CHANDRA POOJARI, ACCOUNTANT MEMBER-The appeals filed by the Revenue and the cross objections filed by different assesses are directed against the orders of the Commissioner of Income-tax (Appeals) for the assessment year 2012-13.
2. The only ground in Revenue’s appeal is with regard to the finding of the CIT(A) that the land sold by the assessee is an agricultural land, thereby deleting the long term capital gains without giving proper opportunity to the Assessing Officer to counter the argument of the assessee. The Cross objections filed by the assesses are in support of the order of the CIT(Appeals).
3. Since the issue in Revenue’s appeal is common, the facts as narrated in ITA 2496/M/16 are reproduced here. The AO noticed that the assessee along with his four family members have sold a land at Kunnukadu Village on 24.02.2012. They have owned the land by way of inheritance from their father, late V.S.Shah, who has purchased the agricultural lands measuring 8.30 acres of land bearing survey number 26/1A on 5.7.1984. The assessee sold 3.92 acres of land on 24.2.2012 for sale consideration of Rs. 11,66,00,000/-. However, in the return of income, the capital gain was not shown. The AO sought clarification in this regard in the assessment proceedings. The Authorized Representative contended before the AO by giving written submission that the land sold was an agricultural land and it fall beyond 8 kms from the municipal limit of Chennai Municipal Corporation, therefore, on sale of agricultural land there is no capital gain arises and hence, the same was not incorporated in the return of income. The AO did not find the explanation offered by the assessee satisfactory and arrived at a conclusion that there were no agricultural activity carried on and further relying on the Inspector’s report that the land sold is at a distance of 7.2 kms from the limit of Municipal Corporation, hence the agricultural land sold is a capital asset as per the Income-tax Act and therefore, capital gains tax was leviable on sale of such asset. The AO also considered the development charges as part of sale consideration and accordingly, adopted the sale consideration of agricultural land at Rs. 16,66,00,000/- and computed the taxable LTCG in the case of the assessee at Rs. 3,30,02,574/-. The AO allowed the deduction u/s.54EC for Rs. 50 lakhs from the LTCG and assessed the taxable capital gain at Rs. 2,80,02,574/- as given in detail in the assessment order.
4. The CIT(A) observed that the AO in his order stated that the expression of ‘agriculture land’ has not been defined in the Income-tax Act, 1961 nor in the 1922 Act, nor it has been defined in the Wealth-tax Act, 1957 and, therefore, the expression ‘agricultural land’ be given the meaning as it is generally understood in the common parlance and as it ordinarily bears in the plain language. Agricultural income from eucalyptus trees were not grown by human skill and labour could constitute agricultural income and the test applied was whether there was some integrated activity which could be described as agricultural operations yielding income. It is pertinent to note that a mere wild or spontaneous growth of trees, not involving the employment of any human labour or skill for raising them could not be agricultural income. The CIT(Appeals) further observed that in order to come in the category of agricultural land, according to the AO, the land can be said to be either actually used or meant to be used for agricultural purpose. The essential requirement for an agricultural land is that there should be cultivation of land in the sense of feeling the land, sowing the seeds, planting and similar work on the land itself. If there is neither anything in its condition, nor anything in the evidence to indicate that the intention of its owner or possessor so as to connect it with an agricultural purpose, the land could not be agricultural land. The CIT(Appeals) observed that according to the AO the VAO certificate indicates that eucalyptus trees were around 300 standing on the land. And on imagination came to a conclusion that on subsequent period VAO has not certified whether the trees are grown, or available in the said land. The Authorized Representative contended by written submission stating that the agricultural land measuring 8.30 acres comprised in survey No.26/1A, Kunnukadu Village, Village No.45, Chengalpet Taluk, Chengalpet District was purchased by the late S.V.Shah on 5th day of July, 1984. His legal heirs (wife- Ms.Bharati V. Shah & four sons – Mr. Hitesh V. Shah, Rajesh V Shah, Mr. Ajay V. Shah & Mr. Vijay V Shah) are looking after the said property and developed the said property in different intervals to do the agricultural activities (filling the land, dig well & protect with boundaries).
