Ita/114/2012 Of Smt.asha George, Nellissery House, Ayyanthole P.o., Thrissur v. The Income Tax Officer, Ward 2(1), Thrissur

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.M.JOSEPH &THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM WEDNESDAY, THE 16TH DAY OF JANUARY 2013/26TH POUSHA 1934 ITA.No. 114 of 2012 () ---------------------- AGAINST THE ORDER/JUDGMENT IN ITA.NO.542/COCH/2011 DATED 17-02-2012 OF INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN. ............. APPELLANT(S)/APPELLANT:APPELLANT: -------------------------------------------------------------- SMT.ASHA GEORGE, NELLISSERY HOUSE, AYYANTHOLE P.O., THRISSUR. BY SRI.G.SARANGAN, SENIOR ADVOCATE BY ADS.SRI.V.B.UNNIRAJ SMT.R.S.GEETHA SMT.P.ANITHA RESPONDENT(S)/RESPONDENT/DEPARTMENT: ----------------------------------------------------------------------- THE INCOME TAX OFFICER, WARD 2(1), THRISSUR - PIN-680 020. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) BY ADV. SRI.JOSE JOSEPH, SC,INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 08/01/2013, THE COURT ON 16/01/2013 DELIVERED THE FOLLOWING: ITA.NO.114/2012 APPENDIX APPELLANT'S ANNEXURES: ANNEX.A:COPY OF THE ORDER OF ASSESSMENT DTD. 10/12/2009. ANNEX.B:COPY OF THE ORDER OF THE CIT (A)-V DTD. 22/07/2011. ANNEX.C:COPY OF THE ORDER OF THE TRIBUNAL DTD. 17/02/2012. RESPONDENT'S ANNEXURES: N I L /TRUE COPY/ P.S.TO JUDGE Kss C. R. K. M. JOSEPH & C.K. ABDUL REHIM, JJ. ---------------------------------------------- I. T. A. NO. 114 OF 2012 ----------------------------------------------- Dated this the 16th January, 2013 JUDGMENT K.M. Joseph, J. Appellant returned nil income for the assessment year 2005-2006. Acting on information that the assessee had transacted aproperty on 05.11.2004, the assessment was reopened. Appellanthad 1/4[th] share in 1.10 acres of land in Ayyanthole Village. Thesame was sold for `.44 lakhs on 14.11.2004. The assesseereceived `.11 lakhs as her share. In her return, she computed hercapital gain at nil after claiming indexation on cost of acquisitionand cost of improvement and further claiming exemption underSection 54F of the Income Tax Act (hereinafter referred to as theAct) on the basis of a property purchased at Koothattukulam, afarm house with 1.92 acres of land for `.11 lakhs on 28.3.2005.During the course of the assessment proceedings, the appellant I.T.A.NO.114/12 took up the contention that she is entitled to exemption under Section 54B of the Act. The tribunal has affirmed the findings ofthe authorities that the appellant is not entitled to the benefit ofSection 54B for the reason that the property at Ayyanthole Villagewhich she sold was not used for agricultural purposes for a periodof two years prior to the date of the sale as required under Section54B of the Act. It is the further finding of the tribunal that theappellant is entitled only to take `.2 lakhs as the cost of acquisitionover and above `.1 lakh allowed as value of super-structure underSection 54F of the Act. It is being aggrieved by the same that theappellant is before us. 2. The following substantial questions of law have beenraised in the Appeal Memorandum: “i. Whether the sale proceeds of the land atAyyanthole were within the scope of Section 54B ofthe Income Tax Act ? ii) Whether the cost of improvement of the landthat was sold should have been determined atRs.3,50,000/= ? Iii. Whether the subsequent purchase of land I.T.A.NO.114/12 (at Koothattukulam) in which a farm house is situated satisfied the requirements of Section 54F and/orSection 54B and thus there was no liability to pay anylong term capital gains tax on the sale of land atAyyanthole, in the Assessment Year 2005-06 ?”. 3. We heard Shri G. Sarangan, learned senior counsel for the appellant and also Shri Jose Joseph, learned counsel appearing forthe Department. 4. Learned senior counsel for the appellant would submit that “i. Whether the sale proceeds of the land atAyyanthole were within the scope of Section 54B ofthe Income Tax Act ? ii) Whether the cost of improvement of the landthat was sold should have been determined atRs.3,50,000/= ? Iii. Whether the subsequent purchase of land I.T.A.NO.114/12 (at Koothattukulam) in which a farm house is situated satisfied the requirements of Section 54F and/orSection 54B and thus there was no liability to pay anylong term capital gains tax on the sale of land atAyyanthole, in the Assessment Year 2005-06 ?”. 3. We heard Shri G. Sarangan, learned senior counsel for the appellant and also Shri Jose Joseph, learned counsel appearing forthe Department. 