SMT. MANIBEN GOVINDBHAI PATEL,,SURAT vs. THE INCOME TAX OFFICER, WARD-4(2),, SURAT

370/AHD/2015 Shri Natvarbhai Kanjibhai The Income Tax 2010-11 Patel Mata Faliya, Post Hazira, Officer, Taluka Choryasi, District Surat Ward-4(3), Surat. PAN: AAFHN8673M 45. 371/AHD/2015 Shri Hiteshbhai Jamubhai Patel The Income Tax 2008-09 93, Sanskar Nagar Society, Officer, Palanpur Patia, Rander Road, Ward-4(1), Surat. Surat. PAN: AUOPP 8654 M 46. 372/AHD/2015 Smt. Hansaben Hasmukhbhai The Income Tax 2007-08 Patel 9-10-12, Sai Nagar Officer, Society B/H Bhulka Bhuvan Ward-4(1), Surat. School, New Adajan, Surat PAN: APQPP 9816 A 47. 375/AHD/2015 Shri Naginbhai Narsinhbhai The Income Tax 2009-10 Patel Village Hazira, Taluka Officer, Choryasi, District Surat Ward-4(3), Surat. PAN: AAFHN4762B 48. 376/AHD/2015 Shri Ratilal Ukabhai Patel The Income Tax 2009-10 Village Hazira, Taluka Officer, choryasi, District Surat Ward-4(4), Surat. PAN: AQMPP1979P 49. 379/AHD/2015 Shri Dineshbhai Lallubhai The Income Tax 2010-11 Patel Officer, Thru L/h Hitesh Dineshbhai Ward-4(1), Surat. Patel 18, Nildhara Society, L. P. Savant Road, Adajan, Surat 395 010 PAN: AHFPP 1680 F 50. 421/AHD/2015 Shri Ullasbhai Nathubhai The Income Tax 2010-11 Bhatia, Village Hazira, Taluka Officer, Choryasi, District Surat Ward-4(4), Surat. PAN: AMZPB 7022 J 51. 422/AHD/2015 Shri Gijubhai Prabhubhai Patel The Income Tax 2009-10 11, Sai Nagar Society, Officer, Adajan, Surat-395 009 Ward-4(1), Surat. PAN: ADGPP 1130 K 52. 423/AHD/2015 Shri Bachubhai Kanjibhai Patel The Income Tax 2010-11 Village Hazira, Taluka Officer, Choryasi District Surat Ward-4(4), Surat. PAN: AMMPP5638 D 53. 424/AHD/2015 Smt Jamnaben Naginbhai Patel The Income Tax 2010-11 Mata Falia, At & Post Hazira, Officer, District Surat Ward-4(1), Surat. PAN: BDQPP 2071 L Kamuben B. Patel/AY.2007-08 to 2010-11 54. 425/AHD/2015 Shri Parsottambhai Somabhai The Income Tax 2008-09 Patel Village Hazira, Taluka Officer, Choryasi, District Surat Ward-4(3), Surat. PAN: ANQPP 8960 R 55. 428/AHD/2015 Smt Kamuben Chhaganbhai The Income Tax 2010-11 Patel Mata Faliya, At Post Officer, Hazira, Taluka Choryasi, Dist Ward-4(2), Surat. Surat PAN: BDEPP 0583 K 56. 436/AHD/2015 Late Shri Lallubhai Devjibhai The Income Tax 2007-08 Patel 18, Nidhara Apartment, Officer, Adajan, Surat 395 010 Ward-4(2), Surat. PAN: ACBPP 9402 C 57. 2199/AHD/2015 Shri Dahyabhai Lallubhai Patel The Income Tax 2010-11 18, Nildhara Society, L P Officer, Savani Road, Adajan, Surat Ward-4(1), Surat. 395 010 PAN: BHJPP 3385 C 58. 2200/AHD/2015 Shri Kamlesh Dhansukhbhai The Income Tax 2010-11 Patel Village Hazira, Taluka Officer, Choryasi, District Surat Ward-4(2), Surat. PAN: AIQPP 9768 A 59. 2205/AHD/2015 Shri Dhansukhbai Jerambhai The Income Tax 2010-11 Patel Village Hazira Taluka Officer, Choryasi, District Surat Ward-4(4), Surat. PAN: ALVPP 8895 N 60. 2207/AHD/2015 Shri Ganpatbhai Ukabhai Patel The Income Tax 2009-10 Village Hazira, Taluka Officer, Choryasi, District Surat 394 Ward-4(1), Surat. 270 PAN: AQCPP 2900 N

