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TMI Blog2014 (10) TMI 353X X X X Extracts X X X X X X X X Extracts X X X X ..... l land situated in Kakkanad village which falls in Trikkakara panchayat does not fall within the definition of capital asset u/s 2(14) of the Act. Land agricultural or not – Held that:- Section 10(37) was introduced with a view to mitigate the hardship faced by the farmers whose agricultural land situate in specified urban limit has been compulsorily acquired - in respect of the agricultural land which was used for agricultural purpose during the two years immediately preceding the date of compulsorily acquition under any law or transfer for a consideration which was determined or approved by Central Government or Reserve Bank of India, then such capital gain would not form part of the total income of the assessee - section 2(14) has to be interpreted strictly - Therefore, the requirement using the land for two years immediately preceding the date of transfer cannot be a pre-condition for the purpose of section 2(14) of the Act - what is required for section 2(14) is connection with agricultural purpose. The assessee has not applied for conversion of land for non agricultural purpose - The land is classified as agricultural land and the village officer certified that the land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... K. John for the Respondent. ORDER N.R.S. Ganesan, Judicial Member - All the appeals of five different assessees are directed against the respective orders of CIT(A). Since common issue arises for consideration in all the appeals, we have heard all the appeals together and dispose of the same by this common order. 2. In all these appeals, the common issue arises for consideration is with regard to computation of capital gain on sale of the land. All the assessees' claim that the land which was sold / acquired by government is agricultural land within the meaning of section 2(14) of the Income-tax Act, therefore, exempt from capital gain tax. However, the revenue contends that the land in question was not agricultural land even though it was classified so by the state government, therefore, the assessee is liable to pay capital gain tax. 3. Shri K.K. John, the ld.DR submitted that the assessee, Shri M.J. Thomas in ITA No.311/Coch/2011 owned and possessed 4.448 acres of land in survey No.647/1, 646/6, 646/5 and 646/4 at Kakkanad village. The said land was compulsorily acquired by Government of Kerala under Land Acquisition Act during the year under consideration. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for the purpose of claiming exemption it is not enough to show that the land was once agricultural land but the assessee should further prove that it was agricultural land at the time of transfer. The Special Leave Petition filed against the Kerala High Court judgment in Kalpetta Estates Ltd (supra) was dismissed by the Supreme Court. The ld.DR has also placed reliance on the judgment of the Madras High Court in the case of Wilfred Pereira Ltd vs CIT (1984) 53 ITR 474 (Mad) and the judgment of the Gujarat High Court in Ranchhodbhai Bhaijibhai Patel (1971) 81 ITR 446 (Guj). According to the ld.DR, the intention of the assessee to use the land for agricultural purpose at the time of acquisition or afterwards is immaterial. The question is at the time of transfer of capital asset whether the land is an agricultural land or not? The crucial aspect, according to the ld.DR is whether the land is agricultural land or not?. In this case, this crucial aspect was not proved by the assessee. Referring to the judgment of the Kerala High Court in Smt. Asha George vs ITO ITA 542/Coch/2011, the ld.DR submitted that the Village Officer s certificate cannot be relied upon to hold that agricultura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Finance Act, 1970 with effect from 01-04-1970 the Parliament exempted the agricultural land which is situated beyond the jurisdiction of the municipality or a local body which has all trappings of a municipality, the population of which exceed 10,000. The Parliament has also extended the limits of municipality within 8 kms radius of the local limits of any municipality or local body notified by the Central Government. By Finance Act, 2013 with effect from 01-06-2013 the distance of 8 kms radius was restricted to 2 kms, 6 kms and 8 kms depending upon the population of the municipalities measured arealy. For the year under consideration the agricultural land means the agricultural land situated beyond the jurisdiction of a municipality and agricultural land beyond 8 kms radius from the local municipality notified by the Government of India. According to the ld.representative, admittedly, for the year under consideration, Trikkakara was a panchayat. In other words, Trikkakara was not a municipality for the year under consideration. It is also not a notified area. Referring to the notification issued by the CBDT dated 06-01-1994 the ld.representative submitted that in the State of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gricultural land. The ld.representtive submitted that the assessing officer had opportunity to verify the return of income filed by the assessee for the assessment years 2002-034 to 2006-07 and after calling for explanation accepted the return which disclosed the agricultural income. Even for the year under consideration the assessing officer accepted the agricultural income returned by the assessee to the extent of ₹ 6,50,000. Therefore, according to the ld.representative, on one hand the assessing officer accepted the agricultural income returned by the assessee and on the other hand, he claims that the subject land is not agricultural land. This is a contrary stand taken by the assessing officer to reject the claim of the assessee. 