K.badal Bai v. The Deputy Commissioner Of Income Taxincome Tax, Circle I, Vellore

T.C.A.No.190 of 2015 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 03.09.2024 CORAM : THE HONOURABLE MR.JUSTICE R. SURESH KUMARAND THE HONOURABLE MR.JUSTICE C. SARAVANAN T.C.A.No.190 of 2015 K.Badal Bai..Appellant Vs. The Deputy Commissioner of Income TaxIncome Tax, Circle I, Vellore...Respondent Prayer: Appeal filed under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal, “C” Bench, Chennai dated 24.09.2013 in ITA No.551/Mds/2013. For the Appellant:Mr.R.Vijayaraghavanfor M/s.Subbaraya Aiyarfor M/s.Subbaraya Aiyar For the Respondent:Mr.J.NarayanaswamySenior Standing Counsel JUDGMENT This tax case appeal is directed against the impugned final order dated 24.09.2013 passed by the Income Tax Appellate Tribunal in I.T.A.No.551/Mds/2013. 2. By the impugned order, the Appellate Tribunal has Page 1 of 19 T.C.A.No.190 of 2015 dismissed the appeal filed by the appellant against the order dated 21.12.2012 made by the Commissioner of Income Tax (Appeals) IX, Chennai, for the Assessment Year 2009-10. 3. Earlier, the appellant suffered an adverse Assessment Order in the hands of the Deputy Commissioner of Income Tax on 28.12.2011 under Section 143(3) r/w Section 144A of the Income Tax Act, 1961 [for brevity, hereinafter referred to as “the Act of 1961”] for the Assessment Year 2009-10. 4. This appeal was admitted on 20.04.2015 on the following substantial questions of law:- “i. Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that the land in question cannot be an agricultural land and the profit from the sale of such land is taxable as business profits ? ii. Whether, on the facts and circumstances of the case and in law, the Tribunal was right in law in holding that entries in revenue record will not be sufficient evidence to hold that the land was agricultural in nature ? and iii. Whether, on the facts and circumstances of the case and in law, the Tribunal was right in not following its order for the assessment year 2007-08 wherein under identical circumstances, it was accepted that the land purchased as well as sold was agricultural land ?” T.C.A.No.190 of 2015 5. The brief facts of the case are that the appellant assessee had filed return of income for the Assessment Year 2009-10 on 13.09.2009, wherein, the appellant admitted a total income of Rs.33,55,100/-. The case of the appellant was selected for scrutiny through Computer Assisted Scrutiny Selection (CASS). Notice, under Section 143(2) of the Act of 1961 was also issued on 14.08.2010, which was served upon the assessee on 01.09.2010. 6. Subsequently, notice was issued under Section 142(1) of Act, 1961, wherein the appellant/assessee was called upon to produce the books of accounts, hard copy of the return of income, balance sheet, trading, profit and loss, audit report under Section 44AB, evidence for expense claimed and etc. During the course of the assessment proceedings, summons was also issued under Section 131 of the Act of 1961 and sworn statement was recorded. 7. It had become evident that the appellant had sold certain immovable property at Arasakuppam, Hosur Taluk, for a total sale consideration of Rs.1,15,35,000/- to M/s.Alchemy Leisure and Resorts Private Limited on 31.12.2008. From the sale on 31.12.2008, the appellant/assessee earned a profit. 8. It was the contention of the appellant that the income from Page 3 of 19 T.C.A.No.190 of 2015 the sale of the aforesaid land was not taxable, as the aforesaid land is not a capital asset within the meaning of Section 2(14)(iii) of the Act of 1961. It was therefore submitted by the appellant/assessee that he was neither required to declare the aforesaid amount in the returns nor liable to be taxed. 7. It had become evident that the appellant had sold certain immovable property at Arasakuppam, Hosur Taluk, for a total sale consideration of Rs.1,15,35,000/- to M/s.Alchemy Leisure and Resorts Private Limited on 31.12.2008. From the sale on 31.12.2008, the appellant/assessee earned a profit. 8. It was the contention of the appellant that the income from Page 3 of 19 T.C.A.No.190 of 2015 the sale of the aforesaid land was not taxable, as the aforesaid land is not a capital asset within the meaning of Section 2(14)(iii) of the Act of 1961. It was therefore submitted by the appellant/assessee that he was neither required to declare the aforesaid amount in the returns nor liable to be taxed. 9. During the course of the assessment, a report was called from the Inspector of Income Tax, who visited the land in the presence of the appellant's authorized representative one Shri.D.Nirmal Kumar, Chartered Accountant and an employee of the assessee, who was looking after the land before it was sold to M/s.Alchemy Leisure and Resorts Private Limited on 31.12.2008. The relevant portion of the report reads as under:- “The land is situated at road side. I observed that the borders of the said land are fenced. The assessee's employee stated that the land is about 6.50 acres. There is no water sources like river, lake, tank, canal, well or bore-well either in the land or anywhere in the vicinity. I also observed that the entire stretch of land looked barren and no irrigation facilities are available whatsoever.” 