Mrs.vanitha Manickavasagam v. The Assistant Commissioner Of Income Tax,Business Circle Xiv, Chennai - 600 034

IN THE HIGH COURT OF JUDICATURE AT MADRAS Coram The Honourable Mr.Justice R.SUDHAKARandThe Honourable Mr.Justice G.M.AKBAR ALI Tax Case (Appeal) Nos.566 and 567 of 2013& M.P.Nos.1 and 1 of 2014 Mrs.Sakunthala Vedachalam ... Appellant in T.C.(A) No.566/2013/Respondent Mrs.Vanitha Manickavasagam ... Appellant in T.C.(A) No.567/2013/Respondent -vs- The Assistant Commissioner of Income Tax,Business Circle XIV, Chennai - 600 034. ... Respondent in both TCA's/Appellant Appeals filed under Section 260A of the Income Tax Act, 1961against the order of the Income Tax Appellate Tribunal, Chennai BBench, dated 11.4.2013 in ITA.Nos.2164 & 2165/Mds/2012 against theorders Commissioner of Income Tax (Appeals) XII, 121, Mahatma GandhiRoad, Nungambakka,Chennai-34 dated 22.08.2012 in ITA Nos.200 &201/2010-11.and against the orders of the Assistant Commissioner of Income-TaxBusiness Circle-XIV, Chennai-34 dated 28.12.2010 and made in PANo./GIR Nos.AAAPV 9914C & AAAPV9265C (Judgment of the Court was delivered by G.M.AKBAR ALI,J.)The appellants/assessees, who are mother and daughter, sold theiragriculturallandssituatedatMahabalipuramVillage,Thirukkalikundram Taluk, Kancheepuram District vide document https://hcservices.ecourts.gov.in/hcservices/ Nos.7970/2007 and 519/2008 for a sale consideration of Rs.25,20,000/-and 64,80,000/- respectively. They claimed exemption from tax oncapital gain on the ground that they were agricultural lands.However, the Assessing Officer observed that though the lands wereclaimed to have been agricultural lands, the assessees have notfurnished any evidence in support of their claim. Hence, he deputedone Inspector to examine the lands, who, in turn, reported that thelands were dry lands and no agricultural activities were undertakenby the assessees. Hence, the Assessing Officer rejected their claimholding that the lands sold were not agricultural lands and broughtthe entire sale consideration to tax under the head "Long TermCapital Gains". The Assessing Officer also invoked the provisions ofSection 50C of the Income Tax Act and adopted the guideline value forsuch assessment. Aggrieved by the order of the Assessing Officer,the assessees preferred appeals before the Commissioner of Income Tax(Appeals). 2. Before the Commissioner of Income Tax (Appeals), the assesseesfurnished a copy of the Adangal extract and also claimed that therewere casuarina crops grown in those lands as shown in the chittaadangal, which indicates that the lands were agricultural lands.Since there was an additional evidence filed, the same was forwardedto the Assessing Officer for his verification with a request tosubmit a remand report. The Commissioner of Income Tax (Appeals)found that in the remand report dated 18.5.2012 the Assessing Officerconfirmed that the lands were agricultural lands, as casuarina cropswere grown as certified by the Tahsildar . 3. On going through the various provisions of the Act, theCommissioner of Income Tax (Appeals) also found that once the landswere classified as agricultural lands as per the revenue records,namely, Chitta and Adangal, and the lands, which were not fallingwithin the territorial limits of any Municipality or cantonment orwithin the distance of not more than 8 km from outer limits of thenearest municipality/cantonment, the same squarely fell within thedefinition of agricultural lands and therefore they were exemptedfrom capital gains tax. Accordingly, the appeals filed by theassessees were allowed. Aggrieved by the order of the Commissioner ofIncome Tax (Appeals), the Revenue filed appeals before the Income TaxAppellate Tribunal. 3. On going through the various provisions of the Act, theCommissioner of Income Tax (Appeals) also found that once the landswere classified as agricultural lands as per the revenue records,namely, Chitta and Adangal, and the lands, which were not fallingwithin the territorial limits of any Municipality or cantonment orwithin the distance of not more than 8 km from outer limits of thenearest municipality/cantonment, the same squarely fell within thedefinition of agricultural lands and therefore they were exemptedfrom capital gains tax. Accordingly, the appeals filed by theassessees were allowed. Aggrieved by the order of the Commissioner ofIncome Tax (Appeals), the Revenue filed appeals before the Income TaxAppellate Tribunal. 