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TMI Blog2022 (4) TMI 1608X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee that the condition precedent for initiating the proceedings u/s. 153C of the Act having not been satisfied in the present case, therefore the assessment is liable to be annulled. Accordingly, we hold that the addition made by the AO is not based on seized material found in the course of search and therefore the addition cannot be sustained. Nature of land sold - treatment of the gain arising out of sale of land as capital gain against the claim of assessee that it is exempt - HELD THAT:- This agricultural income offered by the assessee has been accepted and assessed in these assessment years. Contrary to this, the lower authorities are not ready to accept the sale of said land as agricultural land. In our opinion, the sale of land is to be treated as sale of agricultural land since there was continuous agricultural operations in the said land and though the land was converted, the land remained as agricultural land till sale of the same. In view of this, we allow the ground taken by the assessee. The other grounds are academic and dismissed accordingly. - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER For the Appellant : Shri Bharath L, CA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deed entered into by Appellant with Sri Padmesh for purchase of agricultural lands and sale deed between Appellant and Vijaya Bank Employees Housing Co-operative Society ( VBEHCS ). As a result, proceedings under section 153C of the Income tax Act, 1961 ( the Act ) were initiated in the Appellant s case. 4. From the return of income, the AO noted that the Appellant has claimed the income arising from sale of agricultural lands as exempt. It was submitted that the agricultural lands are located 8 kms beyond the limits of the municipal authority in accordance with the requirement of section 2(14)(iii) of the Act, and hence are excluded from the definition of capital asset . 5. Further, based on the documents found during the search in the Appellant s group cases, the AO noted that SPRD has entered into agreement for sale with the Appellant and her family members for acquiring lands for development and formation of residential sites to be transferred to VBEHCS vide MOU dated 06.10.2005. The AO enquired regarding the transaction entered into by the Appellant with SPRD vide various agreements for sale for transfer of agricultural lands situated at Manchanayakanahalli, Devarakagganahall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Allied Perfumers P. Ltd. (124 taxmann.com 358) f. Green Range Farms (P.) Ltd. v. DCIT (96 taxmann.com 249)(Del Trib) 8. The ld. DR supported the order of the lower authorities. 9. We have heard both the parties and perused the material on record. Similar issue was considered by the coordinate Bench in the case of D. Dasappa v. DCIT, ITA Nos. 2222 2223/Bang/2016 dated 9.2.2022 wherein it was observed as under:- 10. We have heard both the parties and perused the material on record. In the present case, the search took place u/s. 132 of the Act on 8.12.2011 in the case of SPR Developers Pvt. Ltd. [SPRDPL], 34/2, 5th Main, Gandhinagar, Bangalore. The documents were seized from the office of SPRDPL were as follows:- Seized material marked as A/SPRDPU19 Page No. Description 165 to 170 Absolute sale deed dated 12/12/2005 by Shri. Dasappa and M/s. SPR Developers Pvt. Ltd., to M/s. VBEHCSL for a consideration of Rs. 7,87,650/- for the converted land bearing Sy. No. 31 situated at Manchanayakanahalli Village measuring 2 acres 9 guntas. Seized material marked as A/SPRDPL/5 Page No. Description 61 to 66 Absolute sale deed dated 08/02/1996 by Shri. Arasappa and 2 others to Shri. Dasappa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account extracts 7. Declaration by the assessee stating that he holds no other bank accounts other than what is stated here. 10.3 Similarly a questionnaire dated 8.1.2014 for AY 2009-10 was issued to the assessee to produce the following details:- 1. Details of land sold during the F Y 2007-08 relevant to A Y 2008-09 alongwith a copy of purchase deed and sale agreement. 2. Provide the details of mode of payment received. If the amount is received through bank account, provide copies of relevant bank statement. 3. Copies of bank account extracts 4. Declaration by the assessee stating that he holds no other bank accounts other than what is stated here. 10.4 Consequently, the AO observed that in the AY 2008-09 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 properti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 10.6 According to the AO, the above land was duly converted as non-agricultural 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. SL No. AY Agri Land Holding Income earned 1 2006-07 30 Acres 3 Guntas 1,75,000/- 2 2007-08 30 Acres 3 Guntas 1,50,000/- 3 2008-09 30 Acres 3 Guntas 1,75,000/- 4 2009-10 30 Acres 3 Guntas 1,75,000/- 5 2010-11 30 Acres 3 Guntas 1,89,000/- 6 2011-12 30 Acres 3 Guntas 1,50,000/- 7 2012-13 30 Acres 3 Guntas 1,30,000/- Survey No. Year Agri Land Holding in the name of the assessee Village 10 2000-2001 1 acre 9 guntas Manchanayakanahalli 10 2001-2002 1 acre 9 guntas Manchanayakanahalli 10 2002-2003 1 acre 9 guntas Manchanayakanahalli 10 2003-2004 1 acre 9 guntas Manchanayakanahalli 10 2004-2005 1 acre 9 guntas Manchanayakanahalli 58/3A 2000-2001 16 guntas Manchanayakanahalli 58/3A 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on this count. In this regard, the assessee has raised the following grounds:- 1. The order of the Hon'ble Commissioner of Income Tax (Appeals) is opposed to law and facts of the case. 2. The seized material adverted to in the assessment order having no bearing on the determination of the total income of the assessee as evident from the assessment order itself, the provisions of Section 153C are not at all applicable and the order is without jurisdiction. 