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TMI Blog2022 (6) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(14) of the Act and has failed to rely on the various judicial views. 5. The Learned AO has failed to appreciate the fact that, the said property was acquired by his family members and was used for cultivation. 6. The additions made by the AO as "LTCG arising of sale of Agricultural Land" is erroneous both under the law and on facts as the Appellant has satisfied all the conditions in order to constitute as 'agricultural land' and hence the surplus arising out of sale of these agricultural lands are exempt from tax. 7. The Learned AO has erred in fact and in law in not appreciating that the transfer was completed within two days from the date of receipt of conversion order. There is no possibility of the said land being out to use for non-agricultural purposes in such short span of time. 8. The Learned AO has erred in law and on facts in making additions of Rs. 2,06,25,000 without appreciating the explanations offered by the Appellant. 9. The Learned AO has erred, in law and in facts, in initiating penalty proceedings u/s 271(1)(c) of the Act. 10. The appellant submits that each of the above grounds is independent and without prejudice to one another. 2. Facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the record of rights, wherein it was classified as non-agricultural land and the land was subjected to cultivation, wherein assessee cultivated cashew nut and Neilgiri. He also submitted that the endorsement issued by the Dy. Tahsildar, Sarjapur Hobli, Anekal vide no.Sanaaka/MNK/MSC/20/2014-15 dated 13.1.2015, the land is situated 10 kms away from the local municipality. He relied on the following judgements:- a) Shri M.R. Pattabhiram (HUF), in WTA No.34-36/Bang/2014 dated 16.10.2015. b) Shri M.R. Anandaram (HUF), ITAT Bengaluru Bench in ITA Nos.1169 to 1172/Bang/2015 & CO Nos.220 to 223/Bang/2015 c) Hon'ble Jurisdictional High Court of Karnataka in the case of CIT Vs. Smt. K. Leelavathy (2012) 21 taxmann.com 148 (Kar) dated 2.1.2012 d) Smt. K. Leelavathi, ITA No.997 & 998 (Bang) 2010. Further, it was submitted that though the property was within limits of BMRDA, that itself cannot be treated as the land is situated within the municipality or local authority in terms of section 2(14)(iii)(a) of the Act. For this purpose, he relied on the order of the Tribunal in the case of WTA No.34-36/Bang/2014 dated 16.10.2015 in the case of M.R. Pattabhirama (HUF). 3. On the other h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive brought to the notice of the bench that the issue in this appeal is covered by assessee own case in ITA.No. 262/B/2013.We find that the co-ordinate bench of this tribunal in assessee own case in ITA No. 2628/2013 for the assessment year had considered whether the impugned lands situated at Akkalenahalli- Mallenahalli Village pertaining to the assessee which are subject matter of appeal before us are urban lands as defined in section 2(14)(iii) of the Income tax Act, 1961 and are capital assets and the gain from transfer of these lands are liable for capitalain tax. The ITAT had examined the issue whether the lands in question are capital assets, situated within the municipal limits of BIAPPA and the BIAPPA is a municipality or notified area. The Tribunal after considering the relevant details has come to the conclusion that the impugned lands are not capital assets within the meaning of section 2(14). The relevant portion is reproduced hereunder. 8. It is now for us to consider as to whether the order passed by the co-ordinate bench of this Tribunal in the case of M.R. Seetharam (HUF) in ITA No.16154/BangI2012 dt.13.6.2014 is applicable to the facts of this case. The land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above mentioned appeals (viz. status of land-agricultural or non-agricultural, status of BIAPPA etc.) have huge revenue implications given the fact that the sale considerations are high due to the lands being located in the vicinity of the Bangalore Airport." Revenue must bear in mind the sacrosanct principle that the Tribunal should not concern itself with the possible implications on Revenue that the orders passed by it may have. The Tribunal is expected to pass orders which, in its opinion, are correct in law, based on facts and circumstances, irrespective of implications on the revenue or for that matter on the assessee's case also. " 3. Apart from the above mentioned assessees, many other assessees have sold lands in this area which is arguably one of the areas with very high commercial potential due to its location being near the Bangalore International Airport. Thus, the judgement in the above mentioned cases is going to affect taxation of many high value land transactions in this prime area of Bangalore." These issues do not and should not have any bearing on the Tribunal arriving at a decision which is in accordance with law. " 4. Most importantly the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts order in the case of M.R. Seetharam (HUF) (supra), citing the mandatory condition in the conversion order, observed that - ".... 10. The land should be used for the said purpose within two years from the date of this order [ Refer pages 8(' to 92 (including English transaction) of paper book of A.R.] " only for the limited purpose of stating that the Assess* Officer is not correct in taking a stand that once the agricultural land is converted for nonagricultural purposes, the land cannot be treated as agricultural land even though it continues to be used only for agricultural purposes. The fact that the mandatory condition was not complied with by the assessee was not the reason by the co-ordinate bench of this Tribunal held that the lands sold are agricultural lands and not capital assets u/s. 2(14) of the Act. 10.3 The co-ordinate bench of this Tribunal has proceeded to hold that the lands sold are agricultural lands and not capital assets u/s.2( 14) of the Act on the basis of its findings rendered from paras 7.2.7 to 7.3.10 of its order in the case of M.R.Seetharam (HUF) (supra) and