7. Shri Lokanathan, the ld.representative for the assessee submitted that the assessee is paying regular contribution to Kerala Agricultural Workers' Welfare Fund as an agriculturist. According to the ld.representative, the agriculturists, who cultivate the land having more than 0.5 hectares has to pay agricultural workers' welfare fund. Referring to the Kerala Agricultural Workers Act, 1974, the ld.representative submitted that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 0.5 hectares. When the Additional Tahsildar was examined for the second time, she, for the reasons known to her clarified that the workers' welfare fund was collected from the land owners irrespective of the fact that the land is agricultural land or not? According to the ld.representative, Kerala Agricultural Workers' Welfare Fund is aimed to protect the agricultural workers, therefore, only the land owners holding agricultural land, who are cultivating the same has to pay the same. Therefore, the assessing officer cannot place reliance on the retracted statement made by the Additional Tahsildar during her examination. The Principal Agricultural Officer has also confirmed that the land is a fallow land. According to the ld.representative fallow land is nothing but a land after cultivation; it was made ready for further cultivation. According to the ld.representative, when the land was cultivated with one crop it has to be made ready for another cultivation. Once the land is made ready, the agriculturists have to give a reasonable period for reclamation. This shows that the land was earlier cultivated and it was reclaimed for the purpose of next cultivation. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was taken place in this part of the area where the subject land is situated prior to land acquisition. The ld.representative submitted that the state government treated the land as agricultural land and no TDS was made on the compensation paid to the assessee. According to the ld.representative, the assessee is regularly returning agricultural income and the assessing officer accepted the same. The assessing officer, according to the ld representative for the assessee is not correct in saying that the assessee is not an agriculturist merely because he happened to be a businessman. According to the ld.representative, there is no restriction in this country to carry on agricultural activity by a businessman or other professionals. So long as the land is cultivated by the assessee irrespective of the fact that whether he is a businessman or otherwise, the land in question has to be treated as agricultural land. Therefore, the assessing officer is not justified in treating the land as non agricultural land. The CIT(A) has simply followed the order of the assessing officer without applying is mind independently. 10. On the contrary Shri K.K. John adopted the arguments advanced in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to use the land for agricultural purpose for two years immediately preceding the date of transfer is specifically excluded. In other words, according to the ld.representative, section 2(14) which defines capital asset does not require that the land should be used for cultivation for any particular period. According to the ld.representative, what is required is that the land should be an agricultural land. Once it is an agricultural land which is beyond the specified urban limit, the legislature does not specify that the land should be used for cultivation purpose for two years immediately preceding the date of transfer. Therefore, according to the ld.representaive, the legislature is clear in their mind. For the purpose of section 10(37) and 54B the use of the land for agricultural purpose is mandatory, however, for the purpose of section 2(14), the use of the land for agricultural purpose is immaterial and what is required is that the land should be classified an agricultural land. In this case, according to the ld.representative, the land is classified as agricultural land in the revenue records. What is disputed by the revenue is that the land was not used for cultivat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the ld.representative, the agricultural land continues to be an agricultural land for all practical purpose. Referring to the judgment of the Gujarat High Court in CWT v. Shashiben [2007] 288 ITR 319, the ld.representative submitted that once the land is classified as agricultural land, it would continue to be an agricultural land. If somebody thinks that the land can be put to use for some other purpose, other than agricultural purpose and purchase land for higher price and thereafter changes the use the property would not change its character in the hands of the assessee as long as the assessee does not change the use or put the land for some other purpose. In this case also, according to the ld.representative, the assessee has not put the land in question for any other purpose than agricultural purpose. The assessee has not applied to any authority for change of use. Therefore, according to the ld.representative, the CIT(A) has rightly allowed the claim of the assessee and deleted the addition made by the assessing officer. 