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TMI Blog2015 (11) TMI 951X X X X Extracts X X X X X X X X Extracts X X X X ..... he co-ordinate bench of the Tribunal and hold the said land to be not urban land exigible to capital gains tax. Since we have held the land to be not ‘urban land’ and not exigible to wealth-tax, the issue of valuation of capital asset becomes academic and therefore is not adjudicated at this stage. X X X X Extracts X X X X X X X X Extracts X X X X ..... nd clearly shows that the assessee was aware of the reasons for reopening. Therefore, according to him, there was no justification in setting aside the assessment order by the CiT(A). In support of his contention, he placed reliance upon the following judgments: i. (2014) 221 Taxman 25 (Kar.) Aru G Toppannavar vs. CIT, Belgaum, wherein it was held that reopening is valid where detailed order is passed by the AO in which reasons were recorded for reopening of the case; ii. 8 ITD 141 (Mds) II Wealthtax Officer vs. Suresh Khanna; iii. 110 ITD 24 (Datamatrics. Vs. ACIT) 5. The learned counsel for the assessee, on the other hand, supported the order of the CIT(A) and submitted that the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. ITO (259 ITR 19) has clearly held that where the assessee, after filing return of income pursuant to the notice for reopening of the assessment, asked for the reasons recorded, the AO has to supply the reasons for such reopening and if the assessee files objections to such reopening, the AO has to dispose of the same before proceeding with the re-assessment proceedings. He submitted that in the case before us, though the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra) that once a notice under section 148 is issued, the assessee has to file the return of income in response thereto and thereafter may request the Assessing Officer to furnish the reasons recorded for initiation of proceedings under section 147 / 148 of the Act which the Assessing Officer is bound to provide within a reasonable period of time so that the assessee could file its objections thereto and which the Assessing Officer has to dispose off by way of a speaking order thereon. 14.4 In the case on hand, we find that the assessee had filed its return of income for Assessment Year 2002-03 on 28.10.2002. In response to the notice under section 148 of the Act dt.31.3.2005, the A.R. of the assessee vide letter dt.27.4.2005 requested the Assessing Officer to treat the return filed on 28.10.2002 as having been filed in response to the notice issued under section 148 of the Act and therein also requested for provisions of the reasons recorded for initiating proceedings under section 148 of the Act. The failure of the Assessing Officer in providing the assessee with the reasons recorded for initiation of proceedings under section 148 of the Act, within a reasonable period of time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this view of the matter, we hold that the order of assessment passed under section 143(3) rws 148 of the Act dated 29/12/2008 for the assessment year 2005-06 without the Assessing Officer furnishing the recorded reasons for initiation of proceedings under section 147/148 of the Act to the assessee within reasonable time and prior to the completion of the assessment proceedings, renders this order of assessment invalid and unsustainable in law." The above referred decision of the co-ordinate bench of this Tribunal in the case of Synopsys International Ltd. (supra) is squarely applicable to the facts of the instant case of the assessee. In the case on hand also, the reasons recorded by the Assessing Officer for initiating proceedings under section 147 / 148 of the Act were not furnished to the assessee by the Assessing Officer during the pendency of assessment proceedings, in spite of being requested to do so by the assessee's letter dt.27.4.2005, 22.6.2005 and 27.3.2006. The reasons as recorded by the Assessing Officer were furnished to the assessee by the learned CIT(Appeals) by letter dt.13.2.2009 as recorded in his appellate order at para 4.3 at page 11 thereof. In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant details, the Tribunal, at paragraphs 7 to 9 (on pages 9 to 42), has come to the conclusion that the land is not a capital asset u/s 2(14) of the IT Act. The relevant portion is reproduced hereunder: 7. Aggrieved, the assessee has come up before us with the present appeal. During the course of hearing, the submissions made by the learned AR are summarized as under: That the agricultural lands to an extent of 6 acres and 1 gunta situated at Akkalenahalli - Mallenahalli of DevanahalliTaluq was converted. However, the assessee continued to cultivate the crops and was earning agricultural income from it. During the assessment year under consideration, the assessee had sold the same to M/s. ETL Corporate Services Private Limited, for a sum of ₹ 45,58,12,500/-; That the subject land was a part of around 600 acres of lands known as 'Gokula Farm'being jointly cultivated by the family consisting of 10 children of Late Sri M.S. Ramaiah; and that the farm was a fully grown orchard comprising various fruit