Ita/230/2012 Of Commissioner Of Income Tax Panchkula v. Sunil Kumar Sood

ITA No. 230 of 2012 (O&M) IN THE HIGH COURT OF PUNJAB & HARYANA, CHANDIGARH (1) ITA No. 230 of 2012 (O&M)Date of decision: October 27, 2014 Commissioner of Income Tax, Panchkula www. Appellant4"*&1&Sunil Kumar Soodwww. ReESpONdent(2)ITA No. 231 of 2012 (O&M)Commissioner of Income Tax, Panchkula..... Appellant4"*&1&Sunil Kumar Soodwo. ReESPONdent(3)ITA No. 288 of 2012 (O&M)Commissioner of Income Tax, Panchkula wa Appellant4"*&1&Sunil Kumar Soodwo. ReESPONdents(4)ITA No. 289 of 2012 (O&M)Commissioner of Income Tax, Panchkula_....._ Patitione4"*&1&Sunil Kumar Soodwo. ReESPONdent ITA No. 230 of 2012 (O&M) (5)ITA No. 175 of 2014 (O&M) Commissioner of Income Tax, Panchkula 4"*&1& www. Appellant Sunil Kumar Sood www. ReESpONdent (6)ITA No. 176 of 2014 (O&M) Commissioner of Income Tax, Panchkula www. Appellant 4"*&1& Sunil Kumar Sood wo. ReESPONdent CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA ANDHON'BLE MR. JUSTICE AMIT RAWAL Present:-Mr. Yogesn Putney, Aavocatefor the appellant, Mr. Ravi Shankar, Advocatefor the respondent, KK K RAJIVE BHALLA, J (ORAL) By way of this order we shall decide ITA Nos.230,231,288,289 of 2012 and 175 and 1/6 of 2014 as they relate tothe same assessee but to different assessment years but raisecommon questions of law. Ihe facts are being taken from ITANo.230 of 2012. The question that arises for adjudication and hasbeen framed as a_ substantial question of law by the revenue readsas under:- Whether on the facts and in the circumstances ofthe case the learned ITAT Is justified to hold theincome from sale and purchase of lands asagriculture income as against the findings recordedby the Assessing Officer. and duly concurred by theCIT (A) that the assessee is a dealer in thepurchase and sale of agricultural lands withoutputting the lands to agriculture use and henceincome derived is tne business Income in the natureof adventure in the nature of trade of dealing inpurchase and sale of agriculture land’? Counsel for the revenue submits that sale of separateparcels of land by the assessee, should be construed as anadventure in the nature of trade as defined by Section 2(13) of theIncome Tax Act, 1961 (hereinafter to be referred to as ‘the Act’) andhis stock In trade and, therefore, a capital asset. As a consequence,profit and gain arising from the sale of separate parcels of land is theassesses business income, exigible to tax. Counsel for the revenuefurther submits that whether the land was agricultural or not orwhether It was put to agriculture use or not or wnether the assesseederived agricultural Income or not Is not germane to the Issue Innana. Ihe question that snould nave been answered by the [ribunalwas whether purchase and sale of land in short intervals of time,admittedly sold to industries, is exempted from capital gain. Counselfor the revenue submits that apart from the aforesaid argument, asthe Assessing Officer and the OCIIT(A) had recorde ITA No. 230 of 2012 (O&M) concurrent findings of fact that the land in dispute Is not agriculturalland, the ITAT had no jurisdiction to reverse these findings and thenaiso without assigning clear ana cogent reasons. Admittedly, theassessee purcnased the lana and then tmmediately sold it toindustrial houses. The failure of the assessee to prove anyagricultural Income proves tnat the land In dispute was not being putto agricultural use and therefore was acquired by the assessee, as apart of his business thereby partaking the nature of an adventure orconcern in the nature of trade or commerce. The assessee has norignt to claim that as the land Is agricultural, It is not exigibie to capitalgain tax and income derived from these sales cannot be construedas income from bDUSINSESS. ITA No. 230 of 2012 (O&M) concurrent findings of fact that the land in dispute Is not agriculturalland, the ITAT had no jurisdiction to reverse these findings and thenaiso without assigning clear ana cogent reasons. Admittedly, theassessee purcnased the lana and then tmmediately sold it toindustrial houses. The failure of the assessee to prove anyagricultural Income proves tnat the land In dispute was not being putto agricultural use and therefore was acquired by the assessee, as apart of his business thereby partaking the nature of an adventure orconcern in the nature of trade or commerce. The assessee has norignt to claim that as the land Is agricultural, It is not exigibie to capitalgain tax and income derived from these sales cannot be construedas income from bDUSINSESS. Counsel for the assessee, however, submits thatthe question tnat is germane to the controversy Is not whether