15. On the contrary, Shri K.K. John, the ld.DR submitted that the assessee sold the land to real estate builder at a higher price. The assessing offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in respect of profit or gain arising from transfer of capital asset effected in the previous year. Therefore, for the purpose of assessment of capital gain, there shall be a transfer of a capital asset in the previous year relevant to the assessment year under consideration. Unless the asset transferred is a capital asset, there cannot be any levy of tax on the profit on sale u/s 45 of the Act. In this case, admittedly, there was a transfer of an asset in the previous year relevant to the assessment year under consideration either by sale or by compulsory acquisition by government. The question arises for consideration is whether the asset transferred / acquired is a capital asset within the meaning of Income-tax Act or not? Capital asset is defined u/s 2(14) of the Income-tax Act, which reads as follows: 2(14) capital asset means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include (i) Any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession; (ii) Personal effects, that is to say, movable property (including wearing apparel and furniture) held for p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-04-1970 by Finance Act, 1970, the agricultural land within the municipal area and within such distance not being more than 8 kms from the notified municipality was excluded from the definition of capital asset. In other words, the agricultural land within the municipal limit or within 8 kms radius of the local municipality notified is treated as capital asset. By Finance Act, 2013 with effect from 01-04-2014, the local limit within the municipal limit was further modified / amended with respect to the population of the respective municipality. For the purpose of this appeal, we have to consider the provisions of law as it existed after 01-04-1970 and before 01-04-2014. As per the definition of capital asset which existed for the year under consideration, the property situated beyond the jurisdiction of the municipal limit or beyond 8 kms radius of the notified municipal limit are all agricultural land. Therefore, the agricultural land which is situated beyond the municipal limits and beyond 8 kms from the local limits of the notified municipality is exempt or excluded from the definition of capital asset. 17. The question now arises for consideration is whether the subject mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is whether the subject land is an agricultural land or not? If the subject land is not an agricultural land then it would fall within the definition of capital asset. What is excluded is only the agricultural land and not all land. Therefore, we have to see whether the subject land is an agricultural land or not? The term agricultural land is not defined in the Income-tax Act. The Constitution of India, Article 366(1) defines agriculture income which reads as follows: 'Art.366(1). agricultural income means agricultural income as defined for the purpose of the enactment relating to income-tax.' In view of the above constitutional provision even for agricultural income we have to refer to the definition given in the Income-tax Act. In the absence of any express definition either in the Constitution of India or in the Income-tax Act in respect of agricultural land we have to take the meaning in common parlance. In common parlance, the land which is meant for cultivation is considered to be an agricultural land. This Tribunal finds a similar reference Agricultural land in Wealth-tax Act. Section 2(e) of the Wealth-tax Act, 1957 reads as follows: '2. In this A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court there should be an connection to indicate the intention of the owners or possessors so as to connect with agricultural purpose in respect of the land. The entries in the revenue record are prima facie evidence to indicate that the land in question is agricultural land. 19. We have also carefully gone through the provisions of section 10(37) of the Act which reads as follows: '10(37) in the case of an assessee, being an individual or a Hindu undivided family, any income chargeable under the head Capital gains arising from the transfer of agricultural land, where (i) such land is situated in any area referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of section 2; (ii) such land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purpose by such Hindu undivided family or individual or a parent of his; (iii) such transfer is by way of compulsory acquisition under any law, or a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India; (iv) such income has arisen from the compensation or consideration for such transfer r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity have no role to play in interpretation of taxing statute. It is also well settled that nothing could be implied and plain language used by the Parliament has to be read as such. In fact, the Apex Court in Asstt. Director of Inspection v. Kum. A.B. Shanthi [2002] 255 ITR 258 (SC) after referring to its earlier judgment in East India Tobacco Co. v. State of Andhra Pradesh AIR 1962 SC 1733 found that Parliament has power to pick and choose districts, objects, persons, methods and even rate for taxation if it does so reasonably. By applying the above principle laid down by Apex Court, section 2(14) has to be interpreted strictly. Therefore, the requirement using the land for two years immediately preceding the date of transfer cannot be a pre-condition for the purpose of section 2(14) of the Act. Hence, the judgment of the Kerala High Court in Smt. Asha George (supra) which deals with section 54B and 54F may not be applicable to the facts of the case. This Tribunal is of the considered opinion that what is required for section 2(14) is connection with agricultural purpose. 