A.VIJAYARAGHAVAN,CHENNAI vs. DCIT, CHENNAI

आदेश / O R D E R

Per A. Mohan Alankamony, AM:- This appeal is filed by the assessee aggrieved by the order of the learned Commissioner of Income Tax (Appeals)-2, Chennai dated 08.03.2016 in passed under section 143(3) r.w.s. 250(6) of the Act.

“i) The learned Commissioner of Income Tax (Appeals) has erred in sustaining the order of the learned Assessing Officer who had computed the long term capital gain of the assessee at Rs. 1,31,11,493/- by treating the land sold by the assessee as non-agricultural land and brought the same under the ambit of long term capital gain tax.

2. The assessee had also not declared any agricultural income

from the assessment year 2006-07 onwards to the relevant assessment year 2011-12.

3. Reliance was placed in the decision of the Hon’ble Supreme

Court in the case of State of Uttar Pradesh vs. Nandkumar Agarwal & others vide order dated 19.11.1997, Sarifabibi Mohammed Ibrahim & others vs. CIT (1993) 204 ITR 631 (SC).

4. The land was sold to a real estate company viz., M/s. Inno Real

Pvt. Ltd., and meant to be utilized for non-agricultural purposes.

5. The assessee had purchased the land for mere amount of Rs.2.8 lakhs in the year 2005. However, it was sold to the company at an exorbitant price of Rs.1.35 crores. Hence the nature of the land sold cannot be agricultural land.

6. The land was surrounded by industrial estates with close

proximity to various established industries which establishes the fact that the land sold is not agricultural in nature.

4.1 Thereafter, the Ld. AO concluded by stating that the land sold by the assessee cannot be treated as agriculture land and hence he brought the capital gain arising out of sale of the land to the ambit of long term capital gain tax. On appeal, the Ld. CIT confirmed the order of the Ld. AO by observing as under:

6.1. From the analysis of the facts of the appellant's case, vis-a-vis the judgements of various courts, it is seen that the lands in question are not agricultural in nature, since, a) The appellant has not carried on any agricultural activity whatsoever, as is clear from his own admission in the grounds of appeal and also from the fact, as observed by the Assessing Officer that he has not admitted any agricultural income right from AY 2006-07(the year subsequent to purchase of land) to AY 2011-12. b) As highlighted vide para S.1.6.(supra), not only are the lands located in close proximity of the fast growing industrial area of Oragadam, but also, the purchase of the land, at a time which coincides with the Notification of Oragadam area itself, as a Special Economic Zone, for development by SIPCOT, lends strong credence to the view of the Assessing Officer, that the appellant had not purchased the lands in question with the idea of carrying of agricultural activities, but rather, with the idea of capitalizing on the fast appreciating Real Estate value in Oragadam Industrial Area. c) In fact, it is interesting to note that the appellant has made rather elaborate written submissions, discussing various case-laws at length, but no submission whatsoever have been made evidencing the carrying on of agricultural activity by him, during the period for which he held the lands.

Hence, taking into account, all the aforementioned facts, it is seen that the Assessing Officer was justified in rejecting the assessee's claim that the lands in question are agricultural in nature and bringing to tax the Capital Gains arising from the sale thereof.

4.2 At the outset, the Ld. AR submitted that on the earlier occasion this bench of the Tribunal in the case Shri N. Venkataraman vs. DCIT in on the identical issue and with respect to the adjacent land had held the matter in favour of the assessee by holding that the land sold by Shri N. Venkataraman is agriculture land and therefore not liable for capital gain tax by virtue of Section 2(14) of the Act. It was therefore pleaded that relief may be granted in the case of the assessee also, since the characteristics of the land sold by Shri N. Venkatraman and that of the assessee is identical and similar. Ld. DR on the other hand argued in support of the orders of the Revenue authorities and requested for sustaining the order of the Ld. CIT(A) and the Ld. AO.

