YATIN HARIRAM RUPAREL,MUMBAI vs. ITO 8(2)(2), MUMBAI

The issue arising in the instant appeal, raised per several grounds, is the exigibility to tax of the gains arising to the assessee on the sale of his interest in a land and, in case taxable, the value and the manner of taxability of such gain under the Act.

(A.Y. 2009-10) Yatin Hariram Ruparel vs. ITO The facts 3. The facts of the case are that the assessee-individual, along with his brother, Shri Ashwin H. Ruparel, inherited a plot of land admeasuring 4960 sq. mtrs on the demise on their sister, Vijaylaxmi Hariram Ruparel, on 07.4.1994 (*) – the sister having no other survivor. The said land was initially allotted to one, Narain Lilaram Chandwani, by Government of India (acting through the Ministry of Labour, Employment and Rehabilitation, Department of Rehabilitation, Office of Custodian of Evacuee Property) on 22.5.1971 (refer PB pgs. 241-242, 257-258) as an evacuee property under the Displaced Persons (Compensation and Rehabilitation) Act, 1954; he having migrated to Bombay from, and in lieu of his agricultural land in, Sindh (now in Pakistan). Narain Chandwani, the original claimant, had earlier (in 1967) sold his right to compensation against his claim under the said Act, since verified, to Vijaylaxmi H. Ruparel, vide agreement dated 28.9.1967 (PB pgs. 225-229), for a consideration of Rs.3,200/-; also executing an irrecoverable general power of attorney in her favour, as also her father, Hariram D. Ruparel and one, S. P. Joshi, on 30.9.1967 (PB pgs. 230-234). The intimation of the GPOA, constituting attorneys, both jointly and severally, by the OC was duly made by him to the Regional Settlement Commissioner (PB pg. 243). The same clearly constitutes a transfer u/s. 2(47) of the Act. The claim of the original claimant (OC) had been, as afore-stated, since verified, bearing Index number S/DD-7/1187-C and registration number B/T/UT/4493/IV-NT dated 29.8.1967 for 8-30 standard acres of agricultural land or, in the alternative, a payment of Rs.3,786/-, as compensation (PB pgs. 255-256). The agricultural land (14-37 local acres), allotted subsequently, was at Village Hedutane, Taluka Kalyan, Dist. Thane, Maharashtra. (*) Though we observe a mention of the said date as ‘07.4.1974’ at more than one place, the same appears to be a typographical mistake in view of her having executed a GPOA on 10.12.1974 (PB pgs. 218-223) as well as her date of death being stated as ‘on or about 31.3.1994’ in the GPOA dated 18.10.2008 by Narain L. Chandwani (OC) as well as in the statement of facts (SOF) (PB pgs. 10-11).

You are hereby allotted following agrl. Land in Thana District on Quasi permanent basis from the date of this order. District Taluka Village Sr. Nos. allotted Local Acres Std. Areas allotted allotted Thana Kalyan Hedutane 131/1, 146, 147 14-37 6-10/ 4/5 2. You will be liable to pay land revenue/rent/cess and any other dues which may be payable to the Government or to local Bodies under any Law for the time being in force in MAHARASHTRA STATE 3. The allotment will be liable to be cancelled if: i. You are found to have made false statement or declaration in the application or in the course of scrutiny thereof or have committed fraud in obtaining allotment of the said land. ii. You fail to discharge any obligations as mentioned above or that may be prescribed hereafter. iii. You fail to pay the land revenue/rent/cess or any other dues which may be payable by you to the Government or local Bodies. You are requested to contract the Collector Thana for possession Sd/- (MANAGING OFFICER) BOMBAY’ (A.Y. 2009-10) Yatin Hariram Ruparel vs. ITO The allotment, as apparent, casts no obligation on the allottee (or the person claiming through him), so that failing the said condition – where stipulated - the property would get resumed or the allotment cancelled. That is, the allotment is conditioned only by the circumstances stated in the allotment letter and, accordingly, subject to the some pre-emptive stipulations as to payment of land revenue/rent; the declaration/s made being true (not false), etc., absolute in its scope. All the rights, title and interest qua the said land vests on allotment with the OC, who had, in turn, and in fact apriori, assigned the same to the assessee’s sister, whom the assessee and his brother succeed, for a consideration. Interest in the property includes right to possession as well as right to cultivate. In fact, the right to use or cultivate the land, which the assessee claims the OC – and, thus, the person/s claiming through him, to have obtained, itself includes the right to possession. In fact, the assignment deed itself clarifies that the assignee has the right to, among others, take possession of land in question, toward which we may reproduce from the assignment deed (dated 28.9.1967): (PB pg. 228)