10. It is the case of the appellant that the land was purchased for cultivation process. However, the Department concluded that there was no agricultural activities, as there was no water source T.C.A.No.190 of 2015 and that the land was purchased only with the intent of selling it for profit. The Appellate Commissioner also has confirmed the decision of the Deputy Commissioner of Income Tax dated 28.11.2011, which decision stands confirmed by the Appellate Tribunal vide the impugned order. 11. The point for consideration in this appeal is whether the appellant was justified in treating the income from the sale of the land as an “Agricultural Income”. 12. If the proceeds from the sale of the land is treated as an “Agricultural Income”, the appellant will not be liable to be taxed in terms of Section 10(1) of the Income Tax Act, 1961. Section 10(1) falls under Chapter III of the Income Tax Act, 1961. Section 10(1) of the Income Tax Act, 1961 deals with “Incomes which do not form part of total income”. The expression “total income” has been defined under Section 2(45) of the Income Tax Act, 1961. Section 2(45) and Section 10(1) of the Income Tax Act, 1961 are reproduced hereunder:- 13. Thus, the endeavour of the appellant is that the income from the sale of the land was an “Agricultural Income”, as the land in question was an “agricultural land” according to the appellant/assessee within the meaning of Section 2(14)(iii) of the Income Tax Act, 1961. 14. To answer the question raised before us, it will be also useful to refer to the definition of “Agricultural Income” in Section 2(1A) of the Income Tax Act, 1961 and the definition of “Agricultural Land” in Section 2(14)(iii) of the Income Tax Act, 1961. These definitions are extracted hereunder:- Page 6 of 19 Section 2(1A)Section 2(14)(iii)used for agricultural purposes(b)any income derived from such land by- within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand; or i. agriculture; or ii. The performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market;or Page 6 of 19 Section 2(1A)Section 2(14)(iii)used for agricultural purposes(b)any income derived from such land by- within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand; or i. agriculture; or ii. The performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market;or (b) in any area within the distance, measured aerially- I. not being more than two market;orkilometres, from the local limits of iii. The sale by a cultivator or any municipality or cantonment board receiver of rent-in-kind of the referred to in item (a) and which has produce raised or received by him, in a population of more than ten respect of which no process has been thousand but not exceeding one lakh; performed other than a process of the ornature described in paragraph (ii) of II. not being more than six this sub-clause; II. not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or (c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on: III. not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh. Explanation.- For the purposes of Provided that- this sub-clause, IpopulationJ means i. the building is on or in the the population according to the last immediate vicinity of the land, and is preceding census of which the a building which the receiver of the relevant figures have been published rent or revenue or the cultivator, or before the first day of the previous the receiver of rent-in-kind, by year.Jreason of his connection with the land, requires as a dwelling house, or as a store-house, or other outbuilding, and ii. the land is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of the Government as such or where the land is not so assessed to land revenue or subject to a local Page 7 of 19 Section 2(1A) rate, it is not situated L (A) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board and which has a population of not less than ten thousand or (B) in any area within the distance, measured aerially, L (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than ten lakh. (B) in any area within the distance, measured aerially, L (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than ten lakh. Explanation 1.L For the removal of doubts, it is hereby declared that revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of this section. Explanation 2.L For the removal of doubts, it is hereby declared that income derived from any building or land referred to in sub-clause (c) arising from the use of such building or land for any purpose (including letting for residential purpose or for Page 8 of 19 Section 2(14)(iii) Section 2(1A) the purpose of any business or profession) other than