VENKATESWARA HOSPITAL,CHENNAI vs. DCIT, CHENNAI

2.0 All the grounds of the appeal are related to the capital gains on sale of agricultural lands. During the previous year relevant to the AY 2011- 12, the assessee has sold 2 Acres and 78 cents of agricultural land at Thirutheri village, Kattangalathur Panchayat for Rs.8,00,01,000/- to one Mr. K. Dhanasekar, S/o Sri Kannan Reddiar, residing at Door No.66, Rajendra Prasad Road, Chrompet, Chennai-600 044, by Document No.11607 of 2011 registered with SRO, Joint 2, Chingleput. The assessee has claimed the capital gains arising on the sale of the above lands as exempt on the ground that the same is arising on sale of agricultural lands. In support of claim' for exemption, the assessee has furnished Village Officer's certificate certifying that the said land is situated beyond 8 kms from municipal limits and the population is less than 10,000.

3.0 The Assessing Officer (in short ‘AO’) placing reliance on the Hon’ble Supreme Court judgment in the case of Sarifabibi Mohmed Ibrahim & Ors.

ITA No.1769/Mds/2016 :- 3 -: v.CIT (1993) 204 ITR 631 (SC) disallowed the claim of the assessee and assessed the sale proceeds as Long term capital gains. The reasoning given by the AO for taxing the LTCG was that the assessee purchased the lands during the year 2005 as agricultural land and the assessee has not declared any agricultural income. The assessee declared only business income in the returns. The AO was of the view that since there was no agricultural income declared by the assessee and no evidence has been produced in respect of expenditure incurred for input costs, labour costs, etc. land in question was not used for agricultural purposes and hence not entitled for exemption from capital gains. The AO treated the asset as capital asset and taxed under capital gains. The AO relied on the decision of CIT vs. Sarifabibi Mohmed Ibrahim reported in (1982) 136 ITR 621 (Guj) and the Hon’ble Supreme Court decision in the case of State of Uttar Pradesh vs. Nand Kumar and Aggarwal & Others dated 19.11.1997 and other host of case laws.

4.0 Aggrieved by the order of the AO, the assessee went on appeal before the Learned Commissioner of Income Tax (Appeals) (hereinafter referred to as ‘Ld.CIT(A)’) and relied on the host of case laws. The Ld.CIT(A) confirmed the addition made by the AO holding that the assessee neither reflected agricultural income nor brought any positive evidence in support of its having carried agricultural operations in the land and also relied on the decision of Sarifabibi Mohmed Ibrahim & Ors. v.CIT (1993) 204 ITR 631 (SC).

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5.0 Aggrieved by the Order of the Ld.CIT(A), the assessee filed appeal before us.

During the appeal hearing, the Learned Authorized Representative (hereinafter referred to as ‘Ld.AR’) submitted that the assessee has purchased agricultural land in 2005 and cultivating the agricultural lands and harvesting the produce. Though, assessee has not declared the agricultural income, the agricultural produce was used for in-house consumption, consequently he did not admit agricultural income. The land at Tiruttani Village situated at a distance of more than 8 kms from the nearer municipality and the population was less than ten thousand.

Agricultural operations were carried out by the assessee by cultivating vegetables, mangoes, coconuts, etc., in the said land. All the details were submitted before the AO as well as Ld.CIT(A), but both the Ld.CIT(A) and the AO disallowed the claim merely because of sale consideration was Rs.8.00 Crs. and it’s proximity to Mahendra world City with a presumption that the land was not used for the agricultural purposes. Another reason for disallowing the exemption was buyer of the property has got approval for land for commercial purposes. Such consideration or such presumptions cannot put the assessee in adverse position. The assessee relied on the decision of the Hon’ble jurisdictional High Court in the case of M.S.Srinivasa Naiker & Others vs. ITO (292 ITR 481) (Mad) wherein it was held that the use of the buyer of the property after the sale of the land is irrelevant to decide as to whether the land was agricultural or not at the ITA No.1769/Mds/2016 :- 5 -: time of sale of the land. The assessee also relied on the decision in the case of Mrs. Sakunthala Veachalam & Mrs. Vanitha Manickavasagam Vs. ACIT (2014) 369 ITR 558 (Mad) of the Hon’ble jurisdictional High Court.