has come to the following important conclusions :- (i) The lands in question do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tural activity on the said lands; and (iii) obtained the conversion order merely to facilitate sale to non-agriculturists. In fact in the case of H.S. Vijaykumar (supra), the assessee therein sold the land to a corporate entity as in the case on hand. All the requirements which led the coordinate bench of this Tribunal to hold that the lands sold are agricultural lands and not capital assets under section 2(14) of the Act in the case of M.R. Seetharam (HUF) (supra) are also found in the case on hand before us. 10.4.3 The co-ordinate bench of this Tribunal in the case of M.R. Seetharam (HUF) (supra) has also placed reliance on the decision of the Hon'ble jurisdictional High Court of Karnataka in the case of CIT V Smt. K. Leelavathy (supra), ;which upheld the decision of the Tribunal in that case. The Hon'ble Court had occasion to analyse the provisions of section 2(14) r. w. sections 45 and 48 of the Act. The two questions of law which were raised by the Revenue in the case of Smt. K. Leelavathy (supra) were as under :- "1: Whether the appellate authorities were correct in holding that the land which is the subject matter of sale is agricultural land as on the date of sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agricultural land or otherwise in the case of T. Suresh (supra) apply to the present case to be obnoxious or violating any statutory provisions and, therefore, we d not find any illegality in the finding recorded by the Appellate Commissioner and the Tribunal." The Hon'ble High Court has answered both the substantial questions before it (supra) in favour of the assessee and against Revenue. An analysis of the above two -substantial questions of law and the conclusion / finding of the Hon'ble High Court would, in our considered view, go to mean that land which was converted from agricultural to non-agricultural and continued to be used as agricultural land till the date of sale, should be treated as agricultural land and the same is exempt and not exigible to tax from capital gains in view of section 2(14) r. w. sections 45 and 48 of the Act despite the fact that the land in question was a converted land as on the date of sale. The co-ordinate bench of this Tribunal in its order in the case of M.R. Seetharam (HUF) (supra) has only followed this proposition- of law laid down by the Hon'ble jurisdictional High Court of Karnataka, vindicating the stand of the Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 revenue records to non-agriculturists/ Corporates without obtaining a conversion order. 7.3.9. Thus, it is evident from the fact that the agriculturists in other States can sell their agricultural lands without getting the same converted whereas the agriculturists in Karnataka cannot do so due to the Land Reforms Act prevailing in the State. As such an agriculturist in Karnataka is on a different footing from his counterparts in other States. If one were to conclude that since the present assessee had obtained a conversion order to enable it to sell its lands to a non-agriculturist (a Corporate), the subject land ceased to be a nonagricultural and, thus, become a Capital asset, though the subject land remains an agricultural land, the assessee then stands discriminated in the eyes of law vis-er-vis its counterparts in other States. Had the State Reforms Act permitted the assessee to sell its agricultural &ands without convers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planning body. The relevant portion of its order at paras 8.3 to 8.3.5 is extracted hereunder:- " 8.3. We have carefully considered the reasoning of the authorities below and also the divergent contentions of either of the party on the issue. Indeed, BIAAPA performs only planning and zoning functions, but, does not perform any other municipal functions as canvassed by the Revenue. Other major municipal/panchayat functions are required to be performed only by an elected body, namely, the respective municipality/panchayat within the ambit of the area covered by BIAAPA, but, not BIAAPA which is, admittedly, a mere planning authority. We are also differ with the interpretation of the CIT (A) that municipality need not necessarily be an elected body. In this 'context, we refer to the Article 243P(e) of the Constitution of India which explicitly defines `Municipality' means an Institution of self-Government constituted under Article 243Q and Article 243R requires that all the seats in a Municipality shall be filled by persons chosen by direct election from the territorial constituencies in the Municipal area and, thus, clear that a municipality has to necessarily be an elected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al authority. But all local authorities cannot be called municipalities. Only those local authorities which have all the trappings of a municipality can be treated as a municipality within the meaning of the section. Therefore, to find a solution to the problematic dispute, we have to give a meaning to the word 'municipality' which stands undefined in the Act. Generally understood, 'municipality' means a legally incorporated or duly authorised association of inhabitants of a limited area for local governmental or other public purposes [Black's Law dictionary]. The above definition more or less is reflected in the provisions contained in Chapter III of the Kerala Municipalities Act, 1960. The council constituted under section 7 with the assistance of the standing committee of the council, chairman, commissioner, etc., will administer the provisions of the Act. The council consists of such number of members as are prescribed. They are called councilors. 