theland was stock In trade or that the sale and purchase was anadventure or concern in the nature of trade but whether the land indispute was agricultural land. A perusal of the jamabandi, the chartprepared by the Assessing Officer and the report obtained by theAssessing Officer from the concerned Tehsildar reveals that the landis agricultural in nature. The Assessing Officer has himself recordedthat maize anda vegetabie crops grow on the land but strangelenough, proceeded to hold that It is not agricultural land as neitner‘lagan’ nor ‘land revenue’ is paid. The payment of any rent, lagan,batal or land revenue, Is irrelevant for determining the nature of land.The Jjamabandl clearly records the land as barani abal that Is landwnicn Is not Irrigated by any canal or river but Is generally irrigated by ITA No. 230 of 2012 (O&M) rain or by other means otf Irrigation. It is further submitted that at nostage of the proceedings whether before the Assessing Officer, CIT(A) or the ITAT was a question based upon the definition of business,as provided under Section 2 (13) of the Act raised and therefore,cannot be raised for the first time before this Court, particularly, whenthe assessing officer and CIT(A) have passed orders by holding thatthe land in dispute Is not agricultural land. Ine order passed by theITAT is legal and valid and as the substantial question of law asframed does not arise for adjudication the appeal may be dismissed. We have heard counsel for the parties, perused theimpugned order as well as orders passed by the Commissioner ofIncome Tax(Appeals) and the Assessing Officer. The assessee filed a return of income on 30.10.2007,declaring a total income of Rs.24,04,503/-. The return wasprocessed under Section 143(1) of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’) and, thereafter, taken up forscrutiny. A notice under Section 143(2) of the Act was issued to theassessee on 26.09.2008 and served upon the assessee on29.09.2008. A notice under Section 142(1) of the Act along with adetailed questionnaire was Issued to the assessee on 30.10.2009.In response to these notices, a representative of the assesseeattended the proceedings. Ihe assessee claimed tnat land, wnicnwas subject matter of the transactions, was agricultural land situatedin a rural area of Himachal Pradesh and, therefore, its sale wouldnot invite capital gains tax. The Assistant Commissioner of IncomeTax, Panchkula Circle, Panchkula, held that the land its_ n ITA No. 230 of 2012 (O&M) ITA No. 230 of 2012 (O&M) agricultural as the assessee Is a practicing Chartered Accountant,who has purchased and sold a number of properties and, the saleunder the head “business income’ earned from business activities ofpurchase and sale of land and, therefore, has to be treated asbusiness income of the assessee. The Assessing Officer computedthe total income of the assessee as Rs.1,38,27,/00, Rs.24,04,503and Rs. 91,12,533. The assessee filed an appeal, which wasdismissed by the Commissioner of Income Tax (Appeal), Panchkula.Aggrieved by these orders, the assessee filed an appeal. IheIncome lax Appellate Tribunal, Chandigarh Bench ‘B’, Chandigarh,vide the Impugned order allowed the appeal, set aside the orderpassed by the CIT (Appeal) and the Assessing Officer, by holding thaas per the revenue record the !ana, In question Is agricultural landassessed to land revenue and as tne assessee nad not taken anysteps to convert agricultural land to non-agricultural use, It does notfall within the definition of capital asset, as clarified under Section 2(14)(l1) of the Act. On the question of adventure in business andbusiness income trom sale of the land, the Tribunal held as follows:-_ ?14. The revenue has failed to bring material onrecord to demonstrate that the assessee /s a dealerin lands. [ne assessee nas snown tne lands in nisaudited balance sheet as fixed assets and thisfactum remained un-rebutted by the revenue, and Isa relevant factor in unfolding the intention of theassessee. Mere frequency of purchase and sale ofland is not a conclusive evidence of carrying on ITA No. 230 of 2012 (O&M) business activitieS as trader or dea/er in land. [neHon ble Bombay High Court, in the case of IndianHume Pipe Co. Ltd. v. CTR 195 [TR 386(Bom) heldthat wnere no development nas been carried out, tomake the land readily marketable and sale of theplot of lands during different years, would notconstitute transactions as a_ trader. similarly,Madhya Pradesh High Court in the case of CIT v.omt. Bilkishbal 225 ITR 5/0 (MP) held thatrepeated sales and purchases of agricultural land isnot adventure in nature of trade, as no systematicbusiness activities involve. Therefore, the surpluson sale of land cannot be assessed as businessincome. Similar view has been held by thejurisdictional High Court, in the case of Cit v.Sushila Devi Jain 259 [TR 677. 