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TMI Blog2015 (1) TMI 563X X X X Extracts X X X X X X X X Extracts X X X X ..... of which, any process mentioned in Sections 2 (1A) (b) (ii) and (iii) is carried on. This definition of ‘building’ as seen above, does not get attracted to the present case. Thus, since the godown building in question does not come within the definition of ‘building’ as contained in Section 2 (1A) (c), the income therefrom cannot be held to be agricultural income with the help of Explanation 2 to Section 2 (1A). As it is seen that the explanation offered by the assessee before the Assessing Officer was accepted by the Assessing Officer without dealing with as to how such explanation was acceptable as assessment order states only that as it was noticed that the income derived by the assessee was letting out of godowns, it was required to explain as to why its income should not be assessed as income from ‘House Property.’ The assessee has filed a detailed written reply in this behalf wherein the assessee has relied upon the provisions of section 2 (1A) (c) of the Income-tax Act, 1961. Having considered assessee’s reply, the assessee’s claim of agricultural income is accepted. Thus, the assessment order is a non-speaking order. The CIT’s Order, per contra, is a detailed order, evincin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . By virtue of the impugned order dated 24.03.2009, the ld. CIT held the assessment order to be erroneous and prejudicial to the interests of the revenue and that the income of the assessee from the letting out of godown was an income assessable as income from house property. Such income was computed at ₹ 7,27,793/-. 4. Aggrieved, the assessee has filed the present appeal. 5. Challenging the impugned order, the ld. Counsel for the assessee has made oral arguments and has also filed written submissions. It has been contended that the ld. CIT acted without jurisdiction in initiating proceedings u/s 263 (1) of the IT Act, failing to appreciate that the twin conditions envisaged in the said Section, i.e., the assessment order being erroneous and prejudicial to the interests of the revenue, did not exist, due to which reason, the provisions of Section 263 (1) of the Act could not have been invoked; that in doing so, the ld. CIT failed to appreciate that the Assessing Officer, during the assessment proceedings, duly examined the claim of the assessee that the income was derived by the assessee firm as an income from agriculture within the meaning of Section 2 (1A) (c) of the Act; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,07,909/- allowed by the CIT and depreciation on the godown building also needs to be directed to be allowed; and that lastly, the CIT himself having held that there was no business carried on by the assessee firm, there was no legal existence of the firm during the year and as such, no assessment at all could have been made in the hands of the assessee firm. 6. The Ld. DR, on the other hand, has sought to place strong reliance on the impugned order. It has been contended that as rightly held by the ld. CIT, whereas the building of the godown is owned by the assessee firm, the land underneath is owned by the three partners of the assessee firm; that therefore, the ownership of the godown building vests in the firm and that of the land vests in the partners of the firm; that the Assessing Officer wrongly treated the rental income earned by the assessee firm from the letting out of the godown as agricultural income; that the agricultural land was not owned by the firm and the assessee firm, during the year, did not carry out any agricultural activity thereat in accordance with Section 2 (1A) of the Act; that then, the tenants were using the godown for business purposes; that since t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cultural Income hence its income are assessed as agricultural Income. It is also clarified that as per agreement of partnership dated 1.4.05 and partnership deed dated 25.11.05. Following points are also considerable. * Point No.-1 that the partnership is in effect from 1st day of January 2005. * Point No.-8 that the partners agree that the Income of existing Godown owned by the partners will also be included in the Income from this firm. So Income of the existing Godown is also included in the Income of the firm and all assets and liabilities of the existing Godown also included in the assets and liabilities of the firm." 8. Thus, in its reply dated 23.11.2006 (supra), the assessee firm submitted before the Assessing Officer, inter alia, that as per the Partnership Deed, the partners of the assessee firm had agreed that the income of the existing godown owned by the partners would also be included in the income of the firm and that the assets and liabilities of the existing godown would be included in the assets and liabilities of the firm; and that the existing godown had been let out for storage of agricultural produce only and so, the income derived by the assessee firm f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nity of the land, and is a building, which the receiver of the rent or revenue or the cultivator, or the receiver of the rent-in- kind, by reason of his connection with the land, requires as a dwelling house, or as a storehouse, or other out- building. Sub-clause (c) - Any income derived from any building provided - (a) the building owned or occupied in the following manner: (i) Building is owned and occupied by at the receiver of rent or revenue of any such land; or (ii) Building is occupied by the cultivator or the receiver of rent-in-kind; (b) The Building is situated on or in the immediate vicinity of land situated in India and used for agricultural purposes. (c) The building is required as a dwelling house, store house or other out-building