2022 (12) TMI 1096 - HC - Income Tax

Exemption u/s 10(37) - entitlement of a person for exemption under Clause 37 Section 10 - land needed for the public purpose within the meaning of Land Acquisition Act - acquisition of the land at Village Dindoli by the SMC was for the Sewage Treatment Plant - whether land not being used as an agricultural land two years prior to the transfer to SMC? - HELD THAT - CIT(Appeals) and the ITAT both have held rightly that the acquisition of the land at Village Dindoli by the SMC was for the Sewage Treatment Plant and this is a compulsorily acquired land under the provision of Section 107 of the GTP UD Act. The land was needed for the purpose of Town Planning Scheme or the Development Plan and therefore, it was deemed to be the land needed for the public purpose within the meaning of Land Acquisition Act. Deed of transfer of the land was signed between the SMC represented by the Director of the Town Planning and the assessee along with his family members - The proceedings u/s 77 of the BPMC Act were pending at the time of registration of sale deed for transfer of property and pending the reservation, efforts were made by the farmers and SMC to negotiate the price of land to be transferred in favour of the SMC to avoid the compulsory acquisition of the land by SMC under Sections 77 and 78. This negotiation had been vetted by the Standing Committee of the SMC vide its Resolution No. 1758 dated 28.12.2007 where the SMC had agreed to pay land owners at the rate of Rs. 2,000/- per sq.mt for their land and to not invoke provisions of Sections 77 and 78 (Compulsory Acquisition) of Gujarat Town Planning Act. The land had been transferred by the registration of sale deed by the assessee and the SMC where the purchaser had to pay stamp duty at the prevalent market rate to avoid any kind of litigation. This was a better way worked out by the authority and the land owners. This had resulted into the Assessing Officer finding it not to be a compulsory acquisition, but, more a voluntary transfer. However, this Court in case of other assessee being Dipak Kalidas Pauwala 2016 (4) TMI 431 - GUJARAT HIGH COURT has held the requisite conditions of Section 10(37) to have been fulfilled. The issue raised in the instant case is that the agricultural land owned by the respondent assessee should have been used for a period of two years immediately before the date of transfer for the agricultural purpose and that aspect is missed out by all authorities. As noticed that before the Ao, the department has not raised the issue and the order AO was further challenged before the CIT (Appeals) and thereafter, before the Tribunal where, by a concurrent finding they have held in favour of the respondent. These are the factual aspects of the land not being used as an agricultural land two years prior to the transfer to SMC. This being a factual aspect never having been raised by the department and none of the authorities having opined anything on this, that cannot furnish the ground for disallowing anything under Section 10(37) of the Act. Tax Appeal is dismissed.

Summary

Issues:
1. Interpretation of Section 10(37) of the Income Tax Act, 1961 for claiming exemption on the transfer of agricultural land.
2. Determination of whether the land transfer was a compulsory acquisition or a voluntary transfer.
3. Consideration of the agricultural use of the land for claiming exemption under Section 10(37).

Issue 1: Interpretation of Section 10(37) of the Income Tax Act:
The appellant challenged the order of the Income Tax Appellate Tribunal (ITAT) regarding the deletion of an addition made by the Assessing Officer. The appellant argued that all four conditions under Section 10(37) were not fulfilled by the assessee, thus questioning the justification of the Tribunal in confirming the order of the Commissioner of Income Tax (Appeals). However, the Court found that the Tribunal's decision was based on concurrent findings that the assessee met all the requisites for claiming exemption under Section 10(37). The Court emphasized that the land was used for agricultural activities, situated within municipal limits, and acquired through compulsory acquisition, satisfying all conditions for exemption.

Issue 2: Determination of Land Transfer Nature:
The Assessing Officer treated the land transfer as a Long Term Capital Gain due to negotiations between the assessee and the Surat Municipal Corporation (SMC). However, the CIT(Appeals) and ITAT relied on precedents where similar land acquisitions for public purposes were deemed exempt under Section 10(37). The Court upheld the decisions, emphasizing that the land was compulsorily acquired by the SMC for a Sewage Treatment Plant, meeting the criteria for public purpose acquisition under the Land Acquisition Act.

Issue 3: Agricultural Use Requirement for Exemption:
The appellant contended that the land was not used for agriculture purposes for two years prior to the transfer, thus challenging the eligibility for exemption under Section 10(37). However, the Court noted that this aspect was not raised by the department before the Assessing Officer or higher authorities. As no findings were made on this aspect, the Court held that the failure to consider agricultural use for two years prior to transfer did not provide grounds for disallowing the exemption under Section 10(37). Consequently, the Court dismissed the appeal, stating that no substantial question of law arose for consideration.

In conclusion, the judgment clarifies the interpretation of Section 10(37) of the Income Tax Act, emphasizes the importance of public purpose acquisitions for exemption, and highlights the necessity of meeting all conditions for claiming exemptions on land transfers.