agriculture falling under sub-clause (a) or sub-clause (b) shall not be agricultural income. Explanation 3.L For the purposes of this clause, any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income. Explanation 4.L For the purposes of clause (ii) of the proviso to sub-clause (c), IpopulationJ means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year.J Section 2(14)(iii) 15.1. There are three parts to the definition of “�Agricultural Income”J in Section 2(1A) of the Income Tax Act, 1961. Sub-Clause (a) and (b) to Section 2(1A) of the Income Tax Act, 1961 deal with IrentJ or IrevenueJ derived from the land or income derived from such land. 15.2. The common denominator in sub-clause (a) and (b) to Section 2(1A) of the Act, 1961 is either IrentJ or IrevenueJ derived from land or income derived from land used for “Agricultural Purposes”. In the present case, admittedly, the income is not derived from land used for “Agricultural Purposes”. Page 9 of 19 15.3. Sub-clause (c) to Section 2(1A) of the Income Tax Act, 1961 deals with income from building situated on Isuch landJ and/or Iany landJ. Only these categories of income are “�Agricultural Income!” within the meaning of Section 2(1A) of the Income Tax Act, 1961. Admittedly, in the present case, income is also not from building situated on Isuch “Agricultural Land”. 15.4. For the purpose of our discussion and for the sake of clarity, Section 2(1A) of the Income Tax Act, 1961 can be dissected and simplified in the following Table:- Page 10 of 19 15.5. We make it clear that what is contemplated in sub-clause (a) and (b) to Section 2(1A) of the Act, 1961 is income from the use of land for I”Agricultural Purpose!” which is used for any of the three mentioned categories in sub-clause (b) to Section 2(1A) of the Act. Admittedly, the income is not from the use of land for I”Agricultural Purpose!”,which was used for any of the three mentioned categories in sub-clause (b) to Section 2(1A) of the Act. Page 11 of 19 T.C.A.No.190 of 2015 15.6. There is a subtle difference between the income contemplated in sub-clause (a) and (b) to Section 2(1A) of the Act,1961. Sub-clause (a) to Section 2(1A) of the Act, 1961 would cover with any income from IrentJ or IrevenueJ derived from land which is/are used for “�Agricultural Purpose”J. The bottom line is such land should be situated in India and such land is used for I”Agricultural Purposes!”. Page 11 of 19 T.C.A.No.190 of 2015 15.6. There is a subtle difference between the income contemplated in sub-clause (a) and (b) to Section 2(1A) of the Act,1961. Sub-clause (a) to Section 2(1A) of the Act, 1961 would cover with any income from IrentJ or IrevenueJ derived from land which is/are used for “�Agricultural Purpose”J. The bottom line is such land should be situated in India and such land is used for I”Agricultural Purposes!”. 15.7. Although not illustrated, sub-clause (a) to Section 2(1A) of the Act, 1961 could cover the situation where there is a tenancy of land used for I”Agricultural Purposes!” or where direct revenue is derived from the land used for ”Agricultural Purposes!”. Sine qua non for that Income to qualify as an “Agricultural Income”J is that such income should be derived from land used for I”Agricultural Purposes!”. 15.8. The expression ”Agricultural Purpose!” is not defined in the Act, 1961 although the expression “'Charitable Purpose”*has been specifically defined in Section 2(15) of the Act, 1961. We are not concerned with the definition of N”Charitable Purpose”O in these cases, therefore, we do not wish to expatiate on the same. Page 12 of 19 T.C.A.No.190 of 2015 15.9. Suffice to state that the case of the appellant assessee does not fall within the purview of Sub Clause (a), as the income is not from the use of the land. The facts of the case makes it clear that income of the appellant assessee does not comes within the purview sub-clause (a) to Section 2(1A) of the Act, 1961, as admittedly, the income of the appellant assessee is not from the landJ used for I”Agricultural Purpose!”. 15.10. Sub-clause (b) to Section 2(1A) of the Act, 1961 is another species of “�Agricultural Income”! from Isuch landJ. Use of the expression, Isuch landJ implies “�Agricultural Land!” used for “Agricultural Purpose”!.15.11. Sub-clause (b) to Section 2(1A) of the Act treats the income derived from Isuch landJ as I“�Agricultural Income”J, if such income is derived, by:- Page 13 of 19 T.C.A.No.190 of 2015 15.12. The first situation that is contemplated in sub-clause (b)(i) to Section 2(1A) of the Act, 1961 is relatable to direct income from “�Agriculture”J simpliciter from I”such land”J. The second situation that is contemplated in sub-clause (b)(ii) to Section 2(1A) of the Act is relatable again to “�Agricultural Income”J from “�such land”J where there is performance of any process ordinarily employed either by:- 1. a �”cultivator”J to render the produce raised fit to be taken to the market; or 2. By “�receiver of rent-in-kind”J to render the produce received fit to be taken to market. J to render the 15.13. The third such category as mentioned in sub-clause (b) to Section 2(1A) of the Act is confined to “�income from sale”! of the produce raised or received by such IcultivatorJ or Ireceiver of rent- Page 14 of 19 T.C.A.No.190 of 2015 in-kindJ in respect of which the process is carried out by the above named persons to make the agricultural produce marketable. It should be from the produce from land used for I”Agricultural Purpose!”