by the cultivator or receiver of rent or rent-in-kind [such requirement being due to his connection with the land], and (d) Land is either assessed to land revenue in India, or is subject to a local rate. If this is not the case, then the land is situated in an urban area, i.e., (i) In any area comprised within the jurisdiction of a municipality, or a cantonment board having a population of not less than 10,000 as per the last prece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the provisions of law is in all respects an erroneous order. This is a simple rule that an error is error whether committed after application of mind or otherwise; whether committed after considering the facts of the case and arguments put forth before the authority or without considering the same." 16. From the above extracted portions of the order under appeal, it is evident that jurisdiction u/s 263 of the Act was invoked by the ld. CIT for the reason that in his opinion, the view entertained by the Assessing Officer regarding the treatment of the rental income earned by the assessee firm as agricultural income, was not in accordance with the provisions of Section 2 (1A) (c) of the Act. 17. Now, it stands well settled that it is only if the Assessing Officer has taken a view patently unsustainable in law, that power u/s 263 can be exercised, where the taking of such an erroneous view results in loss of revenue, thereby satisfying the twin requisite conditions of erroneous assessment order and prejudicial to the interests of the revenue, for invocation of Section 263 of the Act. On the other hand, if the view taken by the Assessing Officer is a view possible in law, power u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on : Provided that-- (i) the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land, requires as a dwelling house, or as a store-house, or other out-building, and (ii) the land is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of the Government as such or where the land is not so assessed to land revenue or subject to a local rate, it is not situated-- (A) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; or (B) in any area within such distance, not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t situated within any area defined in Clauses (A) and (B) to Proviso (ii) to Section 2 (1A) (c), i.e., any urban area. 22. The first requirement of the Section is 'any income derived from any building owned and occupied by the receiver of the rent or revenue of such land.' Therefore, any income derived from any building owned and occupied by the receiver of the rent or revenue of any land situated in India and used for agricultural purposes means 'agricultural income' within the meaning of first phrase of Section 2 (1A) (c). Now, admittedly, the assessee firm is not the receiver of the rent or revenue of the land beneath the godown building. As noted by the ld. CIT in para 2.4 of the order under appeal, in the assessee's letter dated 21.10.2008, the assessee stated that it fulfilled all the conditions of agricultural income (see APB 28, first para). But as to how this is so, has never been brought out. In this regard, the ld. CIT has noted (page 5, second para, second sentence of the impugned order), "since the firm does not own the land, it is proved not to be the receiver of the rent or revenue of such land." Then, the requirement of the phrase is that the income should be deriv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market, was performed [the requirement of Section 2 (1A) (b) (iii), as envisaged by Section 2 (1A) (c)]. 24. As such, the ld. CIT has also correctly observed in this regard (impugned order page 5, para 5.3, eighth to ninth sentences), that - "hence the first part of second limb is not satisfied. Neither firm nor tenant is receiver of rent in kind of any land also and hence the second part of second limb is also not satisfied." Against this finding of the ld. CIT also, no challenge has been raised by the assessee. 25. Section 2 (1A) (c) is followed by two Provisos. These Provisos are :- "Provided that-- (i) the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land, requires as a dwelling house, or as a store-house, or other out-building, and (ii) the land is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of the Government as such or where the land is not so assessed to land revenue or subject to a local rate, it is not situated-- (A) in any area which is comprised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the Assessing Officer in any of its replies dated 23.11.2006, 08.02.2007 and 31.03.2007, other than giving the legal provisions. Even in its reply dated 21.10.2008 before the ld. CIT in response to the notice issued u/s 263 of the Act, the assessee merely stated (APB 28, first para, first sentence) that "because our firm fulfill all the condition of agricultural Income hence its income are assessed as agricultural Income." It was in its further reply dated 15.12.2008 (APB 30-33) before the ld. CIT, that the assessee submitted (APB 32) that:- "As regards location of godowns…….it is submitted that we are enclosing map of godowns with location which is existing adjacent to agricultural fields as surrounded by agricultural lands." 30. The ld. CIT has not dealt with this aspect of the matter in the impugned order. However, we are going into it since it is required for determining as to whether the view taken by the Assessing Officer was a view taken in accordance with law, i.e., the provisions of Section 2 (1A) (c) of the Act. 31. Before us, it has been contended on behalf of the assessee (page 5, para 2, eighth line of the assessee's written submissions/brief synop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Now, coming to Proviso (ii) to Section 2 (1A) (c). As per this Proviso, the land should either be assessed to land revenue in India or it should be subject to a local rate and where it is not so assessed, it should not be located within any urban area, as defined in Clauses (A) and (B) of Proviso (ii). 