523/Mds/2017. :- 12 -: The yield from the land is mentioned as �4,000/- for one acre.
However, whether such yield is from agricultural operations or from any other activity like salt mining is not clear. That apart, in the submissions made by the assessees before the ld. Assessing Officer, it has been stated that the transaction relating to the sale of the subject land was done through one Shri. D. Paulpandi a close relative of one of the assessees. What was mentioned by Shri. Paulpandi when a statement was recorded from him is reproduced hereunder:-
‘’(i) the land at Oppilan was initially purchased on 05.02.2003 by M/s Marvel Aqua Farms (partnership firm of all the 5 brothers of DSF group) from various persons and consolidated to the total extent of 383.42 acres with the intention of starting an aqua farm, mainly for prawn culture. (ii) However, as the aqua farm could not be started, fearing acquisition by the government authorities, in the year 2010 the lands were sold/registered in favour of the five partners / brothers and their family members. The purchase was duly reflected in the financial statements of the respective member of DSF group. (iii) No agricultural activity was ever carried in it and the land was kept idle. (iv) Subsequently, as the DSF group required funds for its Polytechnic College and the 3 star hotel DSF Grand Plaza, on finding a prospective buyer of the entire extent of 383.42 acres of land, a sale agreement was entered on 02.08.2012.
(v) Further the above agreement was entered for the sake of purchaser M/s Sahayamatha Salters Pvt. Ltd. and no advance was actually received. Also the consideration mentioned in the _ above agreement
ITA 1519 to 1523/Mds/2017. :- 13 -: was not actually received.
(vi) The value admitted in the financial statements is the actual value received’’.
When we read the certificate issued by the Village Administrative Officer alongwith the statement given by Shri. Paulpandi, it is clear that the land sold was non-agricultural. Presence of Kattukaruvelam trees will not change the nature of a land where admittedly no agricultural activity was carried out by the assessees on such land. In our opinion, the judgment of Jurisdictional High Court in the case of Mrs. Sakunthala Vedachalam (supra) strongly relied on by the ld. Authorised Representative was on an entirely different set of facts. In the said case, the land was classified as agricultural in the Adangal records and assessee concerned had paid Revenue kist. These essential features are absent in the case before us. Admittedly, assessees here had acquired the land with an intention to start an aqua farm and there was no desire to do any agricultural activities.
Considering all these, we cannot find any fault in the findings of the lower authorities that the land sold was not agricultural in nature.
The second question to be answered is whether the consideration received on sale of land should have been taken on the basis of what was mentioned in the eventual conveyance deeds or what was mentioned in the agreement for sale dated 02.08.2012.
ITA 1519 to 1523/Mds/2017. :- 14 -: Assessment orders of the assessees show that the consideration shown in the registered conveyance deeds, executed in favour of the buyers, were as per the list given at para 3 above. However, the sale consideration worked out by the ld. Assessing Officer for computing the capital gains was taken from agreement for sale dated 02.08.2012, seized during the course of search. Said agreement mentioned �2,85,000/- per acre as the consideration. This agreement is reproduced hereunder:-
‘’This Sale agreement executed at Tuticorin District, Tuticorin Taluk, Tuticorin Town this 2ndday of August 2012 by Sahayamatha Salters Private Limited, chairman Mr. N. Rathnavel, Son of Late Mr. K.S.P. Nadarajan, Level 1, residing in No 9A house, Meenakshipuram, Tuticorin town, and Chairman of Sahayamatha Salters private limited, existing in No. 13A/l, West Meenakshipuram, Tuticorin town, Tuticorin Taluk, Tuticorin District,
Managing Director of the above limited, Mr. Michel Mehta, son of Mr. Johnton Bosco Motha, residing in No.67 ,2nd street, Tovipuram, Tuticorin town, and Managing director of the above M/s. Sahayamatha Salters private limited, level 2, being considered as the 1st Party
Mr. D. Sathyanathan 1, son of Mr. Devanesam, residing in 3rd No.9A/l, street, Ganesh Nagar, Tuticorin-8, TuticorinTaluk, D. Palpandy 2, son of Mr. Thevanesam, residing in No. 3/52, Krishnarajapuram, Tuticorin 2, Mr. D. Durairaj 3, son of Mr. Devanesam, residing in No 13A/5D, 2nd street, Innasiyaarpuram, Tuticorin-2, Mr. D. Manoharan 4, son of Mr. Devanesam, residing in No 3C, 2nd Street, Innasiyaarpuram, Tuticorin-2, Mr. D. Anbazhagan 5, son of Mr. Devanesam, residing in No.l/l045-1D, 2nd Block street, Sethupathy Nagar, Ramanathapuram town, RamanathapuramDistrict, Mrs. Panchavarnam 6, wife of Mr. D. Palpandy, residing in No 112/27/1 house,
ITA 1519 to 1523/Mds/2017. :- 15 -: Gomathibai colony, Bolpet, Tuticorin 2, Mrs. D. Gnyanaposukeertham 7, wife of Mr. D. Durairaj, residing in 13A/5D house, 2nd street, Innsaiyarrpuram, Tuticorin -2 Mrs. M. Chandra Nyanasironmani 8, wife of Mr. O. Manoharan, residing in No 3C, Innasiyapuram 2nd Street, Tuticorin-2, Mrs. A. Ebanesar JeyaAnbu 9, wife of Mr. O. Anbalagan, residing in No 1/1045-10 house, 2nd Block street, Sethupathy Nagar, Ramanaathapuram Town, Mr. D. S. Solomonraja 10, Son of Mr. D. Sathyanathan, residing in No 9A/l, 3rd street, Ganesh Nagar, Tuticorin -8, having them as the 2nd party, the sale agreement document states as below, Among the second parties from 1 to 10, the properties that we see in the schedule of properties, for which after having got the price separately and have paid the revenue levied ,they are enjoying and shall be given for our 1st party, Sahayamatha Salters Private Limited. and through the above Sahayamatha Salters private limited's Chairman Shri N. Rathnavel and Managing Director Mr. Michel Motha, the 2nd parties have agreed for sale on the basis that Rs. 2,85,OOO/-{Rupees Two Lakhs Eighty Five Thousand only) for one Acre and so for the total 383 Acres and 42cents, the total sale consideration will be Rs. 10,92,74,700 (Rupees Ten Crore Ninety Two Lakhs seventy four thousand and seven hundred only)