. 15.14. There was no activity carried out by the appellant assessee. The activity of the appellant does not answer to any of the three situations contemplated in sub-clause (b) to Section 2(1A) of the Act. That apart, what is contemplated in the second and third situation, as mentioned above, are performance of actions to render the agricultural produce marketable and/or sale coupled with performance by a cultivator (other than the land owner) or income received by the owner in the form of rent-in-kind from the cultivator. In the facts of the present case, the Appellant/Assessee has not derived any income from such land. 15.15. As far as the third specie of �”Agricultural Income!” 15.14. There was no activity carried out by the appellant assessee. The activity of the appellant does not answer to any of the three situations contemplated in sub-clause (b) to Section 2(1A) of the Act. That apart, what is contemplated in the second and third situation, as mentioned above, are performance of actions to render the agricultural produce marketable and/or sale coupled with performance by a cultivator (other than the land owner) or income received by the owner in the form of rent-in-kind from the cultivator. In the facts of the present case, the Appellant/Assessee has not derived any income from such land. 15.15. As far as the third specie of �”Agricultural Income!” contemplated in sub-clause (c) to Section 2(1A) of the Act, 1961 is concerned, it would cover the situation where the income is received from any “�building”J, which is either owned and/or occupied by the “�receiver of the rent!” or I”receiver of the revenue”J of I”any land”!. Page 15 of 19 15.16. Sub-clause (c) to Section 2(1A) of the Act can be understood in the following manner:- (ii) the performance by a (iii) the sale by a cultivator or cultivator or receiver of rent-receiver of rent-in-kind of the in-kind of any process produce raised or received by ordinarily employed by a him, in respect of which no cultivator or receiver of rent-process has been performed in-kind to render the produce other than a process of the raised or received by him fit naturedescribedin to be taken to market.paragraph (ii) of this sub-clause. 15.17. The first sub-category in sub-clause (c) to Section 2(1A) of the Act, 1961 would relate to income derived from “�any building!” either by the owner of the building i.e., receiver of rent or from revenue from any such land. Such buildings should be situated in the land meant for “�Agricultural Purpose!” to qualify as income from agriculture. T.C.A.No.190 of 2015 15.18. Therefore, the first situation contemplated under sub-clause (c) to Section 2(1A) of the Act is not satisfiedJ. That apart, such income from the building has to be from such activity mentioned in paragraphs (ii) and (iii) of sub-clause (b) to Section 2(1A) of the Act. 15.19. As far as the second and third situation in sub-clause (c) to Section 2(1A) of the Act are concerned, it would relate to any income derived from any building of Iany landJ. The second situation relates to buildings occupied by a IcultivatorJ, while the third category relates to buildings occupied by the Ireceiver of rent-in-kindJ. 15.20. Under both these circumstances also, the performance/sale contemplated in sub-clause (ii) and (iii) to clause (b) to Section 2(1A) of the Act has to be satisfied. 15.21. The present case does not fall under any of the three situations that are contemplated in sub-clause (c) to Section 2(1A) of the Act. 15.22. None of the situations specified above has been Page 17 of 19 satisfied claim the benefit of Section 10(1) of the Act i.e., “+Agricultural IncomeJ”. 15.23. Therefore, income from sale of NLand will not come within the purview of the definition of I“+Agricultural Income”Jwithin the meaning of Section 2(1A) of the Act for the purpose of Section 10(1) of the Act. 16. In view of the above discussion, we are of the view that the impugned decision of the Appellate Tribunal does not merit any interference. Therefore, the present appeal of the Appellant deserves to be dismissed and is accordingly dismissed. (R.S.K., J.) (C.S.N, J) 03.09.2024 Neutral Citation:Yes/No drm/jen To: 1. The Deputy Commissioner of Income Tax Income Tax, Circle I, Vellore. 2. The Income Tax Appellate Tribunal “C” Bench, Chennai. Page 19 of 19 T.C.A.No.190 of 2015 R. SURESH KUMAR, J.ANDC. SARAVANAN, J.(drm/jen) T.C.A.No.190 of 2015 03.09.2024