35. In this regard, vide reply dated 15.12.2008 (APB 30-33), filed by the assessee before the ld. CIT, the assessee stated (APB 32): "as regards location of godowns and situation from Municipal limits…………. - it is situated away from the city as also mentioned in the map enclosed for your kind consideration." 36. Before either of the authorities below, no submission was made by the assessee in any of its replies. The ld. CIT has also not gone into this issue. 37. From the assessee's reply dated 15.12.2008 (relevant portion extracted above), it comes out that the stand of the assessee in this regard is that the land in question is situated away from the city. However, this is insufficient to show either that the land is not situated in an urban area within the jurisdiction of a Municipality, etc., as envisaged by Clause (A) to Proviso (ii), or that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .794 dated 9th August 2000. The explanation only clarified that any Income arising from the use of such building for any purpose other than agriculture shall not be included in the definition of agricultural income. For example if a person has income from using such building for residential purpose or any other similar purpose, then such income cannot be treated as agricultural income. In other words in light of the scope ambit and intent of the Explanation as described in the explanatory circular the provision as contained in the explanation-2 to section 2 (1A) is perused, it would be seen that the Explanation-2 clarifies that the building as is situated on and in the vicinity of agricultural land should be used for the purposes of agriculture falling in item (a) or item (b) in (1A) of this section. A perusal of the above would show that to claim the income of any building of the agricultural land and in the vicinity thereof, an activity as is stated either in clause (a) OR clause (b) should be conducted by the assessee. In the present case the assessee conducts what is stated and contemplated in clauses (b) which is being submitted below for favourable consideration. Clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upier, the second for the building and third for the land are to be satisfied. Therefore contention of the counsel as reproduced in the para above that income falling within definition under clause 2 (1A) would be agriculture income and exempt from tax as such, how so ever and by whom so ever it may received, is not correct." 45. In the written submissions before us, the assessee contends (page 5, para 2) that "… and further Explanation-2 does not hit the submissions of the assessee.", and (para 6, page 8) that: "It is further most humbly submitted that if the receipt of rent is on performance of any process ordinarily employed by a cultivator or receiver of rent, will also be an income from agriculture, it is submitted that such an income, is in the nature of sub clause (ii) & (iii) of clause (b) of section 2 (1A) of the Act. Explanation 2 of the section cannot be invoked. It is most humbly submitted that the aforesaid explanation would come into operation only when, it does not pass the aforesaid test. Therefore, it is most humbly submitted that the test to determine the nature of receipt is whether the same passes the test as is provided in sub clause (ii) & (iii) of cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that, what would come about is a stark violation of the provision. And that is just what has happened here. The unequivocal requirement of Section 2 (1A) (b) (ii) is that the performance of "any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to the market" must be by a cultivator or receiver of rent-in-kind. In fact, the clause opens with these emphasized words. To reiterate: "2(1A): "agricultural income" means (b) any income derived from such land by-- ………. (ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to the market;" 49. Now, the specific self-avowed stand of the assessee in this regard as evident from its Written Submissions dated 05.03.2009 (APB 34-36) filed by it before the CIT, which Written Submissions, as per the assessee itself, as noted hereinabove, were not taken on record by the CIT, is this: "In the present case the assessee conducts what is stated and contemplated in clauses (b) whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly in this behalf wherein the assessee has relied upon the provisions of section 2 (1A) (c) of the Income-tax Act, 1961. Having considered assessee's reply, the assessee's claim of agricultural income is accepted." 53. Thus, the assessment order is a non-speaking order. The CIT's Order, per contra, is a detailed order, evincing how the view taken by him is a view which is in accordance with law, as against the Assessing Officer's view, which is not a possible view in law, much less a plausible one. Therefore, the grievance of the assessee in this regard is rejected and the action of the ld. CIT in holding the assessment order to be an erroneous order prejudicial to the interests of the revenue is confirmed. 54. Now, coming to the various alternative contentions raised by the assessee, we have heard both the parties. In our considered view, the issue of assessability of income under a particular head prescribed by the IT Act is an issue basically concerned with assessment. The Ld. CIT, after finding the order passed by the Assessing Officer to be erroneous and prejudicial to the interests of the revenue, ought to have set aside the matter to the Assessing Officer to decide the hea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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