Commissioner Of Income Tax, Business Ward Iii (4)Chennai v. M/S Grk Reddy & Sons (Huf)

IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved on : 08.12.2020 Pronounced on : 16.12.2020 Coram THE HONOURABLE Mr. JUSTICE T.S.SIVAGNANAMAND THE HONOURABLE Mrs. JUSTICE V.BHAVANI SUBBAROYAN Commissioner of Income Tax, Business Ward III (4)Chennai .. Appellant/Respondent Vs. M/s GRK Reddy & Sons (HUF)No.38, Casa Challa No.16,South Mada Street, Saidapet, Chennai - 600 015..Respondent /Appellant Tax Case Appeal filed under Section 260-A of the Income TaxAct, 1961, is directed against the Order passed by the IncomeTax Appellate Tribunal “C” Bench in I.T.A No.2685/Chny/2018dated 19.02.2019 for the assessment year 2008-2009 and againstthe order of the Commissioner of Income Tax (Appeals)-14,Chennai – 34, dated 26.04.2018 made in ITA.No.118/CIT(A)-14/2014-15 and against the order of the Income Tax Officer,Business Ward III (4), Chennai 34, dated 14.03.2014, made inOrder PAN/GIR No. and against the order of theCommissioner of Income Tax, Chennai VI, Chennai, dated28.03.2013, made in C.No. 6502 (76)/2012-13/VI. T.S.SIVAGNANAM, J. This appeal has been filed by the Revenue under Section260-A of the Income Tax Act, 1961 [the 'Act' for brevity]challengingtheorderdated19.02.2019inI.T.A.No.2685/Chny/2018 passed by the Income Tax AppellateTribunal Madras 'C' Bench, Chennai [hereinafter referred to as'Tribunal'] for the assessment year 2008-2009 [for brevity'AY'] . https://hcservices.ecourts.gov.in/hcservices/ 2. The Appeal was admitted on 26.06.2019 on the followingSubstantial Questions of Law: “i. Whether, on the facts and circumstances ofthe case and in law, the Income Tax AppellateTribunal was correct and justified in holding thatthe land sold was an agricultural land when theassessee purchased it with an intention to sell andsold it within short period of less than one year?And ii. Whether, on the facts and circumstances ofthe case, the Income Tax Appellate Tribunal erred inignoring the fact that the land purchased hadpotentiality of being developed into building siteand no agricultural operations were carried out onthe land by the assessee and hence, it was clearly anadventure in the nature of trade?" 3. The assessee filed a return claiming exemption underSection 10(1) of the Act with regard to the profit arising onsale for a land to the extent of Rs.2,66,49,124/- on theground that the land, which was sold was agricultural land. ii. Whether, on the facts and circumstances ofthe case, the Income Tax Appellate Tribunal erred inignoring the fact that the land purchased hadpotentiality of being developed into building siteand no agricultural operations were carried out onthe land by the assessee and hence, it was clearly anadventure in the nature of trade?" 3. The assessee filed a return claiming exemption underSection 10(1) of the Act with regard to the profit arising onsale for a land to the extent of Rs.2,66,49,124/- on theground that the land, which was sold was agricultural land. 4. The assessee declared an agricultural income ofRs.1,80,000/- for rate purposes. The regular assessment inthe assessee's case was completed under Section 143(3) of theAct by order dated 28.12.2010. Subsequently, the proceedingswere initiated by the Commissioner of Income Tax under Section263 of the Act dated 28.03.2013 and the show cause notice wasissued to the assessee calling upon them to explain as to whythe subject capital asset should not be considered as 'notbeing an agricultural land'. Inspite of opportunity, theassessee did not appear before the Commissioner of Income Tax.The authority proceeded to decide the matter on merits andpassed an order on 28.03.2013 held the assessment order dated28.12.2010 suffers from errors and it is prejudicial to theinterest of the revenue and accordingly, the same was setaside and the assessing officer was directed to causenecessary enquiry giving reasonable opportunity to theassessee and to redo the assessment. This direction wascomplied by the assessing officer and notices were issued tothe assessee, who appeared through the authorisedrepresentative, though belatedly, questionnaires were preparedand issued to the assessee and after considering all theaspects, the assessment was completed by order dated14.03.2014 treating the land as 'non-agricultural land' andwould come within the category of 'capital asset' underSection 2(14) of the Act, chargeable to tax under the head'capital gains'. Aggrieved by such order, the assesseepreferred appeal to Commissioner of Income Tax (Appeals)-14,Chennai (CITA), who by order dated 26.04.2018 dismissed theassessee's appeal. Aggrieved by the same, the assesseehttps://hcservices.ecourts.gov.in/hcservices/preferred the appeal before the Tribunal, which was allowed by the impugned order, challenging the order passed by theTribunal, assessee is before us, by way of this Appeal. 