bearing trees besides seasonal crops such as tomato, pepper, ragi, paddy etc., and the income admitted by the assessee as agricultural income for the AYs 2004-05 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date of conversion order, the conversion becomes null and void. Since the land continued to be for agricultural purposes and, thus, the said land was not put to non-agricultural use and, thereby, the land has retained its original nature of being an agricultural land; Relies on the following case laws: (i) H.S.Vijayakumar v. ACIT - ITA No.108/Bang/2005 dated 28.11.2006; (ii) Hindustan Industrial Resources Ltd v. ACIT - 221 CTR 710 (Del); & (iii) M.S. SrinivasaNaicker v. ITO 292 ITR 481 (Mad) That the case laws, namely, (i) C Hanumantappa, s/o Chinnappa v. State of Karnataka 2007[4Kar LJ 394] and (ii) the judgment of the Hon'ble jurisdictional High court in MadhavBhandopanthKulkarni&Anr v. the Land Tribunal, Belgaum &Ors [5 Kar LJ 13] relied on by the CIT (A) were distinguishable as the facts of the above cited cases were not comparable to the assessee's case as the assessee has been carrying on agricultural activity even after the conversion of land; That without prejudice, the subject land was an agricultural land and was not a capital asset within the meaning of s 2(14); assuming but not conceding, if one were to accede with the reasoning of the CIT (A) that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided in Part IX dealing with Panchayats and that the definitions of each of the referred Part of the Constitution has to be strictly interpreted; That the CIT (A) had failed to appreciate that both Panchayats and Municipalities perform similar functions viz., municipal functions. If all bodies performing municipal functions were to be treated as Municipalities, then there wouldn't be any land excluded from the definition of s. 2(14) of the Act as (in the country) lands will fall either under Municipality or Panchayat both of which perform Municipal functions; With regard to the CIT (A)'s assertion from the byelaws of BIAAPA that it is entrusted with several municipal functions, particularly, in relation to land use, zoning, town planning etc., it was contended that BIAAPA performs only planning and zoning functions and does not perform any other municipal functions. Other major municipal functions were required to be performed by the respective municipalities/panchayats within the ambit of the area covered by BIAAPA and, thus, BIAAPA was a mere planning authority; Disputing the CIT(A)'s averment that municipality need not necessarily be an elected body, it was contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re distinct bodies. Panchayat operates in aPanchayat area as defined in Article 243(d) of the Constitution whereas a Municipality operates within the Municipal area as defined in Article 243P(d) of the Constitution. As there was a clear demarcation of the areas, any land falling within a Panchayat area cannot be a part of the Municipal area, and, thus, the disputed land was not a capital asset within the meaning of s. 2(14)(iii)(a) of the Act Relies on the following case laws: (i) K Parameshwaran v. ITO - 7 TTJ 194 - ITAT, Chennai; (ii) ITO v. Venkataramana - 46 TTJ 706 - ITAT, Hyderabad; (iii) CIT v. P J Thomas - 211 ITR 897 (Mad) In conclusion, the learned AR pleaded that - (i) The subject land was an agricultural land and, thus, not liable to taxation; (ii) The CIT (A) had failed to appreciate that the conversion of land does not affect the character of it being agricultural land and more so when an extensive cultivation was being carried out and income from agriculture derived from the said land has been accepted by the Department; (iii) Without prejudice, the cost of acquisition in terms of s. 49 of the Act ought to have been taken as on the date of con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erative…. v. State of Karnataka [ILR 1995 KAR 2230, 1995 (6) KarLJ 46 dt. 5.7.1995]. With regard to BIAAPA, the Revenue had placed its strong reliance on the judgment of the Hon'ble Punjab & Haryana High Court in the case of CIT v. Smt Rani Tara Devi (2013) 214 Taxman 321 [P & H] when the agricultural land becomes a capital asset. 7.2. We have carefully considered the rival submissions, perused the relevant materials on record and also the various judgments of judiciary on a similar issue relied on by either of the party. The assessee-HUF had sold lands situated at Akklenahalli and Mallennahalli villages of DevanahalliTaluk to an extent of 6 acres and 1 gunta for a total consideration of ₹ 45,58,12,500/- vide a registered Sale Deed dated 12.4.2007 and, accordingly, admitted an income of ₹ 14,17,87,795/- as Capital Gains from the above transaction in its original return of income furnished to the Department. Subsequently, in its revised return of income dated 15.6.2009, the assessee had admitted income of ₹ 22,90,570/-, on the ground that the capital gains which arose on the sale of the said lands was wrongly offered in the original return in as much as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nversion, the order of conversion stands cancelled. Apparently, the assessee had continued the agricultural operations in the converted lands also which is evident from the fact that incomes derived from such agricultural operations on the said lands declared by the assessee in its returns of income were accepted by the revenue for the AYs 2004-05 to 2009-10 (supra). No evidence was brought on record by the Revenue to suggest that the subject lands were utilized for any other purposes other than that of cultivation after conversion. This is evident from the fact that the incomes derived from such lands duly declared by the assessee which were accepted by the revenue. 