4. Learned senior counsel for the appellant would submit that the approach of the tribunal in denying the benefit of theexemption under Section 54B is unsupportable. There werematerials before the authorities indicating that the land atAyyanthole was indeed being put to agricultural use for a period oftwo years. In this regard, he drew our attention to certainphotographs showing coconut trees. He also relied on the receiptfor the water cess. Further more, he drew support from thecertificate of the village officer. We find that the certificate fromthe agricultural officer is also referred to in the order of thetribunal. A copy of the certificate from the agricultural officer was made available to us by the appellant. It is further pointed outthat a receipt was produced from the Electricity Board and it wascontended that the connection was an agricultural one. He wouldpoint out further that the tribunal and the authorities have takeninto consideration irrelevant facts. In this regard, he would pointout that the fact that the purchaser of the property at Ayyantholehad converted the land and an apartment complex was set up,should not have weighed with the authority in denying the benefitunder Section 54B of the Act. The assessing officer also finds thatit cannot stand to reason that an agricultural property lying rightunder the nose of the District Administration could be convertedinto a commercial complex without any issues. According to theappellant, what is relevant is the use to which the land was put asprovided. Still further more, he would submit that the fact that theappellant had not originally set up the claim under Section 54Bcould not disentitle her from claiming the benefit under Section54B, if it is otherwise available. It is further contended that theauthorities have been influenced by the fact that no agricultural I.T.A.NO.114/12 income from the property at Ayyanthole was returned. The finding of the authorities is that neither the appellant, nor her familymembers have shown any agricultural income in their returns. It isstated that her father was stated to be a business man dealing insupply of meat to the zoo and the mother, a Nurse by professionwho earns income from salary and, therefore, they ought to havedisclosed agricultural income, if there was any, in their returns. 5. Per contra, the learned counsel for the Revenue wouldcontend that the findings of the tribunal are unexceptionable. Nosubstantial question of law has been made out. He would point outthat a perusal of the substantial questions of law would show thatthere is no substantial question of law raised that the findingsrendered are perverse so as to warrant interference under Section260A of the Act. He would further contend that no reliance can beplaced on the photographs. The photographs were not evenproduced before the assessing officer. The order of the assessingofficer is dated 10.12.2009 and it is only before the appellateauthority that some photographs were produced. There is no I.T.A.NO.114/12 material to indicate as to whether the photographs related to the 5. Per contra, the learned counsel for the Revenue wouldcontend that the findings of the tribunal are unexceptionable. Nosubstantial question of law has been made out. He would point outthat a perusal of the substantial questions of law would show thatthere is no substantial question of law raised that the findingsrendered are perverse so as to warrant interference under Section260A of the Act. He would further contend that no reliance can beplaced on the photographs. The photographs were not evenproduced before the assessing officer. The order of the assessingofficer is dated 10.12.2009 and it is only before the appellateauthority that some photographs were produced. There is no I.T.A.NO.114/12 material to indicate as to whether the photographs related to the property in question. He would also reiterate that the conduct ofthe appellant in not raising the claim under Section 54B of the Actmay be borne in mind and the claim under Section 54B of the Actis only raised as an after-thought. 6. Learned senior counsel for the appellant sought to buttresshis contentions with the aid of the following case law: (i) The Apex Court in Commissioner of Income Tax, West v. Bengal, CalcuttaRaja Benoy Kumar Sahas Roy [(1957)XXXII ITR 466)] held as follows: “Agriculture” in its primary sense denotes thecultivation of the field and is restricted to cultivationof the land in the strict sense of the term, meaningthereby tilling of the land, sowing of the seeds,planting and similar operations on the land. Theseare basic operations and require the expenditure ofhuman skill and labour upon the land itself. Those operations which the agriculturist has toresort to and which are absolutely necessary for thepurpose of effectively raising produce from the land,operations which are to be performed after the produce sprouts from the land, e.g., weeding,digging the soil around the growth, removal ofundesirable undergrowth, and all operations whichfoster the growth and preservation of the same notonly from insects and pests but also fromdepredation from outside, tending, pruning, cutting,harvesting and rendering the produce fit for themarket, would all be agricultural operations whentaken in conjunction with the basic operations. Thehuman labour and skill spent in the performance ofthese subsequent operations cannot be said to havebeen spent on the land itself. The mere performance of these subsequentoperations on the products of the land, where suchproducts have not been raised on the land by theperformance of the basic operations, would not beenough to characterize them as agriculturaloperations; in order to invest them with thecharacter of agricultural operations, thesesubsequent operations must necessarily be inconjunction with and in continuation of the basicoperations which are the effective cause of theproducts being raised from the land. The subsequentoperations divorced from the basic operations I.T.A.NO.114/12 cannot constitute by themselves agriculturaloperations. Only if this integrated activity whichconstitutes agriculture is undertaken