4.3 We have heard the rival submission and carefully perused the materials available on record. From the facts of the case, we find merit in the contention of the Ld. AR. The details of land sold by Shri N. Venkatraman and Shri A. Vijayaraghavan (assessee) are summarized herein below for reference:

Sale of land by Shri N. Venkatraman in Sale of land by Shri A. favour of Inno Real Pvt. Ltd. (Sale Vijayaraghavan (assessee) in proceeds aggregating to favour of Inno Real Pvt. Ltd. Rs.1,33,72,024/-. Document No. (1) 4780 – Rs.64,05,760 Document No. 4786 (2) 4801 – Rs.55,65,004 (3) 4783 – Rs.14,01,260 -Rs. 1,35,32,168 Total - Rs.1,33,72,024 Document No.4783 executed by Document execute with the Sub mother. All documents execute with Registrar Wallajabad. the Sub Registrar Wallajabad. Relevant Sale deed document Sale deed dated 15/09/2010, No.4801/10 dated 15/09/2010 Registered No.4786

Extent of land sold 1.39 acres Extent of land sold 3.38 acres Survey Extent in Extent in Survey Extent in Extent in No. Hectares Acres No. Hectares Acres 61/2 Part 0.56.25/1.12.5 1.39/2.78 61/1 0.94.0 2.32 62/2 0.42.5 1.06 TOTAL 1.36.5 3.38 Sale consideration Rs.55,65,004/- Sale consideration Rs.1,35,32,168/- Nature of land : Dry agricultural lands Nature of land : Dry agricultural in 90. Kattawakkam Village lands in 90. Kattawakkam Village Certificate from the Tahsildar Certificate from the Tahsildar R.C.No.1875/10/A5 dated 31.05.2011 R.C.No.1875/10/A5 dated stating that the land is situated beyond 31.05.2011 stating that the land is 8 Kms. from the Municipal limit and the situated beyond 8 Kms. from the census of the local population is less Municipal limit and the census of than 10000 persons the local population is less than 10000 persons Chitta Adangals dated 30.05.2010 Chitta Adangals dated 30.05.2010 stating that sugarcane is cultivated in stating that sugarcane and paddy the land survey No.61/2, patta No.1071 are cultivated in the land survey (PB 151 of of 2016) No.61/1, 62/2 patta No.1073 4.4 From the above, it is evident that the land sold by the assessee is identical and adjacent to the land sold by Shri N.Venkatraman because both the survey number falls under “Survey No.6” and of the same village. Therefore the characteristics of both the lands cannot be different from one another. Further on the identical issue, this Bench of the Tribunal in the case of Shri N. Venkatraman, in ITA No.1380/Mds/2016 vide order dated 04.01.2017 had held as follows:

“8. We have heard the rival submissions and carefully perused the materials on record. The learned Authorized Representative produced the following documents before us which could not be confronted by the Revenue:-

S.No. Description Page No. in the paper book 1. Patta No.1071 in the name of the assessee 151 Mr.N.Venkatraman S/o, S.Nagarajan to the extent of 1 Hectare 12.50 are in Kattavakkam village issued by the Tahsildar, Kanchipuram Taluk.

kilometers say approximately twenty kilometers from the municipal limit as per the certificate issued by the revenue authorities. These facts could not be successfully disproved or confronted by the learned Departmental Representative. The blunt reason stated by the learned Assessing Officer in his order for denying to treat the land sold by the assessee as agricultural land are that:- i) The land in question was dry land. ii) No agricultural operation was carried out in the land. iii) The land is situated in the close proximity to the industrial area of Oragadam. iv) The land was sold to Real Estate Company for non- agricultural purposes. v) The land was sold at exorbitant price. vi) Only in the remote past the land was used for agricultural purposes. vii) The assessee had not declared agricultural income in his return.