4.1 The CIT(Appeals) observed that they did agricultural activities in last several years including the financial year 2011- 12 and admitted the agricultural income in the filing the Incometax Return. They have submitted the reports like Chitta, Adangal, Patta, VAO Certificate and SRO Certificate before the AO. At the time of assessment proceedings, the assessee had submitted various documents & reports Chitta, Adangal, Patta, etc. and letters from Government Departments like VAO, Govt. Surveyor, SRO, BDO and also RTI Acts and proved that the concerned land is an agricultural land and also exempted as per Income-tax Act. But voluntarily the Income-tax Officers rejected the same in their own motion. However, the same are produced before appeal authority also. Even the Block Development Officer, Thirupur has given the certificate stating that “ this is to certify that the ECR 8.30 acres survey number 26/1A at 45 Kunnukadu Village, Chengalpettu Taluk, is agricultural land”, thus, from the submission of the assessee, it is proved beyond doubt that the agricultural activities have been carried on and even the agricultural income had also been offered in the income tax return regularly and government documents like Chitta, Adangal, Patta, etc., and letters from Govt. Departments like VAO, Govt. Surveyor, SRO, BDO and also RTI Acts and proved that the concerned land is an agricultural land in view of sec.2(14)(iii) of the Income-tax Act, 1961. Therefore, the action of the AO in arriving at a conclusion that it is not an agricultural land, is dismissed and the land in question is treated as agricultural land.
4.2 Regarding the issue, whether the agricultural land is a capital asset or not, the CIT(Appeals) observed that according to the AO, the agricultural land in question is situated within 8 kms from the boundary of Corporation limit, municipality, town panchayat, cantonment board for any other notified area by the state or central government. The AO has mentioned that from 19.7.2011 the Government of Tamil Nadu has notified municipality administration and extended Chennai city municipal Corporation Limit. The same was further revised by GOMS No.......dated 12.09.2011 and accordingly, the Chennai city municipal Corporation Limit was not extended upto Uthandi Village on ECR Road. The assessee produced before him various government records to support his contention that the land in question is beyond 8 kms from the Chennai city municipal Corporation Limit. The AO disregarded the reports and certificates given by the Government Authority and stepped into the shoes and deputed Inspector to physically measure the distance. The Inspector travelled a motorable road in a car and gave his report that the distance between the Uthandi village boundaries end at the beginning of Kannathur Village which comes immediately after the toll plaza, Uthandi, from this place, the land is located at a distance of 7.2 kms. The assessee contended before the CIT(Appeals) that the Inspector is not the person who can measure the distance correctly because the Inspector will not be familiar with the Chennai City Corporation Limit, map, boundaries, boundaries of the last part etc., moreover, he may not be well versed with the technique of measurements of the distance. Therefore, the ld. AR pleaded before the CIT(Appeals) that the issue be decided based on report of government surveyor’s, who is the authority on measuring lands and distance. The ld. AR, pinpointed that the Inspector has taken the measurement from the sign board, where it is mentioned Kannathur by the local authority for an identification of that area and the Inspector taking it as a limit point for measuring a distance is not correct. It is difficult for the Income-tax Inspector to find out the last survey number on physical land i.e. identify last survey number or plot physically online. The ld. AR has produced the distance report from government surveyor, who has identified from the government order, new Chennai city Corporation map and RTI Acts, that Uthandi Toll Plaza and Ragass Dental College & Hospital stating the plot is 191 is the last boundary point for Chennai city Corporation Territory limit and has given the diagram of the distance. As per the physical measurement before the government surveyor, the distance between the plot number 191 and the Kannathur sign board is more by 300 mts., which has been ignored by the Inspector for lack of proper information. Even the Inspector has taken measurement by road on ECR road from Kannathur sign board to the point on ECR road which is parallel to said land, which further more by 50 mts.
4.3 Further, according to the ld. AR, the Revenue Inspector (Inspection) Kanchipuram District has certified that “Kundrukadu Village situated within Thiruvidanthai Village, Northern boundaries of Kanathur Reddikuppam, Thiruporour Taluk, south part of Uthandi Village comprised in Punjai S.No.26/1A lying at a distance of 8.1 kms and situated at Solinganallur Taluk within corporation of Chennai, Thiruporur Taluk, Kanchipuram Dist.” The ld. AR has also supported by certificate from Village Administrative Officer, Thiruvanthai Village, Chengalpattu Taluk that Kundrukadu Village has population 8500 as per last census. Finally, the Block Development Officer, Thiruporur Village certifies as under :
“this is to certify that the ECR 8.30 acres, Survey No.26/1A at 45 K under KUNDKADRU Village, Chengalpatt Taluk, Kanchipuram Dist is an Agricultural Land and is situated in Rural area. The above referred land is situated at Kovalam panchayat union office, i.e. block development office Thiruporur there is no municipality office The population in this area is approximate 8500 person The above referred land is situated at a distance of 13 km from the local limits of Thiruporur panchayat union.”