4. The Tribunal primarily relying on the decision reported in 139ITR 628 (CIT V. Siddharth J. Desai), where various tests have beenlaid down by the High Court of Gujarat and applying those tests,found that the assessees could not prove that the lands were actuallyor ordinarily used for agricultural purposes. Hence, the Tribunalset aside the order of the Commissioner of Income Tax (Appeals) andrestored the order of the Assessing Officer, thereby allowed theappeals filed by the Revenue. Aggrieved by which, the assessees havepreferred the present Tax Case (Appeals) before this Court. 5. At the time of admission, this Court framed the followingsubstantial questions of law for consideration:"T.C.(A)No.566 of 2013: "1. Whether, on the facts and circumstances of thecase, the Tribunal was right holding that the landswere not agricultural lands, ignoring the Certificateof the Tahsildar and the certified extract of theAdangal Register, according to which these lands wereagricultural lands? 2. Whether the Tribunal was right in ignoring theviolation of principles of natural justice by AssessingOfficer while making the assessment by: (i) not furnishing to the appellant, the report ofthe Inspector and the report of the Tahsildar to theappellant before the assessment and not giving anopportunity to the appellant to rebut the findings ofthe Inspector; and (ii) not giving an opportunity to the appellant torefer the matter under Section 50C of the Act?" T.C.(A)No.567 of 2013: "1. Whether, on the facts and in the circumstancesof the case, the Tribunal was right in law in holdingthat the lands in question were not agricultural landsfor the purpose of application under Section 2(14)(iii)(b) of the Income Tax Act, thereby confirming theaddition of long term capital gain tax? 2. Whether, on the facts and circumstances of thecase, the Tribunal was right in ignoring theCertificate of the Tahsildar and the certified extractof the Adangal Register, according to which these landswere agricultural lands? 3. Whether the Tribunal was right in ignoring theviolation of principles of natural justice by AssessingOfficer while making the assessment by: (i) not furnishing to the appellant, the report ofthe Inspector and the report of the Tahsildar to theappellant before the assessment and not giving anopportunity to the appellant to rebut the findings ofthe Inspector; and (ii) not giving an opportunity to the appellant torefer the matter under Section 50C of the Act?" 6. Heard Mr.C.Ramakrishnan, barrister learned counsel appearingfor the appellants/assessees and Mr.J.Narayanasamy, learned standingcounsel appearing for the Revenue and perused the materials placedbefore this Court. 3. Whether the Tribunal was right in ignoring theviolation of principles of natural justice by AssessingOfficer while making the assessment by: (i) not furnishing to the appellant, the report ofthe Inspector and the report of the Tahsildar to theappellant before the assessment and not giving anopportunity to the appellant to rebut the findings ofthe Inspector; and (ii) not giving an opportunity to the appellant torefer the matter under Section 50C of the Act?" 6. Heard Mr.C.Ramakrishnan, barrister learned counsel appearingfor the appellants/assessees and Mr.J.Narayanasamy, learned standingcounsel appearing for the Revenue and perused the materials placedbefore this Court. 7. Learned counsel appearing for the appellants/assessees submitsthat in the revenue records the lands were classified as agriculturallands and in support of that, a copy of the Adangal register has alsobeen produced. He also submits that the Assessing Officer in hisremand report had stated that the Deputy Tahsildar had certified thatthe lands in question are agricultural lands. Hence, taking note ofthe remand report, the Commissioner of Income Tax (Appeals) allowedexemption. But the Tribunal, taking note of the adjacent lands,which had been divided into plots, rejected exemption. In thisconnection, he relied on the decision reported in (1957) 32 ITR 466(Commissioner of Income Tax V. Raja Benoy Kumar Sahas Roy). Hefurther submits that since the assessees have produced evidenceshowing that the lands sold are agricultural lands, they have to begranted exemption. 8. Per contra, learned Standing Counsel appearing for theRevenue submits that that there were no agricultural operations priorto the date of sale. Hence, the lands are not agricultural innature. Accordingly, the Tribunal is correct in coming to theconclusion that the assessees are not eligible for exemption. 