2017 (8) TMI 616 - HC - Income Tax

Treatment of Land as Agricultural land - Sale of land - nature of land - substantial question of law or question of fact - AO took note of the phenomenal rise in the value of the lands and also the fact that the assessee had sold the lands to a real estate developer. - Held that - CIT (A) allowed the appeal of the assessee holding that the lands in question transferred by the assessee were agricultural lands and that there was sufficient evidence to prove that the lands were used for agricultural purposes. The fact remained that agricultural activities, i.e., cultivation of trees and vegetables, had actually been carried out in the lands as evidenced by the adangal copies and the fact that positive income/loss from the said activities had been reflected in the capital account of the assessee and also reflected in the return of income of the assessee, duly supported by the report of the Departmental Valuation Officer (DVO) and photographs taken by the DVO during inspection. Further, the conditions laid down in Section 2 (14) in relation to distance from the nearest Municipality/Municipal Corporation/Cantonment Board and in relation to population were also fulfilled. Appellate Tribunal perusing the materials including the copy of the sale deed, copy of the revenue records, the survey report, photographs taken by the DVO during survey, etc., arrived at the finding that the lands in question were agricultural lands within the meaning of Section 2 (14) of the Income-Tax Act and accordingly, dismissed the appeal of the Revenue. As held by the Supreme Court in Sarifabibi Mohmed Ibrahim (1993 (9) TMI 10 - SUPREME Court ), whether a land is an agricultural land or not, is essentially a question of fact. Several tests have been evolved in the decisions of the Supreme Court and the High Courts, but all of them are more in the nature of guidelines. The question has to be answered in each case having regard to the facts and circumstances of that case. There may be factors both for and against a particular point of view. The Court has to answer the question on a consideration of all of them a process of evaluation where inference has to be drawn on a cumulative consideration of all the relevant facts. In the instant case, the Appellate Tribunal has concurred with the factual finding arrived at by the CIT (A) and affirmed the decision of the CIT (A). The decision is based on some materials. It cannot be said that the decision is perverse. It is not for this Court to re-analyse the evidence or decide whether the evidence on record was sufficient to justify the finding. Right of appeal is not automatic. Right of appeal is conferred by Statute. If the right of appeal conferred by the Statute is limited to cases where there is a substantial question of law, this Court cannot sit in appeal over factual findings by re-weighing and re-analysing the evidence and materials on record. - Decided against revenue

Summary

Issues Involved:
1. Nature of the land sold (agricultural or non-agricultural).
2. Applicability of capital gains tax.
3. Interpretation of "substantial question of law" for appeal purposes.

Detailed Analysis:

Nature of the Land Sold:
The primary issue in this case was whether the land sold by the assessee was agricultural land, which would be exempt from capital gains tax under Section 2(14) of the Income Tax Act, 1961. The assessee, a Gastroenterologist, had sold 4.91 acres of land for ?9,76,76,000/-. He claimed that the land was agricultural and thus not a capital asset subject to capital gains tax. The Assessing Officer, however, found that the assessee had not reported any agricultural income from 2006-07 to 2011-12 and concluded that the land was not agricultural, partly due to its high value and sale to a real estate developer.

Applicability of Capital Gains Tax:
The Commissioner of Income-Tax (Appeals) [CIT(A)] overturned the Assessing Officer's decision, stating that there was sufficient evidence to show that agricultural activities were carried out on the land. This was supported by 'adangal' copies, the capital account of the assessee, and a report from the Departmental Valuation Officer (DVO) including photographs. The CIT(A) concluded that the land met the criteria laid down in Section 2(14) of the Income Tax Act, which excludes agricultural land from the definition of a capital asset if it is not situated within certain proximities to a municipality or cantonment board with specified population thresholds.

Interpretation of "Substantial Question of Law":
The Revenue's appeal to the High Court argued that the land's entry in revenue records as agricultural land does not necessarily make it agricultural, citing the Supreme Court's judgment in State of UP vs. Nand Kumar Aggarwal. However, the High Court emphasized that whether land is agricultural is essentially a question of fact, as held by the Supreme Court in Smt. Sarifabibi Mohmed Ibrahim & Ors. vs. Commissioner of Income Tax. The High Court noted that both the CIT(A) and the Appellate Tribunal had considered the evidence and arrived at the factual finding that the land was agricultural. The High Court further stated that it is not its role to re-analyze the evidence or question the sufficiency of the evidence supporting the Tribunal's findings.

The High Court also discussed the criteria for what constitutes a "substantial question of law" under Section 260A of the Income Tax Act. It referred to various Supreme Court judgments, including Sir Chunilal V. Mehta & Sons Ltd. vs. Century Spg. & Mfg. Co. Ltd. and Hero Vinoth Vs. Seshammal, which outline that a substantial question of law must be debatable, not previously settled by law, and must have a material bearing on the decision of the case. The High Court concluded that the questions raised by the Revenue did not meet these criteria and therefore did not involve any substantial question of law.

Conclusion:
The High Court dismissed the appeal, affirming the decisions of the CIT(A) and the Appellate Tribunal that the land sold by the assessee was agricultural and thus exempt from capital gains tax. The Court reiterated that it could not re-weigh evidence or interfere with concurrent factual findings unless a substantial question of law was involved, which was not the case here.