To take possession of and hold and manage and/or develop the properties acquired. If land is granted to cultivate, raise crops, sell the same if any other property is acquired to receive rents, or sell the same, carry our repairs, improvements, develop such property or properties and do things incidental thereto.’ That the assessee, being not an agriculturist, was, as it appears, not interested in cultivating the land, or did not, take any steps (since allotment in May, 1971) to take possession of the agricultural land, or did not consider it feasible to do so, etc., is another matter. He may also have, after all these years of adverse possession, found it infeasible to do so. How, one may ask, would then the purchaser, LDPL, take possession of the land? That is, if the assessee (and his brother), from whom it derives its’ rights, did not have the right to possession. The reference, therefore, to the clauses in the Agreement dated 18.2.2009 (PB pgs. 147-158) to the effect that the OC or the ‘confirming parties’ (the assessee and his brother) are not in possession of the land, is (A.Y. 2009-10) Yatin Hariram Ruparel vs. ITO to no moment; the said agreement clearly transferring all the rights conferred by the allotment letter, including the right to possession, which is in fact admitted (refer clause 4(a)) thereof. That the land user may be required to be changed; the land being admittedly agricultural, for the transferee to use it for its purposes, is another matter. Then, again, how does the assessee explain the non-possession of the land claimed to be barren? (refer paragraph 4.6.1 of the assessment order). The non-possession of land by the assessee, part of which is stated to be in the possession of the tenants and the rest barren, is thus only deliberate and, at best, an encumbrance, which may impact its’ valuation. In fact, the assessee himself (vide his reply dated 8/12/2011) states it as one of the encumbrances adversely impacting it’s valuation (refer paragraph 4.6.1 of the assessment order). The assessee also claims to be not the assignor, but only the confirming party and, therefore, that it is not he who has transferred the ‘rights’. Who, then, we wonder, is, the assignor? Put differently, if a confirming party, could the assessee have sold the right to conveyance, or any right for their matter? The OC, Narain Chandwani, has already assigned all his rights in favour of the assessee’s sister for a consideration, reserving no right. His, therefore, executing the deed of confirmation on 18.10.2008 (PB pgs. 175-178) or GPOA of even date (PB pgs. 160-168) in favour of the assessee and his brother, is of no moment. In fact, the said documents itself clarify this aspect, i.e., of Vijaylaxmi H. Ruparel (alias Vijaylaxmi Jitendra Dhabliwala) being entitled to land, including its possession, and of the assessee and his brother, Ashwin H. Ruparel, becoming entitled to the said property as her legal heirs. The execution of the GPOA by the assignee Vijaylaxmi H Ruparel (alias Vijaylaxmi Jitendra Dhabliwala), as explained therein, is only by way of delegating the powers acquired under the irrecoverable power of attorney in her favour, so as to enable the execution of the necessary acts. Similarly, the execution of the GPOA/s, as explained therein is only as the OC could not purchase the land or the property utilizing the claim certificate. The same, thus, is only a confirming document, affirming him having assigned his interest (A.Y. 2009-10) Yatin Hariram Ruparel vs. ITO in the land and, thus, to have no interest in the subject property. This is, in fact, the admitted position; the assessee and his brother, Ashwin Ruparel, inheriting the property from their sister (and father) as their legal heirs. It is therefore they, i.e., the assessee and his brother, who are thus the assignors, and who have agreed to transfer the land – on ‘as-is-where-is’ basis, to LDPL, the purchaser, for a consideration. That is, notwithstanding the Agreement stating the OC as the Assignor, on whose behalf the assessee and his brother have signed as GPOA holders. The GPOA dated 18.10.2008 (PB pg. 160-168) admits to this position. The assessee’s objection of being only a confirming party is therefore to no consequence. The assessee’s claim, therefore, of having only a limited right of cultivation of the subject agricultural land, or only to acquire legal title, u/s.54 of the Transfer of Property Act, 1882, is untenable and inconsistent with the admitted facts and circumstances as well as the material on record. The same also meets the assessee’s objection to the in-application of section 50C of the Act on that ground. The assessee’s constant refrain to having no right of possession is thus also misplaced. The reference in this regard to the Bombay Tenancy and Agricultural Lands Act is again not clear, with we being even not as much as taken through the said Act (PB pgs. 112- 116) during hearing nor do we find any reference thereto in the Grounds of Appeal or SOF or even the orders of the Revenue authorities. The land is agricultural, and if the same status is sought to be ensured and sustained through the law by, inter alia, prohibiting it’s transfer to a non-agriculturalist, it would not make the assessee any less the owner or impact his ownership status (of the said land). Even regarding it as an encumbrance, the same is by law, applicable for all owners, and would only impact the use to which the land can be put to and, consequentially, its value, which aspect is admitted. The assessee is thus under the terms of the allotment deemed to be an agriculturalist with constructive possession of the land. Again, how then, one may ask, the same stands assigned/sold to LDPL, which is per a registered document? As it (A.Y. 2009-10) Yatin Hariram Ruparel vs. ITO appears, the land user would be required to be changed for being put to use for other than agriculture, with the same purchased in anticipation thereof.