9. The issue involved in the above Tax Case (Appeals) lies on thenarrow compass, viz., whether the lands sold by the assessees areagricultural lands and whether they are entitled to the benefit ofexemption from capital gains tax. 10. It is on record that in a report has been submitted by therevenue authorities, it is admitted that the lands are classified asagricultural lands in the revenue records and they are dry lands.The remand report of the Assessing Officer in this regard reads asfollows: "During the time of assessment proceedings itself,a confirmation was obtained from the HeadquartersDeputy Tahsildar, Thirukazhukundram who has certifiedin his letter dated 23.12.2010, referred to at 2 above,that in the lands in question casuarinas are grown forthe pas one and a half year and hence the same areagricultural lands. He has also confirmed in the saidletter that the lands are situated at one kilometerdistance fromthe Town Panchayat of Mamallapuram (i.e.within the specified distance from the outer limits ofthe nearest municipality/town panchayat) and thepopulation of the Mamallapuram Town Panchayat as per2001 census was 12,345". 11. The assessee has also produced a copy of the adangal and theletter from the Tahsildar, which showed that the lands wereagricultural in nature and the Revenue has also accepted that thelands are falling within the restricted zone in terms of Section 2(14) of the Income Tax Act. https://hcservices.ecourts.gov.in/hcservices/ 12. Hence, the only point that has to be considered is thatwhether the test as laid down in the decision reported in 139 ITR628 (CIT V. Siddharth J. Desai) has been satisfied by the assessees.In the said decision, in paragraph 11, it is held as follows: 11. The assessee has also produced a copy of the adangal and theletter from the Tahsildar, which showed that the lands wereagricultural in nature and the Revenue has also accepted that thelands are falling within the restricted zone in terms of Section 2(14) of the Income Tax Act. https://hcservices.ecourts.gov.in/hcservices/ 12. Hence, the only point that has to be considered is thatwhether the test as laid down in the decision reported in 139 ITR628 (CIT V. Siddharth J. Desai) has been satisfied by the assessees.In the said decision, in paragraph 11, it is held as follows: "On a conspectus of these cases, several factors arediscernible whichwere considered as relevant and whichwere weighed against eachother while determining thetrue nature and character of the land. It maybe usefulto extract from those decisions some of the majorfactors which were considered as having a bearing on thedetermination of the question. Those factors are: (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 ordinarilyused for agriculturalpurposes at or about the relevanttime ? (3) Whether such user of the land was for a longperiod or whetherit was of a temporary character or byway of a stop-gap arrangement ? (4) Whether the income derived from theagricultural operations carried on in the land bore anyrational proportion to the investment made in purchasingthe land ? (5) Whether, the permission under s. 65 of theBombay Land Revenue Code was obtained for the non-agricultural use of the land ? If so, whenand, by whom(the vendor or the vendee)? Whether such permissionwasin respect of the whole or a portion of the land ? Ifthe permission was in respect of a portion of the landand if it was obtained in the past, what was the natureof the user of the said portion of the land on thematerial date ? (6) Whether the land, on the relevant date, hadceased to be put to agricultural use ? If so, whether itwas put to an alternative use ? Whether such cesserand/or alternative user was of a permanent, or temporarynature ? (7) Whether the land, though entered in revenuerecords, had never been actually used for agriculture,that is, it had never been ploughed or tilled ? Whetherthe owner meant or intended to use it for agriculturalpurposes ?(8) Whether the land was situate in a developedarea ? Whether its physical characteristics, surroundingsituation and use of the lands in the adjoining areawere such as would indicate that the land wasagricultural ? (9) Whether the land itself was developed byplotting and providing roads and other facilities ? (10) Whether there were any previous sales ofportions of the land for non-agricultural use ?