Agricultural land at the date of the sale would continue to be agricultural land until permission for non-agricultural use is granted and the land is put to non-agricultural use by the purchaser

Gujarat High Court

Commissioner Of Income-Tax, … vs Vajulal Chunilal (Huf) on 6 February, 1979

Equivalent citations: 1979 120 ITR 21 Guj

Author: Divan

Bench: B Diwan, B Mehta

JUDGMENT Divan, C.J.

1. All these four references arise out of the same set of facts and are inter-related. The order of the ITO in Reference No. 287 of 1975 is by way of protective assessment in case the department loses in the case out of which Reference No. 71 of 1976 arises. Similarly, I.T. Reference No. 5 of 1976 is also in connection with the same transaction out of which I.T. References Nos. 70 and 71 of 1976 arise. Hence, all these four matters are being disposed of by this common judgment. In I.T. References Nos. 70 and 71 of 1976, two questions have been referred to us, one at the instance of the assessee and the other at the instance of the revenue for our opinion. Question No. 1 is :

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the land sold to Kalpana Co-operative Housing Society was non-agricultural in character when it was sold ?”

This question has been referred to us at the instance of the assessee. The second question is :

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was a valid partition of the land in question and, therefore, the capital gains arising out of the sale transaction between Devidas Sunderlal and the Kalpana Co-op. Housing Society were not taxable in the hands of the assessee ?”

This question No. 2 has been referred to us for our opinion at the instance of the revenue.

2. We are concerned in this case with assessment year 1969-70, the relevant previous year being Samvat 2024. Samvat 2024 ended on October 21, 1968. The assessee is a HUF in the name of Vajulal Chunilal-HUF. The assessee-family owned 23 acres and 17 gunthas of land at Adajan village in Chorashi Taluka of Surat District. These lands were purchased by Vajulal Chunilal on June 29, 1929. At that time, the lands were in four survey numbers, namely, survey Nos. 464, 465, 470 and 471 on Adajan village. The total area aggregated to 25.17 acres. Between 1929 and 1964-65, some parts of survey Nos. 464 and 465 were acquired under the Land Acquisition Actfor construction of roads and two acres of land were taken away from the family under the Land Acquisition Act, leaving the family with 23 acres and 17 gunthas of land that means 1, 13, 375 square yards of land. On July 22, 1964, the joint family entered into an agreement with a firm called Skyline Land Corporation to sell 43, 985 square yards of land out of its total holding and the price which was agreed was Rs. 45, 001 per bigha which works out to Rs. 16.17 per square yard. In Surat District, one acre is equivalent to 1.75 bighas of land. The agreement to sell, dated July 22, 1966, mentioned that the agreement was to sell 25 to 30 bighas of land but on actual measurement, it was subsequently ascertained with reference to the map and other documents that the agreement to sell covered 43, 985 square yards of land. On May 8, 1968, there was a partial partition of the land belonging to the family and on that partial partition, out of the several coparceners of the family, an area covering 43, 985 square yards of land was given to Devidas, who is the assessee in Income-tax Reference No. 287 of 1975. It may be pointed out that Vajulal Chunilal who purchased the land in 1929 died in 1950 leaving behind him six grandsons. Vajulal had only one son, Sunderlal, and Sunderlal predeceased Vajulal, having died on June 1, 1947. After 1950, that is, after Vajulal’s death, the joint family consisted of six sons of Sunderlal and their descendants. The six sons were Natwarlal, Vadilal, Manharlal, Harshadray, Yashwantray and Devidas. Under the deed of partition, an area aggregating to 43, 985 square yards was allotted to Devidas Sunderlal. Devidas was entitled to one-sixth share in the joint family properties. Devidas agreed with his five brothers to pay each of them a sum of Rs. 1,09,795.83 as the share of each of them in the lands admeasuring 43, 985 square yards. On the very day on which the partition deed was executed between the different coparceners of the HUF of Vajulal Chunilal, Devidas executed a sale deed in favour of Kalpana Co-operative Housing Society for the aggregate sum, of Rs. 7,11,237. Prior to the deed of sale but after the agreement to sell was entered into with Skyline Lands Corporation, on November 21, 1966, the assessee-HUF applied to the Collector of Surat for permission under s. 63 of the Bombay Tenancy and Agricultural Lands Act to sell the land to a non-agriculturist. This permission was granted by the Assistant Collector of Olpad Division, Surat, by his letter dated February 12/14, 1968. The land was not converted to non-agricultural use as contemplated by s. 65 of the Bombay Land Revenue Code prior to the date of sale, but on an application made by the chairman of the Kalpana Housing Society, permission for non-agricultural user was granted by the District Development Officer, Surat, on March 10, 1969, and the permission granted clearly shows that this permission was being granted on the application of Shri A. G. Patel, Chairman and others of Surat, Kalpana Co-op. Housing Society Ltd. for obtaining permission to make non-agricultural use of the land forming part of survey Nos. 464, 465 and 471. At the time of the assessment proceedings, it was ascertained that an amount of Rs. 3,71,105 would be the capital gains out of the sale price in respect of this land and this amount of capital gains was arrived at after making necessary adjustments regarding the cost of acquisition and other permissible adjustments.
3. The assessee-HUF applied to the ITO unders. 171for recognition of the partial partition regarding this particular asset, but the ITO rejected that application on the ground that the partition was not valid and genuine. As regards the question of capital gains, the ITO held that the land was non-agricultural land at the date of sale and he, therefore, held that the amount of capital gains worked out by him should be included in the assessable income of the assessee-HUF. Against these two decisions of the ITO, one under s. 171 and the other on the question of capital gains, two appeals were filed by the assessee and the AAC dismissed both the appeals. The assessee took the matter in further appeal to the Tribunal. The Tribunal held that the partition was a valid partition but it held that the land was non-agricultural land on the date of sale, that is, on May 8, 1968, and hence we have got two questions before us, in References Nos. 70 and 71 of 1976, and, as we have pointed out earlier, the question regarding partition having been held to be valid is at the instance of the revenue and the question as to whether the land was non-agricultural land or not, therefore, on the question of capital gains, is at the instance of the assessee. In Reference No. 287 of 1975, the question that is referred to us is at the instance of Devidas Sunderlal, the individual, the brother to whom the land was given by the partition of May 8, 1968. As we have pointed out, the assessment of the capital gains in the hands of Devidas Sunderlal is by way of protective assessment and if the partition is held to be valid, the amount of capital gains would be in the hands of Devidas Sunderlal and the question would have to be determined in his individual assessment whether the land sold by him on May 8, 1968, to Kalpana Co-operative Housing Society after obtaining the land on partition from the rest of the coparceners, was agricultural land or not and the question that has been referred to us in I.T. Reference No. 287 of 1975 is :

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the land sold to Kalpana Co-op. Housing Society was non-agricultural in character when it was sold ?”

4. This question has been referred to us by the Tribunal at the instance of the assessee, Devidas Sunderlal, in his individual status.

In I.T. Reference No. 5 of 1976, the question that has been referred to us is :

“Whether, on the facts and in the circumstances of the case, the assessee was entitled to the recognition of partial partition of the land in question effected by a deed dated May 8, 1968, under section 171 of the Income-tax Act, 1961 ?”

5. The assessee in I.T. Reference No. 5 of 1976 is the HUF of Vajulal Chunilal and as the question itself indicates, the main question arising in this reference is again relating to the validity of the partition or the question of giving recognition to the partition of May 8, which is question No. 1 referred to us in I.T. Reference Nos. 70 and 71 of 1976. The assessment years in all the cases is the same, namely, 1969-70. It is thus clear that once we answer the questions referred to us in I.T. References Nos. 70 and 71 of 1976, the questions referred to us in the other two references which are being taken up in this group will be answered automatically.
6. As regards question No. 2 arising in I.T. References Nos. 70 and 71 of 1976, referred to us at the instance of the revenue, the main question is whether the Tribunal was right in holding that there was a valid partition of the land in question. The Tribunal in its order, out of which Reference No. 5 of 1976 arises, held that there was a valid partition of the land in question and in that order the Tribunal directed the ITO to recognise the said partition unders. 171of the Act. In its order in that case, the Tribunal held that there was no evidence on record to show that the partition was not genuine. It was further held that if the land was allotted to one person, the question of physical division would not arise. It was held that there was a valid partition under s. 171 of the Act and there was no reason to refuse to recognise this partition. In para. 7 of its order, the Tribunal observed :

“As stated above, the partition was effected by a deed of partition dated May 8, 1968. Under the terms of the partition deed the land which was the subject-matter of the partition was allotted to one of the six coparceners, viz., Devidas Sunderlal. The total value of the land was Rs. 6,58,775 and since Devidas had only 1/6th share therein he agreed to pay Rs. 1,09,795.83 to each of the other coparceners. Entries relating to the partition and the amounts payable by Devidas to other coparceners are made in the books of accounts maintained by Devidas. Devidas also executed promissory notes in favour of the other coparceners. Each promissory note was for Rs. 1,09,795.83 payable by Devidas to each of the other coparceners. There is absolutely no evidence on record to doubt the genuineness of the partition deed. The only ground on which its genuineness is doubted is that, before the partition was effected, the assessee (i.e, HUF) had agreed to sell the land to Skyline Land Corporation and that after the partition was effected Devidas executed a sale deed in favour of Kalpana Co-operative Housing Society. We fail to see how the fact that the assessee had agreed to sell the land or the fact that after the partition Devidas sold the land to Kalpana Co-op. Housing Society would affect the genuineness of the partition deed. Mere fact that the assessee had agreed to sell the land to Skyline Land Corporation cannot prevent the coparceners of the assessee-family from partitioning the land. The subsequent sale of the land by Devidas would also be of no consequence so far as the partition effected by the partition deed is concerned. It is true if the land was sold by the assessee it would perhaps have been liable to pay more tax than what Devidas would beliable to pay but that fact only would not be sufficient to question the genuineness of the partition.”

7. After considering the decision of the Supreme Court in CIT v. A. Raman & Co. [1968] 67 ITR 11, the Tribunal held that it was a partition within the meaning ofs. 171of the Act. The Tribunal considered the words of the Expln. to s. 171 and held that in view of the fact that the land which was allotted was not capable of physical division, the Expln. was not attracted to the facts of this case. It was held that it would not be necessary to physically divide the property if it is allotted to only one coparcener. In such a case, the question of dividing the property does not arise at all, and according to the Tribunal, this was precisely what was done in this case and hence the question of dividing the property by metes and bounds as contemplated by s. 171 did not arise in this case.
8. In our opinion, the reasoning of the Tribunal is correct in law. There could always be a partial partition as regards person or as regards property or as regards both. In this particular case, there was no complete severance of the HUF. Devidas himself did not leave the joint family but Devidas was allotted this particular area of land admeasuring 43, 985 square yards of land out of the HUF assets. The other five brothers each had a one-sixth share just as Devidas had one-sixth share in the land which was allotted to Devidas and it was in recognition of the shares of the other five branches to the extent of Rs. 1,09,965.85 each that the promissory notes were executed by Devidas in favour of each of the five brothers and ultimately these amounts payable by Devidas to his five brothers were recognised. Therefore, in this case, the Tribunal was right in holding that there was no evidence to show that it was not genuine and that there was no hurdle in the eye of the law in effecting the partition of this particular kind. Even unders. 171, there was no question of Expln. tos. 171 being attracted. Under the circumstances, the conclusion arrived at by the Tribunal in its order, out of which I.T. Reference No. 5 of 1976, arises, was correct and hence the question referred to us in I.T. Reference No. 5 of 1976 must be answered in the affirmative; consequently question No. 2 in I.T. References Nos. 70 and 71 of 1976, must also be answered in the affirmative. Each of these two questions in the two different matters is, therefore, answered in favour of the assessee and against the revenue.
9. The legal position as to when land can be said to be agricultural land has been considered in several decisions of this High Court and by the Supreme Court in CWT v. Officer-in-Charge (Court of Wards) [1976] 105 ITR 133. A decision relating to the law on the point after considering all the decisions available till then, that is, till September 15, 1977, was by this court in Smt. Chandravati Atmaram Patel v. CIT[1978] 114 ITR 302 (Guj). At page 312, 1the position was summarised as under :

“In this case, the law, therefore, is very clear. If the land is actually used for agricultural purpose as shown by Manilal Somnath’s case [1977] 106 ITR 917 (Guj) and also by the Supreme Court in Commissioner of Wealth-tax v. Officer-in-Charge (Court of Wards) [1976] 105 ITR 133, it can be said to be agricultural land, at least, prima facie, as agricultural land could be said to be land which is either actually used or ordinarily used or meant to be used for agricultural purposes. If it is actually used at the relevant date for agricultural purposes and there are no special features, for example, building plot being actually used as a stop-gap arrangement for agricultural purposes or a building site being used for agricultural purposes, actual user or ordinary use or intention to use the land for agricultural purposes or land is meant to be used for agricultural purposes, it would be ‘agricultural land’. Secondly, potential use of the lands as agricultural land is totally immaterial. Thirdly, entries in the record of rights are good prima facie evidence regarding agricultural land and if the presumption raised either from actual user of the land or from agricultural use of the land is to be rebutted, there must be material on the record to rebut that presumption. The approach of the fact-finding authorities, namely, the income-tax authorities and the Tribunal should be to consider the question from the point of view of presumption arising from entries in the record of rights or actual user of the land and then consider whether that presumption is dislodged by the presence of other factors in the case.”

10. This decision in Smt. Chandravati Atmaram’s case [1978] 114 ITR 302 (Guj) has been subsequently followed in the case of Chhotalal Prabhudas (HUF) (I.T. Reference No. 105 of 1975) (since reported in [1979] 116 ITR 631 (Guj). The Tribunal, in the instant case, in the course of its order, has referred to the fact that the entries in panipatraks, that is, revenue records, show that this land was agricultural land and was being used for agricultural purposes. As we have pointed out earlier, permission for non-agricultural use was obtained by the co-operative housing society after it had purchased the land from Devidas. In para. 9 of its order, the Tribunal has observed :

“Now, it appears from the record of rights and the aforesaid accounts produced by the assessee that grass and vegetables were grown on the land. There were also fruit bearing trees on the land. There is no evidence as to show who was cultivating this land and growing grass and vegetables thereon. Therefore, the only evidence we have regarding the agricultural operations carried on on the land consists of the entries made in the record of rights and the aforesaid accounts produced by the assessee. The accounts do not appear to be regularly maintained. We do not know as to who maintained the accounts which are produced before us. In our opinion, the accounts are not reliable. We are then left with the entries made in the record of rights. In our opinion, these entries are not sufficient to establish that agricultural operations were carried on on the land.”

11. The question that has to be decided in the present case is not whether who was carrying on agricultural operations on the land, but whether the land was agricultural or not, that is, whether the land was being put to agricultural use or not. Secondly, as pointed out by the Supreme Court in CWT v. Officer-in-Charge (Court of Wards) [1976] 105 ITR 133 (SC), the presumptive value of the entries in the record of rights must be borne in mind and if evidence is not led by the department or if the evidence is not available on the record to rebut the presumption arising from the actual user of the land as agricultural land or from the entries in the record of rights, the revenue’s case must fail. The Tribunal has proceeded on the footing that agricultural operations appear to have been carried on by way of temporary arrangement. In the instant case, it must be borne in mind that the land was purchased by the original holder, Vajulal Chunilal, as far back as 1929 and, since that date, it was being used as agricultural land. The entries in the record of rights consistently go to show that, over several years, crops are being grown, plantations of Khajura trees, Chiku trees and other crops were being reared and nurtured on the land in question, and it cannot be said that from 1929 to 1966 it was a temporary arrangement. In Himatlal Govindji v. CWT [1977] 106 ITR 658 (Guj) a plot of land which was already converted to non-agricultural use for the purpose of the Land Revenue Code was being cultivated pending the finalisation of the transaction of sale. In the instant case, the land was put to agricultural use right till the date of sale and was being used for agricultural purposes. Crops were being grown, grass, vegetables and other materials were being grown on the four survey numbers as shown by the panipatraks. The circumstance that the land was surrounded by residential locality would not render the land non-agricultural, if, in fact, continuously during the years from 1929 it was being used for agricultural purposes. The question of the land under consideration being wanted by a co-operative society or being surrounded by housing development was considered by this court in CIT v. Manilal Somnath[1977] 106 ITR 917 and that factor of development coming up to the land in question was discounted by the court. In Manilal Somnath’s case [1977] 106 ITR 917 (Guj), this court also pointed out that though the land might have potential non-agricultural value, that factor did not mean that the land had ceased to be agricultural land or that it had lost the character of agricultural land. In this case, the Tribunal has observed at the end of para. 9 : “In any case, we have no doubt that the character of land changed to that of a non-agricultural one when the assessee obtained permission u/s. 63 of the Bombay Tenancy and Agricultural Lands Act.” At page 929 of the report in Manilal Somnath’s case [1977] 106 ITR 917 (Guj), it has been pointed out :

“Under section 63 of the Tenancy Act, no sale of any land or interest therein shall be valid in favour of a person who is not an agriculturist unless the Collector or an officer authorised by the State Government in the behalf grants permission for such sale on such conditions as may be prescribed. Under section 2, sub-section (8) of the Tenancy Act, ‘land’ means land which is used for agricultural purposes and it is, therefore, obvious that it was for the sale of land used for agricultural purpose for which the City Deputy Collector acting under section 63 of the Bombay Tenancy and Agricultural Lands Act granted permission. There is nothing to show that between the date of the permission, namely, March 24, 1967, and April 7, 1967, that is, the execution of the sale deed by the assessee in favour of Tarakkunj Co-operative Housing Society Ltd., agricultural operations which were being carried on were by way of stop-gap arrangement. We are not, in the present case, concerned with the question whether agricultural operations were such as a prudent agriculturist would carry out. The sole question that we have to decide is whether on the date of the sale by the assessee-Hindu undivided family to Tarakkunj Co-operative Housing Society Ltd. on April 7, 1967, the land was agricultural land or not. As T. U. Mehta J. has pointed out in Narandas Motilal’s case [1971] 80 ITR 39 (Guj), the fact that the land was being used for agricultural purposes till the date of the sale raises a prima facie presumption that it was agricultural land.”

At page 931, it was further observed :

“It is true that permission to sell the land to Tarakkunj Co-operative Housing Society Ltd. was granted on condition that the land would be used for residential purposes and the application for permission under section 63 of the Bombay Tenancy and Agricultural Lands Act was applied for on the footing that, after the sale, the land would be used for residential purposes. But that only goes to show that, after the date of the sale, this land was to cease to be agricultural land. The permission granted by the City Deputy Collector under section 63 of the Bombay Tenancy and Agricultural Lands Act clearly goes to show that in case the land did not cease to be agricultural land, the permission would be treated as cancelled and, therefore, the sale in favour of Tarakkunj Co-operative Housing Society Ltd. would be infructuous and the land would revert back to the assessee. In such an eventuality, the land would still continue to be agricultural land because the permission to sell to a non-agriculturist would be treated as cancelled. That eventuality has not happened and as pointed out it was some time in February, 1969, that the permission for non-agricultural use was granted to the purchaser…”

12. The same reasoning would also apply to the facts of the present case. It is axiomatic under the Bombay Tenancy and Agricultural Lands Act that when permission is granted by the authorities concerned for sale of agricultural land to a non-agriculturist, the land does not cease to be agricultural land merely because of such permission being granted. If the conditions of the permission are not complied with, the land in respect of which permission was granted unders. 63would revert to its original character of agricultural land. Therefore, the land was agricultural land at the date of the sale and would continue to be agricultural land until permission for non-agricultural use is granted and the land is put to non-agricultural use by the purchaser, as was contemplated by the permission under s. 63itself. But, as emphasised in Manilal Somnath’s case [1977] 106 ITR 917 (Guj) mere granting of the permission under s. 63 does not alter the agricultural character of the land and on that aspect of the matter, the Tribunal has obviously erred in law and the legal position has now been explained in Manilal Somnath’s case [1977] 106 ITR 917 (Guj) and Chandravati Atmaram’s case [1978] 114 ITR 302 (Guj). The Tribunal’s conclusion is, therefore, based on two errors in law. Error No. 1 is that the presumption arising from the actual user of the land for agricultural purposes has not been given proper effect and, further, the presumption arising from the entries in the record of rights has not been considered at all. The Tribunal has not considered, nor is there any material on the record to show, whether the presumption arising from these twin factors of actual user and entries in the record of rights is rebutted or not. Secondly, the Tribunal has erred in law in considering the effect of permission granted under s. 63 of the Bombay Tenancy and Agricultural Lands Act.
13. We are conscious that the Tribunal is the final judge of facts and unless the findings are challenged as perverse or unreasonable or is based on no evidence, it is not open to the High Court hearing a reference under the I.T. Act, to disturb a finding of fact. The High Court is not an appellate court over the decision of the Tribunal. But, in the instant case, we find that the Tribunal has erred in law in disregarding the presumptions which we have pointed out above and in considering the effect of the permission granted under s. 63 of the Bombay Tenancy and Agricultural Lands Act.
14. Under these circumstances, since the presumption arising from the actual user of the land, namely, for agricultural purposes, and the presumption arising from the entries in the revenue records, have not been rebutted by any other factors or special circumstances of the case, it must be held that this particular land which Devidas sold after getting it on partial partition to Kalpana Co-operative Housing Society was agricultural land on the date of the sale, applying the principles of law which we have mentioned hereinabove. Under these circumstances, the Tribunal was in error in holding that the land was not agricultural land on the date of sale and that the land had lost its agricultural character on the date of the sale, especially because of the permission granted under s. 63 of the Bombay Tenancy and Agricultural Lands Act. Question No. 1 referred to us in References Nos. 70 and 71 of 1976 which is at the instance of the assessee, must therefore be answered in the negative, that is, in favour of the assessee and against the revenue. For the same reasons, the question referred to us in Reference No. 287 of 1975 is answered in the negative, that is, in favour of the assessee and against the revenue. Question in Reference No. 5 of 1976, as we have already indicated, must be answered in the affirmative, that is, in favour of the assessee and against the revenue. The Commissioner will pay the costs of the assessee in each of these references