VINODHINI,CHENNAI vs. ACIT, CENTRAL CIRCLE-1(2), CHENNAI

Upon perusal of Tamil Nadu Govt. notification GO (Ms) No.13 dated 22-01-2018 issued by Housing and Urban Development (UDI) Department under Tamil Nadu Town and Country Planning Act, 1971, it could be seen that impugned land has been included as urban land vide entry no. 881 on page no. 23 of the gazette notification. However, this is draft amendment and merely at proposal stage. The assessee has sold the land much earlier on 02-10-2017 and quite clearly, at the time of sale, the impugned land happens to be classified as agricultural land only. The subsequent notification, in our considered opinion, could not change the character of land at the time of sale which has already taken place much earlier from the date of proposed notification. Therefore, this reasoning of Ld. AO could not be accepted. At the same time, the purpose for which the land would be put to use by the seller would also be immaterial since once it is accepted fact that the land was sold as an agricultural land only then the subsequent use thereof would not jeopardize the claim of the assessee that the land continued to be agricultural land at the time of sale thereof.

The Hon’ble High Court of Madras in the case of Mrs. Shakuntala Vedachalam vs. ACIT (53 Taxmann.com 62) has been rendered on similar factual matrix. In that case, the assessee sold agricultural land and claimed exemption from capital gains. The Ld. AO deputed field staff who reported that the land was dry land and no agricultural activities were undertaken by the assessee. Accordingly, Ld. AO rejected the claim by holding that the land sold was not agricultural land and therefore, brought entire gains to tax under the head capital gains. The first appellate authority found that the land was classified as agricultural land and as per revenue record the land squarely fell within the definition of agricultural land and therefore, allowed the claim of the assessee. The Tribunal reversed the stand of Ld. CIT(A). Upon further appeal by the assessee, Hon’ble High Court of Madras held that once it was accepted fact that the land was classified as agricultural land as per revenue records, the claim could not be denied. It was further observed that the manner in which the adjacent lands were used by the owner would not be a ground to come to a conclusion that the land was not agricultural in nature. The Hon’ble High Court, considering the decision of Hon’ble Apex Court in Raja Benoy Kumar Sahas Roy (32 ITR 466), held as under: - 9. The issue involved in the above Tax Case (Appeals) lies on the narrow compass, viz., whether the lands sold by the assessees are agricultural lands and whether they are entitled to the benefit of exemption from capital gains tax.

It is on record that in a report has been submitted by the revenue authorities, it is admitted that the lands are classified as agricultural lands in the revenue records and they are dry lands. The remand report of the Assessing Officer in this regard reads as follows: "During the time of assessment proceedings itself, a confirmation was obtained from the Headquarters Deputy Tahsildar, Thirukazhukundram who has certified in his letter dated 23.12.2010, referred to at 2 above, that in the lands in question casuarinas are grown for the past one and a half year and hence the same are agricultural lands. He has also confirmed in the said letter that the lands are situated at one kilometer distance from the Town Panchayat of Mamallapuram (i.e. within the specified distance from the outer limits of the nearest municipality/town panchayat) and the population of the Mamallapuram Town Panchayat as per 2001 census was 12,345".

The assessee has 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 has also accepted that the lands are falling within the restricted zone in terms of Section 2(14) of the Income Tax Act.

Hence, the only point that has to be considered is that whether the test as laid down in the decision reported in Siddharth J. Desai (supra) has been satisfied by the assessees. In the said decision, in paragraph 11, it is held as follows: "On a conspectus of these cases, several factors are discernible which were considered as relevant and which were weighed against each other while determining the true nature and character of the land. It may be useful to extract from those decisions some of the major factors which were considered as having a bearing on the determination of the question. Those factors are: (1) Whether the land was classified in the revenue records as agricultural and whether it was subject to the payment of land revenue? (2) Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time? (3) Whether such user of the land was for a long period or whether it was of a temporary character or by way of a stop-gap arrangement? (4) Whether the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land? (5) Whether, the permission under s. 65 of the Bombay Land Revenue Code was obtained for the non-agricultural use of the land? If so, when and, by whom (the vendor or the vendee)? Whether such permission was in respect of the whole or a portion of the land? If the permission was in respect of a portion of the land and if it was obtained in the past, what was the nature of the user of the said portion of the land on the material date? (6) Whether the land, on the relevant date, had ceased to be put to agricultural use? If so, whether it was put to an alternative use? Whether such cesser and/or alternative user was of a permanent, or temporary nature? (7) Whether the land, though entered in revenue records, had never been actually used for agriculture, that is, it had never been ploughed or tilled? Whether the owner meant or intended to use it for agricultural purposes? (8) Whether the land was situated in a developed area? Whether its physical characteristics, surrounding situation and use of the lands in the adjoining area were such as would indicate that the land was agricultural? (9) Whether the land itself was developed by plotting and providing roads and other facilities? (10) Whether there were any previous sales of portions of the land for non- agricultural use? (11) Whether permission under s. 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, was obtained because the sale or intended sale was in favour of a non agriculturist ? If so, whether the sale or intended sale to such non-agriculturist was for non-agricultural or agri-cultural user? (12) Whether the land was sold on yardage or on acreage basis? (13) Whether an agriculturist would purchase the land for agricultural purposes at the price at which the land was sold and whether the owner would have ever sold the land valuing it as a property yielding agricultural produce on the basis of its yield? At the risk of repetition, we may mention that not all of these factors would be present or absent in any case and that in each case one or more of those factors may make appearance and that the ultimate decision will have to be reached on a balanced consideration of the totality of circumstances."