3. There being no satisfaction as required in law to sustain an order u/s 153C inspite of being repeatedly contended, and there being no finding either by the Assessing Officer or by the Commissioner of Income Tax (Appeals) of any evidence to indicate the existence of such satisfaction before concluding the assessment or in the assessment order itself, the provisions of Section 153C are inapplicable; the assessment order itself cannot be interpreted as the required satisfaction to act u/s 153C. 4. The learned Commissioner was in error in holding that the satisfaction note had been reproduced in the assessment order which is not factually correct and also in concluding that with respect to the taxed amount, fresh arguments esp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred. 19. We, thus, find that the ITAT rightly permitted this additional ground to be raised and correctly dealt with the same ground on merits as well. Order of the High Court affirming this view of the Tribunal is, therefore, without any blemish. Before us, it was argued by the respondent tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there were transactions of sale of development rights and from which profits were generated and taxable for the assessment year 2007-08. Thus, the receipt of Rs. 44 crores as deposit in the previous year relevant to the assessment year 2008-09 and later on became subject matter of the writ petition before the Delhi High Court. That was challenging the validity of notice under section 153C read with section 153A. In dealing with such situation and the peculiar facts that the Delhi High Court upheld the satisfaction and the Delhi High Court found that the machinery provided under section 153C read with section 153A equally facilitates inquiry regarding existence of undisclosed income in the hands of a person other than searched person. The provisions have been referred to in details in dealing with a challenge to the legality and validity of the seizure and action founded thereon. We do not find anything in this judgment which would enable us to hold that the tribunal's understanding of the said legal provision suffers from any error apparent on the face of the record. The Delhi High Court judgment, therefore, will not carry the case of the revenue any further. We, thus, do no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we will go through the provisions of section 153C of the Act which is as follows:- 153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that, (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o make an assessment in the case of the other person u/s.153C of the Act for the six assessment years referred to in Sec.153A of the Act, even if no incriminating material was found in the course of search. This created hardship and this was the reason why the provisions of Sec.153C of the Act were amended by the Finance Act, 2014. With the amendment by the Finance Act, 2014, the AO of the other person after receiving the material from the AO of the Searched person has to make an Assessment based on the material so received by him which has a bearing on the determination of the total income of the other person. This is clear from the amended provisions of the law which reads thus: and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s initially introduced. The intention of the legislature while introducing the provision is gathered, inter alia, from the Finance Bill, Memorandum Explaining the Provision of the Finance Bill. Any amendment to the substantive provision which is aimed at clarifying the existing position or removing unintended consequences to make the provision workable has to be treated as retrospective notwithstanding the fact that the amendment has been given effect prospectively. The above principles, if applied to the amendment to the provisions of Sec.153C of the Act by the Finance Act, 2014, can lead to only one conclusion that the said amendment is clarificatory and therefore should be held to be retrospective in operation. 10.18 A plain reading of the amended provisions of section 153C(1) of the Act, would show that the AO is required to arrive at a satisfaction that the seized assets, books of account or documents belongs to or relates to a person other than the person was subjected to search. For arriving at such a satisfaction, it is necessary for the AO to prima facie spell out the nature of seized documents and how it belongs to or relates to the assessee. Before the Hon ble High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 132 however will continue to remain valid. Thus, the former proceedings are referred to as abated assessment proceedings and latter proceedings are referred to as unabated assessment proceedings . Therefore the scope of making assessment on total income u/s. 153C in an unabated assessment proceedings is limited and can be only of assessing income that is not disclosed which is detected or which emanates from material found in the course of search of some other person and which relate to the assessee. 