Agricultural land declared as part of industrial area & it’s taxability

Short Overview : Where an agricultural land which was cultivated by assessee for agricultural purposes, on being notified by the Government, the land was sold for industrial purposes, was not chargeable to tax as it was sale of agricultural land, irrespective of the fact that no agricultural income was shown by assessee because of the smallness of income.

Revenue in the instant appeal before Tribunal assailed the order of CIT(A) holding that the land sold by assessee was not a capital asset. Case of revneue was that the land had been declared as a part of industrial area by the Government and had, in fact, been sold as non-agricultural land.

 it is held that  Agricultural land which was cultivated by the assessee for agricultural purposes, on being notified by the Government, the land was sold for industrial purposes. The impugned land was sold by assessee was an “agricultural land” as it was shown so in the land records and assessee had given proper explanation about not showing the agricultural income in her return of income due to smallness of the income. Thus, the same was not chargeable to tax.

Decision: In assessee’s favour.

Followed: N. Srinivasa Rao v. Spl. Court under AP. Land Grabbing (Prohibition) Act, & Ors in (Appeal (Civil) No. 4527-4528 of 1999, Civil Appeal No. 4534-4535/1999, Civil Appeal No. 4529-4532/1999, Cont. Petn ) Nos. 89-92/2000 of in CA Nos. 4534-35/99 & 4527-28/99, dt. 23-3-2006), Sarifabibi Mohmed Ibrahim & Ors. v. CIT (1993) 204 ITR 631 (SC), MS Srinivasa Naicker & Ors. v. ITO. (2007) 292 ITR 481 (Mad-HC), J. Raghothama Reddy v. ITO (1988) 169 ITR 174 (AP-HC), Gordhanbhai Kahandasdalwadi v. CIT, Gujarat (1981) 127 ITR 664 (Guj-HC) and Smt. T. Urmila v. ITO, Ward-6(2) in (It Appeal NO. 398 (HYD.) of 2012, dt. 12-12-2012), Haresh V. Milani. v. Jt. CIT, S2, Pune. (2007) 111 TTJ 310 (Pune).

IN THE ITAT, DELHI BENCH

AMIT SHUKLA, J.M. & PRASHANT MAHARISHI, A.M.

ITO v. Meera Thapa Prop & Vice-Versa

ITA No. 191/Del/2015

CO No. 233/Del/2015

10 July, 2018

Revenue by: None

Assessee by: None

Prashant Maharishi, A.M.

This is an appeal filed by the revenue against the order of the learned Commissioner (Appeals)-1, Dehradun dated 14-10-2014 for the assessment year 2010-11.

2. The revenue has raised the following grounds of appeal :–

“1. That the learned Commissioner (Appeals)-I, Dehradun has erred in law and on facts in holding that the land sold by the assessee was not a capital asset even though it had been declared as a part of industrial area by the Govt. and had in fact been sold as non agricultural land.

2. The order of the learned Commissioner (Appeals) be set aside and that of the assessing officer be restored.”

3. The assessee has also filed cross objection in this appeal, however same is supporting the order of the learned Commissioner (Appeals).

4. Despite notice none appeared on behalf of the revenue as well as the assessee and therefore, the issue is decided on merits of the case as per information available on record.

5. The brief fact of the case is that the assessee is a proprietor of M/s. Saheed Filling Station, Mussoorie Road, Dehradun, which is authorised retail outlet of M/.s Hindustan Petroleum Corporation. The assessee is a war widow of Kargil War. She was allotted a plot of agricultural land at Dehradun, bearing Khasra No. 122Mi, Selaqui, Mauza Central Hope town, Dehradun. The land is mentioned in the revenue record as agricultural land. The above land was transferred to the assessee on 31-12-2009 and till then the assessee was continuously performing agricultural activities as on date. However, the agricultural income earned by the assessee was very small and sometime in loss. On 28-6-2004 the land was declared to be eligible for tax holiday under section 80IC(2)(a) of the Act by Central Govt vide Notification No. 177/2004. Therefore, on 31-12-2009, the assessee sold this land for Rs. 78.50 lacs through three separate sale deed. The assessee filed her return of income on 10-9-2010 declared income of Rs. 449029. In the return of income the assessee declared profit from petrol pump filling station of Rs. 511852 and income from other sources. The learned assessing officer noted that the assessee has not declared the capital gain on sale of property. The learned assessing officer noted that the assessee has sold the land which is a “capital asset” and is not an “agricultural land” as the Govt has issued a notification wherein, the above land was notified as industrial land. He rejected the explanation of the assessee that it is an agricultural land. He further supported the same stating that the assessee has not shown agricultural income in her return of income for earlier years. Accordingly, he made an addition of Rs. 98.59 lacs to the sale consideration of Rs. 78.50 lacs applying provision of section 50C of the Act as long term capital gain where the cost of acquisition is Zero.

6. Consequent to the order passed under section 143(3) of the Act dated 31-12-2012, assessee preferred an appeal before the learned Commissioner (Appeals) who held that the assessee has sold agricultural land as it has been proved by the certificate of Tehsildar and other land records. He further held that merely because the land is declared as “industrial land” same cannot be held to be a “capital asset” and “capital gain” cannot be charged on sale of “agricultural land”. He further held that as the assessee’s land was very small and the income was also very negligible as it was not conducive to sell agricultural produce from the land in market after the consumption. Therefore, he deleted the addition made by the learned assessing officer.

