THE ITO, WARD-5(3)(1), AHMEDABAD vs. URMILABEN BHARATBHUSHAN AGARWAL, AHMEDABAD

The brief facts of the case is that the assessee is an individual and Partner in two Partnership Firms. The assessee filed her Return of Income on 05.08.2017 declaring total income of Rs.6,45,330/-. The return was taken for complete scrutiny to verify the claim of exempt income namely capital gain/loss on sale of Lands. During the year the assessee declared agricultural income of Rs.3,80,352/- after deducting agricultural expenses of Rs.1,26,782/-. The assessee is the owner of 34 bighas of agricultural land at Janshali doing seasonal agricultural goods. The assessee was consistently showing agricultural income from the above agricultural lands from Asst. Year 2011-12 ranging from Rs. 4,96,779/- to 8,13,361/. During the financial year 2016-17, the assessee sold agricultural lands on 09.08.2016 for a consideration of Rs.10,53,81,144/- to M/s. Industrial Cluster Private Ltd. who has obtained permission from Industries Commissioner, Government of Gujarat for purchasing agricultural land parcels for bonafide Industrial use, which is approved under Gujarat Industrial Policy, 2015 to set up an Industrial Park project vide Industries Commissioner letter dated 13.10.2015.

Aggrieved against the assessment order, the assessee filed an appeal before Ld. CIT(A). During the appellate proceedings, the assessee submitted if a non-agriculturist purchases agriculture land for bonafide industrial purposes, as per provisions of Section 63AA of Land Revenue Code, the said land is to be treated as agricultural land only. Since the permission issued by Industries Commissioner also mentioned the land to be agricultural and the Sale Deed registered also mentions the land to be agricultural land. Thus the assessee relied upon Hon’ble Gujarat High Court Judgment in the case of PCIT-Vs-Heenaben Bhadresh Mehta and Kishorbhai Harjibhai Patel –Vs-ITO and claimed the sale of land is exempt u/s. 2(14)(iii) of the Act. Considering the above submissions of the assessee, the ld. CIT(A) allowed the claim by observing as follows: “…..5.10 The appellant has produced certificate of talati that the land is 32 km away from the nearest Municipality of Limbdi, Population of the village A.Y. 2017-18 Page No 5 ITO Vs. Urmila Bharatbhusan. Agarwal was also 1304 as per the last census of 2011. The conditions for claiming the land to be agricultural land as per section 2(14) is satisfied. 5.11 The learned AO has made the contention that since the land is being sold to a non-agriculturist for development of industrial Park, the same will be considered as non-agricultural land. The appellant has made the contention that it has sold agricultural land and what the buyer does with such land will not change the nature of the land to non- agricultural. The same has been clarified with the help of judicial proceedings as stated above. 5.12 In view of the above, the contention made by the appellant is found correct. The land is established as agricultural land as per provisions of the act & the mere sale of such land to a non-agriculturist will not change the nature of the land to non- agricultural land. Therefore, addition made by the learned AO is deleted. 5.13 Accordingly, ground 1 of the appellant is allowed.”

The Ld. CIT-DR Shri Pushpendra Singh Chaudhary appearing for the Revenue supported the order passed by the Assessing Officer and requested to uphold that the sale of land as non- agricultural and confirm the Long Term Capital Gain worked out by the Assessing Officer.

Per contra Shri Sudhir Mehta ld. Advocate appearing for the assessee submitted before us a detailed Paper Book containing various Documents, Revenue Records, Income Tax Returns and copy of registered Sale Deed by the assessee. Ld. Counsel drawn our attention to the various clauses in the registered Sale Deed more particularly, Clause (b) to (g) of the Sale Deed (copy already extracted in Para 2.1 above) registered as Document No. 1305 of A.Y. 2017-18 Page No 6 ITO Vs. Urmila Bharatbhusan. Agarwal 2016. More particularly, Clause (f) of the Sale Deed which clearly specifies the above land was purchased from the assessee u/s. 55 of the Saurashtra Gharkhed Tenancy Settlement and Agricultural Land Act r.w.s. 65B of the Gujarat Land Revenue Code for bonafide industrial purpose. Ld. Counsel referred to various case laws and more particularly, the Co-ordinate Bench of this Tribunal decision in the case of Hiten Tulshibhai Engineer –Vs-ITO reported in (2023) 157 Taxmann.com 81(Ahmedabad-Trib.) and thus submitted the sale of land is not a capital asset within the definition of Section 2(14)(iii) of the Act and not liable for capital gains and the additions made by Ld. A.O. is liable to be deleted.