10.20 In the present case, the impugned addition made by AO is not based on any incriminating material found during the course of search. The addition cannot stand since there is no seized material in support of the addition made by the AO. The assessee in the return of income disclosed certain transactions as discussed in the assessment order which is reproduced in earlier part of this order and that cannot be the basis to make addition while framing assessment u/s. 143(3) r.w.s. 153C of the Act. There is no seized material found in the course of search which forms the basis for assessing income in the hands of the assessee for these two AYs. The disclosure made by the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee as an agricultural land. b. It is not falling within 8 kms from the local limits of any Municipal or Cantonment Board as referred in section 2(14)(iii)(a) and also not falling within the notified area as per provisions of section 2(14)(iii)(b). c. The land is actually classified as agricultural land as per Government revenue records and this land is subject to revenue land tax. d. The land was actually and ordinarily used for agricultural purpose, since it was purchased till the date of sale. e. Even today the land is classified under agricultural land as per revenue records. The land was never used for non-agricultural purpose till the date of sale and it was never ceased to put to agricultural purpose. f. Agricultural operations were carried out in the said land by the assessee on his own and agricultural income was admitted up to the impugned AY. g. The assessee never made any plot out of the impugned land and the land was sold in acres and guntas and not as square feet. h. The assessee has not made any roads or any facilities and it was undeveloped land fit to use for agricultural purpose at the time of sale. i. The entire land was sold as it was purchased. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. Although the lands were converted, agricultural activities were carried on by the Appellant till the date of transfer. The same can be evidenced from the RTC Copies provided by the competent authorities filed on record. 15. Without prejudice, the ld. AR submitted that for the agricultural land to fall out of the purview of capital asset under section 2(14)(iii), the land should be situated beyond 8 kms from the local limits any municipality or cantonment board. This fact is acknowledged by the AO. The income-tax law does not mandate that agriculture activities should be carried out for the land to be construed as agricultural land. 16. Further, as per the conversion order, one of the conditions laid for the conversion to be valid is that the land should be used for the intended purpose i.e., residential use within 2 years from the date of conversion order. Failure to comply with the condition would render the land conversion to be invalid. In this backdrop, since the land had not been put to use for its intended purpose, the lands automatically restored to its original nature of agriculture land on the expiry of two years. 17. It is also submitted that the AO has erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrues to the Appellant by executing the UAFS. According to him, the UAFS would not be recognized for the purpose of section 53-A of the Transfer of Property Act, 1882 since for the purposes of those provisions, the agreements for sale are required to be registered for section 53-A to apply. Hence, section 2(47)(v) of the Act would not apply to the UAFS. 20. It is also submitted that merely because the Appellant has reflected the above transaction in her income-tax return as being exempt, does not imply that the UAFS results in income under the Act. In this regard, reliance is placed on the well-settled principles that taxation cannot be based on estoppel and that it can be only under the provisions of the Act. 21. Without prejudice, it is submitted that the arrangements with VBEHCSL are presently terminated pursuant to an arbitration arrangement and hence the Appellant continues to be the owner of the lands. 22. Without prejudice, it is further submitted that no development has taken place on the proposed lands to be transferred due to dispute on titles to the land; the land that was to be converted has not been converted. Hence, the terms of the MOU have not been complied with f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der. 17. According to the AO, it is clear from the description of schedule of properties that the lands are converted from agricultural to non agricultural residential purpose. Therefore the nature 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 non-agricultural 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the said land. In such circumstances, it is not possible to hold that the land was non-agricultural land liable for capital gains tax. In other words, the AO unilaterally 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 subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee on the issue, we shall now proceed to deal with the sequence of events which apparently took place, chronologically, 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 30/200405 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... li 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 to 92 (including English translation) of PB AR] . 7.2.6. As a matter of perception, s. 2(14) defines 'capital asset'. Capital asset does not include agricultural land. However, agricultural land situated within any municipality, notified area c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culturist, 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 be seen from earlier documents of purchase which explicitly exhibit that the subject land had put to exclusive use for agricultural purposes only and in fact a grove [orchard] had been grown with fruits-yielding trees such as mangoes, sapota, coconuts, jack-fruits, etc., Incidentally, the surrounding lands were also subjected to agricultural activities as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 person can obtain higher amount by adopting a particular methodology of valuation and this by itself does not result in an asset becoming a capital asset. Non-payment of land revenue for a period of one month and 10 days from 8.2.99 to 20.3.99 cannot also be a circumstance which can be held against the assessee. This is too short period and it is not the case of the revenue that land revenue has (hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is given by the Government, the agricultural land becomes non- agricultural 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 into consideration the conversion of land to non-agricultural purpose and consequently recorded a perverse finding? 