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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 ..... or the Appellant : Shri Thirumala Naidu, A.R. For the Respondent : Smt. Priyadarshini Mishra, D.R. ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order of Ld. CIT(A) dated 28.2.2019 for the A.Y. 2014-15. The assessee has raised following grounds of appeal:- That on the facts and circumstances of the case and in law: 1. The Learned AO, has failed to provide sufficient opportunity to the Appellant before passing the assessment order under section 143(3) of the Act. 2. The assessment order/order of the learned Commissioner of Income Tax (Appeals) is erroneous in law and under the facts and Circumstances of the case. 3. The Learned AO has erred in law and on the facts in raising demand of Rs. 64,48,890. 4. The Learned AO has failed to appreciate both in facts and in law, that tne property does not fall within the meaning of Section 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 additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13-14 dated 16.9.2013. Later, the assessee entered into sale deed on 18.9.2013 and the conversion of said property for non-agricultural purpose was only to fetch good price and not any other intention. The property was sold within a period of 2 days after the order of conversion and the land was not subjected to use for non-agricultural purpose on any day and the sole intention of conversion is to get good price that cannot be reason to hold that the land sold by assessee is non-agricultural land. Further, it was submitted that land has been used by the assessee till the date of transfer as agricultural land and also assessee declared income from agriculture in its return of income an the same was not accepted by the department and there was no any adverse finding by income tax authorities in this regard or agricultural income declared by the assessee not treated as non-agricultural income. Being so, the sale of said land to be considered as agricultural land. Further, he drew our attention to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tural land and only to facilitate to get good price, the assessee converted the land and at the time of entering into sale agreement, land was not converted into non-agricultural land. The assessee also declared agricultural income from the said land as an agricultural income at Rs.9 lakhs, which was accepted by the department and there was no disturbance on this count. The situation of land within the BMRDA limits cannot be considered as the land is situated within the limit of municipality and moreover, BMRDA is not a municipal or local authority in terms of section 2(14)(iii)(a) of the Act. This proposition is verified by the order of the Tribunal in the case of M.R. Pattabhiram (HUF) Vs. ACWT in WTA Nos.34 to 36/Bang/2014 dated 16.10.2015, wherein Tribunal held as under: 7. The next is came up for our consideration, is whether the CWT(A), right in holding the impugned lands are urban lands and the BIAPPA is municipality or notified area as defined in section 2(14)(iii) of the Act. The Id. Authorised representative 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 thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me physical properties, they are identical to the lands which formed the subject matter of the order in the case of M.R. Seetharam and therefore we are in no doubt that the order passed in the case of M.R. Seetharam (HUF) in ITA No.1654/Bang/2012 dt.13.6.2014 is applicable to the appeal in the case on hand. 9.1 We now proceed to examine and take up for consideration the issues and reasons cited / raised by revenue in written submissions dt.12.9.2014 as to why the order of the co-ordinate bench of this Tribunal in the case of M.R. Seetharam (HUF) is not to be applied to the case in hand:- 1. Various factual and legal aspects of the order delivered in case of M R Seetharam (ITA No.1654/Bang/2012) need to be deliberated upon once again, especially in the context of the above mentioned appeals and only after such deliberation the Ld. Bench may arrive at a conclusion in case of the above mentioned appeals. The above reason being general in nature no finding or adjudication is called for thereon. 2. The issues involved in the above mentioned appeals (viz. status of land-agricultural or non-agricultural, status of BIAPPA etc.) have huge revenue implicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that the lands in question stood converted, as on the date of sale, in the records of the land revenue authorities of the State Government, as but for this fact, the sale of the lands in question to corporates could not have taken place in the State of Karnataka. Thus the fact that the lands sold are therefore non-agricultural as on the date of sale is also not in dispute. 