(11) Whether permission under s. 63 of the BombayTenancy and Agricultural Lands Act, 1948, was obtainedbecause the sale or intended sale was in favour of anon-agriculturist ? If so, whether the sale orintendedsale to such non-agriculturist was for non-agriculturalor agri-cultural user ? (12) Whether the land was sold on yardage or onacreage basis ? (13) Whether an agriculturist would purchase theland for agricultural purposes at the price at which theland was sold and whether the owner would have ever soldthe land valuing it as a property yielding agriculturalproduce on the basis of its yield ?At the risk of repetition, we may mention that notall of these factors would be present or absent in anycase and that in each case one or more of those factorsmay make appearance and that the ultimate decision willhave to be reached on a balanced consideration of thetotality of circumstances." (12) Whether the land was sold on yardage or onacreage basis ? (13) Whether an agriculturist would purchase theland for agricultural purposes at the price at which theland was sold and whether the owner would have ever soldthe land valuing it as a property yielding agriculturalproduce on the basis of its yield ?At the risk of repetition, we may mention that notall of these factors would be present or absent in anycase and that in each case one or more of those factorsmay make appearance and that the ultimate decision willhave to be reached on a balanced consideration of thetotality of circumstances." 13. According to the Tribunal that if the above tests areapplied, the assessees could not satisfy any of the conditions exceptcondition Nos.1,5,11 and 12. The Tribunal held that the assesseescould not prove that the lands was actually or ordinarily used foragricultural purposes. This reasoning does not appear to be correctin view of the above-said decision of the Gujarat High Court, whereinit was clearly held in Clause (1) in paragraph 11 that whether theland was classified in the revenue records as agricultural andwhether it was subject to the payment of land revenue has to beconsidered for grant of exemption. 14. Thus it is evident from the above, which clearly states thatany one of the above factors can be present in a case to qualify forthe benefit of classification as agricultural lands. In this case,the assessees have qualified under clause 11(1) since as per theadangal records, these lands were classified as agricultural landsand the assessees have also paid revenue kist, namely, revenuepayment. Therefore, the Tribunal has misconstrued the judgment ofthe Gujarat High Court (supra) that all conditions laid down inparagraph 11 should be satisfied, which is not a correctinterpretation. 15. To get exemption, the assessee has to satisfy the conditionslaid down in Section 2(14) of the Income Tax Act, which reads asfollows: https://hcservices.ecourts.gov.in/hcservices/ 2(14) "capital asset" means property of any kindheld by an assessee, whether or not connected with hisbusiness or profession, but does not include-- (i) any stock-in-trade, consumable stores or rawmaterials held for the purposes of his business orprofession ; (ii) personal effects, that is to say, movableproperty (including wearing apparel and furniture, butexcluding jewellery) held for personal use by theassessee or any member of his family dependent on him: Explanation.--For the purposes of this sub-clause,"jewellery" includes -- (a) ornaments made of gold, silver, platinum orany other precious metal or any alloy containing one ormore of such precious metals, whether or not containingany precious or semi-precious stone, and whether or notworked or sewn into any wearing apparel ; (b) precious or semi-precious stones, whetheror not set in any furniture, utensil or other article orworked or sewn into any wearing apparel ; (iii) agricultural land in India, not being landsituate -- (a) in any area which is comprised within thejurisdiction of a municipality (whether known as amunicipality, municipal corporation, notified areacommittee, town area committee, town committee, or by anyother name) or a cantonment board and which has apopulation of not less than ten thousand according to thelast preceding census of which the relevant figures havebeen published before the first day of the previousyear ; or (b) in any area within such distance, not beingmore than eight kilometres, from the local limits of anymunicipality or cantonment board referred to in item (a),as the Central Government may, having regard to theextent of, and scope for, urbanisation of that area andother relevant considerations, specify in this behalf bynotification in the Official Gazette ; (iv) 6® per cent. Gold Bonds, 1977, or 7 per cent.Gold Bonds, 1980, or National Defence Gold Bonds, 1980,issued by the Central Government ; (v) Special Bearer Bonds, 1991, issued by theCentral Government ; (b) in any area within such