and performedin regard to any land, can that land be said to havebeen used for “agricultural purposes” and theincome derived therefrom be said to be “agriculturalincome” derived from the land by agriculture, underSection 2(I) of the Indian Income-tax Act, 1922.” (ii) Next, he would rely on the decision of the Punjab and Haryana High Court in Commissioner of Income Tax v. Smt.Savita Rani [(2004) 270 ITR 40)].Therein, the Court held asfollows, inter alia: I.T.A.NO.114/12 cannot constitute by themselves agriculturaloperations. Only if this integrated activity whichconstitutes agriculture is undertaken and performedin regard to any land, can that land be said to havebeen used for “agricultural purposes” and theincome derived therefrom be said to be “agriculturalincome” derived from the land by agriculture, underSection 2(I) of the Indian Income-tax Act, 1922.” (ii) Next, he would rely on the decision of the Punjab and Haryana High Court in Commissioner of Income Tax v. Smt.Savita Rani [(2004) 270 ITR 40)].Therein, the Court held asfollows, inter alia: “The exemption is available to the seller of “acapital asset being land”. It does not restrict thebenefit to agricultural land only. However, the landagainst which the benefit is sought must have beenused by the assessee or his parent for agriculturalpurposes in the two years immediately preceding thedate of sale. From the facts stated by the AssessingOfficer himself, it is evident that this condition isclearly fulfilled. It has been observed that poplar -plantation stood on this land till 198889. It has also been stated that fodder grass and vegetables weregrown in the kharif season. The khasra girdwariproduced by the assessee also shows that agriculturaloperations on this land were being carried on by the-assessee and other coowners till its sale. Even the-records of the Incometax Department also show thatthe assessee had declared agricultural income from.this land in her returns of the preceding two years In the light of this factual position, there is nomerit in the contention of Shri Sawhney that noagricultural operations had been carried on in thisland in the preceding two years and that theagricultural income shown in the returns by theassessee was not genuine. We do not think that afterhaving assessed the income, it is open to theDepartment to take this stand without any evidence.At any rate, the findings of the Tribunal that therewas material on record to show that the land hadbeen used for agricultural purposes is based oncogent and relevant material. The Revenue recordsupports the claim. Thus, the Tribunal was justifiedin holding that the conditions laid down for claimingrelief under Section 54B of the Act stood satisfied. I.T.A.NO.114/12 Once it is so, the other contentions about the land being located in the commercial area or the land-having been partially utilised for nonagriculturalpurposes or that the vendees have also purchased it-for nonagricultural purposes, are totally irrelevantconsiderations for the purposes of application ofSection 54B of the Act.” (Emphasis supplied) (iii) Still further, the learned senior counsel sought to draw support from the decision of the Allahabad High Court in v. Commissioner of Income-TaxJanardhan Dass (Late) through legal heir Shyam Sunder [(92008) 291 ITR 210)] essentially for theproposition that Section 54B is a beneficial provision for anassessee who is otherwise liable to pay tax under the head “capitalgains”. (iv) Lastly, support is sought from the Judgment of the of Punjab and Haryana High Court in Commissioner of Income-Tax v. Lal Singh and Others [(2010) 325 ITR 588)]. Therein,thetribunal dealing with a case where the question arose whether theland was beyond eight kilo metres from the Municipal limit, took the view that the Commissioner (Appeals) had rightly relied on thereport of the Tahsildar, and that too, on the application of theassessing officer himself and thereafter the Court also proceeded tonote that the finding rendered was a pure finding of fact which wasnot perverse, illegal or contrary to the evidence on record. (iv) Lastly, support is sought from the Judgment of the of Punjab and Haryana High Court in Commissioner of Income-Tax v. Lal Singh and Others [(2010) 325 ITR 588)]. Therein,thetribunal dealing with a case where the question arose whether theland was beyond eight kilo metres from the Municipal limit, took the view that the Commissioner (Appeals) had rightly relied on thereport of the Tahsildar, and that too, on the application of theassessing officer himself and thereafter the Court also proceeded tonote that the finding rendered was a pure finding of fact which wasnot perverse, illegal or contrary to the evidence on record. 7. Learned senior counsel for the appellant would also submitthat the contention of the Revenue that no substantial question oflaw was raised regarding the finding of the tribunal being perverse,may not hold good in the light of the powers available to the Courtunder Section 260A of the Act. He would point out that it is for theCourt to formulate the substantial question of law. In fact, theproviso indicates that a substantial question of law which was notformulated could still be decided upon if it arose. Learned seniorcounsel for the appellant would also submit that as far as the land atKoothattukulam along with the farm house admeasuring 1 acre 92cents is concerned, the finding of the tribunal estimating andlimiting the value of the plot on which the farm house is located andthe value of the land appurtenant thereto and thus the estimating the value of the plot and the land at `.2 lakhs and allowing the same inaddition to the value of the super structure, may not be the correctview. He would submit that the farm is connected with theenjoyment of the house being an integral part and, therefore, thevalue of the entire land should have been considered. 