5. The Tribunal reversed the order passed by the CITA,who confirmed the order of assessment only on the ground thatthe lands were shown as agricultural lands in the revenuerecord during the relevant period and therefore, would notfall within the purview of the definition of 'capital asset'under the Act. Unfortunately, the Tribunal applied the wrongtest and ignored the settled legal position, as held in thecase of Smt.Sarifabibi Mohmed Ibrahim and others V.Commissioner of Income Tax reported in (1993) 204 ITR 0631(SC). The Hon'ble Supreme Court in the said decision had laiddown thirteen factors / indicators, which would be relevant todetermine the character of the land. They being as hereunder:- "(1) Whether the land was classified in the revenuerecords as agricultural and whether it was subject tothe payment of land revenue ? (2)Whether the land was actually or ordinarily usedfor agricultural purposes at or about the relevanttime ? (3)Whether such user of the land was for a longperiod or whether it was of a temporary character orby way of a stop-gap arrangement ? (4)Whether the income derived from the agriculturaloperations carried on in the land bore any rationalproportion to the investment made in purchasing theland ? "(1) Whether the land was classified in the revenuerecords as agricultural and whether it was subject tothe payment of land revenue ? (2)Whether the land was actually or ordinarily usedfor agricultural purposes at or about the relevanttime ? (3)Whether such user of the land was for a longperiod or whether it was of a temporary character orby way of a stop-gap arrangement ? (4)Whether the income derived from the agriculturaloperations carried on in the land bore any rationalproportion to the investment made in purchasing theland ? (5)Whether the permission under s. 65 of the BombayLand Revenue Code was obtained for the non-agricultural use of the land ? If so, when and bywhom (the vendor or the vendee) ? Whether suchpermission was in respect of the whole or a portionof the land ? If the permission was in respect of aportion of the land and if it was obtained in thepast, what was the nature of the user of the saidportion of the land on the material date ? (6)Whether the land, on the relevant date, had ceasedto be put to agricultural use? If so, whether it wasput to an alternative use ? Whether such cesserand/or alternative user was of a permanent ortemporary nature ? (7)Whether the land, though entered in revenuerecords, had never been actually used foragriculture, that is, it had never been ploughed ortilled ? Whether the owner meant or intended to usehttps://hcservices.ecourts.gov.in/hcservices/it for agricultural purposes ? (8)Whether the land was situate in a developed area ?Whether its physical characteristics, surroundingsituation and use of the lands in the adjoining areawere such as would indicate that 6 6 the land wasagricultural ? (9)Whether the land itself was developed by plottingand providing roads and other facilities ? (10)Whether there were any previous sales of portionsof the land for non-agricultural use ? (11)Whether permission under s. 63 of the BombayTenancy & Agricultural Lands Act, 1948, was obtainedbecause the sale or intended sale was in favour of anon-agriculturist was for nonagricultural oragricultural user ? (12) Whether the land was sold on yardage or onacreage basis ? (13)Whether an agriculturist would purchase the landfor agricultural purposes at the price at which theland was sold and whether the owner would have eversold the land valuing it as a property yieldingagricultural produce on the basis of its yield ?” 6. The Hon'ble Supreme Court has also laid down as to howthese factors are to be considered in each case and theultimate decision will have to be reached on the balancedconsideration of the totality of circumstances. 7. Of the 13 questions, the question Nos. 5 and 11 maynot be relevant for the case on hand. The answer to the otherquestions are as hereunder:- (i)Yes. The land is classified as agricultural wet /dry land. (ii) No(iii) Stopgap arrangement.(iv) No(vi) No(vii)No(viii)Yes(ix) No(x)No(xii) Sold on acreage basis(xiii)No 8. The answers, which we have given to the abovequestions are after noting the factual details, as culled outby the assessing officer, after direction was issued underSection 263 of the Act by the CITA.https://hcservices.ecourts.gov.in/hcservices/ 7. Of the 13 questions, the question Nos. 5 and 11 maynot be relevant for the case on hand. The answer to the otherquestions are as hereunder:- (i)Yes. The land is classified as agricultural wet /dry land. (ii) No(iii) Stopgap arrangement.(iv) No(vi) No(vii)No(viii)Yes(ix) No(x)No(xii) Sold on acreage basis(xiii)No 8. The answers, which we have given to the abovequestions are after noting the factual details, as culled outby the assessing officer, after direction was issued underSection 263 of the Act by the CITA.https://hcservices.ecourts.gov.in/hcservices/ 9. The assessing officer has framed the questionnaire andhas referred to Question Nos.8,9,10,11,12,13 and 14 in theassessment order, unfortunately, the assessee did not give anyreply to the questionnaire supported by required documentaryevidence. The submission of the authorised representative wereall pertaining to the bank statement and other financialdetails, but nothing pertaining to the character of the land,which was specifically put to the assessee. Furthermore, wefind from the assessment order dated 14.03.2014, the assesseefailed to co-operate in the assessment proceedings. Repeatednotices were issued and only after summons were issued to theKartha of the HUF, he had executed a power of attorney infavour of the another person, who appeared before theassessing officer. That apart, the lands were held by theassessee only for a short period of one year, sold to acompany, in which the Kartha of the assessee was the Chairman.The land was put to use for construction of a special economiczone. The assessee offered in the assessment a sum ofRs.1,80,000/- stated to be agricultural income, this plea wasunsubstantiated. 10. The Village Administrative Officer, who had beenexamined by the assessing officer stated that the land arebarrel land, therefore, a decision cannot be taken merelybased on entry in the revenue record. To be noted that therevenue records were not mutated in the name of the assessee,but stood in the name of the assessee's vendor. The holdingperiod by the assessee is very crucial in the case, as it isonly one year, all these factors were rightly taken note of bythe assessing officer and held that the land is not an'agricultural land'. 11. The argument of Mr.Ashok Pathy, learned counselappearing for the respondent / assessee is that the burden ofproof lies on the department and the land having beenregistered as an agricultural land, the assessee hasdischarged his burden and it is for the revenue to establishthe same. In support of such contention, reliance was placedon the decision in the case of Commissioner of Income Tax Vs.Ashok Kumar Rathi reported in [2018] 404 ITR 0173 (Madras).In our considered view, this decision will not help theassessee's case because in the said case, the agriculturalincome, which was offered by the assessee was accepted and theassessee was assessed to agricultural income tax, however, inthe instant case, the Revenue disputed the character of theland, as claimed by the assessee to be agricultural. 12. A prima facie opinion was formed by the Commissionerwhile issuing direction under Section 263 of the Act. Theassessee was given opportunity to explain, which they fail todo. Thus, the initial onus though partially discharged by theassessee, when the same was put to challenge with relevantmaterials, the assessee could not explain, or in other words,https://hcservices.ecourts.gov.in/hcservices/failed to give any explanation. Therefore, onus on the revenue has been discharged and it shifted to the assessee,who failed to discharge the burden cast on them. Therefore,the decision cannot assist the assessee. 12. A prima facie opinion was formed by the Commissionerwhile issuing direction under Section 263 of the Act. Theassessee was given opportunity to explain, which they fail todo. Thus, the initial onus though partially discharged by theassessee, when the same was put to challenge with relevantmaterials, the assessee could not explain, or in other words,https://hcservices.ecourts.gov.in/hcservices/failed to give any explanation. Therefore, onus on the revenue has been discharged and it shifted to the assessee,who failed to discharge the burden cast on them. Therefore,the decision cannot assist the assessee. 