2019 (12) TMI 1284 - AT - Income Tax

Exemption u/s 10(37) denied - assessee has sold the land voluntarily, and it is not case of compulsory acquisition of land by SMC - failure to qualify definition of Compulsory acquisition and ought to have held acquisition of impugned agricultural land by Surat Municipal Corporation (SMC) eligible for exemption under section 10(37) - HELD THAT - As per letter no. ACT/SR/3161 dated. 31.08.2010 it has been clearly mentioned by the SMC that nature of payment was compulsory acquisition (Land/ Building).It is further seen from the perusal of letter no. TBT/OUT/ 4089/ 22 dated. 23.09.2014that land in question was placed under reservation by the Government of Gujarat vide order dated Notification No. GH/V/100 of 2004/DVP/1403/3307/L dated. 02.09.2014 under the provision of section 20 of Gujarat Town Planning Urban Development Act 1976 at the disposal of the SMC to acquire the land under section 77 of Bombay Provincial Municipal Corporation Act, 1949 for erection of Sewerage Treatment Plant. Thus, it was a case of compulsory acquisition of land for which the SMC under the instruction of Government of Gujarat for which the SMC has also given a certificate dated 12.08.2010 letter no. ACT/SR/NO2861 wherein nature of payment to the assessee is described against compulsory acquisition of land at Dindoli. The ITAT- D- Bench, Ahmedabad in the case of ITO v. Dipak Kalidas Pauwala in I.T.A.No.2685/Ahd/2011 dated. 14.08.2015 wherein the Tribunal has held the that said land in Dindoli ( at Block no. 305) was acquired by SMC for sewerage Treatment Plant are agricultural land which has been compulsory acquired by SMC under the provision of section 107 of GTP UD Act, 1976 as the land needed for the purpose of Town Planning Scheme or Development Plan shall be deemed to be meaning for public purpose within the meaning of Land Acquisition Act , 1894 (I of 1894) and eligible for exemption under section 10(37) Thus land in question was compulsory acquisition by the SMC under the direction of Government of Gujarat. Hence, conditions stipulated in section 10(37) is satisfied. In view of above facts and circumstances, land was compulsory acquired by SMC, hence, conditions as laid down in section 10(37) are duly satisfied. See ITO v. Dipak Kalidas 2015 (8) TMI 1268 - ITAT AHMEDABAD which has been confirmed by the Hon ble Jurisdictional High Court of Gujarat in T 2016 (4) TMI 431 - GUJARAT HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility for exemption under section 10(37) of the Income Tax Act.
2. Definition and application of "compulsory acquisition."
3. Agricultural operations requirement for exemption.
4. Validity of sale deed execution in the context of compulsory acquisition.
5. Reopening of assessment and related procedural aspects.

Issue-wise Detailed Analysis:

1. Eligibility for Exemption under Section 10(37):
The primary issue is whether the assessee is eligible for exemption under section 10(37) of the Income Tax Act for the long-term capital gain arising from the sale of agricultural land. The assessee claimed that the land was compulsorily acquired by Surat Municipal Corporation (SMC), thereby qualifying for exemption. The Assessing Officer (AO) denied this claim, stating that the land was sold via a sale deed, not compulsorily acquired.

2. Definition and Application of "Compulsory Acquisition":
The AO opined that the land was purchased by SMC through a sale deed, thus not meeting the criteria for compulsory acquisition. The CIT (A) supported this view, noting that the landowners negotiated and agreed to sell the land at a negotiated price, which does not constitute compulsory acquisition. However, the Tribunal referenced multiple cases, including CIT v. Amrutbhai S. Patel and ITO v. Dipak Kalidas Pauwala, where it was held that land reserved for public purposes and acquired under specific statutory provisions qualifies as compulsory acquisition. The Tribunal concluded that the land in question was indeed compulsorily acquired by SMC under the direction of the Government of Gujarat.

3. Agricultural Operations Requirement:
The CIT (A) observed that for exemption under section 10(37), the land must have been used for agricultural operations for two years preceding the transfer. The Tribunal referred to the Gujarat High Court's ruling in CIT v. Amrutbhai S. Patel, which clarified that the exemption applies even if the land was not cultivated by the assessee personally but by tenants. Thus, the Tribunal found that the requirement for agricultural operations was met.

4. Validity of Sale Deed Execution:
The AO and CIT (A) argued that executing a sale deed implies voluntary sale, not compulsory acquisition. The Tribunal, however, referenced the Supreme Court's decision in Balakrishnan v. Union of India, which stated that a negotiated settlement on compensation does not change the nature of acquisition from compulsory to voluntary. The Tribunal held that the sale deed execution in this context still constituted compulsory acquisition.

5. Reopening of Assessment and Related Procedural Aspects:
The Tribunal noted that the reopening of assessments and related procedural grounds became infructuous due to the primary issue being resolved in favor of the assessee. As the exemption under section 10(37) was allowed, other procedural grounds did not require separate adjudication.

Conclusion:
The Tribunal concluded that the land was compulsorily acquired by SMC under the direction of the Government of Gujarat, thus satisfying the conditions of section 10(37) of the Income Tax Act. Consequently, the assessee was eligible for exemption from long-term capital gains tax. The Tribunal directed the AO to allow the exemption under section 10(37). The appeals of all the assessees were allowed, and the related procedural grounds were deemed infructuous. The order was pronounced in open court on 13-12-2019.