In that respect as the 2nd party has received an amount of Rs. 3,06,00,000/- (Rupees Three Crores and Six Lakhs Only) as advance cash from the 1st party, on 31st January, 2013, the 2nd parties would get separate computerizes patta for their respective land and hand it over to the 1st party, and on that basis, it can be made in the name of Sahayamatha Salters Private limited, or as above chairman and Directors direct, shall transfer it in the names of those like, Veppalodai salt corporation, Vepalodai chemicals, Bagappiriyaal company, South India Bromine and Allied chemicals, separately in the individual name or the 2nd parties may jointly or separately as an individual's, prepare the sale agreement, and shall calculate the amount to be received as mentioned above, that is Rupees Two Lakhs Eighty Five Thousand per Acre and accordingly calculate the total amount and deduct Rupees Three crore six lakhs amount received as ITA 1519 to 1523/Mds/2017. :- 16 -: advanceby the 2nd parties from the 1st party and both the parties shall complete the formalities of registration of the sale documents WHEREAS the property more fully described in the schedule hereunder is the self acquired property of the 2nd parties and they are absolute owner of the property and they have been enjoying the same with absolute right and they have clear and marketable title to the Schedule Property. The 2nd party hereby assures the i" party that has absolute power to convey the same and there are no encumbrances, liens, charges, Government dues, attachments, acquisition, or requisition, proceedings etc. This agreement will be prepared in duplicate and both the parties will sign the agreement and keep one copy each’’.
No doubt it is mentioned that �3.06 Crores was paid by the buyer on 31st January, 2013. However, the agreement fails to indicate what exact amount was paid to each of the seller if it all it was paid, or in what proportion, the amount was given to them. We also find that the buyer M/s. Sahagaymatha Salters Pvt. Ltd vide affidavit dated 18.03.2016 had categorically denied payment of any amount as per the agreement dated 02.08.20012, and confirmed that the agreement was entered only with an intention of raising financial assistance.
When both the parties to the agreement state that the agreement was not acted upon, in my opinion lower authorities ought have brought in corroborating evidence to show passing of consideration, in excess of what were mentioned in the registered conveyance deeds.
We are alive to the fact that out the ten persons who held the land five had moved the settlement commission and had agreed
ITA 1519 to 1523/Mds/2017. :- 17 -: to offer capital gains on the consideration including the alleged on- money. What the settlement commission observed in this regard is reproduced hereunder:-
‘’We have carefully considered the arguments of both the sides. The applicants have disclosed the facts necessary (or adjudication. The applicant has also offered additional income which was in dispute, to bring matters to a finality. The affidavit of purchaser M/s.Sahayamatha Salters Pvt. Ltd.) is not in favour of the Department. There is no evidence to state that advance of �.3.06 crores was received or that the agreem.ent was acted upon. The main person Late Sri D,Manoharan who dealt with this transaction is no more. It is the plea of the applicant that since he is offering total sale consideration including excess consideration and withdrawing the claim of capital gains exemption on account of agricultural land to bring matters to a quietus, immunity from penalty and prosecution may be granted. Jt is also stated by them that the surrender of additional income is made under this head in he case of these five applicants basically because the settlement applications are to be got disposed of before the time barring date and there are other matters in the application that are also to be decided upon. This should not be viewed adversely in the case of the other assessees in their group who are in appeal. Considering all the facts and circumstances of the case it is felt that if additional consideration is brought to tax without allowing capitalisation the ends of justice would be met. Hence the settlement offer in this regard is accepted and the capital gains worked out as per the table above is brought t o tax as additional income’’.
Settlement Commission has clearly observed that there was no evidence to say that any advance of �3.06 Crores was received or to ITA 1519 to 1523/Mds/2017. :- 18 -: show that agreement dated 02.08.2012 was acted upon. In the circumstances, we are of the opinion that lower authorizes fell in error in substituting the value shown in the conveyance deed within the amount mentioned in the agreement for sale dated 02.08.2012. We therefore set aside the orders of the lower authorities in this regard and direct the ld. Assessing Officer to recompute the capital gains in the hands of each of the assessees, considering the value shown in respective conveyance deeds as the full value of the consideration. In view of this direction, the question whether alleged on-money should have been taxed under the head income from other source has become redundant.
In the result, the appeals of the assessees are treated as partly allowed.
Order pronounced on Thursday, the 14th day of September, 2017, at Chennai. Sd/- Sd/- (एन.आर.एस. गणेशन)) (अ�ाहम पी. जॉज�) (N.R.S. GANESAN) (ABRAHAM P. GEORGE) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER चे�नई/Chennai �दनांक/Dated: 14th September, 2017 KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF
ITA 1519 to 1523/Mds/2017. :- 19 -: