The Principal Commissioner Of Income Tax 6 v. P.s.raghupathy

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 26.06.2018CORAMTHE HON'BLE MS. INDIRA BANERJEE, CHIEF JUSTICEANDTHE HON'BLE MS.JUSTICE P.T.ASHA Tax Case (Appeal) No.290 of 2018 The Principal Commissioner of Income Tax 6,No.121, Mahatma Gandhi Road,Chennai. .. Appellant/RespondentVs. P.S.Raghupathy .. Respondent/Appellant PRAYER: Appeal under Section 260A of the Income Tax Act,1961 against the order of the Income Tax AppellateTribunal, Madras “C” Bench, Chennai, dated 22.11.2017passed in I.T.A.No.2510/Mds/2017.TCA.290 of 2018 Against the order dated 29/08/2017 made inITA.NO.173/2015-16/CIT(A)15, on the file of thecommissioner of Income Tax (Appeals)-15, 121, MahatmaGandhi Road, Chennai-600 034, which was filed against theorder dated 27.03.2015 in PAN/GIR No. on the fileof the Assistant Commission of Income Tax, Non-Corporatecircle 15(1) Chennai 600 034 and against the order dated29/12/2009 and made in GIR/PA.No.AAAFE1480C on the file ofthe Assistant Commissioner of Income Tax, Business CircleXV Chennai-34. JUDGMENT (Delivered by Ms.Indira Banerjee, Chief Justice) This appeal filed by the Revenue is against an order of https://hcservices.ecourts.gov.in/hcservices/ the Income Tax Appellate Tribunal “C” Bench, Chennai, partlyallowing the appeal of the respondent assessee, beingI.T.A.No.2510/Mds/2017, against the appellate order dated29.8.2017 of the Commissioner of Income Tax (Appeals)-15,dismissing the appeal of the respondent assessee, beingI.T.A.No.173/2015-16/CIT(A)-15, against an impugned order of re-assessment dated 27.3.2015 under Section 147 read with Section254 of the Income Tax Act, 1961, hereinafter referred to as “thesaid Act” for the assessment year 2007-2008. 2. The respondent assessee filed return of income on31.10.2007 declaring total income of Rs.57,57,356/- for theassessment year 2007-2008. The income tax return was processedunder Section 143(1) of the said Act and the assessment wascompleted on 29.12.2009. Later, notice under Section 142(1)read with Section 129 of the said Act was issued on 16.2.2015. 3. It appears that during the previous year relevant toassessment year 2007-2008, the respondent assessee had soldagricultural land at Pudupakkam village and Santhankuppamvillage, Chengalpet Taluk, Kancheepuram District forRs.14,90,00,000/- and claimed exemption on the ground that theland being agricultural land, the same did not attract capitalgains. 4. After considering submissions of the respondent assesseeand/or his representative, the Assessing Officer disallowed theexemption of Rs.14,38,86,650/- claimed by the respondentassessee on the ground that the agricultural land had not beensold for agricultural purpose. The Assessing Officer took noteof the fact that the respondent assessee had not been derivingany income from agricultural operations and incurring onlylosses. 5. Being aggrieved, the respondent assessee appealed to theCommissioner of Income Tax (Appeals)-15, the appeal beingI.T.A.No.173/2015-16/CIT(A)-15, which was dismissed by an orderdated 29.8.2017 upholding the disallowance of exemption ofRs.14,38,86,650/- claimed by the respondent assessee. 6. The Appellate Commissioner, inter alia, found that therespondent assessee had sold 7 acres of land for a considerationof Rs.14,90,00,000/-, for which he claimed an exemption underSection 2(14)(iii) on the ground that the land sold by him wasagricultural land. However, the respondent assesee could notproduce supporting evidence for agriculture expenditure, sale ofagricultural produce etc. The Appellate Commissioner disagreedwith the contentions of the respondent assessee on the followinggrounds: (a) The respondent assessee could not establishthat the land was agricultural land and could notsubmit books of accounts and supporting documentssuch as bills and vouchers towards agriculturalactivities. 6. The Appellate Commissioner, inter alia, found that therespondent assessee had sold 7 acres of land for a considerationof Rs.14,90,00,000/-, for which he claimed an exemption underSection 2(14)(iii) on the ground that the land sold by him wasagricultural land. However, the respondent assesee could notproduce supporting evidence for agriculture expenditure, sale ofagricultural produce etc. The Appellate Commissioner disagreedwith the contentions of the respondent assessee on the followinggrounds: (a) The respondent assessee could not establishthat the land was agricultural land and could notsubmit books of accounts and supporting documentssuch as bills and vouchers towards agriculturalactivities. (b) The respondent assessee did not declare anyagricultural income from the land. (c) Mere classification of the land as anagricultural land as per Chitta and Adangal is notsufficient to prove that the land in question wasused for agricultural activities. The appellanthad not submitted a certificate from the Tahsildar,the competent authority, to certify thatagricultural activity was carried on in the saidland. 