7.2.5. Incidentally, the subject property was inspected on 10-4-2014 by us accompanied by the learned DR, the AO and the learned AR of the assessee. During the course of inspection, we have noticed that the subject property was a part of large track of land having agricultural operations which consist of fully grown up fruits-yielding trees such as mangoes, sapota, coconut, jack-fruit, apple, guava etc., appear to be existing in the subject property even on the date of sale. This clearly attributes the assessee's as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant time? (iii) Whether such user of the land was for a long period or whether it was of a temporary character or by any stop gap arrangement? (iv) Whether the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land? (v) Whether the permission under Land Revenue Code was obtained for the non-agricultural used of the land, if so, when and by whom [the vendor or the vendee]; whether such permission was in respect of the whole or a portion of the land; if the permission was in respect of a portion of the land and if it was obtained in the past, what was the nature of the user of the said portion of the land on the material date; (vi) Whether the land, on the relevant date, had ceased to be put to agricultural use, if so, whether it was put to an alternative use; whether such ceaser and / or alternative user was of a permanent or temporary nature; (vii) Whether the land, though entered in the revenue records, had never been actually used for agriculture, that is, it had never been ploughed or tilled; whether the owner meant or intended to use it for agricultural purposes? (viii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that as per the mandatory conditions mentioned in the Certificate of conversion, if the subject land was not put to nonagricultural use within a period of two years from the date of conversion order, the conversion itself will become null and void. In this connection, the learned AR had placed strong reliance on the judgment of the Hon'ble Jurisdictional High Court in the case of CIT v. Smt. K.Leelavathy (supra). 7.3.1. It is a fact that the land which was hitherto agricultural land does not automatically become a capital asset upon a mere fact of its conversion to non-agricultural purpose. The land even though converted for nonagricultural purpose, continues to be agricultural land and does not become a capital asset u/s 2 (14) of the Act, if agricultural activities were being carried out on such a land as on the date of its sale despite a fact that the land stands converted for non-agricultural purpose. 7.3.2. In the present case, as already discussed, even though the subject property was converted for nonagricultural purpose vide Conversion Order dated 19.7.2004, the assessee continued the agricultural operations in the converted lands which was evident on our site visit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue records to show that ragi and horse gram were grown on the said land. The reasons recorded by the assessing officer as well as the CIT (A), to our mind, are not relevant for coming to the conclusion as to whether a particular asset is a capital asset within the meaning of sec. 2 (14) of the Incometax Act. The issue whether a particular land is agricultural land or not has been the subject matter of dispute in many a cases. In each of the judgments broad outlines have been given and it is suffice to say that the unanimous view of all the Hon'ble Courts is that the issue should be decided on the facts and circumstances of the case. As we find that the facts of the case clearly point out that the land in question continued to be agricultural land and was put to use as such, prior to sale to Indian Oil Corporation, despite the permission obtained from the concerned authorities, we accept the contention of the assessee and hold that agricultural land in question are not a capital asset and, thus, the levy of capital gains is bad in law. 6.5. Before parting, we feel that mere evidences of Government Notification or orders on a likely use of a particular land would not ipso fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal had opined that the land retained its agricultural character till the date of order permitting non-agricultural use and, thereafter, it is not an agricultural land and, therefore, can be treated as capital asset. 