10.2 The assessee admittedly obtained an order of conversion to put the land to use for non-agricultural purposes. One of the mandatory conditions stipulated in the conversion order was that the lands should be put to non-agricultural use before a period of two years from the date of the said order of conversion, failing which the permission granted would automatically lapse' and stand cancelled. The assessee has taken this as one of the reasons to support the proposition that the land continued to be agricultural lands as the permission was not acted upon within the given time and that the lands in question continued to be used only for agricultural purposes. The co-ordinate bench of this Tribunal at para 7.2.6 of its order in the case of M.R. Seetharam (HUF) (supra), citing the mandatory con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ands sold are agricultural lands and not capital assets under section 2(41) of the Act. In coming to this decision, the co-ordinate bench of this Tribunal placed reliance of these earlier decisions of different co-ordinate benches of the Bangalore Tribunal, in the following cases :- (i) H.S. Vijaykumar V ACIT, Hassan ( ITA No.108/Bang/2009 dt.28.11.2006). (ii) T. Suresh Gowda Others (ITA Nos.1464 1465/Bang/2008; 177, 178, 262 305/Bang/2009 dt.30.12.2009). The Tribunal also placed reliance on the decision of the Hon'ble jurisdictional High Court of Karnataka in the case of iii) CIT V. Smt. K. Leelavathy reported in (2012) 21 t'dxmann.com 148 (Kar) dt.2.1.2012. 10.4.2 In all the above three cited cases (supra) the facts are that the respective assessees sold their Agricultural lands, after getting the same converted for non-agricultural use, to persons who were not going to continue any agricultural activity. Further, in all the above three cases, the assessee's therein :- (i) continued to carry on agricultural activities on the land in question up to the date of sale; (ii) did not act upon the conversio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder permitting nonagricultural 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 Notification No. and date Sy. No Extent of area Date of sale Sale consideration No.ALNSR/94/98-99 75 3A 38G 7.4.2004 Rs. 50,00,000 DT.29.4.1999 77 3A 00G No.ALNSR/8/2004-05 15.15 OA 10G 2.6.2004 Rs.1,82,50,000 DT.10.5.2004 16 4A 14G 17 2A 17G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in the cases of H.S. Vijayshankar (supra), T. Suresh Gowda Others (supra) and M.R. Seetharam (HUF) (supra) and that of the Hon'ble jurisdictional High Court in the case of Smt. K. Leelavathy (supra) is only for the limited purpose of determining whether a land is agricultural land or a capital asset u/s.2 (14) of the Act wend not to determine the definition of converted land in the state of Karnataka and other issues pertaining to the status of land as sought for by the Revenue in its written submisSions. We also find that the decision in the case of Madhav Bhandhopanth Kulkarni 2003(5 Kar. L 113, relied on b; Revenue, is not germane to decide the issue before us. 10.7 In the order of the co-ordinate bench in the case of M.R. Seetharam (HUF) (supra), the co-ordinate bench of this Tribunal at paras 7.343 to 7.3.10 of its order has also found merit in the arguments put forth by the learned Authorised Representative therein that owing to the peculiar features of the law prevailing in the state, an agriculturist in the state of Karnataka has to necessarily get his agricultural land converted if he has to sell the same to a non-agriculturist and hence is placed at a disad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in the fore-going paragraphs and also in conformity with the judicial pronouncements on the issue (supra), we are of the view that though the subject land was converted into non-agricultural purposes, cultivation of the land for agricultural purposes till the date of sale was continued unabated and as such, the land should have been treated as agricultural land and, thus, exempt from capital gains in view of s. 2 (14) of the Act. It is ordered accordingly. The extracted portion at paras 7.3.8 to 7.3.10 of the order in the case of M.R. Seetharam (HUF) (supra) indicates that the co-ordinate bench of this Tribunal came to the conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 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 agricultural land is situated outside the jurisdiction of a municipality then no tax on any profits or gains arising from the transfer of such land will be chargeable under the head 'capital gains'. The question, therefore, is: Whether the agricultural land of the assessee sold in public auction can be said to be situated in an area which is comprised within the jurisdiction of a municipality. The case of the Revenue is that it is, because the Guruvayur Township is a municipality within the meaning of that word in the section. On the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 intention of the Legislature is not to treat every local authority as a municipality; but, on the other hand, only those local authorities which have all the trappings of a municipality as stated above can be said to be municipalities within the meaning of the section. The Guruvayur Township, constituted under the Guruvayur Township Act, considered in this backdrop, cannot be said to be a municipality. The Guruvayur Township is not an autonomous body like a municipality. It is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 read ejusdem generis with the earlier expressions i.e., municipal corporation, notified area committee, town area committee, town committee. The Court has also not considered the scope and ambit of section 3 (31) of the Generdl Clauses Act defining local authority. 