This group of 60 appeals is part of Hazira Land acquisition cases wherein one of the appeals in Ambaben J. Patel in was treated as a lead case. This combination, after hearing the submission of both the parties, partly allowed the appeal of the assessee on various grounds by passing the following order:

Kamuben B. Patel/AY.2007-08 to 2010-11 61. We have considered the rival submissions of the parties and have gone through the orders of the lower authorities. We have also considered the various documentary evidences furnished by the parties. Further, we have also deliberated on various case laws relied by both the parties. First we are taking application for admission of additional evidence field by the revenue. In the application the revenue has contended that during first appellate stage, the ld CIT(A) made reference under section 250(4)to NRSC Hyderabad for ascertaining nature of land its user from the period 1999 to 2014. And that NRSC prepared its report and sent to the office of ld CIT(A). The report of NSRC was considered by ld CIT(A) in ten cases while adjudication the issue with regards to nature and use of the land in preceding year before the date of acquisition. Before us, the learned DR for the revenue vehemently argued that the admissions of additional documents are essential for effective and complete adjudication of the issues and the controversy and in taking uniform approach in all the appeals.

The copy of the application for admission of additional evidence was furnished to all the learned Counsels and authorised representatives, representing different assessee(s). No written reply was filed by any of the assessee(s). Though, all the Counsels representing various assessee(s) objected for admission of such additional evidences. The leading learned Senior Counsel, while opposing the application submitted that under Rule 29 of Income Tax (Appellate Tribunal) Rules, the revenue is not entitled to file additional evidence even otherwise, if the Bench is of the considered view and deems it necessary may in its discretion with reasons may admits it. And that report of NRSC is of no use and does not give any desirable result to assess or determine the nature of land or any evidence to negate the fact that the land was not used for agricultural purposes. By referring various paragraphs of reports, the learned Senior Counsel also submitted that in the disclaimer, attached to the said report, NRSC, Hyderabad reported the shape file provided by CIT(A) did not match with field boundaries of the reference satellite data, with implication on accuracies of location area. And in absence in absence of adequate number of GCPs, rubber sheeting technique carried out also did not yield the desirable results. After careful consideration of the contention of the party, and going through the language employed in Rule 29, we are of the view that the revenue has no vested right to seek the admissions of additional documents. However, keeping in view the peculiarity of the facts that the report of NRSC was taken into consideration by ld CIT(A) while adjudicating about 10 appeals, therefore, to take a uniform approach, the application for admission of additional evidence filed by the revenue is allowed and the documents are taken or record for appreciation of the issues.

Now adverting to the main grounds of appeal raised by the assessee. We find that the assessee has raised multiple grounds of appeal. However, first we shall take up the issue, which goes to the root cause of the dispute between assessee and the assessing officer, as raised in ground No. 2 & 3 of grounds of appeals. To make it more simple we reframed these grounds as to whether the land acquired by the Special Land Acquisition officer is agricultural land or not or if so, it falls within the municipal area as defined under Section 2(14)(iii)(a) of the Income Tax Act or that Hazira Notified area is deemed municipality.