8. We notice from the order of assessment that the appellant'slate father had applied for sanction for construction of a compoundwall before the Thrissur Urban Development Authority. Theappellant had claimed in the return, exemption on the basis ofSection 54F of the Act. But, during the assessment proceedings, theappellant relied on Section 54B of the Act. In other words, initiallythe appellant even did not have a case that the land at Ayyantholewas used for agricultural purposes. A perusal of the order ofassessment would show that the appellant had produced tax receiptof property and a receipt from the KSEB. The assessing officer hasfound that no power charge is payable on the basis of the receipt. Itis true that the connection was an agricultural one. But, the officernotes that the opening and closing meter reading, as per the receipt, is the same. It is also found that tax receipt does not throw light onthe nature of the property. It does not say that the tax is levied inrespect of agricultural property. No doubt, the learned seniorcounsel for the appellant may be right in complaining that theassessing officer should not have relied on the circumstance thatthe subsequent purchaser converted the property into an apartmentcomplex. Going by the decisions cited by the appellant, it may alsobe true that unless there is a surplus, a person may not showagricultural income in the return. But, it is equally true that had theagricultural income been declared in the return, it would have beena circumstance to assist the authorities to conclude that the appellantis entitled to the benefit of Section 54B of the Act. It is true that forthe applicability of Section 54B, what the purchaser of the landdoes with it, may not be relevant. If he puts a land falling underSection 54B of the Act for a non-agricultural use, that cannot be acircumstance to deprive the previous owner of his right to claimunder Section 54B of the Act. Equally, the emphasis under Section54B is the use to which the land is put (In fact, the tribunal has correctly held that it is the user of the land and not the nature of theland that is relevant). In other words, it is not necessary that theland which is transferred, must be an agricultural land as such. Thefact that the land is located in an urban area, cannot by itself berelevant to deny the benefit under Section 54B. What is essential isthat it must be used for agricultural purposes for a period of twoyears prior to the date of the transfer. 9. Even while we accept the complaint of the appellant thatcertain irrelevant aspects were also considered by the tribunal andthe officers, we are inclined to pose the question as to what wouldbe the result if those irrelevant aspects are eschewed fromconsideration. In other words, what are the other materials whichthe appellant can persuade us to rely on to hold that the land was putto agricultural use ? We, thought the sheet-anchor of the appellant'scase was projected to be the photographs showing coconut trees andthe water tank. But there, we must notice certain circumstances.We notice that even in the Appeal Memorandum, the appellantwould say that the photographs were taken in April, 2004 and the property was sold on 14.11.2004. The appellant filed return on03.01.2006, where she does not set up a case under Section 54B ofthe Act. The assessment order was passed on 10.12.2009. We areat a loss as to why the appellant did not choose to produce thephotographs before the assessing officer when the matter waspending for such a long time and admittedly according to theappellant, the photographs were taken in 2004. At this juncture, itis also necessary for us to deal with the argument of the learnedsenior counsel for the appellant that the appellant has done all shecould do and it was incumbent on the part of the officer to conduct alocal inspection and conduct an enquiry. In this regard, if at all, wemust blame the appellant herself for not having staked a claim basedon the photographs. Nothing, as we see, stood in the way of theappellant producing the photographs before him. We must also notforget that the property in the hands of the purchaser was used forputting up an apartment complex. Therefore, we cannot certainlyblame the officer for not conducting any inspection. At least, theappellant has not posted us with sufficient materials with reference to which we could have formed an opinion that the nature of theproperty continued to be such that the officer could have conductedan inspection. The photographs were, no doubt, produced beforethe appellate authority. But, as rightly pointed out by the learnedcounsel for the Revenue, the photographs, we must remindourselves, could be relied on only if it is established that it related tothe property. Therefore, it may not be safe for us to overturn