8.3.5. At this juncture, we would like to point out that there are two views on the issue, one in favour of the assessee as held by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction that there were mango orchards and coconut groves with thousands of fruit/nut bearing trees and not .... some fruit bearing trees as mentioned by Revenue in its written submissions. 14. In the light of the above discussion of the facts and circumstances of the case at paras 2.1 to 13 of this order (supra), we are of the considered view that the conclu'sions reached by the co-ordinate bench of this ' Tribunal in the case of M.R. Seetharam (HUF) (supra) squarely applies to the facts of the case on hand. We, therefore, following the decisions of the co-ordinate benches of this Tribunal in the cases of H.S. Vijayakumar (supra), T. Suresh Gowda and Others (supra), M.R. Seetharam (HUF) (supra) and the Hon'ble Karnataka High Court in the case of Smt. K. Leelavathy (supra) hold as under :- (i) The lands in question, which were sold in the case on hand, are agricultural lands and not capital assets under section 2(14) of the Act, and (ii) BIAPPA is not a Municipality as contemplated in section 2 (14) of the Act. We, accordingly, direct the Assessing Officer to delete the addition made to the income of the assessee under the head 'Capital Gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the lands is non agricultural when the transfer took place. Further, as per section 80 of the Karnataka Land Reforms Act, 1964, the agricultural land cannot be transferred to a non agriculturist. Hence, in view of the above status of law in Karnataka an agricultural land can be transferred only to an agriculturist. The above mentioned lands were transferred to GSPL It means that the lands were transferred to a person who is other than agriculturist also because of the fact that the lands transferred were converted from agricultural to non agricultural residential purpose. 18. According to the AO, the above land was duly converted as nonagricultural land and sale of above land constitutes capital asset in terms of section 2(14) of the Act. Further the assessee placed following evidence with regard to agricultural income earned from the above property and also produced details of RTC which have been reproduced in the earlier part of this order. 19. Thus, the assessee made a plea that the said land was subject of cultivation from AY 2006-07 to 2012-13. However, the AO disputed that the income disclosed by the assessee as agricultural income is derived from the land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally decided that the land was not subject matter of agricultural operations without any basis. Had he brought any material to suggest that the said land was not subject to agricultural operations by brining on record evidence to suggest that land was not used for agricultural purposes, then our decision would have been different. In our opinion, similar issue came for consideration before this Tribunal in ITA No.1169 to 1172/Bang/2015, order dated 27.5.2016 in the case of Shri M.R. Anandaram (HUF) Ors. wherein it was held as under:- 9. But in the instant case, the issue in dispute is with regard to chargeability of the capital gain on the impugned transaction. Our attention was drawn to the order of the Tribunal in the connected cases i.e., Shri M.R. Seetharam v. ACIT in ITA No.1654/Bang/2012 dated 13.6.2014, in which the Tribunal has held that the agricultural land was transferred to buyer and the issue was raised, whether capital gain has accrued on such transactions. The Tribunal has held that though the subject land was converted into non-agricultural land purpose, but cultivation of land continued till the date of sale. Thus, the land should have been treated as agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, as under: 7.2.3. The assessee had in its possession certain acres of agricultural lands, out of which, lands to the extent of 6 acres and 1 gunta situated at Akkalenally and Mallenahally converted as non- agricultural vide Conversion order No.ALN(D) SR 30/2004- 05 dated 19.7.2004 [source: Page 88 to 92 of PB AR] were sold to M/ s. ETL Corporate Services Private Limited for a sum of Rs.45.58 crores. The subject property was a part of around 600 acres of lands known as 'Gokula Farm' which was originally purchased by Late Sri M.S.Ramaiah, the father of Sri M.R. Seetharam - HUF - way back in 1951 [Source: Page 6 of Sale Deed dt.12.4.2007]. The same has been jointly cultivated by the family, comprising of 10 children of Late M.S.Ramaiah. These lands were, subsequently, partioned in 1970 and after the death of Sri M.S. Ramaiah, the lands were further portioned [Refer: Para 3.2. of the Asst. order]. Even though, the subject property, among others, was converted as non-agricultural lands way back in 2004, agricultural activities, deriving agricultural income from the said lands, were continued unabatedly by the assessee and incomes admitted by it from such operations were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder: 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, 37/13p, 37/ 16p, fruit yielding mango, sapota, coconut, cashew, coco, jack-fruit, rose apple, guava trees aged 25 - 30 years. 