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TMI Blog1993 (10) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the lease rent was assessable under the head 'Business' and not under the head 'Other sources'? 5. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the profit received by the assessee from the sale of the assessee's land was on revenue account and not on capital account, namely : (i) for 1965-66, Ks. 1,00,486 on sales of land to the Voras, (ii) for 1968-69, Rs. 5,59,821 out of compensation received from Larsen and Toubro, (iii) for 1972-73, Rs. 1,03,896 out of additional compensation from Larsen and Toubro ?" The "reference lands" consist of the following: (a) Land bearing survey No. 8 (part) situate at village Paspoli admeasuring about 25 acres, leased by the trustees of Sir Mohammed Yusuf Trust in favour of the assessee's father, Shri Chandrabhan B. Sharma, sub-leased by Chandrabhan B. Sharma in favour of Larsen and Toubro Ltd., purchased by the assessee from his father during pendency of acquisition proceedings in respect thereof for the said company and transferred to Larsen and Toubro Ltd. as a result of compulsory acquisition thereof on payment of "compensation" to the assessee as contemplated und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusions arrived at by the Appellate Assistant Commissioner summarised above. Having regard to the ratio of the latest judgment of the Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim v. CIT [1993] 204 ITR 631, dated September 14, 1993, and the applicability thereof to the facts of this case, we have no hesitation in holding that the reference lands were not "agricultural lands" on the date of transfer whatever might have been the character of the land in the past. We shall now proceed to summarise the facts. Sir Mohammed Yusuf Trust owned extensive plots of land in Powai Estate situate at villages Paspoli, Saki, Kapri, etc. The said plots of land were assessed to agricultural land revenue. The said trust owned at least about 1,500 acres of land as particularised in para 5 of the order of the Income-tax Tribunal dated January 25, 1977. On October 21, 1948, the trustees of the said trust granted a lease in respect of certain plots of land forming part of "Powai estate" in favour of a firm known as Gopal Housing and Plantation Society. The said lease was for a period of 99 years. By this indenture of lease, the lessor granted a lease in respect of 376 acres 20 1/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact to this effect in his order dated September 29, 1975. (d) On or about September 13, 1963, Shri Chandrabhan B. Sharma, granted sub-lease in respect of plots of land bearing Survey Nos. 64, 65 and 66 (part)-- new Survey No. 11 situate at village Saki admeasuring about 15,000 sq. yds., in favour of Narottamdas Vora and Girdharlal J. Vora carrying on business in the name and style of Forage and Co. The said sub-lessees are hereinafter referred to as the "Voras". Soon thereafter, the said sub-lessee acquired possession of the abovereferred lands from the lessor, Shri Chandrabhan B. Sharma. The "Voras" were never interested in cultivation of the said lands or use thereof for agricultural purposes. (e) On or about July 20, 1961, Shri Chandrabhan B. Sharma, the assessee's father, agreed to purchase reversionary rights in respect of all these plots of land from the trustees of Sir Mohammed Yusuf Trust for an aggregate sum of Rs. 30 lakhs. Shri Chandrabhan B. Sharma, in his turn, sold some of the plots of land to various third parties and some others to members of his family including the assessee. On March 30, 1964, the assessee, Shri Gopal C. Sharma, purchased plots of land admea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , agreed to sell the land situate at village Saki admeasuring about 15,000 sq. yds. in favour of the "Voras". On or about August 14, 1964, the assessee conveyed the said lands admeasuring about 15,000 sq. yds. forming part of Survey Nos. 64, 65, 66 (part) situate at village Saki in favour of the "Voras" for the stipulated sale price. (h) Under the award of the Special Land Acquisition Officer dated March 21, 1967 (which became fully operative on April 3, 1967), the assessee received a sum of Rs. 5,59,821 as compensation from the Special Land Acquisition Officer (II), Bombay, and the Bombay Suburban District. Being aggrieved by the quantum of compensation awarded to the assessee, the assessee sought a reference to this court as contemplated under section 18 of the Land Acquisition Act (1 of 1894). Some time in or about the year 1972, the assessee received a further sum of Rs. 1,03,896 as and by way of additional compensation for acquisition of the said land as a result of the orders passed by the court in Land Acquisition Reference No. 162 of 1969. (i) During some of the relevant assessment years, the assessee had also sold three "Saki plots" to Acme Tiles (2 acres, 10 gunthas), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Chawla Brothers with the transactions of the transfer concerning the reference lands and held that the transactions concerning the transfer of lands to Acme Tiles and others constituted an adventure in the nature of trade whereas the transaction pertaining to transfer of reference lands could not be so treated. Being aggrieved by the order of the Appellate Assistant Commissioner, the assessee as well