So far as part first issue is concerned, which relates to section 2(14)(iii)(a) of the Act is concerned, the ld CIT(A) held that as per Notification dated 30.01.1997 (Notified area of Hazira) nine villages were included in the said Notified area. If the said notified area is considered as a unit, the population of only those Survey numbers which have been included in the said Notification, has to be considered for the purpose section 2(14)(iii)(a) of the Act. The remaining population of the villages will not be considered. If the said population of the said Notified area is less than ten thousand, the land acquired cannot be treated as capital asset, provided it was an agricultural land at the time of acquisition or transfer. As per census data 2001, the population of Hazira Notified area is 2137. The ld CIT(A) held that Hazira Notified area is a deemed municipality under the provisions of Gujarat Municipality Act, 1963. The ambiguity is created by certificate Mamlatdar relied by Assessing Officer. The Ld. CIT(A) further noted that if all those survey numbers are not included, the population of those survey numbers is only 2137 and not ten thousand or more. The entire population of all the nine villages cannot be aggregated unless entire area of the villages falls in the Notified area. The ld. CIT(A) at the same time held that this exercise may be academic for the reasons given in a decision in subsequent findings by making reliance in case of G.M. Omer Khan Vs Addl.CIT (Supra) wherein it was held that population of entire notified is to be considered for the purpose of Section 2(14)(ii)(a) and not the population of any single village.

On the issue whether the land is an agriculture land or nor, the ld. CIT(A) held that the assessee was required to establish that land was used for agriculture purpose only. The District Agriculture Officer confirmed that most of the land is rocky, affected from Sea water and no irrigation facility. Thus, the contention of assessee cannot be accepted that land was used for agriculture purpose or capable of operation. No evidence of agriculture income was furnished. The ld. CIT(A) held that the assessee failed to establish that land was used for agriculture purpose. Thus the conditions of Section 10(37) are not fulfilled.

Before us, the ld. Senior Counsel for assessee vehemently submitted that compensation received on acquisition would not be subject to capital gain, as the agriculture land is not a capital asset as not being situated in an area which comprised within the jurisdiction of any municipality having population of not less than 10000 as per last census. If the land is not a capital asset, question of paying tax on its acquisition would not arise. The assessee has to satisfy two conditions (i) the land is agriculture land and (ii) to claim exemption that agriculture land is not situated within municipal limit having population of not less than 10000. For first condition, the ld. Senior Counsel submits that from the contents of award itself it is clear that the land in question is agriculture land. The award was passed by officers of the State Govt. and the correctness of the statement made in the award cannot be doubted. The land is shown as agriculture land in the revenue record. The jurisdictional High Court in CIT Vs Sidharth J Desai (supra) has laid down thirteen test to determine the true nature Kamuben B. Patel/AY.2007-08 to 2010-11 and character of the agriculture land. On the second aspect that for claiming exemption to show that agriculture land is not situated within a municipality having population of less than 10000. It was submitted that Hazira is not a municipality and in order to appreciate this aspect, the process by which this area was established makes it clear that by way of notification, it would not make an area as municipality. Thus, we examined the order of lower authorities viz a viz the submission of learned senior counsel for assessee.

We are in agreement with the submissions of learned Senior Counsel for the assessee that the word “Municipality” is not defined in the Income Tax Act, it is also not defined in General Clause Act. Article-243P(e) of the Constitution of India defines the same as “an institution as self-Government constituted under Article 243Q”.Proviso to Article 243Q(1). In turn, it provides that a ‘municipality’ under this clause may not be constituted in such urban area or part thereof as the Governor may having regard to the size of area and the municipal services being provided or proposed to be provided by industrial establishments in that area and such other factors as may be deemed fit by public Notification, specified to be an industrial township. In a simple meaning that industrial township set-up under this proviso would not be “Municipality”. We also concur with the submissions of learned Senior Counsel Hazira Notified area is Industrial Township, therefore, not a municipality. On the issuance of the Notification under Section 16(1) of Gujarat Industrial Development Act, 1962, Hazira Notified area become a Notified area, thereupon the provisions of Chapter-XVI-A Gujarat Municipalities Act, would apply. Hazira Notified area would then be an ‘Industrial Township’ area under Section 264A of the said Act. We are in agreement with the submission of learned Senior counsel for the assessee that under section 264B of the said Act, the State Government has a power to apply any section of the said Act or part thereof, or the Rules in force as maybe applied to a municipal borough to such notified area. Section 264C would create a fiction that for the purposes of any section of the said Act which may be applied to a notified area, the person or committee appointed for such area under section 264B shall be deemed to be a “Municipality” under the said Act. The fiction is an unlimited fiction. Firstly, the fiction is only in relation to those sections of the said Act which are applied to the notified area and even the second part of the fiction of deeming the notified area to be a “municipality” is only for the purpose of the said Act. It does not convert notified area into a “Municipality” in any way.

