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TMI Blog1985 (10) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the lands would not be in excess of Re. 1 per square yard as on 1-1-1954. 2. When the assessee took up the matter in appeal, it raised an additional ground before the AAC to the effect that the land sold by it was agricultural land and that, therefore, there was no capital gains liable to tax in its hands. The AAC did not admit this additional ground filed by the assessee, but confirmed the addition made by the ITO. The assessee took up the matter on further appeal to the Tribunal, who by their order dated 29-7-1978 in IT Appeal No. 1569 (Bom.) of 1977-78 directed the AAC to admit the additional ground raised by the appellant and then decide the same on merits after taking into consideration the material which was already brought on record. 3. Pursuant to this order of the Tribunal, the matter was again heard by the Commissioner (Appeals), who, after considering the materials placed by the assessee, accepted the contentions of the assessee and held that the lands sold by the assessee were agricultural lands. He held that the entries in the record of rights are good prima facie evidence regarding the land being agricultural as held by the Gujarat High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that the notification dated 6-2-1973 issued by the Central Government did not take effect from 1-4-1970 but only from the date of the notification itself, namely, 6-2-1973 and that, therefore, the said notification was inapplicable to the facts of the present case to bring to tax the surplus arising on the sale of the lands in question by the assessee as capital gains under section 45 of the Income-tax Act, 1961 ('the Act'). He argued that the notification issued by the Central Government on 6-2-1973 would take effect from 1-4-1970 itself when sub-clause (iii) of clause (14) of section 2 of the Act was substituted by the Finance Act, 1970, with effect from that date. He, therefore, argued that the order of the Commissioner (Appeals) on this issue was erroneous and that the same should be reversed. 7. Shri R.C. Desai, the learned counsel for the assessee, pointed out that in its grounds of appeal the department accepted the position that the lands in question were agricultural lands and that they were cultivated as stated by the Commissioner (Appeals), and that the only ground taken by them was purely a legal one. He submitted that the department did not challenge the factual f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of section 2(14)(iii)(b) shows that the notification issued by the Central Government can operate only prospectively from the date of issue, i.e., 6-2-1973 and not earlier. The learned counsel for the assessee is right in his submission that any other interpretation would lead to confusion and chaos in respect of all completed transactions of sale particularly when no such retrospective effect is intended by the Parliament in section 2(14)(iii)(b). The decision of the Andhra Pradesh High Court in Addl. CIT v. G.M. Omarkhan [1979] 116 ITR 950 to which a reference was made in the course of the hearing, is of no relevance as it related to the interpretation of section 2(14)(iii)(a) and not of section 2(14)(iii)(b) with which we are presently concerned in this appeal. In that case there was no dispute that Gaddimalkapur village is within the Hyderabad Municipal Corporation. The argument on behalf of the assessee was that the population of this village was less than ten thousand according to the last preceding census and that, therefore, the property acquired giving rise to the capital gains could not be regarded as a capital asset. This argument was negatived by the Andhra Pradesh H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered in order to determine the true nature of the land at the time of the sale in the present case. Shri Roy Alphonso, however, fairly stated that the decision of the Bombay High Court in Manubhai A. Sheth v. N.D. Nirgudkar, Second ITO [1981] 128 ITR 87, would be in favour of the assessee and against the revenue insofar as the attempt of the revenue to tax this capital gains under section 2(14)(iii) is concerned. 11. Shri R.C. Desai, the learned counsel for the assessee relied upon the findings of the Commissioner (Appeals) and further stated that all these materials referred to and relied upon by the Commissioner were already on the record of the department as could be seen from the earlier order of the Tribunal remanding the case to the AAC. He pointed out that the two sale deeds at pp. 16 to 35 of the assessee's paper book clearly described the lands sold by the assessee as agricultural lands. Adverting to pp. 36 to 45 of the paper book, Shri R.C. Desai submitted that these records, though they related to the year 1967-68, clearly established that the lands were cultivated by the assessee and that agricultural operations were carried on by the assessee on these lands even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultural land. He further submitted that the sum of Rs. 3,132 referred to by the learned departmental representative as the land revenue for 25 acres was incorrect and that it represented the land revenue paid in respect of other lands held by the assessee-company. Shri Desai argued that the mere fact that some portions of the land in question were lying fallow and not cultivated would not alter the true nature of the land as an agricultural land, as held by the Bombay High Court in CWT v. H. V. Mungale [1984] 145 ITR 208. Shri R.C. Desai next relied upon the decisions of the Gujarat High Court in Smt. Chandravati Atmaram Patel v. CIT [1978] 114 ITR 302, CIT v. Vajulal Chunilal (HUF) [1979] 120 ITR 21 and Manibhal Motibhai Patel v. CIT [1991] 131 ITR 120 as supporting the contentions of the assessee. Finally, Shri R.C. Desai relied upon the decision of the Bombay High Court in Manubhai A. Sheth's case at pp. 121-140 and contended that the assessee was entitled to succeed on the basis of this decision of the Bombay High Court as the surplus in question cannot be taxed as capital gains as held by the Bombay High Court in this case under section 2(14)(iii). 12. In the earlier order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITO. A copy of the sale deed dated 15-4-1971 executed by the assessee-company in favour of N.M.M. Kamgar Co-operative Housing Society Ltd. at pp. 16 to 27 of the paper book clearly shows that what the assessee was selling to the co-operative society of its employees, was agricultural land. This is clear from the recitals in the sale deed. In fact the recital at p. 18 of the paper book specifically refers to the fact that the lands in question were agricultural lands and that out of abundant caution the parties had applied to the Collector, Thane, for the requisite permission under the provisions of section 64A of the Bombay Tenancy and Agricultural Lands Act, 1948. Similar is the position in the copy of the other sale deed executed in favour of Shree Sahyadri Co-operative Housing Society Ltd. by the assessee-company at pp. 28 to 35 of the paper book. The extract from the land records at pp. 36 to 45 of the paper book prove that paddy was grown on these lands by the assessee-company as self-cultivation. Some of the extracts also indicate that some portions of the land were lying fallow and on some portion grass was being grown. The statement at p. 46 of the paper book sets out i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agricultural land in the revenue records, cannot be used for non-agricultural purposes by the owner, unless the land is allowed to be converted to non-agricultural purposes by the Collector under the provisions of the relevant Land Revenue Act or the Land Revenue Code, must be taken into account while determining the character or the nature of the land. This decision is also authority for the proposition that merely because the land remained fallow for an year, it did not cease to be agricultural land. Applying the ratio of these two decisions to the facts of the present case and the materials referred to above, we have no hesitation in holding that the Commissioner (Appeals) is right in his conclusion that the lands sold by the assessee were agricultural lands and that they did not cease to be agricultural lands on the date of their sales as contended by the revenue. 15. The decision of the Bombay High Court in Manubhai A. Sheth's case, is directly in favour of the assessee and against the revenue. Their Lordships of the Bombay High Court held as follows : "In our opinion, capital gains made on sale of land situate in India, which land is used for agricultural purposes, would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o tax on the capital gains arising on the sale of its agricultural lands in the year under appeal. Accordingly, we confirm the order of the Commissioner (Appeals) on this point and reject ground No. 1. 16. In ground No. 2 the objection of the revenue is that the Commissioner (Appeals) erred in holding that the depreciation was admissible on drawings and designs amounting to Rs. 5,53,404. In paragraph 16 of the appellate order dated 29-7-1978, the Tribunal had remanded this issue also to the AAC for the following reasons : "16. As we pointed out earlier, the ITO did not consider the assessee's claim for the depreciation allowance. The AAC, on the other hand, rejected the claim for depreciation allowance on the ground that the manufacturing documents and patterns are not plant. Now while considering the assessee's claim for capital loss under the head 'Capital gains', we have already held in view of the decision of the Gujarat High Court in CIT v. Elecon Engg. Co. Ltd. [1974] 96 ITR 672, that the manufacturing documents and patterns are plant. With that finding, the AAC's ground that the manufacturing documents and patterns are not plant does not survive. At the same time, our fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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