We have given our thoughtful consideration and perused the materials available on record including the Paper Book and case laws filed by the Assessee. It is clearly seen from record that the Assessing Officer has misconstrued the provisions of Section 63AA of the Land Revenue Code, thereby treated the sale of land as non- agricultural. Even though the assessee’s land which clearly not falls within the provisions of Section 2(14)(iii) of the Income Tax Act and liable for Capital Gains. In our considered view, this issue is no more resintegra, because of the following judicial precedents.

In view of the above and for the reasons stated above, both the proposed questions of law are answered against the revenue and consequently, present Tax Appeal deserves to be dismissed and is accordingly dismissed.” 7.2. Further it is settled position of law by the Jurisdictional High Court in the case of PCIT-Vs-Heenaben Bhadresh Mehta reported in (2018) 96 taxmann.com 164 wherein it was held that when the purchaser use the land other than agricultural activities or industrial purpose that cannot be the determinative factor to treat A.Y. 2017-18 Page No 9 ITO Vs. Urmila Bharatbhusan. Agarwal the profit earned by the assessee on sale of agriculture land as “business income” by observing as follows: “….8. Therefore, on plain reading of Section 2(14) of the Act, if the "agriculture land" as mentioned in Section 2(14)(iii) is sold, the assessee shall be entitled to claim exemption on profit earned on sale of agricultural land as per Section 2(14) read with Section 45 of the Act, unless it is established and proved that the transaction carried out was "adventure in the nature of trade" and the profit thus required to be taxed as business income. On appreciation of evidence, the learned Tribunal has specifically observed and held that the transaction carried out by the assessee was not "adventure in the nature of trade" and therefore, profit earned was not required to be taxed as business income. The aforesaid is the finding recorded by the learned Tribunal on appreciation of evidence.

As observed hereinabove, the land was sold as an agricultural land and in fact, what was sold was agriculture land. What was the intention of the purchaser cannot be the determinative factor to treat the profit earned by the assessee on sale of agriculture land as business income. Similarly, merely because for whatever reason, the assessee has earned sufficient huge amount of profit also cannot be a ground to treat the profit earned by the assessee on sale of agriculture land as business income.

Under the circumstances and on the facts and circumstances of the case, the learned Tribunal has not committed any error in directing the Assessing Officer to treat the profit of Rs. 68,18,800/- earned by the assessee on the sale of agriculture land as exempt under Section 2(14) of the Income Tax Act.

Now, so far as the reliance placed upon the decision of the Hon'ble Supreme Court in the case of G. Venkataswami Naidu & Co. (supra) is concerned, considering the facts before the Hon'ble Supreme Court, we are of the opinion that the said decision shall not be applicable to the facts of the case on hand. The Hon'ble Supreme Court was considering Section 2(13) of the Income Tax Act and the definition contained in Section 2(13) fell for consideration before the Hon'ble Supreme Court. The wordings in Sections 2(13) and 2(14) are different. Therefore, the said decision shall not be applicable to the facts of the case on hand.

Similarly, decision of the Hon'ble Supreme Court in the case of Officer-In-Charge (Court of Wards) (supra) also shall not be applicable to the facts of the case on hand. In the said decision, the Hon'ble Supreme Court was considering definition of "agricultural lands" within the meaning of Section 2(e)(i) of the Wealth-tax Act. Considering Section A.Y. 2017-18 Page No 10 ITO Vs. Urmila Bharatbhusan. Agarwal 2(e)(i) of the Wealth-tax Act and Section 2(14) of the Income Tax Act, it appears that the definitions in both the Sections are different and for different purposes. Under the circumstances, this decision also shall not be applicable to the facts of the case on hand.