distance, not beingmore than eight kilometres, from the local limits of anymunicipality or cantonment board referred to in item (a),as the Central Government may, having regard to theextent of, and scope for, urbanisation of that area andother relevant considerations, specify in this behalf bynotification in the Official Gazette ; (iv) 6® per cent. Gold Bonds, 1977, or 7 per cent.Gold Bonds, 1980, or National Defence Gold Bonds, 1980,issued by the Central Government ; (v) Special Bearer Bonds, 1991, issued by theCentral Government ; (vi) Gold Deposit Bonds issued under the GoldDeposit Scheme, 1999 notified by the Central Government " 16. Once the Tribunal has accepted that the classification oflands as per the reveue records are agricultural lands, which areevidenced by the adangal and the letter of the Tahsildar and https://hcservices.ecourts.gov.in/hcservices/ satisfies other conditions of Section 2(14) of the Income Tax Act, weare of the view that the Tribunal has misdirected itself as statedabove. 17. Yet other reason given by the Tribunal is that the adjacentlands are put to commercial use by way of plots and therefore, thevery character of the lands of the assssees is doubted asagricultural in nature. The manner in which the adjacent lands areused by the owner therein is not a ground for the Tribunal to come toa conclusion that the assessees' lands are not agricultural innature. The reason given by the Tribunal that the adjacent landshave been divided into plots for sale would not mean that the landssold by the assessees were for the purpose of development of plots.Also the reasoning given by the Tribunal "No agriculturists wouldhave purchased the land sold by the assessee for pursuing anyagricultural activity" is based on mere conjectures and surmises. 18. The plea of the learned standing counsel appearing for theRevenue that there was no agricultural operations prior to the dateof sale is of no avail as the definition under Section 2(14) of theIncome Tax Act has the answer to such a plea raised. Further more,it is also on record that the lands are agricultural lands classifiedas dry lands, for which kist has been paid. 19. The view of the assessee is fortified by the decisionreported in (1937) 32 ITR 466 (Commissioner of Income-tax V. RajaBenoy Kumar Sahas Roy), wherein, it is held as follows:"There was authority for the proposition that theexpression "agricultural land" mentioned in Entry 21of List II of the Seventh Schedule to the Government ofIndia Act, 1935, should be interpreted in its widersignificance as including lands which are used or arecapable of being used for raising any valuable plantsor trees or for any other purpose of husbandry (SeeSarojinidevi v. Shri Krishna Anjanneya Subrahmanyam andother(1) and Megh Raj v. Allah Rakhia (2))." 20. For the foregoing reasons, we pass the following order:(i)On the question of law raised, we are of the viewthat the Tribunal was not justified in rejectingthe exemption. Accordingly, the questions of laware answered in favour of the assessees;(i)On the question of law raised, we are of the viewthat the Tribunal was not justified in rejectingthe exemption. Accordingly, the questions of laware answered in favour of the assessees; (ii)Consequently, the order of the Tribunal dated11.4.2013 is set aside. In the result, both the above Tax Case (Appeals) are allowed. Nocosts. Consequently, connected Miscellaneous Petitions are closed. Sd/-Asst. Registrar(CS IV) Dt.01/09/14 /true copy/ Sub Asst. Registrar. To 1.The Assistant Registrar,The Income Tax Appellate Tribunal "B"Bench,IIIrd floor,Rajaji Bhavan,Besant Nagar, Chennai-90 2.The Commissioner of Income Tax (Appeals)-XII 121,Mahatma Gandhi Road,Nungambakka, Chennai-34 3.The Assistant Commissioner of Income Tax, Business Circle - XIV, Chennai - 34. (ii)Consequently, the order of the Tribunal dated11.4.2013 is set aside. In the result, both the above Tax Case (Appeals) are allowed. Nocosts. Consequently, connected Miscellaneous Petitions are closed. Sd/-Asst. Registrar(CS IV) Dt.01/09/14 /true copy/ Sub Asst. Registrar. To 1.The Assistant Registrar,The Income Tax Appellate Tribunal "B"Bench,IIIrd floor,Rajaji Bhavan,Besant Nagar, Chennai-90 2.The Commissioner of Income Tax (Appeals)-XII 121,Mahatma Gandhi Road,Nungambakka, Chennai-34 3.The Assistant Commissioner of Income Tax, Business Circle - XIV, Chennai - 34. +2ccs to Mr.J. Narayanaswamy ,Advocate SR.No.35844&35845+1cc to Mr.R. Sivaraman ,Advocate SR.No.35991UG(CO)ka 05/09 T.C.(A) Nos.566 and 567 of 2013& M.P.Nos.1 and 1 of 2014 06.08.2014