7. Being aggrieved, the respondent assessee filed an appeal,being I.T.A.No.2510/Mds/2017, before the learned Income TaxAppellate Tribunal 'C' Bench, Chennai, which has partly beenallowed and partly dismissed. The disallowance of exemption ofRs.14,38,86,650/- claimed by the respondent assessee has beenset aside with the following observations and/or findings:“6. ...... The land in question which has been soldadmittedly has been shown as agricultural land asper the Chitta & Adangal. The distance from thenearest Municipality has also been shown to bebeyond 8 Kms. The land Revenue records alsoclearly shows that the land specified isagricultural land. In fact, there is an Inspector'sReport referred to in the Assessment Order dated29.12.2009 wherein it is mentioned that theInspector has verified the place and has alsocontacted with the Village Administrative Officeand the President of Pudupakkam Village. The copyof the unsigned Inspector's Report has also beenplaced before us by the Revenue. A perusal of theorder of the Ld.CIT(A) shows that he has rejectedthe said Inspector's Report on the ground that thesame is unsigned. The signing or un-signing ofInspector's Report is not within the control of theassessee. The fact that such Report was availablein the assessment records and the same has alsobeen referred to in the scrutiny assessmentproceedings completed on 29.12.2009 clearly showsthat the agricultural operations were also carriedon the said land and is a valid document. Further,the assessee's case as to whether the running ofNursery was agricultural or not had been considered by the Hon'ble Jurisdictional High Court of Madrasand running of the Nursery has been held to beagricultural operation. A perusal of theAssessment Order also shows that the AO hasrecognized that the assessee was running a Nurseryunder the name and style of Soundariya Nursery. Aperusal of the provisions of Sec.2(1A) as alsoSec.2(14)(iii) shows that agricultural land is notliable to be treated as a capital asset subject tothe condition that the land is situated in an areawhere the Municipality has a population of lessthan 10,000 or at a distance of more than 8 Kmsfrom Municipality or cantonment which has apopulation of more than 10 lakhs. by the Hon'ble Jurisdictional High Court of Madrasand running of the Nursery has been held to beagricultural operation. A perusal of theAssessment Order also shows that the AO hasrecognized that the assessee was running a Nurseryunder the name and style of Soundariya Nursery. Aperusal of the provisions of Sec.2(1A) as alsoSec.2(14)(iii) shows that agricultural land is notliable to be treated as a capital asset subject tothe condition that the land is situated in an areawhere the Municipality has a population of lessthan 10,000 or at a distance of more than 8 Kmsfrom Municipality or cantonment which has apopulation of more than 10 lakhs. 7. In the present case, admittedly, the land soldby the assessee is situate beyond 8 Kms limit, theland Revenue is collected in the form of Kist inrespect of the agricultural land, the land Revenuerecords shows the land as agricultural land. Thus,all the conditions required for holding the land asagricultural land stands complied. This being so,we are of the view that the land sold by theassessee being an agricultural land andconsequently the same cannot be treated as acapital asset, the sale of which gives rise tocapital gains. 8. In the result, in Ground Nos.6 to 8 of theassessee's appeal stands allowed. ...” 8. Being aggrieved, the Revenue seeks to file an appealraising the following questions: (1) Whether the Appellate Tribunal was right inholding that land sold by the assessee, beingagricultural land, the same cannot be treated as acapital asset and no capital gains is chargeable? (2) Whether the learned Tribunal failed toappreciate the Explanation to Section 2(1A)?(3) Whether sale proceeds of agricultural lands arealso taxable under Section 2(14)(iii) of the IncomeTax Act, inserted by the Finance Act, 1989, witheffect from 1.4.1970?(4) Whether the Income Tax Appellate Tribunal wasjustified in holding that the land was agriculturalland disregarding the absence of any evidence thatagricultural activity was being carried on at thetime of sale?(5) Whether on the facts and in law the Income TaxAppellate Tribunal erred in allowing the exemption, even though the assessee had not offered anyagricultural income between Assessment Years 2003-04 to 2007-08? (6) Whether on the facts and in law the Income TaxAppellate Tribunal erred in allowing the exemptionto the assessee who purchased another agriculturalland from out of the sale proceeds and alsopurchased residential property in the name of hiswife, Mrs.Vimala Raghupathy vide document No.6512of 2006, 6513 of 2006 at SRO Neelankarai? 9. Based on the evidence on record, the learned Tribunalwhich is a fact finding body arrived at the factual finding thatthe land in question was agricultural land, which did notattract capital gains. A perusal of the definition of “capitalasset” in Section 2(14) of the Income Tax Act makes it amplyclear that capital asset does not include agricultural land,except for agricultural land exempted under Clauses (a) and (b)of Section 2(14)(iii) of the Income Tax Act. The learnedTribunal, in effect and in substance, held that the land inquestion did not come within any of the exceptions to thedefinition of agricultural land enumerated in Section 2(14)(iii)of the Income Tax Act. 10. The short question before us is whether this appealfiled by the Revenue against the order of the learned Tribunalshould be entertained? 11. Section 260A of the Act provides as follows:“Section 260A. Appeal to High Court.(1) An appeal shall lie to the High Court fromevery order passed in appeal by the AppellateTribunal before the date of establishment of theNational Tax Tribunal, if the High Court issatisfied that the case involves a substantialquestion of law. 10. The short question before us is whether this appealfiled by the Revenue against the order of the learned Tribunalshould be entertained? 11. Section 260A of the Act provides as follows:“Section 260A. Appeal to High Court.(1) An appeal shall lie to the High Court fromevery order passed in appeal by the AppellateTribunal before the date of establishment of theNational Tax Tribunal, if the High Court issatisfied that the case involves a substantialquestion of law. (2) The Principal Chief Commissioner or ChiefCommissioner or the Principal Commissioner orCommissioner or an Assessee aggrieved by any orderpassed by the Appellate Tribunal may file an appealto the High Court and such appeal under this sub-section shall be-(a) filed within one hundred and twenty daysfrom the date on which the order appealedagainst is received by the Assessee or thePrincipal Chief Commissioner or ChiefCommissioner or Principal Commissioner orCommissioner. (b) [***]; (c) in the form of a memorandum of appealprecisely stating therein the substantialquestion of law involved. (2A) The High Court may admit an appeal after theexpiry of the period of one hundred and twenty daysreferred to in clause (a) of sub-section (2), if itis satisfied that there was sufficient cause fornot filing the same within that period. (3) Where the High Court is satisfied that asubstantial question of law is involved in anycase, it shall formulate that question. (4) The appeal shall be heard only on the questionso formulated, and the respondents shall at thehearing of the appeal, be allowed to argue that thecase does not involve such question:Provided that nothing in this sub-section shall bedeemed to take away or abridge the power of theCourt to hear, for reasons to be recorded, theappeal on any other substantial question of law notformulated by it, if it is satisfied that the caseinvolves such question. (5) The High Court shall decide the question of lawso formulated and deliver such judgment thereoncontaining the grounds on which such decision isfounded and may award such cost as it deems fit. (6) The High Court may determine any issue which -(a) has not been determined by the AppellateTribunal; or(b) has been wrongly determined by the AppellateTribunal, by reason of a decision on such questionof law as is referred to in sub-section (1). (7) Save as otherwise provided in this Act, theprovisions of the Code of Civil Procedure, 1908 (5of 1908) relating to appeals to the High Courtshall, as far as may be, apply in the case ofappeals under this section.” 12. An appeal lies under Section 260-A of the said Act, onlywhen there is a substantial question of law. We find that thereis no question of law involved in this appeal much less anysubstantial question of law. 13. In Sir Chunilal V. Mehta & Sons Ltd. vs Century Spg. &Mfg. Co. Ltd., reported in AIR 1962 SC 1314, the Supreme Courtagreed with and approved a Full Bench Judgment of this Court inRimmalapudi Subba Rao vs Noony Veeraju And Ors reported in AIR1951 Mad 969 and laid down the principles for deciding when aquestion of law becomes a substantial question of law. 14. In Hero Vinoth Vs. Seshammal reported in (2006) 5 SCC545, the Supreme Court followed Sir Chunilal V. Mehta & Sons(supra) and other judgments and summarized the tests to find outwhether a given set of questions of law were mere questions oflaw or substantial questions of law. 15. The relevant paragraphs of the judgment of the SupremeCourt in Hero Vinoth (supra) are set out herein below : 13. In Sir Chunilal V. Mehta & Sons Ltd. vs Century Spg. &Mfg. Co. Ltd., reported in AIR 1962 SC 1314, the Supreme Courtagreed with and approved a Full Bench Judgment of this Court inRimmalapudi Subba Rao vs Noony Veeraju And Ors reported in AIR1951 Mad 969 and laid down the principles for deciding when aquestion of law becomes a substantial question of law. 14. In Hero Vinoth Vs. Seshammal reported in (2006) 5 SCC545, the Supreme Court followed Sir Chunilal V. Mehta & Sons(supra) and other judgments and summarized the tests to find outwhether a given set of questions of law were mere questions oflaw or substantial questions of law. 15. The relevant paragraphs of the judgment of the SupremeCourt in Hero Vinoth (supra) are set out herein below : “21. The phrase “substantial question of law”,as occurring in the amended Section 100 CPC isnot defined in the Code. The word substantial,as qualifying “question of law”, means—of havingsubstance, essential, real, of sound worth,important or considerable. It is to beunderstood as something in contradistinctionwith—technical, of no substance or consequence,or academic merely. However, it is clear thatthe legislature has chosen not to qualify thescope of “substantial question of law” bysuffixing the words “of general importance” ashas been done in many other provisions such asSection 109 of the Code or Article 133(1)(a) ofthe Constitution. The substantial question oflaw on which a second appeal shall be heard neednot necessarily be a substantial question of lawof general importance. In Guran Ditta v. RamDitta [(1927-28) 55 IA 235 : AIR 1928 PC 172]the phrase “substantial question of law” as itwas employed in the last clause of the thenexisting Section 100 CPC (since omitted by theAmendment Act, 1973) came up for considerationand their Lordships held that it did not mean asubstantial question of general importance but asubstantial question of law which was involvedin the case. In Sir Chunilal case [1962 Supp (3)SCR 549 : AIR 1962 SC 1314] the ConstitutionBench expressed agreement with the followingview taken by a Full Bench of the Madras HighCourt in Rimmalapudi Subba Rao v. Noony Veeraju[AIR 1951 Mad 969 : (1951) 2 MLJ 222 (FB)] :(Sir Chunilal case [1962 Supp (3) SCR 549 : AIR1962 SC 1314] , SCR p. 557) “When a question of law is fairlyarguable, where there is room fordifference of opinion on it or where theCourt thought it necessary to deal withthat question at some length and discussalternative views, then the question wouldbe a substantial question of law. On theother hand if the question was practicallycovered by the decision of the highestcourt or if the general principles to beapplied in determining the question arewell settled and the only question was ofapplyingthoseprinciplestotheparticular fact of the case it would notbe a substantial question of law.” This Court laid down the following test asproper test, for determining whether a questionof law raised in the case is substantial: (SirChunilal case [1962 Supp (3) SCR 549 : AIR 1962SC 1314] , SCR pp. 557-58)“The proper test for determining whether aquestion of law raised in the case issubstantial would, in our opinion, bewhether it is of general public importanceor whether it directly and substantiallyaffects the rights of the parties and if sowhether it is either an open question inthe sense that it is not finally settled bythis Court or by the Privy Council or bythe Federal Court or is not free fromdifficulty or calls for discussion ofalternative views. If the question issettled by the highest court or the generalprinciples to be applied in determining thequestion are well settled and there is amere question of applying those principlesor that the plea raised is palpably absurdthe question would not be a substantialquestion of law.” 22. In Dy. Commr. v. Rama Krishna Narain [1954SCR 506 : AIR 1953 SC 521] also it was held thata question of law of importance to the partieswas a substantial question of law entitling theappellant to a certificate under (the then)Section 100 CPC. 23. To be “substantial” a question of law mustbe debatable, not previously settled by law ofthe land or a binding precedent, and must have amaterial bearing on the decision of the case, ifanswered either way, insofar as the rights ofthe parties before it are concerned. To be aquestion of law “involving in the case” theremust be first a foundation for it laid in thepleadings and the question should emerge fromthe sustainable findings of fact arrived at bycourt of facts and it must be necessary todecide that question of law for a just andproper decision of the case. An entirely newpoint raised for the first time before the HighCourt is not a question involved in the caseunless it goes to the root of the matter. Itwill, therefore, depend on the facts andcircumstance of each case whether a question oflaw is a substantial one and involved in thecase or not, the paramount overall considerationbeing the need for striking a judicious balancebetween the indispensable obligation to dojustice at all stages and impelling necessity ofavoiding prolongation in the life of any lis.(See Santosh Hazari v. Purushottam Tiwari[(2001) 3 SCC 179] .) 24.The principles relating to Section 100 CPCrelevant for this case may be summarised thus :(i) An inference of fact from the recitals orcontents of a document is a question of fact.But the legal effect of the terms of a documentis a question of law. Construction of a documentinvolving the application of any principle oflaw, is also a question of law. Therefore, whenthere is misconstruction of a document or wrongapplication of a principle of law in construinga document, it gives rise to a question of law.(ii) The High Court should be satisfied that thecase involves a substantial question of law, andnot a mere question of law. A question of lawhaving a material bearing on the decision of thecase (that is, a question, answer to whichaffects the rights of parties to the suit) willbe a substantial question of law, if it is notcovered by any specific provisions of law orsettled legal principle emerging from bindingprecedents, and, involves a debatable legal issue. A substantial question of law will alsoarise in a contrary situation, where the legalposition is clear, either on account of expressprovisions of law or binding precedents, but thecourt below has decided the matter, eitherignoring or acting contrary to such legalprinciple. In the second type of cases, thesubstantial question of law arises not becausethe law is still debatable, but because thedecision rendered on a material question,violates the settled position of law .(iii) The general rule is that High Court willnot interfere with the concurrent findings ofthe courts below. But it is not an absoluterule. Some of the well-recognised exceptions arewhere (i) the courts below have ignored materialevidence or acted on no evidence; (ii) thecourts have drawn wrong inferences from provedfacts by applying the law erroneously; or (iii)the courts have wrongly cast the burden ofproof. When we refer to “decision based on noevidence”, it not only refers to cases wherethere is a total dearth of evidence, but alsorefers to any case, where the evidence, taken asa whole, is not reasonably capable of supportingthe finding.” 16. In M.Janardhana Rao Vs. Joint Commissioner of Income Tax[2005 273 ITR 50 (SC)], the Hon'ble Supreme Court held that theprinciples contemplated under Section 100 of the Code of CivilProcedure would apply to Section 260-A of the IT Act too. 16. In M.Janardhana Rao Vs. Joint Commissioner of Income Tax[2005 273 ITR 50 (SC)], the Hon'ble Supreme Court held that theprinciples contemplated under Section 100 of the Code of CivilProcedure would apply to Section 260-A of the IT Act too. 17.Right of appeal is not automatic. Right of appeal isconferred by statute. When statute confers a limited right ofappeal only in a case which involves substantial questions oflaw, it is not open to this Court to sit in appeal over thefactual findings arrived at by the Appellate Tribunal. In thiscase, the learned Tribunal arrived at the factual finding thatthe land in question sold by the respondent assessee wasagricultural land. 18. Mr.T.R.Senthil Kumar, emphatically argued that theAssessing Officer arrived at his finding based on the fact thatthe land in question had been classified in the records of theSub Registrar Office as revenue land. However, as would appearfrom the order of the assessment itself, it was classified asagricultural land in the revenue records. Even otherwise, thelearned Tribunal had looked into the relevant materialsincluding the revenue records, as also records which indicatethat the respondent assessee ran a Nursery. 19. The learned Tribunal was of the view that whether therewas agricultural income or not was not relevant. No fault canbe found with the reasoning of the learned Tribunal. The factthat there was loss and not income could not have made anydifference to the nature and character of the land. 20. We do not find any question of law, far less anysubstantial question of law that warrants interference. The appeal is, therefore, not entertained and accordingly,dismissed. No costs. Sd/- Assistant Registrar(CS VII) //True Copy// Sub Assistant RegistrarbbrTo1. The Registrar Income Tax Appellate Tribunal “C” Bench, Chennai.2. The Commissioner of Income Tax (Appeals)-15 Chennai – 600 034.3. The Assistant Commissioner of Income Tax, Business Circle XV, Chennai – 600 034.4. The Assistant Commissioner of Income Tax,Non-Corporate circle (15)1, Chennai-34 +1cc to Mr.T.R.Senthil Kumar, Advocate, S.R.No.40713 Tax Case (Appeal) No.290 of 2018NMI(CO)GSP(16/07/2018)