7. The Appellate Commissioner as well as the Tribunal has applied this norm and while they did hold that the sale transaction in respect of the following extent of land: Conversion NotificationNo. and date Sy.No. Extent of area Date of sale Sale consideration No.ALNSR/94/98-99 DT.29.4.1999 75 77 3A 38G 3A 00G 7.4.2004 ₹ 50,00,000 No.ALNSR/8/2004-05 DT.10.5.2004 15.15 16 17 86.1 87 0A 10G 4A 14G 2A 17G 5A 31G 5A 12G 23A 22G 2.6.2004 Rs.1,82,50,000 Total Rs.2,32,50,000 In respect of the sale transaction dated June 2,2004, it was taken as a sale of capital asset as this sale was after the date of permission for non-agricultural use granted by the Asst. Commissioner, viz., after May 10,2004, whereas the earlier sale transaction dated April 7, 2004, is held to be in respect of an agricultural land. We do not find the reasoning and the principle enunciated by the Tribunal for making a distinction as to whether the land was agricultural land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ural income of the group at ₹ 56 lakhs. Therefore, it is difficult to come to the conclusion that in the hands of the assessee, the character of the land had changed. Merely because the original owners had made application to change the character of the land from agricultural to non-agricultural and certificate was issued to that effect. Even for the revenue, there is no case that the land has been used for the intended purpose. 38. In the decision of Gujarat High Court relied upon by the DR, in the case of Gordhanbhai Kahandas Dalwadi v. Commissioner of Income-tax (1981) 127 ITR 664, the Hon'ble High Court held that the potential non-agricultural use does not alter the character of the land. This was a case wherein the land was purchased in 1954 and, subsequently, sold in 1969. The entries in the revenue records showed that the land was agricultural continued to be so. The land revenue paid was for agricultural use, but permission for non-agricultural use was obtained but not before the date of the sale. In these circumstances, the Hon'ble High Court upheld the presumption that the land is agricultural. The Hon'ble High Court came to the above conclusion in spite of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. In the case decided by the Hon'ble High Court, it was held that the correct test to be applied was whether on the date of sale of the land whether the land was agricultural or non-agricultural and not the intended purpose and how the purchaser was going to use land. …………………………………………………………………………… ITA.305/Bang/2009 - By the Revenue in the case of T. Suresh GowdaAY 2005-06 53. The revenue had taken an additional ground that is with regard to taking fresh additional evidence filed by the assessee without giving opportunity to the assessing officer. In this case, the assessing officer noticed that the assessee had sold land measuring 40 acres and 20 guntasat Seshagirihalli for ₹ 4,50,00,000/- on 7.4.04 to Tibetan Childrens' village and claimed exemption from capital gains which worked out to ₹ 3,68,01,771/- on the ground that the land situated in a rural area i.e., 8 Kms away from the limits of Bangalore MahanagaraPalike and the land is located as notified u/s 2 (14) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... track of land - was having agricultural operations with fully grown up fruits-bearing trees. Thus, the conversion order dated 19.7.2004 had lost its sanctity since the said property was not put use for non-agricultural purposes within two years for which conversion was granted. 7.3.8. Finally, the most important aspect which requires to be considered is that agriculture is a State subject and different States have different reforms (laws) as to who can purchase/own agricultural lands in the respective States. To illustrate further, in Karnataka, non-agriculturists and industrial companies are prohibited from purchasing of lands which are classified as 'agricultural' in the revenue records. If an agriculturist intends to sell his agricultural lands to a company/non-agriculturist for the use of nonagricultural purposes, he must possess a conversion order obtained from the revenue authorities to utilise the subject land for non-agricultural purposes. However, the same law/rule is not prevalent in the neighbouring States of Tamil Nadu, Andhra Pradesh or in Maharashtra, Delhi etc. In other words, the agriculturists of the said States are free to sell their lands as shown in the reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ms from Municipality; (ii) the said lands were located in BIAAPA which was an authority as per the definition of 'asset' in s. 2 of the Act; and (iii) the said lands were located within 8 KMs from BBMP as the crow flies or a person walks in a straight line (being the shortest distance) and, therefore, assets as per the definition of asset in section 2 (14)(iii)(b) [Refer: Para 4 on Page 4 of the Asst. Order]. 8.1. The CIT (A) was also of the view that ''it may be noted that BIAAPA is identified in its bye-laws as a 'Local Planning Area" with its Zonal regulations prepared under clause (iii) of sub-section (2) of section 12 of the Karnataka Town and Country Planning Act, 1961. While justifying the need for the Zoning Regulations enforceable by BIAAPA, it is stated that the same are intended 'to promote public health, safety and the general social welfare of the community', and 'to ensure that most appropriate, economical and healthy development of the town takes place in accordance with the land use plan and its continued maintenance over the years." 