1988 (5) TMI 72 - AT - Wealth-tax

Summary

Issues Involved:
1. Whether the land on which godowns were constructed qualifies as agricultural land.
2. Eligibility for exemption under section 5(1)(iva) of the Wealth-tax Act.

Issue-Wise Detailed Analysis:

1. Whether the land on which godowns were constructed qualifies as agricultural land:

The primary issue revolves around whether the land, upon which godowns have been constructed, retains its status as agricultural land. The assessee argued that the land was agricultural and thus exempt under section 5(1)(iva) of the Wealth-tax Act. The Wealth-tax Officer (WTO) rejected this claim, stating that the construction of godowns changed the character of the land from agricultural to non-agricultural. The assessee appealed to the Appellate Assistant Commissioner (AAC), who sided with the assessee, directing the WTO to treat the land as agricultural and allow the exemption.

The AAC's decision was based on several documents and past judgments, including the Hon'ble Madras High Court's ruling in Gemini Pictures Circuit (P.) Ltd. v. CIT and the Gujarat High Court's ruling in Goverdhan Bai Kahandas Dalwada v. CIT. These cases suggested that land continuously used for agricultural purposes retains its agricultural character unless proven otherwise by the revenue.

However, the Tribunal found that the construction of godowns, which were let out to the Food Corporation of India, effectively changed the nature of the land. The Tribunal observed that the buildings constructed were not suitable for agricultural purposes or cattle sheds, as claimed by the assessee, but were clearly godowns intended for commercial use. The Tribunal emphasized that the actual use of the land is crucial in determining its character. The land, once used for agriculture, ceased to be agricultural when the godowns were built, thereby changing its nature.

2. Eligibility for exemption under section 5(1)(iva) of the Wealth-tax Act:

Section 5(1)(iva) of the Wealth-tax Act provides an exemption for agricultural land. The Tribunal examined whether the land, with godowns constructed on it, qualifies for this exemption. The Tribunal referred to various judgments, including the Hon'ble Madras High Court in Gemini Pictures Circuit (P.) Ltd. v. CIT and the Gujarat High Court in Dr. Motibhai D. Patel v. CIT, which discussed the criteria for land to be considered agricultural.

The Tribunal concluded that the actual use of the land is more important than its classification in revenue records. Despite being recorded as agricultural land, the construction and use of godowns for non-agricultural purposes negated its agricultural status. The Tribunal noted that the mere absence of formal conversion or continued classification in revenue records does not suffice to maintain the land's agricultural character if it is used for non-agricultural purposes.

The Tribunal also referred to the judgment of the Hon'ble Gujarat High Court in CIT v. Sarifabibi Mohmed Ibrahim, which held that land sold for non-agricultural purposes, despite being recorded as agricultural, was not agricultural land. This supported the Tribunal's view that the land in question, used for godowns, could not be considered agricultural.

Conclusion:

The Tribunal concluded that the land on which the godowns were constructed did not qualify as agricultural land under section 5(1)(iva) of the Wealth-tax Act. The construction and use of the godowns changed the nature of the land from agricultural to non-agricultural, making it ineligible for the exemption. The Tribunal set aside the AAC's orders and restored the WTO's decision to include the value of the godowns in the net wealth of the assessee.

Judgment:

The appeals by the revenue were allowed, and the orders passed by the AAC were set aside, restoring the WTO's decision.