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 ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble Court was of the view that it was to be regarded as a capital asset within the meaning of s. 2 (14) of the Act for the following reasons: "(i) that the acquired land was situated between the developed sectors of Panchkula on one side and on the other side, it was 1 KM from the district headquarters; (ii) that the land was extensively developed area and nearer to colleges, hospitals, district headquarters etc., (iii) with regard to the assessee's claim that in terms of s 2(14) an agricultural land was excluded from the capital asset, if it was not a land situated in an area which was comprised within the jurisdiction of municipality etc., it was held by the Court that Haryana Urban Development Authority was a local authority in terms of s. 3 of the Haryana Urban Development Authority Act, 1977 and, thus the local authority in terms of s. 3(31) of the General Clauses Act means a Municipality.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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) that BIAPPA is not a Municipality but a mere planning body. 12. With respect to the issue raised by the learned Departmental Representative on the acceptance of additional evidences filed in the case of M.R. Seetharam (HUF) (supra), it is clear from the records of that case that these evidences were not filed by the assessee, suo moto but were filed at the instance of the bench. 13. As regards the issue raised by the learned Departmental Representative with reference to the physical inspection of the lands in question by the Members of the co-ordinate bench, the inspection, carried out in the presence of the learned Departmental Representative of revenue and the learned Authorised Representative of the assessee, was done to satisfy themselves about the physical characteristics of the lands in question. On inspection thereof having been satisfied that no non-agricultural activity had taken place even after six years of its sale, the Members of the co-ordinate bench were convinced that the lands were agricultural in nature (i.e. having orchards, etc.) as on the date of sale. The presence or absence of the present owners at the time of the inspection, in our view, is immaterial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned lands are not urban lands within the meaning of section 2(ea) of the Wealth tax Act, 1957 and not exigible to wealth-tax. Accordingly, we set aside the CWT(A) order and delete the additions made by the assessing Officer." 5. Further, similar issue came for consideration before this Tribunal in the case of Shri D. Dasappa Vs. Deputy Commissioner of Income-tax in ITA Nos.2222 & 2223/Bang/2016 dated 9.2.2022, wherein Tribunal held as under:- "16. We have heard both the parties and perused the material on record. The assessee sold the agricultural land for Rs.1,95,00,000 by Sale Deed Sale Deed dated 16.7.2007 entered into between 1. Sri. T Prasanna Kumar Gowda (aka T. Prasanna Gowda) S/o. Sri. M Thimme Gowda 2. Smt. K Leelavathi W/o. Sri. M Thimme Gowda & 3. Sri. Dasappa, S/o. Late Sri. Singrigowda (The Vendors) and M/s. Goodlife Shelters Pvt Ltd., having its Registered Office at 25/6, AG 6 Brigade Majestic First Main, Gandhinagar, Bangalore-560009. The description of schedule of properties has already been extracted in the earlier part of this order. 17. According to the AO, it is clear from the description of schedule of properties that the lands are converted from agricu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o agricultural activities and the said land was not put any non-agricultural purpose within the period of two years from the date of conversion order, the conversion itself becomes questionable. In fact, the land which was hitherto agricultural land does not automatically become a capital asset on the mere fact of conversion to non-agricultural purpose. The land even though converted for non-agricultural purpose continues to be agricultural land and does not become capital asset u/s. 2(14) if agricultural activities are being carried out on such land and no piece of land was used for non-agricultural purpose. 21. In the present case, even though the subject property was converted into non-agricultural land by the competent authority, the assessee continued agricultural operations in converted land and there was no evidence regarding non-agricultural activities brought on record by the AO. On the other hand, the assessee has filed copies of RTC which were obtained much after the date of sale of the land which shows that the crops Ragi and Paddy were cultivated in the said land. In such circumstances, it is not possible to hold that the land was non-agricultural land liable for cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... halli Taluk to an extent of 6 acres and 1 gunta for a total consideration of Rs.45,58,12,500/- vide a registered Sale Deed dated 12.4.2007 and, accordingly, admitted an income of Rs.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 Rs.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 the same was exempt from tax being agricultural lands and hence excluded from the definition of 'capital asset' as per the provisions of s. 2 (14)(iii) of the Act. 7.2.1. The prime issues for consideration before us are two-fold, namely: (i) Whether the land can be treated as agricultural land even after conversion of agricultural land for non- agricultural/residential purpose? (ii) Whether the authorities below were justified in treating 'BIAAPA' as a municipality? 