The question was whether the property called "Begumpet Palace" within the municipal limits of Hyderabad consisting of vacant lands of about 108 acres and also buildings enclosed in compound walls constituted "agricultural land" within the meaning of clause (i) of section 2(e) of the Wealth-tax Act, 1957. Because the land was never intended to be used for agriculture and was not ploughed or tilled, the income-tax authorities and the Appellate Tribunal held that the property could not be treated as "agricultural land" within the meaning of section 2(e). On a reference, the High Court held the land to be agricultural land because: (i) the area was 108 acres abutting the Hussain Sagar tank; (ii) the land had two wells in it; (iii) it was capable of being used for agricultural purposes, (iv) it had not been put to any use which could change the character of the land by making it unfit for immediate cultivation; and (v) it was classified and assessed to land revenue as "agricultural land" under the A.P. Land Revenue Act. On appeal to the Supreme Court:

Held, that the first four features considered by the High Court and based upon absence of any user for non-agricultural purposes were inconclusive, and the fifth feature alone provided some evidence of the character of the land from the point of view of its purpose. That the property was classified in the revenue records as agricultural land was not conclusive and such entries could raise only a rebuttable presumption. Therefore, the Appellate Tribunal should determine afresh whether the lands were agricultural after giving opportunity to both sides to lead further evidence.

Simply because "agricultural land" has not been defined in the Wealth tax Act, 1957, it is not correct to give the expression as wide a meaning as possible. The correct rule is to find out the exact sense in which the words have been used in the particular context and give an interpretation in consonance with the purpose of the statute. The object of the Act is to tax surplus wealth and it is clear that all land was not excluded from the definition of "assets". Therefore, it is imperative to give reasonable limits to the scope of the expression "agricultural land" and give it a restricted meaning;.

The determination of the character of the land, according to the purpose for which it is meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case. What is really required to be shown is the connection with an agricultural purpose and user and not the mere possibility of user of land, by some possible future owner or possessor, for an agricultural purpose. It is not the mere potentiality, which will only affect its valuation as part of "assets", but its actual condition and intended user which has to be seen for purposes of exemption from wealth- tax. One of the objects of the exemption is to encourage cultivation or actual utilisation of land for agricultural purposes. If there is neither anything in its condition, nor anything in the evidence to indicate the intention of its owners or possessors so as to connect it with an agricultural purpose, the land could not be "agricultural land" for the purposes of earning an exemption under the Act. Entries in revenue records are, however, good prima facie evidence. ii) In the case CWT Vs. E.Udayakumar, reported in 284 ITR 511 ,the Hon’ble Madras High Court has held as follows:- “The fact that there was a hospital in the adjacent land was totally irrelevant. Since the assessee had not put up any construction thereon, the assessee was entitled to claim exemption from the wealth-tax.” iii) In the case N.S.Srinivasa Naicker & Sons Vs. ITO reported in 292 ITR 481(Mad) the Hon’ble Madras High Court has held as follows:- “Held that it was an admitted case that till the date of sale, agricultural operations were carried on by the assessee. The land was put to use only for agricultural purposes and not for anything else. The lands in question were also registered as agricultural lands and assessed to land revenue. The fact that the purchaser had put it to use for a totally different purpose from that of the assessee ought not to have weighed with the tax authority. Capital gains tax could not be levied.” iv) In the case CIT Vs. Manilal Somnath reported in 106 ITR 917 (Guj), the Hon’ble Gujarat High Court has held as follows:-

“Held that what had to be considered is not what the purchaser did with the land or the purchaser was supposed to do with the land but what was the character of the land at the time when the sale took place. The fact that the land was within municipal limits or that it was included within a proposed town planning scheme was not by itself sufficient to rebut the presumption arising from actual use of the land. The land had been used for agricultural purposes for a long time and nothing had happened till the date of the sale to change that character of the land. The potential non-agricultural value of the land for which a purchaser may be prepared to pay a large price would not detract from its character as agricultural land at the date of the sale. The land in question was therefore, agricultural land.” v) In the case CIT Vs. Smt. Lilavati Thakorelal Patel reported in 152 ITR 565 (Guj), the Hon’ble Gujarat High Court has held as follows:- “ Held that in determining whether land is agricultural or not, the important factors which should be taken into consideration are: (i) classification of the land in the revenue records as agricultural land; (ii) actual or ordinary use of the land for agricultural purposes at or about the relevant time; (iii) whether such user was for a substantial period or it was for a temporary duration only by way of a stop-gap arrangement;