The decision of the Division Bench of this Court in the case of Smt. Minal Rameshchandra (supra) shall also not be applicable to the facts of the case on hand. In the case before the Division Bench, the Division Bench, on facts, held that the assessee was businessman and dealing in land business and he along his mother and brother purchased the land with a view to earn profit and therefore, it was having a characteristics of "adventure". Therefore, on facts, the said decision shall not be applicable to the facts of the case on hand. 4 14. In view of the above and for the reasons stated hereinabove, we are of the opinion that in the facts and circumstances of the case, the learned Tribunal has not committed any error in directing the Assessing Officer to treat the profit of Rs. 68,18,800/- earned by the assessee on the sale of agriculture land as exempt under Section 2(14) of the Income Tax Act. No substantial question of law arises. Hence, the present appeal deserves to be dismissed and it is accordingly dismissed.” 7.3. Further Co-ordinate Bench of this Tribunal in the case of Hiten Tulshibhai Engineer-Vs-ITO reported in (2023) 157 taxmann.com 81 considered the provisions of Section 63AA of Gujarat Tenancy and Agricultural Lands Laws (Amendment) Act, 1997 and held that the sale of land to non-agriculturist is not liable to Capital Gain by observing as follows: “….16. What transpires from a conjoint reading of the relevant provisions of Gujarat Tenancy and Agricultural Lands Laws (Amendment) Act, 1997 and the Bombay Land Revenue Code, 1879, is that in case of agricultural lands designated by authorities for bona fide industrial purposes the requirement of seeking prior permission for land use change is done away as per the Bombay Land Revenue Code, 1879. Such agricultural lands can be transferred to non-agriculturist as per section 63AA of the GT&ALL Act, which Act otherwise prohibits such transfers. Thus Lands purchased u/s. 63AA of Gujarat Tenancy and Agricultural Lands Laws (Amendment) Act, 1997, is nothing but agricultural land.

Applying this to the facts of the present case wherein the land has been sold u/s.63AA of the GT&ALL, undoubtedly the said land is A.Y. 2017-18 Page No 11 ITO Vs. Urmila Bharatbhusan. Agarwal agriculture land. This fact is further evidenced by various covenants of the conveyance deed stating the character of the land sold in clear terms to be agricultural. Also, as noted above, as per the relevant land laws, once the agriculture land is sold to a non-agriculturist for bona fide industrial use, the notice of change of land use is to be given by the purchaser to the collector who after verification issues certificate of valid user for bona fide industrial purposes.

As per the facts of the present case the purchaser of land, Le the company, after purchase of the agricultural land from the assessee u/s. 63AA of the GT&ALL Act, notified the purchase of agricultural land for bona fide industrial use and was issued a certificate in this regard by the collector after verifying its user for bona fide industrial purposes. Thus, it was subsequent to purchase of land, that its use was changed to non-agriculture purpose.

We hold therefore that the AO/DRP has erred in interpreting section 63AA of the Gujarat Tenancy and Agricultural Lands Laws (Amendment) Act, 1997 to mean that the land sold by the assessee had been converted into non-agriculture prior to the date of sale. At the cost of repetition, we may state that what it only implies is that the land was designated for use for non-agriculture purpose. It was only designated so, and its user for non-agriculture purpose was completed only when the non-agriculture usage was commenced and notified to the Collector, which in the present case was done by the company, which purchased the land subsequent to its purchase. The conveyance deed, all along mentions the land sold by the assessee as agricultural land. Its conversion from agricultural to non-agricultural land is certified by the Collector post-sale of the land.

The land sold by the assessee, having been held to be agricultural land, and since there is no dispute vis-à-vis its distance from the municipal limits, the impugned land, we hold, did not qualify as "capital asset" in terms of section 2(14)(iii) of the Act. The claim of the assessee to the entire capital gain earned on these piece of land amounting to Rs. 3,56,70,539/-, as not being liable to tax is, we hold, in accordance with law. The order passed by the A.O., therefore, treating the land sold by the assessee, as non- agricultural and subjecting to capital gain thereon to the tune of Rs. 3,56,70,539/- as liable to tax, is set aside. Ground of appeal No. 2 of the assessee is allowed.”

In the result, the filed by the Revenue is hereby dismissed.