7.2.2. Before analysing the arguments of the assessee on the issue, we shall now proceed to deal with the sequence of events which apparently took plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clared 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, jackfruit, apple, guava etc., appear to be existing in the subject property even on the date of sale. This clearly attributes the assessee's assertion that even on the date of transfer, the subject land was held to be agriculture. In this regard, we would like to refer to the Certificate of Senior Assistant Director of Horticulture (Zilla Panchayat) Devanahalli, Government of Karnataka, dated 23.4.2014 wherein it has been certified as under: "This is to certify that M.R.Seetharam, s/o (of) Late M. S. Ramaiah residing at Gokula House, Dr M. S. Ramaiah Road, Gokula, Bangalore, have, in their land situated in Akkelenahalli - Mallenahalli Village, Kasaba Hobli, Devanahalli Taluk bearing Sy Nos. 29, 30/1, 30/2, 37/1p, 37/4p, 37/6p, 37/7p, 37/10p, 37/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 alterative 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) Whether the land was situated in a developed area; whether its physical characteristics, surrounding situation and use of the lands in the adjoining area were such as would indicate that the land was agricultural? (ix) Whether the land itself was developed by plotting and providing roads and other facilities; (x) Whether there were any previous sales of portions of the land for non-agricultural use? (xi) Whether permission under Tenancy and Agricultural Lands Act was obtained because the sale or intended sale was in favour of non-agriculturist, if so, whether the sale or intended sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose. The land even though converted for non-agricultural 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 non-agricultural 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 and also from the fact that incomes derived from such agricultural operations on the said lands declared by the assessee in its returns of income which were accepted by the Revenue for the AYs 2004-05 to 2009-10. 7.3.3. At this juncture, we would like to refer to the findings of the earlier Bench of this Tribunal in the case of H.S.Vijaya Kumar v, ACIT, Hassan in ITA No.108/Bang/05 dated 28.11.2006. After taking into account the rival submissions of an almost identical issue to that of the present issue under dispute, the Tribunal has held as under: "6.4. In this case also various c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld 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 facto affect or on the same day change the character of the land. For example, the Government has notified many areas for setting up of special economic zones or industrial parks or for infrastructural developments such as road ways and railways. After identifying particular areas, the Government notifies that a particular area would be used for non-agricultural purposes. It is thereafter only that the acquisition start and accordingly the land of farmers are acquired. It would be travesty of justice, if a view has to be taken that when once a Notification is given by the Government, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or otherwise in the case of T. Suresh (supra) apply to the present case to be obnoxious or violating any statutory provisions and, therefore, we do not find any illegality in the finding recorded by the Appellate Commissioner and the Tribunal." . 7.3.6. In the case of M. ThimmeGowda [(i) Sri M. ThimmeGowda, (ii) Sri M.N. Manjunath, (iii) Sri Dasappa, (iv) Sri T. Suresh Gowda, (v) Sri T. PrasannaGowda v. Department of Income-tax, the earlier Bench of this Tribunal, in its findings in ITA 1464, 1465/B/08; 177,178,262 & 305/B/09 dated 30.12.2009, had dealt with an identical issue to that of the present issue under consideration. The main issue before the earlier Bench was: Whether the land sold by the assessee was agricultural in nature or not? .After duly analysing the rival submissions and also various judgements of judiciary as mentioned in its findings and also deliberating upon the sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... totally immaterial. Entries in the record of rights are good prima facie evidence regarding land being agricultural and if the presumption raised either from actual user of the land or from entries in revenue records is to be rebutted, there must be material on the record to rebut the presumption. The approach of the fact-finding authorities, namely, the income-tax authorities and the Tribunal, should to consider the question from the point of view of presumption arising from entries in the record of rights or actual user of the land and then consider whether that presumption is dislodged by other facts in the case. While coming to the above conclusion, the Hon'ble High Court considered the following facts. The presumption for non-agricultural used was obtained by the assessee before the sale of the land. Coming to the facts in the instant case, the previous owner made an application for conversion, obtained the permission, but with the condition that the land should be used for the intended purpose within two years, otherwise the original character of the land, i.e., agricultural nature, would be restored. Then the assessee or the subsequent purchased has to pay penalty and ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrelevant. He further held that no documentary evidence was produced to the effect that the land converted was treated as agricultural land within the meaning of s. 2 (14)(iii)(b). ............................................................................................... .......... 54. On similar issues in the connected case, we had held that the evidence produced by the assessee before the assessing officer and Commissioner of Income-tax (A) to the effect that assessee was doing cultivation of ragi etc., was sufficient to treat the land as agricultural land in the hands of the assessee, particularly because in the document, the nature of the land has been recorded as non-agricultural under the Karnataka Land Reforms Rules, 1966. While coming to the above conclusion we also held that this is a document maintained by the Government officials and treating the same as not valid in the absence of strict evidence to the contrary cannot be upheld. 