2. Whether the appellate authorities were correct in holding that though the land is converted into non-agricultural, in view of the cultivation of the land till the date of sale, the land should be treated as agricultural land and the same is exempt from capital gains in view of section 2(14) read with s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 had retained the agricultural character till the date of sale, for the reason that the assessee was doing agricultural activity. We have hereinabove in para 34 mentioned that the department had esti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 agricultural revenue. The non-agricultural revenue was paid by the subsequent purchaser after making an application for the second time to revive the nature of the land which is evidenced by the letter dt 1.3.2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 10.4.2014, the said land - a part of large track of land - was having agricultural operations with fully grown up fruits-bearing trees. Thus, the conversion order dated 19.7.2004 had lost its sanctity since the said property was not put use for non-agricultural purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 254 of the compilation and the refundable security received by the assessee was returned back to the developer. Through JDA, though it was agreed to hand over possession of land to the developer, but in fact possession was never handed over to the developer for further activities of developme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 purpose during the financial year 2005-06 itself by the original owners of the land. All the three original owners made an application before the Assistant Commissioner, Ramanagara Sub-division for conversion of the land and the same was approved by orders, dt.15.5.1995 in respect of two owners and order dt.20.12.1995 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agara Sub Division, the land so converted were required to be put to the use for the purpose intended (nonagricultural) 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 Assistant Commissioner, Ramanagara Sub-Division with fresh application for conversion of the land and it is proved that the land has been put to use for the purpose for which it was converted within the period of two years. He further held this fact has been confirmed by the recital of the agreement entered into between the assessee and the Tibet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c 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 put before the assessee s representative asking why the land under reference should not be considered as capital asset within the meaning of section 2(14) of the IT Act. The simple reply of the assessee s representative was that though the lands were converted, agricultural activities were going on. 7. The Assessing Officer held though the asessee s representat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 nonagricultural purpose lies with the Grama Panchayat. In the instant case taxes were being collected by the Grama Panchayat instead of Tahsildar, which strengthens the departmental stand that the land was non-agricultural. On the basis of the above facts, he concluded that the lands under reference were non-agricultural and there cannot be exemption u/s.2(14) from the capital gains tax. These points were considered by the various decisions of the Apex court and High Courts and he, particularly relied on the following decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-agricultural. Even if there were some agricultural operations, at best, he held it was a stop-gap arrangement which would not entitle the land for exemption u/s.2(14) of the Act. Aggrieved by the above order, assessee is in appeal before the Tribunal. 13. Except for variations in the dates of issuance of notice by the revenue authorities, area of the land sold, schedule of the property, date of conversion of the land etc., the facts are identical in the case of Da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (Appeals) s order in the departmental paper book. It is further admitted that the assessees did not maintain any records for the agricultural activities. The assessee s representative submitted RTC is an official record to show that the nature of usage of land situated in the specific revenue jurisdiction of the State Government and this land has thus been shown to have been used for agricultural cultivation. The assessee s representative brought our attention to the paper book dt.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and 38 guntas were converted into non-agricultural purpose under conversion order dt.29.4.1999, while 31 guntas were converted under conversion order dt.10.5.2004. The assessee transferred the lands on 7.4.2004 and the conversion of 31 guntas was done on 10.5.2004, after the transfer of lands. At least 31 guntas remained agricultural land which is also a fact not taken note off by the Assessing Officer. Within two years of the conversion, the land should have been utilized for the purpose it was intended ie., nonagricul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, 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 produced a copy of the certificate issued by the Village Accountant, Ramanagara Taluk, dt.22.6.2006, to the effect that the assessee had grown ragi, vegetables and horsegram in sy.no.77:43, 77:44 and 77:43 in a total area of 9 acres during the years 2002-03, 2003-04 and 2004-05. 