The Hon'ble Supreme Court in the case of Saij Gram Panchayat Vs State of Gujarat (supra) while considering the scope of section 16 of GIDA and Section 264A inserted in Gujarat Municipalities Act, in view of insertion of Part IXA in the Constitution held that industrial area under the GIDA would be a notified area under new section 264A of Gujarat Municipalities Act and would mean an ‘industrial township area’ under the proviso to clause (1) of Article 234-Q of the Constitution of India (Para-10).It was further held that GIDA operates in a different sphere from Part IX and IXA of the Constitution as well as Gujarat Panchayat Act. The latter being provision dealing with local self- government, while former being an Act of Industrial Development and orderly establishment an organization and industries in a State. The Industrial Areas which have been notified under Section 16 of the GIDA. These industrial areas Kamuben B. Patel/AY.2007-08 to 2010-11 have been developed by the Gujarat Industrial Development Corporation (GIDC) and they can hardly be looked upon as rural areas covered by Part IX of the Constitution. It is only such industrial areas which can be notified under Section 16 of the Gujarat Industrial Development Act, 1963. If by a notification issued under Section 16, these industrial areas are deemed to be notified areas under the Gujarat Municipalities Act and are equated with industrial townships under the proviso to Clause (1) of Article 243Q, the constitutional scheme is not violated. It was further held that under Chapter 3 of the Gujarat Industrial Development Act, 1962, the Gujarat Industrial Development Corporation, has been given power, inter alia, to develop land for the purpose of facilitating the location of industries and commercial centres. It has also been given the power to provide amenities and common facilities in such areas including provision of roads, lighting, water supply, drainage facilities and so on. It may do this either jointly with Government or local authorities or on an agency basis in furtherance of the purposes for which the corporation is established. The industrial area thus has separate provision for municipal services being provided by the Industrial Development Corporation. Once such an area is a deemed notified area under the Gujarat Municipalities Act, 1964, it is equated with an industrial township under Part IXA of the Constitution, where municipal services may be provided by industries. It was further held that unless, it qualifies with the criteria prescribed under Article 243-Q of Constitution of India cannot be at par with municipality. Article 243-Q constitute three types of municipalities viz (i) Nagar Panchayat (ii) a Municipal council and (iii) Municipal corporation, it provides that a municipality under clause (1) may not be constituted under certain circumstances. In respect of any three types of areas, set out in clause (1) of Article 243-Q, having regard to the size of area, the municipal services being provided or proposed to be provided by the industrial establishment in that area and such other factor as the Governor will deem fit to consider, he may by public notification, specifies such area to be an industrial township.

Further Hon’ble Supreme Court in Solapur MIDC Industries Association Etc. Vs State of Maharashtra & Ors., JT (1996) 7 SCC 14 held that Municipal Corporation Act and an Industrial Development Act have distinct fields of operation and there is no inter se conflict between the two.

So far as reliance on the case law in G.M Omer Khan Vs Add CIT (supra) relied by ld CIT(A) as well as by ld DR for the revenue is concern, we find that the facts of that case are entirely different. In the said case the land of the assessee was situated in a village within the Municipality. The assessee in that case contended that his laid was in an area which in terms meant a 'Village' and the population of that village was far below ten thousand and the mere fact that the said area fell within the municipality of a city which had a population of more than ten thousand, was of no consequence. He, therefore, claimed that the property in question was an agricultural land not covered by section 2(14). On reference, the High Court interpreting section 2(14)(iii)(a) opined that the property acquired was a 'capital asset' as the words 'which has a population of not less than ten thousand' In section 2(14) (iii) (a) would qualify only 'the municipality or cantonment and not the expression 'area', and, therefore, the Kamuben B. Patel/AY.2007-08 to 2010-11 capital gains arising out of the sale of the land In question could not be exempted under section 2(14)(iii)(a).