21. The next question that would follow is that whether the subject land has any connection with agricultu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hod followed by British rulers in mind, this Tribunal was of the opinion that some kind of material would be available with the state government with regard to the cultivation made by the respective owners / possessors of the land which is in question now. 23. We are conscious that cochin is an independent princely state under the Direct Administration of Cochin Maharaja during British Rule. Therefore, the forms and rules prescribed by British Authorities before Independence of India may not have been followed in the princely state of cochin. However, the princely state of Cochin is the first state who willingly joined itself with the independent India. After independence Government of India is taking statistical report about the food production in the country including the State of Kerala and projecting the statistical figure with regard to anticipated food production, anticipated demand and whether the food production would be short or excess. Therefore, in the state of Kerala also even though the subject land was situated in the erstwhile princely state of cochin, some kind of records should be available with state government atleast after independence for cultivation. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... state government. The state government, after consolidating all the reports received from the respective District Collector would forward the food production estimate to the Central Government. The Central Government, in turn, consolidates all the reports received from the respective state government and estimate the food production for the year. When this is the pattern of administration in this country, it is not known how the government in the State of Kerala is not maintaining any records for cultivation of land. If no record is maintained for cultivation of the lands then the food production in Kerala cannot be estimated. In that case, the statistical figure projected by the Government of India for food production in the country may not include the food production figure of Kerala State. This Tribunal is of the considered opinion that the Central Government will never exclude the expected food production of Kerala while estimating the food production of the country as a whole. Therefore, some kind of material would be prepared at the taluk level to record the cultivation of the lands. 2. Since the details are not forthcoming either from the assessee or from the department, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is Tribunal on or before 29-11-2013 after serving a copy of the report to the assessee. If the assessee intends to file objection to the report filed by the assessing officer, he may do so on or before 06-12-2013. The registry is directed to post the appeal for further hearing on 09-12-2013. 3. The registry is further directed to forward the copy of this order to the assessing officer and the assessee. Sd/- Sd/- ACCOUNTANT MEMBER JUDICIAL MEMBER 24. In pursuance to the remand report, the assessing officer examined the village Administrative Officer, Kakkanad, Additional Tahsildar and Agricultural Officer. For the purpose of convenience, we are reproducing remand report filed by the assessing officer before this Tribunal: No.Remand Report/C-2(2)/2013-14 Dated:29-11-2013 To The Assistant Registrar, Income Tax Appellate Tribunal, Cochin Bench, Cochin Sir Sub: Calling for remand report in the case of - Sri M.J. Thomas for the Asst.Year 2007-08-reg.- Ref: ITA No.311/Coch/2011 dated 08/10/2013 Ki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn more than 50 ares and less than 100 ares of land, and ₹ 20.00 per annum from land owners who own more than 100 ares of and. An attempt was made by the assessee to equate this levy with agriculturists as it is a levy collected on behalf of agricultural labourers. However both the Village Officer and the Additional Tahsildar categorically stated that it is collected in a routine manner from all the land owners who own more than a threshold limit and not restricted to agriculturists alone and also that this levy has not been collected since 31.03.2005 in Kakkanad village. 4. The Village Officer deposed that he maintains no register except for Basic Tax Register (BTR) and Kerala Agricultural Workers Welfare fund (KAWWF). BTR records the basic character of land as 'Nilam' or 'Purayidom' which is 'wet land' and 'dry land' respectively. The wet land can be agricultural land which is paddy or otherwise and all other lands which are either water logged or likely to be water logged at some point of time in an year and also fallow land and also that they had no means of ascertaining whether this particular piece of land was fallow, cultivable or cul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of land lying in Sy.Nos.645/4, 646/4, 646/5 646/6 and 647/1 amounting to total area of 173.08 ares may be considered as allow land, not cultivated and not agricultural land. Yours faithfully, Sd/- (V. SRIVIJAY) Assistant Commissioner of Income-tax Circle-2(2), Kochi Encls: 1. Copy of the reply of the Principal Agricultural Officer, Ernakulam 2. Copy of the reply of the Additional Tahsildar, Kanayannur Taluk. 3. Copy of the statement recorded from the Principal Agricultural Officer, Additional Tahsildar and Village Officer. 