In view of the above, the CIT(Appeals) treated the agricultural land in question as agricultural land and observed that as per sec.2(14)(iii) of the Act, sale proceeds of agricultural land are exempt under the Income-tax Act. Accordingly, the CIT(Appeals) directed the AO to delete the addition made for Rs. 11,760/- by treating agricultural income as other source. Against this, the Revenue is in appeal before us.
11. We have heard both the parties and perused the material on record. The learned D.R contended that the Assessing Officer has treated the properties as non-agricultural, after conducting extensive enquiries. The Assessing Officer had collected the details from the Tahsildar through enquiries u/s.133(6). The Tahsildar vide his letter in 3/2014 stated that there is no agricultural activities carried out in the said land for past 3 years prior to sales. The evidences collected by the Assessing Officer showed beyond doubt that no agricultural activities were carried on in the properties sold by the assessee. The Assessing Officer found that the entire area has become a semiurban area with a lot of real estate development and educational institutions coming around. The Assessing Officer has established the fact that agricultural activities were not carried out, not only in the properties owned by the assessee, but also in the surrounding areas. Even though the properties were agricultural properties in the long past, no agricultural activities were being carried on in that area for so many years in the past because of the urbanization and real estate development. The learned D.R explained that agricultural character of the properties had already been lost long ago and, therefore, there is no force in the argument of the assessee that the properties sold by the assessee were agricultural in nature. He, therefore, submitted that the order of the Assessing Officer may be upheld and the order of the Commissioner of Income-tax(Appeals) may be set aside.
12. The learned Chartered Accountant appearing for the assessee, on the other hand, supported the order passed by the Commissioner of Income-tax(Appeals). The learned Chartered Accountant explained that the properties were acquired by way inheritance from late V.S.Shah. At the time of purchase, they were agricultural lands and agricultural activities were also carried on. A lot of development came around the properties sold by the assessee. Real estate development is also taking place. But all these things do not change the character of the properties held by the assessee. The properties were agricultural in nature which is beyond doubt. In revenue records, there were around 300 Eucalyptus trees standing on the land. These trees were commissioned by the assessee during the year 2006-07. Subsequent period, the VAO has not certified whether the trees are grown or available in the said land.
13. The learned Chartered Accountant further explained that even at the time of sale, the properties were having Eucalyptus trees, as the assessee had planted these trees as part of its agricultural operations. He submitted that the Commissioner of Incometax( Appeals) has examined all these aspects in a detailed manner and, therefore, the appeal filed by the Revenue be dismissed.
14. The Revenue has relied on the decision of the Hon’ble Supreme Court in the case of Sarifabibi Mohamed Ibrahim vs. CIT (204 ITR 631) to hold that the properties sold by the assessee were not agricultural in nature. He has also relied on the decision of the Income-tax Appellate Tribunal ‘B’ Bench, Chennai rendered in the case of M/s. Pallava Resorts P. Ltd. in ITA No.794/Mds/2011dated 11.10.2012.
15. The A.R has relied on the following decisions:-
a) in the case of Mrs.Sakunthala Vedachalam & Others Vs. ACIT in Tax case (Appeal) No.566 and 567 of 2013 of jurisdictional High Court.
b) in the case of Byalappa Vs. State (Karnatka)(DB) in 1982 AIR (Karnataka) 99 and also
c) in the case of Raja Benoy Kumar Sahas Roy in 32 ITR 466(SC)
d) in the case of CIT Vs.K.E.Sundara Mudaliar And Ors. On 02.2.1050
e) in the case of Mrs. Sakunthala Vedachalam Vs. ACIT 6th August 2014- Madras High Court
f) in the case of DECIT vs. Late Dr.N.Rangabashyam (rep. by wife Mrs.Chitralekha)- ITAT Chennai ‘B’ Bench on 10thNovember, 2016.
g) in the case of Pavadai Pathan Vs. Ramaswami Chetty AIR 1922 Mad. 351.