In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included— (1) ……… (2) ……… (37) in the case of an assessee, being an individual or a Hindu undivided family, any income chargeable under the head "Capital gains" arising from the transfer of agricultural land, where— (i) such land is situate in any area referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of section 2 (ii) such land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purposes by such Hindu undivided family or individual or a parent of his; (iii) such transfer is by way of compulsory acquisition under any law, or a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India; (iv) such income has arisen from the compensation or consideration for such transfer received by such assessee on or after the 1st day of April, 2004. Explanation …………..’ (A.Y. 2009-10) Yatin Hariram Ruparel vs. ITO We agree with the assessee in principle. The first thing to ascertain, therefore, is if the subject land is situate in the areas referred to in sub-clauses (a) or (b) of section 2(14)(iii). Toward this, the assessee has furnished a certificate dated 01.8.2012, issued by Sub-Ward Officer’s Office, Kalyan in response to the assessee’s request dated 09.7.2012, purportedly to the effect that the distance of the subject land from the local limits of Kalyan (stated to be the nearest town) Municipality is 9 km (PB page 30). The same, firstly, was not produced before the AO. Even the impugned order bears no reference thereto, including qua admission or, as the case may be, non-admission of the said additional evidence. As it appears, the assessee made no application for admission of the same as additional evidence before the first appellate authority, so that the same was not regarded as requiring adjudication qua its admission by him. We say so as there is no ground or even prayer before us with regard to its non- admission or non-consideration of admission. There is accordingly no finding qua the satisfaction or otherwise of the condition/s (as to location) of s. 2(14)(iii)(a)/(b) in the impugned order. The same, though, therefore, technically not incorrect in-as-much as no infirmity could be said to inflict the said order on that score, we would be disinclined to proceed to decide the matter on the basis of the said certificate not forming part of the record. The aspect sought to be evidenced goes to the root of the matter, i.e., whether the subject (agricultural) land is a capital asset u/s. 2(14)(iii) of the Act or not? We, accordingly, relying on Prabhavati S. Shah vs. CIT [1998] 231 ITR 1 (Bom), direct the admission of the said evidence by the first appellate authority. The same is in fact, in vernacular, and would therefore require being translated in English. We are aware of an English translation on record. The same, however, has to be by an authorized person. The same also bears no reference to the survey numbers of the subject agricultural land, and indeed it is not even clear if it stands issued by the competent authority. The ld. CIT(A) shall cause examination of these aspects as well. Then, again, the matter would require being verified and considered by the Revenue authorities. Rather, the reliance on the said evidence is subject to the mandatory (A.Y. 2009-10) Yatin Hariram Ruparel vs. ITO procedure prescribed under rule 46A. He shall decide this matter after hearing both the parties before him, issuing definite findings of fact, and in accordance with law. Clearly, if the land is, as claimed, an agricultural land (i.e., a rural agricultural land in the assessee’s words), which is to be determined as on the date of transfer, i.e., 18.02.2009, the same is not a capital asset u/s. 2(14) of the Act and, accordingly, no capital gain chargeable to tax arises to the assessee on its transfer. The ld. CIT(A) shall in this regard also; the assessee having returned the same as business income, dwell on the aspect of reduction in income to that extent.