as the Revenue filed several appeals before the Income-tax Appellate Tribunal. The appeals filed by the assessee were time-barred. Delay in filing of the said appeal was not condoned by the Tribunal. However, in the Department's appeals, it became necessary for the Income-tax Appellate Tribunal to decide the question as to whether the profits and gains arising from the transfer of reference lands sold to Voras as well as from compulsory acquisition of land acquired for Larsen and Toubro Ltd. were liable to be classified as business income or as agricultural income or capital gains. In the Department's appeals, the assessee contended that the profits and gains made by the assessee from the transfer of reference lands were neither liable to be classified as business income nor as c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. Learned counsel for the assessee has pointed out several passages from the judgment of the Income-tax Appellate Tribunal dealing with the controversy. The Income-tax Tribunal has itself referred to questions Nos. 2 and 3 to this court for its opinion under section 256(1) of the Income-tax Act, 1961, on the footing that the said questions arose out of the Tribunal's order. The Income-tax Appellate Tribunal has recorded its findings on the issue under consideration in the appeals filed by the Revenue even though the assessee's appeals were held to be time-barred. We are satisfied that these questions do arise out of the Tribunal's order and the same are rightly referred by the Tribunal to this court. Section 10(1) of the Income-tax Act, 1961, exempts "agricultural income" from levy of income-tax. The said section provides that "agricultural income" of a person shall not be included in the total income of the assessee. Section 2(1) of the Act defined the expression "agricultural income" prior to its being renumbered as section 2(1A) as a result of the amendment thereof. Section 2(14) of the Act defines the expression "capital asset". The expression "transfer" is defined by secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue submitted that the question as to whether the reference lands were agricultural lands or not was basically a question of fact and it could not be said in this case that the finding of fact arrived at by the Tribunal or other authorities was perverse or was arrived at as a result of misapplication of relevant tests or the principles applicable for the determination of the issue. Learned counsel for the Revenue appears to be right on both these facets concerning issues Nos. 2 and 3. Both learned counsel for the assessee as well as learned counsel for the Revenue cited a large number of authorities in support of their respective contentions, pertaining to questions Nos. 2 and 3 referred to us by the Tribunal. We have heard learned counsel on both sides at some length. We have gone through the relevant authorities cited by either side in detail. We, however, do not think it necessary to refer to all the authorities cited at the Bar. Learned counsel for the assessee relied, inter alia, on the following factors in support of her contention that "the reference lands" were liable to be treated as "agricultural lands" on the date of transfer for purposes of the Income-tax Act, 1961. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and were not likely to be used for agricultural operations. Learned counsel submitted that this factor was also a crucial factor for the determination of the issue. (iii) On March 30, 1964, the assessee has purchased the reference lands from his father. The assessee did not intend to use the reference lands for agricultural purposes. The assessee could not do so as the assessee was not in possession of these lands on the date of transfer thereof from his father. The concerned sub-lessees (who were in possession of reference lands) never cultivated these lands for agricultural operations or otherwise. Some time in the year 1959, Larsen and Toubro Ltd. had made an application to the Revenue authorities for their permission to use the land for non-agricultural purposes. Compulsory land acquisition proceedings were initiated by the Govt. of Maharashtra for acquisition of the said land (land bearing Survey No. F (part)) not for purpose of enabling Larsen and Toubro Ltd. to use the reference lands for purpose of agriculture but for purpose of business user thereof, i.e., expansion of their factories. (iv) It was obvious from the order passed by the District Deputy Collector B.S.D., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btained permission from the Revenue authorities to sell the land in question to a non-agriculturist co-operative housing society for non-agricultural purposes, i.e., building purposes. In this case, the Income-tax Appellate Tribunal had held that the land in question was agricultural land within the meaning of section 2(14) of the Income-tax Act, 1961. The High Court of Gujarat had, however, taken the view that the said land was not agricultural land at the time of its sale and that the income arising from its sale was thus not exempt from capital gains tax. In the case before the Supreme Court the following factors were noticed and highlighted by the court: The land was assessed to land revenue on the footing of the same being "agricultural lands". The land was lying unused for at least four years prior to the date of its transfer and