7.2.6. Ostensibly, neither the AO nor the CIT (A) had disputed the fact in clear terms that even after the conversion of the land for non- agricultural purposes, the assessee has been carrying on agricultural operations and also admitting incomes from such lands in its returns of income. The AO's stand that once the agricultural lands were converted into non-agricultural, even though agricultural activities continued; the lands cannot be termed as agricultural land is, in our view, not the correct proposition of law. This is apparent from the fact that one of the mandatory conditions contained in the conversion order that 10. The land should be used for the said purpose within two years from the date of this order [Refer: Pages 88 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to such non-agriculturist was for non-agricultural or agricultural user? (xii) Whether the land was sold on yardage or on acreage basis? (xiii) Whether an agriculturist would purchase the land for agricultural purposes at the price at which the land was sold and whether the owner would have ever sold the land valuing it as a property yielding agricultural produce on the basis of its yield? 7.2.7. In view of the norms prescribed by the Hon'ble Supreme Court in its judgment (supra), we are of the view that the facts making in the present case, the issue requires to be decided as to whether the subject land was an agriculture land. The land in question was inherited by the assessee (HUF), among others, as the same having been purchased by his father as an investment. As could b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 conditions imposed by the Deputy Commissioner, Hassan were not fulfilled by the assessee prior to the sale of the said land. It is observed that permission has been accorded for residential purposes and whereas the sale has been made to Indian Oil Corporation for putting up a service station. This contradiction itself goes to show that the permission accorded does not militate against the land becoming non-agricultural land. The first appellate authority also went by the fact that the land was sold on yardage basis to Indian Oil Corporation. This single circumstance in our considered opinion does not change the character of the land for the reason that no layout plan was obtained, nor the land had been subject to any change in physical characteristics. A pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, the agricultural land becomes nonagricultural land i.e., even prior to the issue of acquisition notices. As long as there is no change in the physical characteristics of the land in question, we cannot be held that there is a conversion. 7.3.4. The jurisdictional High Court in the case of CITG v. Smt K. Leelavathy reported in (2012) 21 taxmann.com 148 (Kar) dated 2.1.2012 had an occasion to analyse the provisions of s. 2 (14) read with sections 45 and 48 of the Act. Briefly, the substantial questions of law raised by the Revenue before the Hon'ble Court was that - 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 sale without taking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment 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 80 and 84 of the Karnataka Land Reforms Act, 1961, the earlier Bench had recorded its findings as under: 37 ............................................................................................... .... .......... (On page 22) ............................................................ Coming to the instant case of the assessee, it is not disputed that in the revenue records, the entry is not changed, it continues as agricultural land. According to the revenue, the intention and purpose of the sale is for the use of Tibetan Childrens' Village for the setting up of educational institutions and other related purposes. According to the assessee, the land in his hands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt 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 make a further application to obtain permission to revive the land for intended purpose. The assessee has not done this even according to the revenue. This was done by the subsequent purchaser i.e., Tibetan Childrens' Village, which compels to conclude that what the assessee held at the time of sale was agricultural land. It is true the facts is on border line, but the evidence produced before us in the form of RTC showing agricultural income etc., is in assessee's favour. Secondly, the Hon'ble Gujarat High Court considered the land revenue paid was for agricultural use of the land. In the instant case of the assessee also what was paid by the assessee was agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 identical ............. 