16. We heard both sides in detail and gone through the orders of the lower authorities, the arguments of the parties as well as the various decisions relied on by them.
17. The crux of the arguments advanced by the assessee in the present case is that the lands sold by him were shown as agricultural land in revenue records. The Hon’ble Gujarat High Court in the case of CIT vs. Sarifabibi Mohamed Ibrahim (136 ITR 621) has held that, the fact that the land is entered as agricultural land in revenue records and is assessed as such under the Land Revenue Code, would be a circumstance in favour of conclusion that it is a an agricultural land. However, this would raise only a prima facie presumption and the said presumption can be destroyed by other circumstances pointing to the contrary conclusion. This legal proposition highlighted by the Hon’ble Gujarat High Court has been later upheld by the Hon’ble Supreme Court in the case of Sarifabibi Mohamed Ibrahim vs. CIT (204 ITR 631). It is also to be seen that the question, whether a particular land is agricultural or not, is basically a question of fact. As laid down by various High Courts in different judgments, a series of tests are applied to decide, whether a land is agricultural or not. It is also to be understood that all these tests are in the nature of guidelines and have to be applied, depending upon the facts and circumstances of each case.
18. In the present case, as already stated, the core of the arguments of the assessee is on the classification of the land in revenue records. But, that alone does not conclusively prove the nature of the land sold by the assessee, as other evidences are shadowing the said presumption prima facie created by the entry made in the revenue records. The properties were in fact, inherited by the assessee. At the time of purchase of these parcels of land, they might have been agricultural lands. That is why the land parcels are classified in the revenue records as agricultural lands. That position was continued in a religious manner without any annual verification of the nature of the property. But, the character of the land sold by the assessee has been explained by the Tahsildar in unequivocal terms in his letter given under sec.133(6) of the Act before the assessing authority. The Tahsildar has stated that not only for the impugned previous year but also for past 3 earlier previous years, no agricultural activities were carried out in that area. The assessee as well as the owners of surrounding properties was not in fact carrying on any agricultural activities. The letter given by the Tahsildar is very important. He has stated the reasons as to why the agricultural activities were not being carried out on those properties. Because of urbanization, the properties being in the peripheral of Chennai Metropolis, real estate development has started taking place in that area as well. A lot of private and commercial buildings are constructed. Because of the boom of the real estate development, the entire contingent of that land has become subject matter of transactions intended for the purpose of real estate development. In that background no agricultural activities were being carried out in that area. The case of the assessee is also not an exception.
19. The letter given by the Tahsildar has categorically established the finding of the Assessing Officer that the lands sold by the assessee in the previous year relevant to the assessment year under appeal were not agricultural land. The past history of the land alone is not the deciding factor. Once upon a time the land might have been used for agricultural operations. In that way of speaking, almost all parts of Chennai Metropolis might be agricultural or marshy land in good old past. Therefore, history is not the only test to be applied to decide the character of the land at the time of sale. A temporary stoppage in the agricultural activities carried on by an assessee also should not go against an assessee. For one or other reason, an assessee may not be carrying on agricultural operations for one or two years, he might be carrying on agricultural operations for all the years in a consistent manner. In such cases, it is not possible to hold that non carrying on agricultural operations for one or two years permanently changes the character of the land.
20. But, here the case is still different. The assessee has not been carrying on agricultural operations for so many years continuously and consistently. It is not a case of intermittent stoppage of agricultural operations. It is a case of permanent stoppage of agricultural operations in the light of real estate development taking place in the particular area. Therefore, by virtue of not carrying on agricultural activities for a quiet long time in the past, the character of the land occupied by the assessee has been naturally converted into a non-agricultural land.
