2016 (8) TMI 168 - HC - Income Tax

Land acquired being agriculture land - appellant s case is that the lands acquired being agricultural lands were outside the ambit of section 194L and 194LA - revenue records not to be considered as additional evidence - Held that - The appellant not having made an application for a certificate under section 197(1) of the Act cannot be precluded it from contending that it was not bound to deduct tax at source and to pay over the same in the assessment proceedings and in the appeals before the CIT(Appeals) and the Tribunal. The Tribunal further held that the assessee had made an application under section 197 and that he got a certificate from the Assessing Officer under that section vide a letter dated 25.01.2005. We had earlier referred to this letter and mentioned that it was important. What is important is that the letter was in response to an application under section 197 but only in relation to the compensation to be paid to the NRI land owners. The reply was also confined to NRIs under section 195 of the Act. No application was made under section 197 in respect of the residents of India. The order of the Tribunal, therefore, proceeds on a factually incorrect basis. The decision of the Tribunal, therefore, rejecting the application for admission of additional evidence in the form of revenue records is incorrect and based on incorrect findings of law and of fact. Even assuming that the revenue records do not conclusively establish the appellant s case that the land was agricultural land, it cannot by any stretch of imagination be held that they are irrelevant. The revenue records are relevant to the issue as to whether the lands referred to therein are agricultural lands or not. To a question as to whether his department verified whether any actual agricultural activity is being conducted on the lands, he replied that their duty is only to identify the owners of the land and that they are not concern as to whether any agricultural activity is being carried on at the site or not. The Superintendent also expressly stated that no verification is required to be made or is actually made as to whether any agricultural activity is conducted on the land or not. The Assessing Officer held that in view of this evidence the appellant had not verified at the time of disbursement of compensation whether the land in question was actually being used for agricultural purposes or not. No inference can be drawn from this evidence that the land is not agricultural land. The assessee is entitled to establish in the assessment proceedings whether the land is agricultural land or not. - Decided in favour of assessee

Summary

Issues Involved:
1. Whether the Tribunal erred in not allowing revenue records to be considered as additional evidence.
2. Whether the revenue records should have been considered to determine if the acquired land was agricultural land.

Issue-wise Detailed Analysis:

1. Whether the Tribunal erred in not allowing revenue records to be considered as additional evidence:

The appellant, a local authority, challenged the Income Tax Appellate Tribunal's decision which upheld the Commissioner of Income Tax (Appeals) order regarding the assessment year 2005-06. The primary contention was that the Tribunal did not admit additional evidence, specifically revenue records, which the appellant procured after the assessment order. These records were essential to establish that the lands acquired were agricultural lands, thus outside the ambit of section 194L and 194LA of the Income Tax Act, 1961. The Tribunal rejected this application on the grounds that the appellant had not produced any material to rebut the statements made by its employees, the Patwari and the Superintendent, who had indicated otherwise during the survey.

The High Court found the Tribunal's reasoning flawed. The Tribunal incorrectly interpreted that the definition of "agricultural land" should be determined with reference to section 2(14) of the Act, which does not define "agricultural land" but rather "capital asset." The High Court clarified that absent specific definitions in the Act, terms should be understood in their general sense as commonly understood. The Tribunal's decision to reject the revenue records was based on an incorrect understanding of the law and facts.

2. Whether the revenue records should have been considered to determine if the acquired land was agricultural land:

The appellant argued that the lands acquired were agricultural and thus not subject to TDS under section 194LA. The Tribunal's refusal to admit revenue records as additional evidence was based on the incorrect premise that the definition of "agricultural land" is provided in section 2(14) of the Act. The High Court emphasized that the Income Tax Act does not define "agricultural land" and that such terms should be interpreted in their common parlance.

The Tribunal's assertion that the appellant's remedy was to approach the competent authority under section 197 of the Act or pay the income tax and seek a refund was also erroneous. Section 197 allows an assessee to apply for a certificate for lower or no deduction of tax, but it does not mandate such an application. The appellant's failure to apply under section 197 does not preclude it from contesting the tax deduction in the assessment proceedings.

The High Court highlighted that the revenue records were relevant to determining whether the lands were agricultural. The Tribunal's decision to reject these records was incorrect. The statements from the appellant’s employees, which the Tribunal relied upon, did not conclusively prove that the lands were not agricultural. The Patwari's and Superintendent's statements only indicated that they had not verified whether agricultural activities were conducted on the lands, which is not determinative of the land's agricultural status.

Conclusion:

Both questions of law were answered in favor of the appellant. The High Court allowed the appeal, set aside the Tribunal's order on these issues, and directed the Tribunal to hear the matter afresh, permitting the appellant to present further evidence, including revenue records, to establish whether the lands were agricultural. The Tribunal must consider these records, subject to verifying their genuineness.