7.3.7. The fact that the assessee had continued the agricultural operations unabated in the subject property on the date of sale even though the said land was converted for non-agricultural purposes by a Conversion Order of the State Government way back in 19.7.2004 with a rider that the land should be used for the purpose for which the conversion was granted within two years from the date of issue of the said order. However, on the date of sale i.e., on 12.4.2007,the subject land was under active cultivation for agricultural purpose only. This is evident from the fact that when we inspected the same on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 in the foregoing paragraphs and also in conformity with the judicial pronouncements on the issue (supra), we are of the view that though the subject land was converted into non-agricultural purposes, cultivation of the land for agricultural purposes till the date of sale was continued unabated and as such, the land should have been treated as agricultural land and, thus, exempt from capital gains in view of s. 2 (14) of the Act. It is ordered accordingly. 10. Moreover, in the instant case, the JDA was also finally cancelled vide Deed of Cancelation dated 5.5.2015 and copy of which is available at pages 240 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricultural 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 26.6.2006. 2. The Assessing Officer formed the opinion that the land sold was non-agricultural as evidenced by document impounded during the course of survey and also on the basis of the registered agreement deed dt.25.2.2004. The assessee sold the immovable property held by him as GPA holder to the extent of 9 acres to M/s. Tibetan Childrens Village having its office at Dharmsala, Centt 176216, Kangra District, Himachal Pradesh, for a consideration of Rs.90 lakhs. The Assessing Officer noticed as per the GPA, the above land was already converted from agricultural land to non-agricultural residential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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) of the conversion order specified as under : 10. The conversion of land hitherto shall be utilized for the proposed purpose within two years otherwise the land conversion shall be considered as cancelled. Any lapse on the part of the applicant to fulfill the conditions was a punishable offence u/s.96 of the Karnataka Land Revenue Act, 1964, as per clause 11 of the conversion order. As per clause (12), the land revenue for the converted land would be levied from the date of the order. The Assessing Officer held after the lapse of two years the assessee has not approached the Assi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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, the original owners submitted layout plan as approved by the local Grama Panchayat authorities. Subsequent to receipt of the conversion order, the original owners gave an undertaking before the Assistant Commissioner that the land would be used for the purpose for which it was converted, i.e., non-agricultural residential purpose, that too within a period of two years. From the above facts, the Assessing Officer came to the conclusion that the land has lost its original agricultural nature and characteristics in April 1999 by virtue of the conversion order. These facts were p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. It was a fast growing industrial area and hence, the assessee could fetch good price of Rs. 10 lakhs only because of this. The Assessing Officer further found from the enquiry conducted with the land revenue authorities that the jurisdiction for collection of land taxes in respect of agricultural land lies with the Revenue Officer headed by Tahsildar. In other words, collection of taxes from sites and lands converted for non-agricultural purpose lies with the Grama Panchayat. In the instant case taxes were being collected by the Grama Panchayat instead of Tahs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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; description of the land in the official records, etc., 12. The Commissioner of Income-tax (Appeals) held that RTC record alone is not the determinative factor of the nature of the land. In the instant case, the land revenue records show that the land was converted and also the tax records show that nonagricultural tax was paid on the land during the relevant period. The Commissioner of Income-tax (Appeals) further held the most of the facts found by the Assessing Officer support the view that the land is non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 agricultural activities, the assessee s representative submitted the facts in brief as follows. The lands were used for agricultural activities. This is evident by documents like RTC extracts produced before the Assessing Officer and the appellate authorities. This fact of producing RTC is evidenced by the observation of the Assessing Officer at page 18 para 7 and page 24, para 2 of the departmental paper book and also at page 14 last paragraph and page 15 of the Commissioner of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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' Village should have been in terms of these sites and not the land as a whole without any mention of the site plans. The schedule to the sale deed indicates that the land is sold as a consolidated survey number and only a reference to the conversion order has been made. The above facts clearly proves that the sites were never formed either by the original owners or by the assessee. The assessee owned 12 acres and 29 guntas at Sheshagirihalli. Of these 11 acres a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reafter. 