15. Having regard to the fact-situation of thepresent case, it is evident that the present lands inquestion do not constitute capital asset within themeaning of Section 2(14)(11) of the Act. Therefore,surplus realized on sale of such lands cannot betaxed as capital gains u/s 45 r.w. Section 10(37) ofthe Act. The provisions of Section 10(37) wereinserted by the Finance Act 2004 (No.2) w.e.f.1.4.2005. The revenue merely made an assertionand treated the surplus’ realised from the sale of ITA No. 230 of 2012 (O&M) rural agricultural lands as business_ profit, whicdont fall u/s 2(14) of the Act. Therefore, havingregard to the fact situation of the present case,relevant record and Judicial veraicts, the surplusrealised on sale of such land, ts not taxablereceipts. In view of the above legal and actualdiscussions, we are of the considered opinion thatfindings of the CIT(A), based on bare assertions, inthe face of documentary evidence, filed by theassessee, fo Support his claim, as discussedabove, cannot be upheld. Accordingly, appeal ofthe assessee /S allowed. ITA No. 230 of 2012 (O&M) rural agricultural lands as business_ profit, whicdont fall u/s 2(14) of the Act. Therefore, havingregard to the fact situation of the present case,relevant record and Judicial veraicts, the surplusrealised on sale of such land, ts not taxablereceipts. In view of the above legal and actualdiscussions, we are of the considered opinion thatfindings of the CIT(A), based on bare assertions, inthe face of documentary evidence, filed by theassessee, fo Support his claim, as discussedabove, cannot be upheld. Accordingly, appeal ofthe assessee /S allowed. A perusal of the revenue record reveals that the relevantjamabandi, records that the land is “Barani Abal, |t.e. agriculturalland which is not irrigated by a canal or a river but Is rain fed or Isirrigated by other means. Admittedly, the land is situated in a ruralarea, beyond municipal limits. A presumption of truth is attached toan entry in a jJamabandi. The entry in the jamabandi describing thland as “Barani Abal’, raises a presumption of truth as to its naturenamely, that it was rural agricultural land. This apart the Tensildar,Nalagrah, District Solan, Himachal Pradesh, in response toinformation sought, addressed a letter dated 07.01.2008 to theAssistant Commissioner of Income Tax, Panchkula, which reads asfollows:- “TO ITA No. 230 of 2012 (O&M) Panchkula Circle, Panchkula. On the above cited subject refer your office letterNo.ACIT/PKL/Cir/PkI/0 7-O8/IA/3073dated31.10.2007, and in this regard, we nave gotinvestigated the information from _ our fielemployees and the report Is as under:- 1. Copy of jamabandi of land bearing khasra1341/3, 1341/2-1338-1339-1 336-133 7-1335-1311345/1, 1347/1, in village Bhatoli Kalan is preparedand submitted. 3(a) The above land does not fall under M.C,Corporation, NAC. (ob) Nagar Panchayat Baddi to above khasra (landthe aistance Is approx, 10 K.M. (c) Distance of land is more than 8 K.M. 4. The land is away trom Nagar Panchayat. Thedetails of census are not available. o(a) The above sold land was used for agriculturalpurposes before selling. (ob) The above said land was used for agriculturapurposes regularly, (c) Not applicable and not related to our records. (d) Himachal Agriculturist does not require anypermission from Government while buying or sellingof land but if the purchaser Is non-agriculturist thenit Is a necessity that he ne has to obtain permission -10- from Govt. u/s 118 of H.P. Tenancy and LandReforms Rules, 1972. The above said land wasagricultural land at the time of purchase and sale, (f) On relevant date the above land was agriculturalland and the purchase has purchased this land forsetting up an Industrial undertaking and when theIndustry Is set up on Knasra number tnen landbecome non-agricuiture land. (g) The above said land was regularly used foragricultural purposes.agricultural purposes. (n) The above land falls under rural area and at that time was not developed and ali the landssurrounding these were used for agricultural DUFDOSEs. (1) Above land has not developed into any plots and roads. (}) No. (k) The permission for purchase of land Is obtained by non-agricuiturist purcnaser. (1) The land was sold according to the bighas biswas and not by yards. (m) The land is purchased and sold on the basis ofaverage value.average value. A perusal of the report reveals that it is clearlyrecorded that the land was regularly used for agricultural purposesbefore