55. On similar set of facts in the connected other cases, we have held that the land sold by the assessee is to be treated as agricultural land and the reasons given is applicable in the instant case of the assessee as the facts are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtained a conversion order to enable it to sell its lands to a non- agriculturist (a Corporate), the subject land ceased to be a non- agricultural and, thus, become a Capital asset, though the subject land remains an agricultural land, the assessee then stands discriminated in the eyes of law vis-a-vis its counterparts in other States. Had the State Reforms Act permitted the assessee to sell its agricultural lands without conversion to a Corporate as in the case of other States (supra), the assessee would not then be required to get the land converted merely to facilitate its sale to a corporate and the gains arising from such sale would not have been exigible to Capital Gains tax which is the subject of a Central Act (Income-tax Act).In the instant case as mentioned earlier even after conversion, assessee was carrying on agricultural operation and conversion was done only to facilitate sale of subject property to a corporate entity/non agriculturist. In substance, the Income-tax Act - a Central Act - is to be administered in such a manner to ensure that an assessee IS not subjected to suffer due to different State laws. 7.3.10. Taking into account all the aspects as discussed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome of Rs.7,67,570/-. There was no offer of any income on account of sale of property or investment in property. To the return the assessee appended a note to the effect that the assessee sold agricultural land at 77/74, Sheshagiri halli, Bidadi Hobli, Ramanagaram taluk, during April, 2004 for a total consideration of Rs.90,00,000/-. However, it was stated that it does not result in any capital gain since the land sold was agricultural land situated beyond 8 kms from corporation limit of Bangalore city as defined in section 2(14)(iii)(a) of the Act. This land measuring 9 acres was converted for non-agricultural purpose. It was further stated that though the land was converted, agricultural activities were carried on up to the date of sale. Therefore, what was sold was agricultural land within the meaning of section 2(14) and there was no capital gains tax arising out of such sales within the meaning of the definition of the term "capital asset". Since the assessee did not offer any capital gain and claimed that it was agricultural land though it was converted into non-agricultural residential purpose, the case was selected for scrutiny and notice u/s.143(2) was issued on 26.6.200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc., Further, they authorized the assessee to receive any earnest money or to receive advance and also the full amount and then to sign and execute and deliver the conveyances in favour of the said purchaser/purchasers or their nominee or nominees or assignee or assignees. With respect to two other properties also similar GPA was executed by Shashidhar Reddy and Rachaiah in favour of the assessee almost on the same lines. 4. From the above the Assessing Officer came to the conclusion that the original owners already formed the layout subsequent to the conversion of the agricultural land for nonagricultural residential purpose and the GPA was only for specific and exclusive purpose of making arrangement to sell the sites as mentioned above. The Assessing Officer held that the character of the land has already been changed. He further noted as per the conversion orders issued by the Assistant Commissioner, Ramanagara Sub Division, the land so converted were required to be put to the use for the purpose intended (non-agricultural) within two years from the date of the conversion order, otherwise the order was to be treated as null and void automatically. Particularly clause (10) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tself, the assessee's version that the land was being used for nonagricultural purpose, was not justified. The Assessing Officer summoned the Assistant Commissioner, Ramanagara Sub- Division, calling for the original filed in connection with the conversion of the land, for inspection. A sworn statement was recorded u/s.131 on 5.12.2007. The conversion of the land into non-agricultural purpose was confirmed again by the Assistant Commissioner. He was again asked about the specific guidelines given by the State Government while giving permission for use of agricultural land to non-agricultural use. Answering to this question, he stated that there are about 12 conditions stipulated in the conversion order issued to the assessee. He was again asked if the land is not used for the specific non-agricultural residential purposes, what would be the repercussion. Answering to this, he stated that if the land is not used for the specific purpose for which it has been converted within the stipulated period of two years from the order, conversion order is deemed to be cancelled. 6. In the instant case, Assessing Officer noticed from the case records produced by the Assistant Commissioner, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecognition as a deemed university. The Assessing Officer found that the lands were acquired for the purpose of running educational institutions such as nursing college, degree college and to get recognition as a deemed university which he held proves that the land was purely non-agricultural at the time of purchase by that party. Consequentially, the assessee after conversion sold it as a non-agricultural land. He further noted that the land purchased by the Tibetan Childrens' Village had constructed buildings for office premises and construction of hotel building was going on and one building for college building was also under progress. This was found out by the ITI and report by his report dt.28.12.2007 which also established the status of the land at the relevant point of time. 9. Coming to the land surrounded by or adjacent to the land in dispute whether it is urban or rural, the Assessing Officer made the following observations. He found that the land stood adjacent to well-known high traffic density state highway running between Bangalore and Mysore at about 18 kms away from the corporation limits of Bangalore and is also located in the thickly populated industrial belt. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vident from the Government record in the form of RTC. 11. The assessee's contention was not accepted by the Commissioner of Income-tax (Appeals). He held the criteria for determination whether the land is agricultural or non-agricultural has been amplified in the treatise of Sampath Iyengar which briefly he records vide page 4 and 5 of his order. Accordingly, two tests were adumbrated in different cases, viz., (i) whether the price of land is such that no bonafide agriculturist would purchase the same at such price for genuine agricultural operations, and (ii) whether the price is such at which no prudent owner would agree to sell it even if he worked out the price on the capitalization method, taking into account its optimum yield in most favourable circumstances. In short, the price which the land fetches is an important criteria. The other criteria, is whether the land has been assessed to land revenue or not; whether agricultural activities are carried on or not; whether the land is capable of agricultural operations or not; the intention of the owner for which he is retaining the land and such intention not being fluctuating or ambulatory; character of adjoining land; descri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd stated that if the land is not used for the specific purpose within two years of conversion, the conversion shall be deemed to have been cancelled. It is further submitted the lands were not put to residential use. This is evidenced by the photographs taken by the ITI at the time of enquiry on 27.12.07 i.e., almost three years and eight months after the sale. The photographs are found at pages 67 to 69 of the department's paper book. There is no sign of residential sites having been formed. The schedule to the sale deed reproduced at pages 4 to 6 of the assessment i.e., pages 1 to 43 of the department's paper book shows that the lands are sold in the measuring form of acres and guntas and not as residential sites. The report of ITI indicates that there is no sign of layout or residential sites having been formed. These factors indicate the lands were not put to use for the purpose for which it was converted. Thus, the lands to the extent of 12 acres and 38 guntas had lost their non-agricultural status as on 28.4.01 i.e., on the completion of two years from the date of conversion order. 15. Coming to the objection of the Departmental authorities that the lands were not used for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is mentioned that the extent of land utilized was two acres for growing Ragi. He reiterated the submission made before the Departmental authorities that RTC form is a record issued by the Government which consistently show that there were agricultural activities going on. 16. He further submitted inviting our attention to written submission made before the Commissioner of Income-tax(A) on 21.7.2008 particularly at page 4, briefly which is as under. It was submitted that the LAO has concluded that the sites were formed for formation of layout. This conclusion is wrong for the reason if the sites had been formed by the original owners as held by the LAO at page 4 of the assessment order, the RTC records proves it wrong. Secondly, it was further submitted a very strong denial is also in the form of photographs taken by the ITI wherein one could see the construction of buildings by the Tibetan childrens' Village, but there is no evidence of any sites having been formed in the area. The photographs were taken as late as December, 2007, i.e., almost 3 and half years after the sale of land, and thirdly if the sites had been formed what could have been sold to the Tibetan Childrens& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l status which is also evident from the statement given by the Assistant Commissioner, Ramanagara Sub Division. The finding of the Assessing Officer that the data was filled year after year without verification is incorrect. The reality is that RTCs are not entered mechanically. The Village Accountants are expected to do the entries by actually carrying out the inspection in the land coming within the jurisdiction during the year. The entries in the RTC are made thereafter. The Commissioner of Income-tax(A) is wrong in confirming the finding of the Assessing Officer to the contrary. It is a government record and it cannot be simply brushed aside. It may be true in stating "...the entries in the RTC alone shall not be considered as conclusive evidence to prove the case of the assessee." In the instant case, the Assessing Officer has not rebutted that assessee carried out the cultivation activities. In the absence of any rebuttal, the recordings in the RTC and also the facts of cultivation, coupled with the lapse of two years brings back the character of agricultural land. He further objected to the Assessing Officer's finding that the assessee had not declared agricultural income fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the certificate issued by the Village Accountant of Ramanagara taluk dt.22.6.2006 mentioned above, the assessee's representative submitted it is clear that the assessee was cultivating ragi, vegetables and horsegram on the land. Merely because the assessee did not disclose any income, it does not mean that the agricultural activities were not undertaken as claimed by the revenue authorities. 18. Inviting our attention to the report of the Income-tax Inspector, Ward-3, Mandya, dt.27.12.2007, the representative submitted it is clear that even after conversion of the agricultural land into non-agricultural, assessee has not made any tax payment to Tahsildar or to the Grama Panchayat which is also clear from the letter hereinabove mentioned dt.1.3.2005. 19. Inviting our attention to the written submission at page 44, the learned representative submitted the conclusion of the Assessing Officer that the assessee had not carried out any agricultural activity is wrong. While answering to question no.8, the assessee stated that the assessee carried out agricultural activities. Since the assessee has not made any application, it shows that even after the conversion, the assessee had p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Supreme Court had referred to Gordhanbhai Kahandas Dalwadi 127 ITR 664 (supra). In the instant case, non-agricultural taxes were collected from the Tibetan Children's Village and it was not the assessee who had paid conversion charges and penalty for failure for using the land for certified purpose. He again invited our attention to the decision of the Supreme Court in Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy (1957) 33 ITR 466. 