According to the Tribunal that if the above tests are applied, the assessees could not satisfy any of the conditions except condition Nos.1,5,11 and 12. The Tribunal held that the assessees could not prove that the lands was actually or ordinarily used for agricultural purposes. This reasoning does not appear to be correct in view of the above-said decision of the Gujarat High Court, wherein it was clearly held in Clause (1) in paragraph 11 that whether the land was classified in the revenue records as agricultural and whether it was subject to the payment of land revenue has to be considered for grant of exemption.

Thus it is evident from the above, which clearly states that any one of the above factors can be present in a case to qualify for the benefit of classification as agricultural lands. In this case, 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. Therefore, the Tribunal has misconstrued the judgment of the Gujarat High Court (supra) that all conditions laid down in paragraph 11 should be satisfied, which is not a correct interpretation.

To get exemption, the assessee has to satisfy the conditions laid down in Section 2(14) of the Income Tax Act, which reads as follows: '2(14) "capital asset" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include— (i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession; (ii) personal effects, that is to say, movable property (including wearing apparel and furniture, but excluding jewellery) held for personal use by the assessee or any member of his family dependent on him: Explanation. -- For the purposes of this sub-clause, "jewellery" includes -- (a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel ; (b) precious or semi- precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel; (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 according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; or (b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette ; (iv) 6® per cent. Gold Bonds, 1977, or 7 per cent. Gold Bonds, 1980, or National Defence Gold Bonds, 1980, issued by the Central Government ; (v) Special Bearer Bonds, 1991, issued by the Central Government ; (vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government' 16. Once the Tribunal has accepted that the classification of lands as per the revenue records are agricultural lands, which are evidenced by the adangal and the letter of the Tahsildar and satisfies other conditions of Section 2(14) of the Income Tax Act, we are of the view that the Tribunal has misdirected itself as stated above.

Yet other reason given by the Tribunal is that the adjacent lands are put to commercial use by way of plots and therefore, the very character of the lands of the assssees is doubted as agricultural in nature. The manner in which the adjacent lands are used by the owner therein is not a ground for the Tribunal to come to a conclusion that the assessees' lands are 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" is based on mere conjectures and surmises.

The plea of the learned standing counsel appearing for the Revenue that there was no agricultural operations prior to the date of sale is of no avail as the definition under Section 2(14) of the Income Tax Act has the answer to such a plea raised. Further more, it is also on record that the lands are agricultural lands classified as dry lands, for which kist has been paid.

The view of the assessee is fortified by the decision reported in Raja Benoy Kumar Sahas Roy (supra), wherein, it is held as follows: "There was authority for the proposition that the expression "agricultural land" mentioned in Entry 21 of List II of the Seventh Schedule to the Government of India Act, 1935, should be interpreted in its wider significance as including lands which are used or are capable of being used for raising any valuable plants or trees or for any other purpose of husbandry (See Sarojinidevi v. Shri Krishna Anjanneya Subrahmanyam and other(1) and Megh Raj v. Allah Rakhia (2))."

For the foregoing reasons, we pass the following order: (i) On the question of law raised, we are of the view that the Tribunal was not justified in rejecting the exemption. Accordingly, the questions of law are answered in favour of the assessees; (ii) Consequently, the order of the Tribunal dated 11.4.2013 is set aside. In the result, both the above Tax Case (Appeals) are allowed. No costs. Consequently, connected Miscellaneous Petitions are closed The above case law clearly supports the case of the assessee. The Hon’ble Court thus held that once the factum of agricultural land is evidenced, the assessee could not be deprived-off its claim. The manner in which the adjacent lands were used would not jeopardize the claim of the assessee. The manner of usage by purchaser would also be not much material. Considering this binding decision, the claim of the assessee has to be allowed.

Similar is the subsequent decision of Hon’ble High Court of Madras in the case of CIT vs. P. Ashok Kumar (TCA No.268 of 2011 dated 02- 01-2019). In this decision, the land was classified and sold as an agricultural land. The Hon’ble Court held that though there may not be any cultivation carried as per land records, there was nothing on record to show that the land in question was used for any non-agricultural purposes and therefore, the assessee’s claim was correct. This decision also supports the case of the assessee.

The decision in Chemmancherry Estates Co. vs. ITO (111 Taxmann.com 66) has been rendered considering factual findings of lower authorities that the land sold by the assessee was not agricultural land. The land was within the jurisdiction of Chennai Metropolitan Development Authority (CMDA) and the land was assessed to tax as urban land. The same is not the case here and therefore, this decision would not apply.

Finally, considering the entire facts and circumstances of the case, we would hold that the assessee was eligible to lay claim on impugned exemption on sale of agricultural land u/s 2(14). We order so. The Ld. AO is directed to grant the same to the assessee. The corresponding grounds of appeal