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 for the purpose of income-tax. The assessee did not disclose any income because he was having no income from agricultural operations. The character of the adjoining land is not the sole criteria. The assessee fetched high price because of the location of the land. In view of the above, the high price fetched by the assessee cannot be a point against the assessee and it does not change the character of land as such. The learned representative for the assessee has produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nspector, 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 put the land for agricultural purpose and not for non-agricultural and residential purpose. In the hands of the assessee, the character remains as agricultural land. It is an admitted position that the assessee has not paid any conversion charges as the assessee was using the land for agricultural purpose. The conversion by making the penalty is a subsequent event that is subsequent to the sale of land by the assessee to Tibetan Childrens' Village. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oy (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 unoperational. He held the conversion order was not valid on the date of sale, except a portion of the land in the case of the assessee i.e., Prasanna Gowda in ITA.177/Bang/2009. Thus, he held that it is a strong presumption that the status of the land was an urban land. Therefore, in the case of Prasanna Gowda, the Commissioner of Income-tax(A) allowed the appeal partly and in the case of Timme Gowda in ITA 178/Bang/2009, the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial 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 contents and description of the property recorded in the registered sale deed ; e) The property under reference is located in the thickly populated industrial belt/suburb of Bangalore which is about 18 kms away from the corporation limits of Bangalore; f) The price fetched i.e., Rs.10 lakhs per acre cannot be construed as high on account of the land being a nonagricultural since the actu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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, the assessee raised two grounds. i) That the surplus on sale of agricultural land would be subject to tax only under the head income from capital gains and not as income from business; ii) That, as the lands sold being beyond the notified area, the surplus of sale would not be liable to tax under the head income from capital gains. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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) were issued by the Village Accountant in Form no.2 of the Karnataka Land Reforms Rules, 1966. This is a statutory record maintained by the government as required under the Karnataka Land Reforms Rules, 1966. Though request for conversion was made and order was passed, two years were lapsed and the agricultural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 yielding year after year. The income has been increasing as against reduced expenditure towards maintenance year after year. The income was divided between the land owners ie., Thimme Gowda and Suresh Gowda for the Assessment Year 2005-06, which was estimated at Rs.53 lakhs. During the assessment pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 within one year. Since the notice has not been issued, the claim of the assessee that the assessee was doing agricultural activity, prima facie to be accepted, in the light of the papers produced before us. The assessee has produced a letter from the Tibet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 scheme and was also within the municipal limits of Surat city. There was a specific finding by the Tribunal that the City Survey Officer's report was inaccurate when it said that the land bearing the three survey numbers was agricultural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 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 for the following reasons : (i) the area was 108 acres abutting the Hussain Sagar tank; (ii) the land had two wells in it; (iii) it was capable of being used for agricultural purposes; (iv) it had not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.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 inspite of the fact that this land wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39; 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 ground is dismissed as not pressed. 42. Coming to effective ground no.3, which is against bringing to tax an amount of Rs.1,14,000/- as lease rentals whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving 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 the said land was converted for non-agricultural purposes, but cultivation of land continued till the date ..... X X X X Extracts X X X X X X X X Extracts X X X X
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