it was sold. The Income lax Appellate Tribunal, has also ITA No. 230 of 2012 (O&M) =11- (g) The above said land was regularly used foragricultural purposes.agricultural purposes. (n) The above land falls under rural area and at that time was not developed and ali the landssurrounding these were used for agricultural DUFDOSEs. (1) Above land has not developed into any plots and roads. (}) No. (k) The permission for purchase of land Is obtained by non-agricuiturist purcnaser. (1) The land was sold according to the bighas biswas and not by yards. (m) The land is purchased and sold on the basis ofaverage value.average value. A perusal of the report reveals that it is clearlyrecorded that the land was regularly used for agricultural purposesbefore it was sold. The Income lax Appellate Tribunal, has also ITA No. 230 of 2012 (O&M) =11- noticed that khasra girdhwaries from 2002 to 2007, contain completedetails of land, area, name of owner, knasra numbers and the cropsown on this land were available with the Assessing Officer but wereIgnored. |!ne jamabandis and the knasra girdawaris In our considereopinion, prove that the land was used for agricultural purpose duringthe relevant period and was rural agricultural, before it was sold. Therevenue conscious of this legal flaw has tried to bring the income totax by asserting that the land Is not agricultural as It was neversubjected to agricultural operations. The findings with due deferenceto the two officers concerned Is contrary to the revenue record, thecertificate issued by the Tehsildar, the jamabandies and the khasragirdwaries which prove with a degree of certainty the agriculturalnature of land. Counsel for the revenue despite our repeatedrequest to refer to any material to the contrary to rebut thepresumption of truth attached to entries in a jambandi Is not in aposition to refer to any evidence much less any material that wouldenable us to hold tnat the land was not agricultural. |ne land beingrural agricultural land situated beyond a municipal area and beyondprescribed limits trom the boundaries of a municipal area, could notpossibly have been held to be a capital asset. The Assessing Officerand the CIT(A) in their apparent zeal to bring the transaction totaxation discarded or should we say Intentionally ignored the revenuerecord and interest witnout discussing the revenue record,particularly the jamabandies, the khasra girdwaries and theinformation made available by the Tehsildar, proceeded to ITA No. 230 of 2012 (O&M) =-17 erroneously hold tnat the land Is not agricultural. tne I[ridbunatherefore rightly held that the land purchased and sold by theassessee Is rural agricultural land. The Assessing Officer and the CIT(A), though,| conscious of the fact that the land Is agricultural in nature, made anattempt to side track the issue and treated the income from the saleof agricultural land as trade from business and brought’ thesame to. taxation. Counsel for the revenue, therefore, asserts thatthe sale of land to tndustrialists, who thereafter set up industriesproves that the assessee was a dealer wno purcnased and sold land,derived income _ from these sales and therefore these transactionpartake nature of business income in the nature of an adventure intrade. VWe nave considered the argument but in thabsence of any evidence much less an assertion that the assesseesold anything other than agricultural land or that at any stage soughtconversion of the land, for industrial use or carved out separateplots for sale, hold that as at the time of sale the land was agriculturaland was sold as such. The fact that the land was sold to industrieswould not alter the transaction into an adventure In business, orpartake the nature of business income. It would be appropriate topoint out that the land, In dispute, was sold by the assessee andpurchased by the vendees as agricultural land. VVnetner thepurchaser, used It for commercial or industrial purposes Is irrelevantfor determining the nature of the transactions in the hands of theassessee. We therefore find no error in the opinion recorded by the ITA No. 230 of 2012 (O&M) Tridunal tnat the land, In dispute Is rural agricultural land and Isconsequently not a capital asset. Ine assessee having soldagricultural land, though, admittedly, to various Industrial units, nasmerely sold agricultural land and, therefore, cannot be held to be adealer in agricultural land nor can the Ilana, In dispute, be held to bstock and trade and, therefore, business Income.| Consequently the question of law Is answeredagainst the revenue and the appeal Is dismissead. (RAJIVE BHALLA)JUDGE October 27 , 2014archana/nt | (AMIT RAWAL)JUDGE