13. Apart from the above, reliance was also placed inthe case of Principal Commissioner V. Mansi Finance ChennaiLimited, reported in (2016) 388 ITR 0514 (Madras). In thesaid decision, the fact finding authority as well as theTribunal held that there was sufficient evidence adduced bythe assessee to prove that the subject lands have been put toagricultural operation before sale. 14. Under the said facts and circumstances, the revenue'sappeal was dismissed. The fact situation in the case on handis entirely different and there was no evidence placed beforethe assessing officer or before the CITA or before theTribunal to establish the character of the land, as claimed bythe assessee to be agricultural. It is argued by the learnedcounsel for the assessee that the statements of the VillageAdministrative Officer was not put to the assessee, however,no such plea was raised before the Tribunal that they were putto prejudice on account of a statement given by the VillageAdministrative officer, therefore, to raise such a plea atthis juncture, is impermissible. 15. We also take note of the decision relied on byMs.V.Pushpa, learned standing counsel for the appellant in thecase of Fazalbhoy Investment Co., (P.) Limited V. Commissionerof Income tax reported in [1989] 42 Taxmann 22 (Bom) to holdthat the finding of the Tribunal in the impugned order isutterly perverse. It has totally brushed aside the evidence,which was brought on record by the assessing officer, whichwas re-appreciated by the CITA to hold against the assessee.We also refer to the decision relied on by the revenue in thecase of Rajiv Dass Vs. Deputy Commissioner of Income Taxreported in (2019) 103 Taxmann.com 192 (Delhi), wherein theTribunal took note of the facts and held that the assesseetherein had undertook the agricultural activities for twoyears on sharing basis through a person on crop sharing(batai) basis. In the instant case, nothing was brought onrecord by the assessee to establish that the agriculturaloperations were carried on prior to his purchase and afterpurchase. 16. Further, the conduct of the assessee in selling theproperty within a short period of one year and the propertybeing used to develop the SEZ ought to have taken note of bythe Tribunal while deciding the character of the land, as mereclassification of the land in the revenue record, asagricultural land, does not conclusively prove that the natureof the land is an agricultural land. As noted above, thelands were transferred to non-agriculturists for non-agricultural purpose and this would also be one of thehttps://hcservices.ecourts.gov.in/hcservices/relevant factors to test the case of the assessee. The Tribunal relied on the decision in the case of M.S.SrinivasaNaicker Vs. Income Tax Officer reported in (2007) 292 ITR0481, the said Judgment could not have been applied to thecase on hand because in the said decision on examining thefacts and as admitted by the revenue, on the date of sale,agricultural operations were carried on in the lands, which isnot so in the case of the assessee. Thus, for all the abovereasons, we find that the Tribunal erred in interfering theorder passed by the CIT[A] affirming the order of assessmentdated 14.03.2014. Tribunal relied on the decision in the case of M.S.SrinivasaNaicker Vs. Income Tax Officer reported in (2007) 292 ITR0481, the said Judgment could not have been applied to thecase on hand because in the said decision on examining thefacts and as admitted by the revenue, on the date of sale,agricultural operations were carried on in the lands, which isnot so in the case of the assessee. Thus, for all the abovereasons, we find that the Tribunal erred in interfering theorder passed by the CIT[A] affirming the order of assessmentdated 14.03.2014. In the result, the present Tax Case Appeal is allowed andthe impugned order passed by the Tribunal is set aside and thesubstantial questions of law are answered in favour of therevenue.No costs. Sd/-Assistant Registrar //True Copy// Sub Assistant Registrar ssdTo 1.The Income Tax Appellate Tribunal “C” Bench Chennai. 2.The Commissioner of Income Tax, Business Ward III (4), Chennai 34. 3.The Commissioner of Income Tax (Appeals)-14, Chennai 34. Chennai 34. 4.The Income Tax Offficer, Business Ward III (4), Chennai. Business Ward III (4), Chennai. 5.The Commissioner of Income Tax, Chennai VI, Chennai. Chennai VI, Chennai. +1cc to Mr.M.Swaminathan, Advocate, S.R.No. 41614 T.C.A.No.394 of 2019 BR(CO)GN(09/02/2021) https://hcservices.ecourts.gov.in/hcservices/