Considering the aforesaid legal position, we are of the view that by setting up of an industrial area by way of notification under section 16 of GIDA, the notified area would not be a deemed municipality, though, certain provision of Gujarat Municipalities Act are applicable for day to day affairs of the notifies area. Hence, we hold that the Hazira Notified area is not municipal area or deemed municipality therefore, the agriculture land situated in such notified area would not partake the character of agriculture land as ‘capital asset’ as defined under section 2(14) of the Act and the value of compensation received on acquisition of such land is not be taxable under Income tax Act. Thus, the appeal of assessee is liable to be succeeded on this issue alone.

Now adverting to the issue whether the land acquired is agriculture land and /or being used for agriculture purpose and assessee is eligible for exemption under section 10(37) of the Act. The assessing officer while rejecting the eligibility of section 10(37) held that the assessee has not produced any evidences regarding agriculture activities carried out on the land and that the District Agriculture officer, Zilla Panchayat Surat has written letter to Collector that many part of the land is under sea water and part of land is barren. The ld CIT(A) affirmed the action of assessing officer by taking view similar view.

Before, us the learned Senior Counsel for the assessee vehemently argued that for seeking eligibility under section 10(37), the assessee has fulfilled the four conditions of this sub-section, viz., (i) such land is situated 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 immediately preceding the date of transfer, was being used for agricultural purpose by such Hindu Undivided Family (HUF) or individual or a parent of assessee; (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 and (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.

We have already held the land is not situated within a municipal area, thus, first condition is satisfied. So far as second condition, is concerned, we find it is certified by District Agricultural Officer, Surat vide his letter dated 16.06.2014 that the agricultural operation are carried in the land. Further the award was passed in financial year 2007-08, in the award the Special land Acquisition Collector on a number of stances mentioned that the land under acquisition is used for the agriculture purpose, this prove beyond doubt the land was being used for agricultural purposes, not only on date of acquisition but till the date of acquisition all throughout, but in any case for more than two years. The land in the revenue record is also shown as agriculture land. For third condition, we find that that first award is by consent; however, as held by Hon'ble Supreme Court in the case of CIT Vs Ghanashyam (HUF) (supra) it was held that consent award which has followed all steps of compulsory acquisition has to be regarded as an award of compulsory acquisition. There is no dispute Kamuben B. Patel/AY.2007-08 to 2010-11 that the State Government before starting the acquisition proceedings, initiated under Land Acquisition Act 1894, issued notice under section 4 & 6 of that Act. So far as second award is concerned, it is undisputedly an award of compulsory acquisition. For fourth condition, there is no dispute the income arisen on compensation.

The Hon’ble Delhi High Court in Hindustan Industrial Resources Ltd Vs CIT (supra) held that when award passed by District Collector (Land Acquisition) is a document which established beyond doubt that the land in question was an agricultural land. Thus, on the date of purchase, the land in question was an agricultural land and on the date of acquisition, the character of the land continued to be agricultural.