17. The assessee s representative produced a letter from Tibetan Childrens Village authorities dt.1.3.2005 that was addressed to Manchanayakanahalli Grama Panchayat to the effect that the Tibetan Childrens Village authorities purchased land to the exten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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. 20. In the premises of the above facts, the assessee's representative again brought our attention to the decision of the Gujarat high Court decision in the case of Dr. Motibhai D. Patel v. Commissioner of Income-tax (1981) 127 ITR 671 wherein the Hon'ble High Court held that the permission to convert the land to non-agricultural use does not make the land non-agricultural. If the permission is not obtained before the date of sale and fetching of high price is not the potential criteria. He further submitted the smallness of the income de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 appeal was allowed. The learned representative thus submitted the facts are identical in all the cases. 24. The main issue involved in this case is whether the land sold by the assessee was agricultural in nature or not. The DR submitted that in order to decide whether a piece of land is agricultural in character or it is a capital asset is essentially a question of fact to be determined by the cumulative effect of all the relevant factors. The burden of establishing the above fact by cogent and reliable evidence that the land was used as agricultural land or was capable of being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onducted 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 non-agricultural since the actual cost of acquisition of the lands was Rs. 3 lakhs i.e., about Rs. 33,000/- per acre in the year 1995-96; g) The lands under reference were actually acquired by the buyer for the purpose of construction of educational institutions such as nursing college, degree colleges etc., and to get recognition in the long run as deemed university. This once again goes to prove that the land was purely non-agricultural in nature at the time of sale; h) The assessee had not shown any income from the so-claimed agricultural activity in the return filed by the assessee for Assessment Years 1995-96 to 2004-05. This was sufficient proof to sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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. The Hon'ble ITAT after considering the facts of the case, held that the transaction should be regarded in the nature of capital assets and not a business transaction. 27. The learned DR submitted the facts are identical in the instant case as well. The DR submitted from the date of conversion, the agricultural character of the land has been lost. In the agreement, sale deed etc., it is referred as the sale of nonagricultural land. The learned DR submitted Section 80 the Karnataka Land Reforms Act, 1961, bars transfer of agricultural land to a non-agriculturist. If it is violated then u/s.84 of the above Act, uncultivated land may be required to be cultivated at the instance of the government and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect 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 activities were continuing. Even the Assessing Officer apparently has not disputed the facts. In the case of T. Prasanna Gowda, 2 acres of land was converted during 1995, 53 acres of land was converted in 1999 and 10 acres; 10 guntas was converted in 2004. Still the facts remain that the lands were never used for non-agricultural purpose. No sites were formed nor any houses were built. The Assessing Officer deputed the Inspector for enquiry only in 2007. Even at this time, there was no layout formed except the building constructed by the Tibetan Children's Village for their office. The land was agreed to be sold to Tibetan Children's Village in the early part of 2003-04. If the land was to be registered in their name, as per the ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 proceedings for Assessment Year 2004-05, after examining the circumstances pertaining to agricultural income, the ACIT estimated the income of the assessee group at Rs. 56 lakhs. Condition of cultivation remained almost the same with regard to yield and production and rates. Hence, the assessee's representative submitted appeal by the assessee is liable to be allowed. 33. Hearing the rival submissions, going through order of revenue authorities and relevant materials before us and the cases cited by both the parties, we are of the view that the appeal by all the assessees are to be allowed. The revenue mainly relies among others on Sections 80 and 84 of the Karnataka Land Reforms Act, 1961 to show that agricultural land cannot be transferred to a non-agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 Tibetan Childrens' Village to the Secretary, Manchanayakana Halli Grama Panchayati, to the effect that they had purchased 143 acres and 27 guntas of land in Seshagirihalli, the land was converted for residential purpose between 1996-1999. It further states that though the conversion certificate was issued for the purpose of formation of residential layout, no such layout was formed by our earlier owners, i.e., the 'assessee' . It is further stated in the letter that the land remained on the records of Land Revenue authorities. In the absence of renewal application from earlier owners, they requested to renew the conversion granted and further submitted that they are willing to pay the requisite charges and fees for renewal of the conversion orders which impliedly proves the assessees stand that no taxes had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 land, but not used for agricultural purposes because it was common ground and there was a structure of their own which had been rented out to two tenants. It was in these