7. We have carefully considered the orders of the lower authorities. The facts stated are in a narrow compass that an agricultural land which was cultivated by the assessee for agricultural purposes, on being notified by the Govt, the land was sold for industrial purposes, whether such land can be considered to be sale of agricultural land or not in absence of any agricultural income shown by the assessee because of the smallness of the income, is chargeable to tax or not? The learned Commissioner (Appeals) has dealt with the whole issue vide para No. 6 of his order which is as under :–

“6. I have duly considered the facts and circumstances of the case and the submission of the assessee. It is a fact that the assessee was granted a piece of land by the Government of Uttarakhand after the martyrdom of her husband in the Kargil conflict on 10-8-1999. The size of the land was approximately 1 acre. The Central Government vide Notification No. 177/2004, dt. 26-8-2004 declared the land of the assessee as industrial land fit for deduction under section 80-IC. However, there is no evidence that the assessee put the land to any other use except agricultural purposes till the sale of land on 31-12-2009. The land was entered in the revenue record as agricultural land. In fact it continues to remain in the agricultural record as agricultural land even today and stand in the revenue record. There is merit in the assessee’s submission that the size of the land being small it was not conducive to sell agricultural produce from land in market after consumption. However, the fact that she was continuously carrying out agricultural activities on the same is proved by the certificate of the Tehsildar, report of the Halka patwari and the land records. On 31-12-2009 the land was sold to the parties mentioned in the order of the assessing officer. At least two of these parties were industries. However, The assessee did not apply at any stage for converting the land to non-agricultural under section 143 of the U.P. Zamidari Abolition and Regulation Act. The case of the assessee is distinguishable from that of Sarafabibi Mohd. Ibrahim and Gopal C. Sharma because in the aforementioned cases the land had not been used for cultivation while the assessee’s land were under cultivation as per the land record. It is also seen that the land continued to be used for agricultural operation right from its purchase till its sale. The assessee had not developed the land by plotting or providing roads or other facilities as such none of the test laid down in the judgment of Sarifabibi are seen to be applying to the assessee except for the fact that the land was sold on yardage and not acreage basis and whether agriculturist would purchase the land for agricultural purposes at which the price at which the price the land was sold. On these two tests the peculiar circumstances of the notification of the area into an industrial area would explain why the assessee sold the land n sq.mts. and why the cost of the land appreciated considerably on account of its possible use for industrial purposes. However, as has been pointed out in the case of Gordhanbhai Kahandasdatwadi v. CIT (1981) 127 ITR 664 (Guj.) potential non-agricultural use of the land does not alter the character of land from agricultural to non-agricultural land and the correct tests whether on the date of sale the land was agricultural or not. Furthermore, as pointed out by the assessee, the mere fact that her land were included into a industrial area would not change the character of the land in itself. In the case of N. Srinivas Rao v. Special Court under the A.P. Land Act the Hon’ble Supreme Court held that “except for the fact that the said land were now included within the urban area, there is nothing to show that the user of the same had been altered with the passage of time. The decision in Sarifabibi’s case (supra) cited by Mr. Parasaran does not therefore, help his client case.” Accordingly, the Hon’ble Supreme Court held that the tenant in the instant case remained an agriculturist and therefore, transfer from an agriculturist to a non-agriculturist which was expressly prohibited under that Act was invalid. Relying on this decision the Pune Bench of ITAT in the case of Haresh V Milani v. JCIT 111 TTJ 310 Pune held that mere fact that the land under reference was brought under an industrial zone cannot be a determining factor to say that the character of the land had changed. Furthermore, in the case of M/s. Srinivasa Naicker v. ITO 292 ITR 491 (Mad) it was held that till date of sale the agricultural operation were carried on by the assessee and the fact that the purchaser had put to use for a totally different purpose from that of the assessee ought not to have weighted with the tax authority. Capital gains could not be levied. Furthermore, in the case of Raghottama Reddy v. ITO 169 ITR 174, the A.P. High Court held, “Accordingly we hold that the profit or gain resulting from sale of agricultural land is revenue derived from land i.e. it is agricultural income within the meaning of clause (1) under section 2 of the Act.” The ITAT Hyderabad bench in the case of T. Urmilla v. ITO W-6(2) in ITA No. 398 of 2012, dt. 12-12-2012 while dealing with the case of an assessee whose land incorporated into Hyderabad Airport Development authority held that the Hyderabad Airport Development authority was not a municipal authority and was outside the outer municipal limit of Hyderabad. The land transferred could not be considered a capital asset under the provision of section 2(14)(iii) of the Income Tax Act. Following the ratio of these judgments I hold that the mere notification of the area in which the assessee’s land was situated as an industrial zone would not alter the character of the land and render into a capital asset. The land continued to remain an agricultural land until sale. Accordingly, the assessee is not liable to pay capital gains on the sale of the said land and the addition made on this account is deleted.”

8. We do not find any infirmity in the order of the learned Commissioner (Appeals) in holding that the impugned land was sold by the assessee is an “agricultural land” as it is shown so in the land records and the assessee has given proper explanation about not showing the agricultural income in her return of income due to smallness. In view of this we do not find any infirmity in the order of the learned Commissioner (Appeals) and we uphold it. Accordingly, appeal of the revenue is dismissed.

9. The cross objection filed by the assessee is supporting the order of the learned Commissioner (Appeals). As we have already dismiss the appeal of the revenue the cross objection filed by the assessee is also allowed.

10. In the result the appeal of the revenue is dismissed and cross objection of the assessee is allowed.