Further, the Hon’ble Gujarat High Court in CIT Vs Siddhrath J Desai (supra) while considering the fact that the assessee had purchased a piece of agricultural land which was situated in an area not included in the municipal limits. There was no development in the surrounding area indicating any potentiality for the development of the land. For the period of three years immediately after its purchase, agricultural activity was carried on in the land. At or about the time of its subsequent sale, the land was not actually put to agricultural use. All the while, however, the land continued to be listed in the revenue record and it was assessed to land revenue. On 22-11-1968, the assessee obtained permission of the competent authority under section 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, for the sale of the land to a co- operative housing society. On 1-2-1969, the assessee sold the land to the society. On 5-2-1969, the society obtained the permission for non-agriculture use of the land, under section 65 of the Bombay Land Revenue Code, 1869, from the competent authority. The assessee claimed that the surplus realised by him on the sale of land was not liable to be taxed as capital gains as the land in question was agricultural land. The ITO held that since no agricultural operations were carried on immediately before the sale of the land, the land could not be treated as agricultural on the date of its sale and, therefore, the surplus realised by the assessee was liable to be taxed as capital gains. On appeal, the AAC reversed the decision of the ITO. On further appeal, the Tribunal affirmed the decision of the AAC. On reference before High Court held that having regard to the facts and findings recorded by the Tribunal, it was obvious that not only the physical characteristics of land, in the instant case, but the user also was agricultural. Even though the land was not actually put to agricultural use since about one year prior to the sale, there was no evidence to establish that it was converted to any other use. The fact that permission under section 63 of the Bombay Tenancy and Agricultural Lands Act was obtained by the assessee to sell the lands to the society for residential purposes would not, militate against the land continuing to be agricultural on the date of its sale, as the permission was obtained only about two and a half months prior to the sale. Therefore, till the land was held by the assessee its character as agricultural land was not changed either as a result of its reclassification on in the revenue records or by the actual alteration of its use. Again, there was no evidence on record to show that there was any development in the surrounding area or that the land itself was developed prior to its sale. The land was located on the outskirts of the village but it was not situate in the municipal limit. The land must, therefore, be taken as having been Kamuben B. Patel/AY.2007-08 to 2010-11 situate in a rural area and it continued to have an agricultural bias right up to the date of its sale. Further, there was no evidence or material on record to indicate that the price offered for the land by the society, even proceeding on the basis that" the intended user of his part was non-agricultural, would not have been offered by an agriculture who wanted to purchase the land for purely agricultural user. There being no evidence on record as regard the nature of the soil, its fertility, its suitability and adaptability for raising cash crops, the irrigation facility and such or similar factors which had a great bearing on the valuation of an agricultural land, it would be hazardous to come to the conclusion that the price offered was such that no agriculturist would have paid the same if he wanted to purchase the land for purely agricultural purposes. Accordingly, the land was an agricultural land and the surplus realised on a sale thereof was not liable to be assessed to capital gains tax. The High Court laid down thirteen test to determine whether the land would be agriculture land by applying such test.

So far as reliance of revenue on the report of NRSC is concerned, which was otherwise relied by ld CIT(A) in ten cases. The ld DR for the revenue while making her submissions by referring various parts of it submitted that no agriculture activity or evidence of any crop is found on various parcel of the land from 1999 to 2012. And only shrubs were found with no sign of any crop or vegetables of the parcels of land. Further the satellite images shows that no agriculture activities were carried on the land. The ld DR also submitted that report of NRSC is scientific report and conclusive proof. We do not find merit in the submissions of the ld DR, as disclaimer, attach to the said report, NRSC, itself reported the shape file provided by CIT(A) did not match with field boundaries of the reference satellite data, with implication on accuracies of location area. Further, in absence in absence of adequate number of GCPs, rubber sheeting technique carried out also did not yield the desirable results. And that concurrent ground truth was not available for thus study and interpretation is exclusively based on the manifestation of features and experience of the interpreter, which could be subjective. It is also mention in the last para in the disclaimer that results have to be corroborative in association with the ground observation, available, if any. Thus, the report itself contents vague observation and cannot be used as evidence or conclusive or expert report based of any scientific evidence against the assessee. Moreover, said report was not provided to the assessee. Thus, by applying of such test we find that the land of the assessee acquired by Special Land acquisition officer is agriculture land. In the result, the assessee is also succeeded on this issue/ ground as well.

Considering the facts that we have already held that the land of the assessee is not ‘capital asset’ as the same does not fall in municipal area, Hazira Notified area is not a municipality or deemed municipality and on alternative plea also held eligible for exemption under section 10(37), therefore, all other pleas or counter pleas of the parties and the remaining issues arising thereto have become academic.

Now adverting to the ground of appeal relates to reopening of the assessment. The assessing officer made reopening on the basis of information received from the office of Special Land Acquisition officer that the assessee has Kamuben B. Patel/AY.2007-08 to 2010-11 received compensation on transfer of land and that he has reason to believe that income of the assesse has escaped assessment to the extent of capital gain. Notice under section 148 was duly served on the assessee. In response to the notice under section 148 the assessee filed return of income, declaring same income as declared in the return filed under section 139(1) of the Act. We find that in this lead case the assessee before, ld CIT(A), has raised specific ground of appeal

Considering the fact that in all the aforesaid appeals, the facts are almost similar, the assessee has raised common grounds of appeal. Considering the fact that in lead case in Ambaben J Patel, we have already allowed the appeal of assessee, therefore, following the principle of consistency, the appeal (s) of the assessees are partly allowed with similar directions.