circumstances, the Tribunal held that the land revenue assessment was not determinative of the issue. In these circumstances, the Tribunal held In the absence of any evidence to show that the land was put to any agricultural use at any point of time prior to the date of sale apart from the activity of growing vegetables and grains for the domestic use of the assessee, it could not be treated as agricultural land. Coming to the instant case of the assessees i.e., Thimmegowda and Suresh gowda for the Assessment Year 2005-06, agricultural income was estimated at Rs. 53 lakhs and for Assessment Year 2004-05, ACIT estimated the income of the assessee group at Rs. 56 lakhs. Henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lth-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 been put to any use which could change the character of the land by making it unfit for immediate cultivation; and (v) it was classified and assessed to land revenue as agricultural land under the A. P. Land Revenue Act. On further appeal the Hon'ble Supreme Court held the first four features considered by the High Court and based upon absence of any user for non-agricultural purposes were inconclusive, and the fifth feature alone provided some evidence of the character of the land from the point of view of its purpose. The property was classified in the revenue records as agricultural land was not conclusive and such entries could raise only a rebuttable presumption. The Hon'ble Supreme Court further held, the character of the land and the purpose for which it meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case. What ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on-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 was situated in an industrially developed area where the potential use of the land as non-agricultural land was very high but the Hon'ble High Court held that the use of the land as non-agricultural is 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 be 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 factors in the case. While coming to the above conclusion, the Hon'ble High Court considered the following facts. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted 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 when in fact the assessee was not entitled for the same nor had received any amount. This issue has been dealt with by the Commissioner of Income-tax(A) at page 6, by observing as under : The next issue raised is that the Assessing Officer has erred in bringing to tax an amount of Rs. 1,14,000/- as lease rentals as the appellant was not entitled for the same nor received any amount (Ground No. 4). It is seen from the assessment order that the addition has been made because as per lease agreement, the appellant was to get Rs. 1,14,1000/- as lease income. The appellant's contention is that the lease agreement was not acted upon and therefore, he is not entitled to any income. However, the appellant has led no evidence in support of his contention. He has also not given any confirmation from the other party of the agreement that the lease agreement was not acted upon. Therefore, the action of the Assessing Officer in bringing to tax the above sum on the basis of lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ACIT (supra), the Tribunal observed that though the said land was converted for non-agricultural purposes, but cultivation of land continued till the date of sale of the land. Thus, the land should have been treated as agricultural land and exempt from capital gain in view of section 2(14) of the Act. The Tribunal also observed that even after conversion, the assessee was carrying on agricultural operations and conversion was done only to facilitate the sale of subject property to a corporate entity/nonagriculturist. These observations of the Tribunal have been extracted in the earlier part of this order. 24. The Madras High Court in the case of CIT v. Ashok Kumar Rathi (404 ITR 173)(Mad) held that if the land is recorded as agricultural land in the revenue records, it would only enure in favour of the assessee as agricultural land and assessee is entitled to get exemption from tax., 25. The Hyderabad Bench of the Tribunal in Tulla Veerender v. Addl. CIT (160 TTJ 435)(Hyd) held that when the land which does not fall under the provisions of section 2(14)(iii) of the Act and assessee is engaged in agricultural operations in such land and also being specific agricultural land in the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lli 56 Page 6 Manchanayakanas Page 7 Halli (M N Halli 21.07.1994 Returned income 16/P4; Manchanayakanahalli ( MN Halli ); arrangements with Vijaya Bank Employees Housing Cooperative Society Ltd. ( VBEHCSL ) 16/P4 Page 8 9 M N Halli Agricultural lands Yes Rs. 63 lakhs VBEHCSL 2007- 08 Return of Income Agreement for sale with SPR Developers Private Limited 12/8 Page 10 MN Halli 17.01.2007 Yes Rs. 4.495 crores (01.04.2006) Rs. 4.87 crores (21.03.2007) SPR Developers Private Limited 12/4 Page 11 MN Halli 17.01.2007 12/9A Page 12 MN Halli 17.01.2007 16/P4 Page 8 9 MN Halli 09.05.2007 53 Page 13 MN Halli 17.01.2007 57 Page 14 MN Halli 17.01.2007 55 Page 15 MN Halli 17.01.2007 41/1A Page 16 Devarakagganahalli Not converted 41/1B Page 17 Devarakagganahalli 41/2 Page 18 Devarakagganahalli 41/3 Page 19 Devarakagganahalli 41/4 Page 20 Devarakagganahalli 75 Page 21 Devarakagganahalli 76 Page 22 Devarakagganahalli 77/1 Page 23 Devarakagganahalli 186/ Page 24 Devarakagganahalli P2 Return of income 16/P4; MN Halli arrangements with VBEHCSL 16/P4 Page 8 9 Manchanayakanahalli Agricultural lands Yes Rs. 63 lakhs VBEHCSL 2008- 09 Return of Income Sale deed with Goodlife Shelters Pvt Ltd 206 Page 25 K ..... X X X X Extracts X X X X X X X X Extracts X X X X
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