21. In this regard, we have to apply our mind to one more vital question, whether the assessee was carrying out agricultural operations or not. The case of the assessee in the present case is that even at the time of sale of these parcels of land, the assessee had been carrying on agricultural operation by way of growing Eucalyptus trees. The effect of cultivating these trees was considered by the Tribunal, Chennai ‘B’ Bench in the case of M/s. Pallava Resorts P. Ltd. in ITA No.794/Mds/11 dated 11.10.2012. In paragraph 22 of the said order, the Tribunal has held that cultivating casuarina plants for a short period of time does not alter the basic character of the land. The land purchased by the assessee was not useful for carrying on any normal agricultural activities. Only plants like casuarina grown therein. For earning income from casuarina plants, the assessee need not purchase land by investing crores of rupees. Investment and return do not have any comparison. Even though the above observation of the Tribunal in the case of M/s. Pallava Resorts P. Ltd. is not exactly applicable to the present case, it shows, if circumstance so permits, the frivolousness of the arguments usually made by the assessees that they have carried on agricultural activities by planting casuarina.
22. In the context of agricultural operations, it is necessary to see that the agricultural operations carried on by the assessee must be activity of economic gain. It must generate meaningful income to the person who is carrying on agricultural activities. If the agricultural activities carried on by the assessee as a hobby or casual or incidental, it is very difficult to hold a view that the land is agricultural in nature. India is pre-dominantly an agricultural economy where agricultural activities are major part of economic activities of our country. Therefore, the activities carried on by the assessee must be meaningful and result-oriented towards generating reasonable income from such operations. As far as the present case is concerned, there was no such economic utilization of the land for earning income by carrying on agricultural operations.
23. It is, in this context that we have to refer the arguments of the assessee that the assessee had reported agricultural income in his returns of income for assessment year at '11,760/-. When this is considered, it is obvious that the agricultural income returned by the assessee was just for namesake and it was not the result of any agricultural operations carried on by the assessee, in an economic way. There was no economic utilization of land for the purpose of earning agricultural income. We cannot rule out that this was only a ploy carried out by the assessee to make an impression before the tax authorities that the assessee’s land was agricultural in nature, so that the assessee can claim the benefit of agricultural land, when the lands are sold, in view of high demand of land in the area and in view of hectic activities of real estate development. Therefore, we are of the opinion that these small amounts of agricultural income returned by the assessee for few assessment year do not go to change the character of the land.
24. In the facts and circumstances of the case, we find that the land was not actually or ordinarily used for agricultural operations on or around the relevant time of sale. It is also to be seen that the income returned from agricultural operations carried on in the land was just for namesake and does not have any proportion to the efforts usually that would have been made by a true agriculturist. At the time of sale of land also no agricultural activities were carried on by the assessee.
25. It could be only an exotic argument to say that the agricultural land of 3.92 acres owned by the assessee was sold in the previous year relevant to the assessment year under appeal for a fabulous consideration of ' 11,66,00,000/-. It means the agricultural land sold by the assessee had a market value of about ' 3 crores per acre. It is unheard of. It clearly illustrates that the land has become an nonagricultural land with high market potential for real estate development, not all of a sudden in the previous year relevant to the assessment year under appeal but over a period of long years in the past. This aspect really co-relates the argument of the Revenue that the assessee had not been carrying on any agricultural operations in the lands for so many years in the past.
26. In these circumstances, it is our considered view that the Assessing Officer has conclusively established that the lands sold by the assessee in the previous year relevant to the assessment year under appeal for a consideration of '11,66,00,000/- were not agricultural in nature, but, on the other hand, they are non-agricultural land. Therefore, it definitely comes under the category of “capital asset”. Accordingly, the gains arising out of transfer of that capital asset is exigible to capital gains tax.
27. When the basic nature of the land itself found to be nonagricultural, the arguments regarding status of the property, whether within metropolis or outside the limit of the metropolis, is irrelevant. A non-agricultural property, whether inside the municipality or outside the municipality or even in a remote village is a “capital asset” and transfer of the same may generate income liable for capital gains taxation. In the facts and circumstances of the case, we set aside the order of the Commissioner of Income-tax(Appeals) on this point and restore the order of the Assessing Officer.
28. Now, we will consider the cross-objections filed by the assessee. The cross-objection No.172/Mds/2016 & 173/Mds./2016 are filed in support of the order of Ld.CIT(A) and not raised any ground seeking any further relief from Tribunal. In view of our order findings in the appeals of Revenue, the said cross-objections have become infructuous and liable to be dismissed.
29. In result, the appeal filed by the Revenue is allowed and the cross-objections filed by the assessee are dismissed.