2019 (4) TMI 1783 - AT - Income Tax

Exemption u/s. 10(37) - whether the property acquired by Kerala Govt. was compulsory acquisition or not? - Land is situated in area covered by section 2(14)(iii)(a) or (b) and was used for agricultural purposes - Diversified view - HELD THAT - In the letter of the Chief Secretary that the land is agricultural at the time of notification and exemption u/s. 10(37) has been recommended to the assessee along with the other owners. This was probably done as there was a commitment from the Government before the acquisition proceedings were started that there would be no income tax liability on compensation received on transfer of the agricultural land. Similarly the Chief Minister of Kerala, had also sent a written request to the Union Finance Minister requesting that exemption be granted to the land owners at Vizhinjam as the land transferred was agricultural land. A follow up request was forwarded by the Principal secretary I Fisheries Ports (E) Department, to the Member (IT), Department of Revenue, CBDT, informing that most of the land owners who had transferred the land were poor farmers and to take steps to ensure exemption u/s. 10(37) to them on the compensation received on transfer of their land holdings. Copies of the above mentioned letters are on record. All these documents prove without doubt that the land of the assessee was agricultural and that it was used for cultivation till it was transferred. In view of the majority opinion, we hold that the assessee is entitled to the benefit of section 10(37) of the I.T. Act with regard to acquisition of her 93.56 cent land for Vizhinjam International Seaport.

Issues Involved:
1. Deletion of capital gain brought to tax amounting to ?1,65,31,119/-.
2. Applicability of exemption under Section 10(37) of the Income Tax Act.
3. Classification of land as agricultural.
4. Compulsory acquisition versus negotiated sale.
5. Valuation of land for capital gains tax purposes.

Detailed Analysis:

1. Deletion of Capital Gain:
The Revenue challenged the deletion of capital gain amounting to ?1,65,31,119/- by the CIT(A), arguing that the land in question was not agricultural and did not meet the conditions for exemption under Section 10(37). The CIT(A) had allowed the relief based on the Supreme Court's decision in Balakrishnan Vs. UoI, which the Revenue contended was not applicable as it only addressed compulsory acquisition and not the nature of the land.

2. Applicability of Exemption Under Section 10(37):
Section 10(37) provides for exemption from capital gains tax on the transfer of agricultural land under compulsory acquisition if certain conditions are met:
- The land must be situated in areas specified under Section 2(14)(iii)(a) or (b).
- The land must have been used for agricultural purposes for at least two years prior to the transfer.
- The transfer must be by way of compulsory acquisition.
- Income must arise from compensation for such transfer.
The CIT(A) found that the land was agricultural based on certificates from the Agricultural Officer and Village Officer, and that the acquisition was compulsory. However, the Revenue argued that the land was within the municipal limits and not used for agricultural purposes, thus not qualifying for exemption.

3. Classification of Land as Agricultural:
The Revenue disputed the classification of the land as agricultural, noting that the property document described it as "purayidom" (dry land) and that there was no proof of agricultural use for two years prior to the transfer. The CIT(A) relied on certificates from local authorities, but the Revenue contended that these were not from competent authorities to declare the land as agricultural.

4. Compulsory Acquisition Versus Negotiated Sale:
The Revenue argued that the transfer was not a compulsory acquisition but a negotiated sale to Vizhinjam International Seaport Ltd. The CIT(A) and the assessee relied on the Supreme Court's decision in Balakrishnan Vs. UoI, which held that a sale deed executed under the threat of acquisition still qualifies as compulsory acquisition. The Tribunal's Judicial Member agreed with this interpretation, noting that the land was acquired under the Land Acquisition Act and the compensation was fixed by the government.

5. Valuation of Land for Capital Gains Tax Purposes:
The assessee argued that if the land was considered a capital asset, the Assessing Officer should have adopted the value at 1/10th of the consideration fixed for transfer. However, this argument was not addressed by the CIT(A) and was rejected by the Tribunal as it did not emanate from the CIT(A)'s order and lacked a basis for such valuation.

Separate Judgments:
The Accountant Member and the Judicial Member had differing opinions. The Accountant Member concluded that the land did not meet the conditions for exemption under Section 10(37) due to lack of evidence of agricultural use and its location within municipal limits. The Judicial Member, however, found that the land was agricultural based on the certificates and improvements made by the assessee, and that the acquisition was compulsory. The Third Member, agreeing with the Judicial Member, held that the assessee was entitled to the exemption under Section 10(37).

Conclusion:
The Tribunal, by majority opinion, held that the assessee's land was agricultural and the acquisition was compulsory, thus qualifying for exemption under Section 10(37). The Revenue's appeal was dismissed, and the cross-objection by the assessee became infructuous.

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