4. Copy of the levy collection report of Kerala Agricultural Labourer Welfare Board. 25. In order to give an opportunity to all the assessees copies of the remand report alongwith its enclosures were furnished to all the assessees. The assessee in the case of M.J. Thomas has filed his objections / reply. In respect of all other assessees they have not filed any reply. On a query from the bench, why they could not filed their reply / objection, they simply said that the remand report filed by the assessing officer is not against the assessees and the assessing officer has clarified that no records are maintained by the state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ltivation. The records available with the state government are only the register for collection of contribution towards Kerala Agricultural Workers' Welfare Fund, Basic Tax Register and the classification of land as agricultural land. Apart from these, there is no other material available with the state government. If that is so, it is not known how the food production of the state was estimated so as to ensure sufficient supply of food to the people of the state. The fact remains is that the revenue could not produce any evidence for cultivation of land maintained by Government of Kerala. From the remand report filed by the assessing officer the food production of the state appears to have been estimated on the basis of the farmers, who were registered on the records of paddy field without considering the actual cultivation. Therefore, the state government for the purpose of food production considers the paddy fields and the agriculturists as a basis for food production. In those situations, the assessee has produced certificates from the village officer to show that the subject lands were under cultivation. This Tribunal is of the considered opinion that in the absence of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le for treating the land as capital asset u/s 2(14) of the Act. Therefore, as observed earlier, what is required is the connection between the land and the agricultural purpose and if the land is cultivated in any of the earlier years, this Tribunal is of the considered opinion that the land has to be treated as agricultural land. The material evidence produced by the assessees are - (i) the certificate issued by the Village Officer; (ii) certificate issued by the Agricultural Officer; (iii) classification of land by state government as agricultural land; (iv) receipt for payment of contribution to agricultural workers' welfare fund; and (v) Basic Tax Register. From these materials, it appears that the state government has classified the subject land as agricultural land. The government is collecting tax as agricultural land which is evident from the Basic Tax Register. The assessees are also contributing towards Agricultural Workers' Welfare Fund. The Village Officer certified that the subject lands were subjected to cultivation. In those circumstances, this Tribunal is of the considered opinion that the subject lands were agricultural lands beyond the municipal limits or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of business. Therefore, the interest payable by the assessees may be liable for deduction as business expenditure. However, it cannot be deducted from the interest received on the fixed deposits. The Apex court in the case of Dr. V.P. Gopinathan (supra) considered an identical situation and found that interest paid under such circumstances cannot be deducted from the interest on the fixed deposit. Therefore, the CIT(A) is not justified in allowing the claim of the assessees. By respectfully following the judgment of the Apex Court in the case of Dr. V.P. Gopinathan (supra), the orders of the CIT(A) on this issue are set aside and that of the assessing officer are restored. 34. Now coming to the assessee's appeal in ITA No.224/Coch/2011 in the case of Shri M.J. Thomas, the assessee has raised an issue with regard to commission. The only contention of the assessee is that the payment of commission was disallowed on the basis of the statement recorded from third parties. According to the ld.representative, the assessing officer had not furnished to the assessee the copies of the statements recorded from third parties. However, the same were used to disallow the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has furnished the permanent account number of the lender, statement of bank account to the CIT(A). On the basis of the material said to be filed before the CIT(A), he allowed the claim of the assessee. According to the ld.DR, the assessee has not established the genuineness of the transaction and the creditworthiness of the creditor, therefore, it cannot be allowed. 38. On the contrary, Shri R Lokanathan, the ld.representative for the assessee submitted that the assessee has produced a copy of the bank statement from Indusind Bank, Kakkanad from where the money was transferred to the account of the assessee. According to the ld.representative, the assessee has furnished permanent account number of Mrs. Sunitha Elizebath George. Therefore, according to the ld.representative, the genuineness of the transaction was also proved; hence, the CIT(A) has rightly allowed the claim of the assessee. 39. We have considered the rival submissions on either side and also perused the material available on record. The assessee claims that ₹ 97 lakhs was received as temporary loan from Mrs. Sunitha Elizebath George. The source for Mrs. Sunitha Elizebath George is said to be t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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