23. He further submitted that in the case of Prasanna Gowda, one of the assessee's before us, the Commissioner of Income-tax(A) has decided the issue in assessee's favour on facts and particularly assessee's representative relied on the decision at page 5 para 4 of his order. In this case, according to the Commissioner of Income-tax(A), the Assessing Officer considered the land as capital asset because of the orders of conversion of land for non-agricultural purpose. However, the Commissioner of Income-tax(A) took note of clause (10) of the conversion order which shows that if the land remains unutilized for the purpose for which it was converted within two years from the date of the order, then the order becomes u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , expenses incurred towards agricultural operations and the gross amount of sale proceeds on account of the sale of agricultural produce. There was no evidence forthcoming from the assessee. On the other hand, the department sufficiently established that no agricultural activities were carried out, as under : a) Conversion of land from agricultural purposes to nonagricultural purposes, i.e., development of residential layout had taken place in the Financial Year 1995-96, i.e., 10 years before the date of transfer of the land; b) The assessee has acquired the land in the Financial Year 1995-96 by way of execution of GPA by the original landlords in favour of the assessee for the purpose of sale of sites formed by the landlord. As such, the fact has been clearly highlighted in the registered GPA without any ambiguity; c) Subsequent to conversion of the land for non-agricultural purposes, the taxes were collected by the Grama Panchayat instead of Tahashildar, indicating that no agricultural activities were conducted subsequent to conversion of the land; d) At the time of transfer of the land, no standing crop or trace of agricultural activities were found as evidenced from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;ble ITAT, Bangalore in the case of Shri. M. V. Chandrashekar v. DCIT, Circle -2(1),Bangalore (ITA No.663/Bang/2002 dt.6.12.2002), which was also affirmed by the Hon'ble High Court of Karnataka, decided a similar issue vide ITA No.209/2003 dt.2.1.2008. The facts of the case are that the assessee is an agriculturist who purchased agricultural land of about 41 acres between 1977 and 1992 at Goolimangala village, Sarjapur Hobli, Anekal Taluk and the entire land purchased was agricultural land, which was not a converted land. The land so purchased is also in green belt area and even the assessee never applied for conversion of land use. During the previous year relevant to the Assessment Year 1998-99 the assessee sold about 35 acres of land and the remaining was still with the assessee. Some plantation was made and was converted into smaller size of plots and after incurring development expenses, sold the same to different parties. The Assessing Officer held that the transaction carried by the assessee indicate an intention to earn profit which is in the nature of trade. The view of the Assessing Officer was upheld by the Commissioner of Income-tax(A). In appeal before the ITAT, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 94 and the individual is covered by agreement terms. In the event if the individual violates the terms of agreement the government is at liberty to initiate action against such individual as per the provisions of the land revenue act clause 84 of 1996. 30. In reply to the above, assessee's representative briefly submitted as under. The assessee is an agriculturist. Inviting our attention to the decision of the Commissioner of Income-tax(A) in the case of Thimme Gowda (ITA.178/B/09), he submitted the undisputed facts are that the lands are situated beyond 8 kms from the corporation limits. The lands were converted to commercial/residential usage in 1999, but was never put to use for the converted purpose. The land was used for agricultural cultivation. He further submitted that for the land to be treated as agricultural land, carrying on of agricultural activities is of paramount importance. Phani extracts was produced before the Assessing Officer to prove the facts that the lands were under cultivation of the crop ragi. Evidence to the effect that the lands were used for agricultural purpose even on the date of sale, in the form of record of rights and Phani extracts (RTC) we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The taxes paid in respect of the land was levied as agricultural land and not as non-agricultural land. This is evidenced by phani extracts in respect of these lands which show that the taxes were levied as agricultural land and not as non-agricultural land. Evidence to this effect was also produced. 31. The learned representative for the assessee again brought our attention to the application made by the Tibetan Childrens' Village, dt.1.3.2005 in which it was stated that assessee had not made renewal application after the lapse of time and Tibetan Childrens' Village. It was they who not only paid the penalty but also got the land converted by making renewal application. If the land had been used for intended purpose, there was no need of renewal application and payment of penalty. 