8.1.1. During the course of hearing, the learned DR had placed strong reliance on the judgment of the Hon'ble Punjab and Haryana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessarily be an elected body whereas BIAAPA was not an elected body, but, an appointed body and, therefore, BIAAPA does not qualify to be considered as a Municipality. 8.3.1. To strengthen the above view, it is appropriate to refer to the judgment of the Hon'ble Kerala High court in the case of CIT v. Murali Lodge reported in (1992) 194 ITR 125 (Ker). The issue before the Hon'ble Court was Whether the land in question situated within Guruvayur Township can be treated as a capital asset within the definition of section 2(14) of the I.T. Act? After having considered the facts of the issue and also in conformity with the judgment of the Hon'ble Supreme Court in the case of Garden silk Weaving Factory v. CIT [(1991) 189 ITR 512 (SC)], the Hon'ble Kerala High Court had, comprehensively, dealt with the issue of 'Whether the local authority is a Municipality?' as under: "(On page 127)………………………………………………………………...... From the plain and unambiguous language employed in the section [2(14)(iii)(a)], it is clear that, if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sts of such number of members as are prescribed. They are called councillors. They are elected by the residents of the area coming within the jurisdiction of the municipality. The chairman and vice-chairman of the municipality are elected by the members of the council. The commissioner is appointed by the Government in consultation with the council. It is the duty of the commissioner to carry into effect the resolutions of the council unless it be that the said resolution is suspended or cancelled by the Government. The municipality contemplated under section 2(14)(iii)(a) must be one which satisfied the above requirements. All the local authorities included in the brackets must satisfy the above requirements to be known as a 'municipality'. The position, however, would have been different had the section contained a definition which takes in its fold the local authorities included in the brackets, namely, ' municipal corporation notified area committee, town area committee, town committee or such other similar local authority'. In that event, the Guruvayur Township can be said to be a municipality. The plan language employed in the section, however, makes it clear that the intenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, conversely, the expression 'Municipality' in s. 2 (14) of the Act would include a local authority; & (iv) in view of the above, it was held the land, subject matter of acquisition, was a capital asset falling within the scope of clause (iii) of s. 2 (14). 8.3.3. In this connection, we would like to point out that the said land was situated between the developed sectors of Panchkula on one side and on the other-side it was within a radius of 1 KM from the District headquarters, colleges, hospitals etc., whereas in the present case, the subject property was surrounded by lush green agricultural lands. Therefore, we are of the view that the case law relied on by the Revenue is not directly applicable to the issue on hand. 8.3.4. Further, while deciding the issue against the assessee, the Hon'ble Court had distinguished the judgment of Hon'ble Kerala High Court in Murali Lodge's case (supra) in an identical issue, with the following observations: "29. With respect, we are unable to agree with the view expressed by the Kerala High Court in the aforesaid judgment. The expression 'by any other name' appearing in item (a) of clause (iii) of section 2(14) has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered the rival submissions and also perused the relevant case records. On a scrutiny of the assessment order, it is noticed that the assessee had furnished its return of income for the AY under consideration on 31.7.2008, admitting a total income of ₹ 14.86 crores and, subsequently, a revised return of income was filed on 15.6.2009 admitting an income of ₹ 22.9 lakhs i.e., well before the initiation of assessment proceedings which eventually started only on 19.11.2010. Thus, the assessee was within its domain to revise its income and also furnish a revised return of income before the initiation of its assessment proceedings. Therefore, the argument of the learned DR doesn't carry any conviction and, accordingly, the same is rejected." Since the Tribunal, in the assessee's own case in income-tax proceedings with regard to the same subject matter, has taken the stand and held the land to be agricultural land and the definition of 'capital asset' in the Income-tax Act is similar to the definition of 'urban land' under the Wealth-tax Act, we respectfully follow the order of the co-ordinate bench of the Tribunal and hold the said land to be not urban land exigible to ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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