afinding of fact in a proceeding under Section 260A of the Act whichis premised on a substantial question of law being made out. Theother material produced by the appellant before the assessing officerappear to be a self-defeating act, as the receipt of the electricconnection, though shown to be for agricultural one, related to themeter which reveals that the opening and closing reading is thesame. No charges were seen levied other than the fixed charges.Therefore, the said document, far from establishing the appellant'scase, militates against the case set up by the appellant. We mustremind ourselves that the requirement of Section 54B of the Act isthat the assessee must establish that the land was being used for agricultural purpose for a period of two years prior to the date of thetransfer. Certainly, this material does not in any way establish thesaid facts. Then, there is the certificate by the village officershowing that the land is “Nilam” (paddy land). Learned counsel forthe Revenue points out that it is incongruous that the claim that theland being put to agricultural use, should be built up on the basis ofthere being sixtyfour coconut trees and arecanut trees, when evengoing by the photographs, the land is claimed to be “Nilam”. Thecrucial question is whether the land was actually being used foragricultural purpose during the two years prior to the date of thetransfer. We do not think that we can overturn a finding of fact, atany rate, based on our re-appreciating the material which wasconsidered by the tribunal which is the final fact finding authority. 10. As far as the certificate issued by the Agricultural Officer,a copy of which was handed over to us is concerned, we notice thatit is seen issued in the year 2012. We do not know on what basisthe officer could have given such a certificate. Admittedly, the landwas already converted for the construction of an apartment complex. We must also remind ourselves that unlike the decision inthe Punjab and Haryana High Court (supra), where one of thematerials was the inclusion of agricultural income in the return,there is no such return filed. At any rate, we cannot on a re-appreciation of all these materials, overturn the findings of factsentered by the tribunal. Unless the finding of fact is perverse orcontrary to the weight of the evidence, the law does not permit us tore-appreciate the evidence and interfere. It is no doubt true that nosubstantial question of law about the finding be perverse is raised.We do not doubt our power to frame an additional substantialquestion of law, provided one such question arose. But, we are notinclined to think that the finding of fact rendered under Section 54Bis perverse. We therefore repel the case under Section 54B of theAct. 11. Next, it is contended that the officer should have granted,at any rate, the benefit of exemption under Section 54F of the Act inregard to the value of the property, namely the officer should havededucted the entire `.11 lakhs paid for purchasing 1 acre 92 cents with the farm house. 12. Section 54F is intended to encourage construction of oracquisition of residential house with the aid of the proceeds fromthe transfer of any long term capital asset, which is not a residencialhouse. The provision contemplates computing the cost of theresidential building, but the value of the plot on which the farmhouse stands and the land appurtenant could also be considered.The tribunal has categorically found that the appellant has notproduced material to show that the entire area of 1.92 acres shouldbe considered as land appurtenant to it. It is in such circumstances,the tribunal made an estimation and directed that the value of theplot on which the farm house is located and the land appurtenant befixed as `.2 lakhs. We are unable to accept the contention of theappellant that the value of the entire land must be considered inarriving at the value of the residential building. We find noillegality committed by the tribunal. It is not open to the appellant toinvoke Section 54B of the Act in regard to the rest of the land atKoothattukulam. This is for the reason that the appellant has not I.T.A.NO.114/12 been able to satisfy the requirements of Section 54B as alreadynoted by us in regard to the land at Ayyanthole. Therefore, at anyrate, there can be no basis for invoking Section 54B of the Act for deducting the value of the land purchased at Koothattukulam.Therefore, we reject the contention of the appellant. Accordingly,we answer the substantial question of law Nos. 1 and 3 against theappellant. 13. No arguments were addressed before us in regard to thequestion of law No.2. We see no merit in this Appeal and theAppeal will stand dismissed. Sd/= I.T.A.NO.114/12 been able to satisfy the requirements of Section 54B as alreadynoted by us in regard to the land at Ayyanthole. Therefore, at anyrate, there can be no basis for invoking Section 54B of the Act for deducting the value of the land purchased at Koothattukulam.Therefore, we reject the contention of the appellant. Accordingly,we answer the substantial question of law Nos. 1 and 3 against theappellant. 13. No arguments were addressed before us in regard to thequestion of law No.2. We see no merit in this Appeal and theAppeal will stand dismissed. Sd/= K. M. JOSEPH, JUDGE Sd/= C. K. ABDUL REHIM, JUDGE kbk. //True Copy//