(iv) rational proportion of income from the land to investment made therein; (v) permission under s. 65 of the Bombay Land Revenue Code for change of user, and when and by whom it has been obtained; (vi) cessation of the agricultural use and converting the land to non- agricultural purpose; (vii) non-use for agricultural purpose of the land though listed in revenue records as agricultural land; (viii) its situation, physical characteristics and development in the vicinity; (ix) permission under s. 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, and when and by whom; (x) price of the land on sale, and whether the value was determined as a unit of the land or on yardage or on acreage basis? “ vi) In the case Mrs. Sakunthala Vedachalam & Another Vs. ACIT reported in 369 ITR 558 (Mad), the Hon’ble Madras High Court has held as follows:-

“Held, allowing the appeals, that the assessees had also produced a copy of the adangal and the letter from the tahsildar, which showed that the lands were agricultural in nature and the Revenue had also accepted that the lands were falling within the restricted zone in terms of section 2(14) . The assessees have qualified under clause 11(1) since as per the adangal records, these lands were classified as agricultural lands and the assessees have also paid revenue kist, namely, revenue payment. The tests laid down by the Gujarat High Court relied on by the Tribunal clearly stated that any one of the factors can be present in a case to qualify for the benefit of classification as agricultural lands. The reason given by the Tribunal was that the adjacent lands were put to commercial use by way of plots and, therefore, the very character of the lands of the assessees was doubted as agricultural in nature. The manner in which the adjacent lands were used by the owner therein was not a ground for the Tribunal to come to a conclusion that the assessees' lands were not agricultural in nature. The reason given by the Tribunal that the adjacent lands have been divided into plots for sale would not mean that the lands sold by the assessees were for the purpose of development of plots. Also the reasoning given by the Tribunal “No agriculturists would have purchased the land sold by the assessee for pursuing any agricultural activity” was based on mere conjectures and surmises. Therefore, the assessees were entitled to exemption. vii) In the case CIT Vs. Borhat Tea Co.Ltd. reported in 138 ITR 783 (Cal), the Hon’ble Calcutta High Court has held as follows:-

“For the purpose of land being agricultural land, actual agricultural operations or cultivation or tilling of the land is not necessary. What is to be seen is whether such land is capable of agricultural operations being carried on thereon.”

(iii) agricultural land in India, not being land situate—

(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand; or (b) in any area within the distance, measured aerially,—

(I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh.

Explanation.—For the purposes of this sub-clause, "population" means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;”

v) The land was purchased and subsequently sold by the assessee was classified as agricultural land in the revenue records. vi) The intention of the purchaser of the land is immaterial. vii) Just because the price of the land is exorbitant, it cannot be treated that the land is non-agricultural, when the revenue record states otherwise. viii) The large extent of land would also point out to the fact that it is agricultural land. ix) Even if some commercial establishments have sprung up in the close vicinity of the land, it cannot mean that the primary characteristic of the agricultural land is lost.

Sarifabibi Mohmed Ibrahim (Supra) the facts are not identical because in that case the land was situated within the Municipal limits and within a town planning scheme while as in the case of the assessee the land is situated beyond 19 K.m., from the Municipal limits. Further it is not necessary for the assessee to exploit the agricultural land by commercial production of agricultural produce but it would suffice even if agricultural activities are carried out for self consumption. For the aforesaid reasons, we hereby hold that the land sold by the assessee is agricultural land and cannot be termed as “capital asset” by virtue of section 2(14) of the Act and hence, capital gain arising out of the sale of the land sold by the assessee will not attract capital gain tax. Therefore, we hereby direct the learned Assessing Officer to delete the addition made for Rs. 1,28,38,808/- under the head long term capital gains.”

4.5 Since the facts in the case of the assessee is identical to the case decided by the Tribunal supra, we do not have any hesitation to hold that in the case of the assessee also capital gain tax will not be attracted by virtue of Section 2(14)(iii) of the Act, because the land sold by the assessee is agriculture land and shall fall outside the ambit of “capital asset”. Accordingly, we hereby direct the Ld. AO to delete the long term capital gain of Rs.1,31,11,493/- assessed in the hands of the assessee.

Order pronounced in the court on the 27th February, 2017