32. Inviting our attention to page 5 of the paper book dt.27.1.09, the assessee's representative submitted the report of the Horticultural, Agricultural and Sericultural Departments of the Government of Karnataka is found in the assessment record of Thimme Gowda for earlier years which bears the evidence for existence of grown crops like coconut, sapota and mango which are permanently y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n such area has remained uncultivated for a period of not less than two consecutive years without sufficient cause, he may be notice served upon the land owner and any other person entitled to be or in possession of the land require such persons to cultivate the land within one year from the date of service of such notice. Reading of the section makes it clear that if the Assistant Commissioner having jurisdiction over the area is satisfied that the land within his jurisdictional domain remained uncultivated for a period of not less than two consecutive years without sufficient cause, he may issue a notice to the land owner or to any other person entitled to be in possession of the land requiring them to cultivate the land within one year from the date of service of the notice. The case of the Department is that no such notice was issued by the competent authority. Therefore, the land was utilized for non-agricultural purpose as intended. We are unable to agree with the above contention. Perhaps this would indicate the other way. If the land has not been used within two years of issue of conversion order, notice should have been issued to utilize the land for agricultural purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant case, the above facts prima facie leads to the conclusion that the character of the agricultural land has not been lost. It is true the assessee had no case that the entire land was used for agricultural activities. But the RTC certificates produced by the assessee also indicates that the lands were used for agricultural activities. However, we find that there is a specific finding by the Commissioner of Income-tax(A) in the case of Prasanna Gowda in ITA No.177/Bang/09 that 10 acres and 10 guntas of land sold on 2.6.06 converted on 2.4.06 was capital asset and he further directed to compute long -term capital gains on this sale. In the absence of any evidence to the contrary, we confirm the order of the Commissioner of Income-tax(A) in ITA.177/Bang/2009 to this extent on facts. 34. Coming to the decision relied by the DR reported in Merchant (ZM) v. Commissioner of Income-tax - 177 ITR 512(Bom), wherein there was a specific finding by the Tribunal that there was no agricultural activity undertaken by the assessee. In this case, the said City Survey Officer said that the land bearing survey No.1393, 1394 and 1395 was agricultural land. The land fell within the town planning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee's assertion that the land was used for some kind of agricultural activity, is to be accepted. 36. Coming to the decision relied by the learned DR in the case of Commissioner of Income-tax v. Shiv Chand Satnam Paul - 231 ITR 663 (P&H), this was a case wherein the Tribunal held that the land was located within the municipal limits and does not fall within the ambit of capital asset. The Hon'ble High Court held that the Tribunal become coming to such a conclusion should have satisfied itself regarding the remaining two ingredients mentioned in Section 2(14)(iii)(a) regarding population not less than 10,000 according to the last preceding census and the land was situated in any area within such distance, not being more than eight kilometres from the local limits. Therefore, this decision relied by the DR is not applicable to the instant case. 37. Coming to the decision reported in CWT v. Officer-in-charge (Court of Wards), Paigah, the issue involved was as to what could mean or what could be treated as agricultural land within the meaning of section 2(e)(i) of the Wealth-tax Act, 1957. The Hon'ble High Court held, the land could be treated as agricultural land f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity. We have hereinabove in para 34 mentioned that the department had estimated the agricultural income at Rs.53 lakhs for 2004-05 and estimated the agricultural income of the group at Rs.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 ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d time to revive the nature of the land, which is evidenced by the letter dt.1.3.2005 which was written to the Secretary, Manchanayakanahally Gram Panchayat by the Tibetan Childrens' Village. 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 the land. 39. Now, we proceed to deal with the various appeals separately, as under. ITA.1464/Bang/2008 - By the assessee, Shri. M. N. Manjunath - Assessment Year.2005-06 : 40. In the first effective ground, the assessee's grievance is that the revenue authorities were not justified in bringing to tax the income on sale of land as non-agricultural. We have elaborately dealt with this issue and given our findings in the paragraphs 33 to 38 above and we have concluded that the land was agricultural on the date of sale and hence, this ground by the assessee is allowed. 41. Coming to the second effective ground, the assessee's representative submitted he is under instruction not to press this ground. Hence, this gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is against charging of interest u/s.234B, we hold that the Assessing Officer may give consequential relief after giving effect to our order. 47. In the result, appeal by the assessee is allowed." 23. In the present case, the main reason for treating the land as non-agricultural is that the land was converted for usage of non-agricultural purposes. However, the assessee filed revenue records wherein it is stated that the land still continued to be agricultural land wherein crops like Ragi & Paddy were cultivated by the assessee. Further, it was brought on record by the assessee that the land revenue was paid as applicable to agricultural land only. The land got converted by the assessee for non-agricultural purposes and conversion permission was granted on the condition that the land should be used for non-agricultural purposes within two years, otherwise original character of the land i.e., agricultural in nature would be restored. The assessee has not used the land for non-agricultural purposes even after conversion of the land for non-agricultural purposes. In similar circumstances, in the case of Shri M.R. Anandaram (HUF) v. ACIT (supra), the Tribunal observed that though ..... X X X X Extracts X X X X X X X X Extracts X X X X
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