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TMI Blog2018 (7) TMI 1621X X X X Extracts X X X X X X X X Extracts X X X X ..... VINOD CHANDRAN AND MR. ASHOK MENON, JJ. For The APPELLANT : ADVS.SRI.CHRISTOPHER ABRAHAM, SC, INCOME TAX DEPARTMENT And SRI.K.M.V.PANDALAI, SC, INCOME TAX DEPARTMENT For The RESPONDENT : SRI.K.I.MAYANKUTTY MATHER And ADV. SRI.R.JAIKRISHNA JUDGMENT Vinod Chandran, J. The Revenue is in appeal raising substantial questions of law against the order of the Income Tax Appellate Tribunal, which affirmed the order of the first appellate authority finding the sale of the assessee's land to be not assessable as capital gains under Section 45 of the Income Tax Act, 1961 ('Act', for short). The questions of law framed are the following, as seen from the memorandum : ( i) Is not the decision of the Tribunal to treat the transferred property as agricultural land against law and facts as there is no conclusive evidence to prove that agricultural operations were being carried on in the transferred asset during the two years prior to the date of its transfer? ( ii) whether the Tribunal is justified in holding that agricultural operations were carried on in the transferred land relying on the certificate issued by the Village Officer, in vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i), can be included as 'capital asset'. Profits and gains arising from sale of such property alone can be taken for assessment as income. The learned counsel would also refer to Annexure-R1(a) to Annexure-R1(d) produced subsequently before this Court, to contend that this evidences the fact that the land is an agricultural land. The assessment order is read over to point out that the test as prescribed in Sarifabibi (supra) has been applied wrongly to the facts of the case. The AO proceeded on the premise that there was a building constructed in the said property subsequent to the purchase, which is not relevant for considering whether the land is exempted from the definition of capital Gains as an agricultural land. A Division Bench of the Madras High Court in (2016) 388 ITR 514 (Mad) [Principal Commissioner of Income Tax v. Mansi Finance Chennai Ltd.], which according to the assesee, is in similar circumstances and is heavily relied on. The decision in AIR 1957 SC 768 [Commissioner of Income Tax, West Bengal v. Benoy Kumar Sahas Roy] is relied on for the manner in which the fact of agricultural operations being carried on has to be ascertained. 5. At the outset, it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) of the above provision is excluded from the definition of Capital Asset. As has been rightly noticed by the Tribunal, there is no definition for agricultural land in the subject statute and it has to be understood as in common parlance, for which evidence has to be produced to establish the fact. Since there is no definition of agricultural land in the Act Sarifabibi (supra) observed: Whether a land is agricultural land or not is essentially a question of fact (sic para 12). On facts if a property of the assessee is found to be agricultural land, then it cannot be included in the definition of 'capital asset'. Even then, if such property is found to be within the description and distance specified, in sub-clauses (a) and (b) as extracted herein above; it cannot qualify for exclusion from being included as capital assets. Hence the ascertainment of the fact whether a property would qualify for exclusion has to be done independently. 7. We agree that the use to which the property was put to by the purchaser would not be relevant for ascertaining whether at the time of sale and in the hands of the purchaser it was an agricultural land. In the present case, before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... potentiality but its actual condition and intended user which has to be seen for purposes of exemption. (emphasis added) (c) The person claiming an exemption of any property of his from the scope of his assets must satisfy the conditions of the exemption. (d) The determination of the character of land, according to the purpose for which it is meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case. (e) The fact that the land is assessed to the Land Revenue as agricultural land under the State Revenue Law is certainly a relevant fact but it is not conclusive. 9. Sarifabibi (supra) also referred to a Bench decision of the Bombay High Court, (1988) 172 ITR 95 [C.I.T Vs V.A. Trivedi], with approval, in the following manner: 18. The Bench observed that to ascertain the true character and the nature of the land, it must be seen whether it has been put to use for agricultural purposes for a reasonable span of time prior to the relevant date and further whether on the relevant date the land was intended to be put to use for agricultural purposes for a reasonable span of time in the future. Examining the facts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing officer called for information from the Tahsildar and based on that report rejected the claim. Reliance placed on such report was faulted since the same was obtained behind the back of the assessee and without offering an opportunity to the assessee to controvert it by cross-examining the author of the report. We do not see any identity on facts. 11. Now we come to the other decisions cited in Mansi Finance Chennai Ltd (supra). (2014) 369 ITR 558 (Mad) [Mrs. Sakunthala Vedachalam Vs. Asst. Commissioner of Income Tax] was a case in which the classification of the land in the revenue records showed it to be agricultural land. Here admittedly the classification was garden land which could be used for cultivation like coconut plantation, as claimed by the assessee, or for construction of any type of buildings; residential or commercial. Hence the classification in the revenue records in the instant case is not of any consequence. (1981) ITR 671 (Guj) [Dr.Motibhai Patel Vs. CIT] and (1984) 145 ITR 208 (Bom) [CWT Vs. H.V. Mungale] noticed the decision in Officer in Charge (Court of wards) to find that if there is evidence of agricultural operations being carried on and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see was that there was a coconut plantation in the land. The assessee also had a claim that there was an adjacent property having a still larger extent of 4.71 acres, which too was agricultural land having coconut plantation. The devolution of the said lands was; as of the subject land; on the death of the assessee's father, who was the prior owner who purchased it. If the claim is accepted, then necessarily, there would have been a return filed, since the large extent would definitely raise a presumption that the income obtained would be above ₹ 5,000/-. The Inspector who visited the site reported that this adjacent property also did not show a routine agricultural operation and was merely dotted with certain coconut trees. Though the use to which the subject property is put to after sale may not be relevant; the nature of the adjacent property which remained still with the assessee; on which a similar claim was raised is definitely relevant. If at all the assessee's claim was that there was more expenditure than income, then at least for aggregation purposes, the assessee would have claimed the losses under the individual return filed under the Act, which has also n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of water and application of fertilizer or manure. The trees also have to be regularly pruned at its crown since pest infestation occurs at the top which is the yielding end. Crown cleaning involves removal of dried inflorescent spikes and spathe and application of pesticides; all of which involves human labour and skill. In addition to these plant protection measures like weed management has to be carried out and for this there is always an inter-crop of vegetables or spices like clove, nutmeg etc. These are all routine agricultural operations required for a concerted effort of coconut plantation. Coconut trees yield even otherwise but that is not an agricultural operation intended at consumption or for trade and commerce as has been held in Benoy Kumar Sahas Roy (supra). The specific case of the assessee as seen from his objection as extracted in the AO's order is: it is stated that it is a coconut garden and in these days it is difficult to get a person to pluck coconuts..most of the time the nuts fall and collected by the neighbourhood. Eventually the plucking and other charges like manure, etc will only be sufficient from the income arising out of sale of coconu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act we have before us. We agree that the determination of the character of land, according to the purpose for which it is meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case. What is really required to be shewn is the connection with an agricultural purpose and user and not the mere possibility of user of land, by some possible future owner or possessor, for an agricultural purpose. It is not the mere potentiality, which will only affect its valuation as part of assets , but its actual condition and intended user which has to be seen for purposes of exemption from wealth tax. One of the objects of the exemption seemed to be to encourage cultivation or actual utilisation of land for agricultural purposes. If there is neither anything in its condition, nor anything in evidence to indicate the intention of its owners or possessors, so as to connect it with an agricultural purpose, the land could not be agricultural land for the purposes of earning an exemption under the Act. Entries in revenue records are, however, good prima facie evidence. We do not think that all these considerations were kept in view by the tax ..... 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