no agricultural operations were carried thereon for four years prior to the date of its transfer except for a few months immediately prior to the transfer thereof just with a view to create evidence of user of the land for agricultural purposes. The land was situate at a distance of one kilo metre from Surat Railway Station and was the subject-matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Division Bench of this court in CIT v. V. A. Trivedi [1988] 172 ITR 95, to the effect that to ascertain the true character and the nature of the land, it must be seen whether the land had been put to use for agricultural purposes for a reasonable span of time prior to the relevant date and further as to whether on the date of the transfer the land in question was intended to be put to use by the purchaser for agricultural purposes for a reasonable span of time in the future. The relevancy of the test of "factual user" of the land for agricultural purposes was emphasised by the Division Bench of this court, consisting of Bharucha and Mohta JJ. in Trivedi's case [1988] 172 ITR 95, after interpreting and applying the ratio of the judgment of the Supreme Court in the case of CWT v. Officer-in-charge (Court of Wards), Paigah [1976] 105 ITR 133. The said test was duly approved by the Supreme Court in its latest judgment in Sarifabibi's case [1993] 204 ITR 631. In paragraph 14 of its judgment in Sarifabibi's case [1993] 204 ITR 631, the Supreme Court summarised the Bombay view as expressed in Trivedi's case [1988] 172 ITR 95 decided by S. P. Bharucha J., as his Lordship then was, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Division Bench of this court in CIT v. V. A. Trivedi [1988] 172 ITR 95. On the application of the ratio of the above-referred three judgments to this case, we find no justification whatsoever for the grievance made by the assessee in respect of the controversy concerning questions Nos. 2 and 3. Learned counsel for the assessee mainly relied upon the Division Bench judgment of this court in the case of CWT v. H. V. Mungale [1984] 145 ITR 208, the ratio of the judgment of the Division Bench of this court in the case of Wealth-tax Reference No. 5 of 1964 decided on Tuesday, December 4, 1973 (CWT v. Podar Mills Ltd.) and the judgment of this court in CIT v. P. C. Joshi and B. C. Joshi [1993] 202 ITR 1017. The thrust of the argument of learned counsel for the assessee is that the fact that the land was lying vacant and was not used for cultivation for several years was not of any legal consequence. Learned counsel for the assessee submitted that the court must presume that the vacant land continued to be " agricultural land" in nature and character once it was shown that the land was assessed to land revenue as agricultural land. Learned counsel for the assessee relied upon the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the assessee that the authorities below did not apply the correct test or misdirected themselves in law or that the finding of fact arrived by the Tribunal was not supported by evidence. In view of the above discussion we do not think it necessary to refer to the other authorities cited at the Bar. We uphold the finding of the Income-tax Appellate Tribunal to the effect that the reference lands were not agricultural lands. The next question which arises for the consideration of the court is as to whether the transactions pertaining to transfer of reference lands constitute an adventure in the nature of trade and whether the profits and gains made by the assessee from transfer of these lands are liable to be taxed as business income or as income in the nature of capital gains. We have heard learned counsel on both sides at length. We have gone through the large number of authorities cited at the Bar. Learned counsel for the assessee relied on the Division Bench judgment of this court in CIT v. Principal Officer, Laxmi Surgical Pvt. Ltd. [1993] 202 ITR 601. Learned counsel for the Revenue relied mainly on the ratio of the judgment of the Supreme Court in the case of G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the principles laid down by the Division Bench of our High Court in the above-referred case in CIT v. Principal Officer, Laxmi Surgical Pvt. Ltd. [1993] 202 ITR 601 to which one of us (justice Dr. B. P. Saraf) was a party. The said case was decided after interpreting and applying the ratio of various judgments of the Supreme Court. The profit motive of the assessee in selling the land without anything more by itself can never be decisive for determination of the issue as to whether the transaction amounted to an adventure in the nature of trade. The assessee may acquire a capital asset in the expectation that it may be sold at a profit. On this aspect, the observations made by the Supreme Court in the case of Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21 are of considerable significance. In this case, J. C. Shah J., speaking for the apex court, in terms, observed that the profit motive in entering into a transaction was not decisive for determination of the issue and an accretion to capital could not be taxed as "business income" merely because the capital asset was acquired by the assessee in the expectation that it may be sold at a profit. If the relevant test laid down by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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