The Ld.AR, further, submitted that the assessee has submitted all the documents from the Revenue authorities as well as the Village Development Officer proving that the land in question was agricultural land and the assessee was carrying out agricultural operations. The AO has not disputed the claim of the assessee and simply rejected the exemption claimed by the assessee. On the other hand, the Learned Departmental Representative (hereinafter referred to as ‘Ld.DR’) argued that the assessee has not produced any positive evidence to show that it was carrying out agricultural operations. The assessee is engaged in the business of Hospital, no agricultural operations were carried out by the assessee. The land was located in the area where the heavy real estate business is in full swing and also very close proximity to Mahendra world City, which is an integrated business city. The assessee purchased the land only with an intention to sell the land as business asset and sold the land for an astronomic figure of Rs.8.00 Crores with appreciation of five times within the span of six years. The assessee’s case is squarely falls in the Hon’ble Supreme Court decision relied upon by the Ld.CIT(A) and argued that the Ld.CIT(A) has rightly dismissed the appeal of the assessee.

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6.0 We heard the rival submissions and perused the material placed before us.

It is an undisputed fact that the assessee has purchased agricultural land of 2.78 acres at Tiruttani Village, Kattamgalathu in 2005. The lands were purchased for consideration of Rs.1,68,55,465/- and sold during the previous year for a consideration of Rs.8,00,01,000/-. The Ld.AR of the assessee submitted purchase deeds and as per the purchase deeds the lands purchased were agricultural lands. The assessee also submitted 10(1) and Adangal land Revenue records and as per the land Revenue records, the mango trees and coconuts trees were grown in the said land.

Further, the assessee also submitted a Certificate from VDO certifying that the lands were agricultural lands and distance between the above mentioned land and Kattamgathul Unit Office is around 9 kms. Another Certificate was submitted by the assessee stating that the population of Satya Nagar Tiruttani village is 630. A copy of Sale Deed was also submitted by the assessee.

7.0 As per the documentary evidences furnished by the assesse, the land in question was agricultural land and the assesse is carrying on agricultural activity in the said land. The land Revenue documents shows that the assesse was harvesting mangoes and coconuts in the said land.

The AO rejected the exemption made by the assesse on the ground that the assesse has not brought any positive evidence, no agricultural income was returned during the AY 2005-06 onwards, the land was situated near

ITA No.1769/Mds/2016 :- 7 -: the business city/Mahendra world City and buyer has taken approval for conversion of land into commercial asset for the purpose of real estate. In the assessee’s case, the assesse has shown all necessary evidences to prove that the land was agricultural land and the agricultural activity was carried on by the assesse in the said land. Merely, because the land was situated near Mahendra world City or no agricultural income was returned by the assessee does not change the character of the land into capital asset. As per Sec.2(14) the assessee falls within the exceptions to hold the land as agricultural land. When the assesse submitted the evidences to prove that the land in question was agricultural land and the crops were grown in the form of coconuts and mangoes burden shifts on AO to prove with the documentary evidence that the land was not used for the agricultural purpose or no agricultural operations were carried out in the subject land. Agricultural income is exempted income and merely because the assessee has not returned agricultural income and no expenditure was claimed for agricultural expenses cannot be conclusive proof to hold that subject land was not agricultural land. The assessee’s explanation that the agricultural income is exempted income and due to non declaration agricultural income no expenditure was claimed appears to be reasonable Explanation. Therefore, the ratio of case laws relied upon by the AO as well as Ld.CIT(A) are not applicable in the assessee’s case. The Hon’ble Jurisdictional High Court in the case of Mrs. Sakunthala Veachalam & Mrs. Vanitha Manickavasagam Vs. ACIT (2014) 369 ITR 558 (Mad) held that merely because of the adjacent land divided into Plots for sale not a ITA No.1769/Mds/2016 :- 8 -: reason that the land sold by the assesse were for the purpose of development of land. Records are showing that the lands are agricultural land, classified as dry land for which Kisthu has been paid and falls far exclusion from the definition of capital asset u/s.2(14) of Income Tax Act. The case laws relied upon by the assessee are squarely applicable in the assessee’s case. Therefore, we hold that the land in question sold by the assesse was agricultural land and cannot be held as capital asset and no capital gains are chargeable and hence we set-aside the orders of the lower authorities and the assessee’s appeal is allowed.

8.0 In the result, the appeal of the assessee is allowed.

Order pronounced in the Open Court on 17th March, 2017, at Chennai.