Income Tax Act, 1961, Section 54B

Capital gains—Deduction under section 54B—Profits realized on sale of agricultural land

Conclusion: Since AO had not conducted any specific enquiry to negate the assertions made by assessee that the land was used for agricultural purposes and as per 7/12 extracts, Kharif season crops were grown on that land, therefore exemption could not be denied to assessee.

Assessee was in business of retailer in readymade garments. During the course of assessment proceedings, AO found that assessee sold agricultural land which result in long term capital gain and after considering the exemption under section 54B of the same was worked out to “Nil”. AO, however, held that the profits realized on sale of the land constituted business income and also denied the exemption claimed under section 54B. Held: AO had not conducted any specific enquiry to negate the assertions made by assessee that the land was used for agricultural purposes. As per the 7/12 extracts, Kharif season crops were grown on that land. As decided in Vinit Krishnakumar Goyal v. CIT (ITA No. 1471/PUN/2013, dt. 31-7-2019) it was an undisputed fact that 7/12 extracts were provided to Revenue Authorities wherein it is clearly stated that the land in question was agricultural land. On the contrary, though Revenue was taking the transaction as business income they have not brought in any evidence on record neither they have conducted any specific enquiry to show that it was business transaction. Therefore, exemption could not be denied to assessee.

Decision: In assessee’s favour.

Referred: CIT v. Smt. Debbie Alemao, Joaquim Alemao (2011) 331 ITR 59 (Bom) : 2011 TaxPub(DT) 464 (Bom-HC), CIT v. Minguel Chandra Pais & Anr., CIT v. Smt. Maria Leila Tovar Furtado & Anr., (2006) 282 ITR 618 (Bom) : 2006 TaxPub(DT) 332 (Bom-HC), Gopal C. Sharma v. CIT (1994) 209 ITR 946 (Bom-HC) : 1994 TaxPub(DT) 0726 (Bom-HC), CIT v. Dhable, Bobde Parose, Kale, Lute and Choudhari (1993) 202 ITR 98 (Bom) : 1994 TaxPub(DT) 726 (Bom-HC), CIT v. VA Trivedi (1988) 172 ITR 95 (Bom) : 1988 TaxPub(DT) 214 (Bom-HC), Shri Vinit Krishnakumar Goyal v. The Asstt. CIT, Circle-9, Pune. in (ITA No. 1471/PUN/2013, dt. 31-7-2019).

 

IN THE ITAT, PUNE BENCH

R.S. SYAL, VP & PARTHA SARATHI CHAUDHURY, J.M.

ITO v. Mukesh Champaklal Shah

ITA No. 1707/PUN/2013, CO. No. 82/PUN/2014 (Arising out of ITA No. 1707/PUN/2013)

8 August, 2019

Assessee by: Sunil Ganoo

Revenue by: Vishwas Munde

Partha Sarathi Chaudhury, J.M.

This appeal preferred by the Revenue and cross-objection by assessee emanates from the order of the learned Commissioner (Appeal)-II, Pune, dated 28-3-2013 for the assessment year 2009-10 as per the grounds of appeal on record.

2. The brief facts in this case are that the assessee is an individual and carries business of retailer in readymade garments under the name and style of Ambar Collection. The assessee has earned income from the business, commission agency, other sources and capital gain. The assessee filed the return of income declaring total income of Rs. 19,27,210 and the same has been assessed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) determining total income of Rs. 5,23,10,600. During the course of assessment proceedings, the assessing officer found that the assessee sold agricultural land which results in long term capital gain and after considering the exemption under section 54B of the same was worked out to “Nil”. The assessing officer however, held that the profits realized on sale of the land at S. No. 434 at Village Urawade, Tal. Mulshi constituted business income and also denied the exemption claimed under section 54B of the Act.

3. The Assessee has challenged this treatment of the capital gain before the learned Commissioner (Appeals). A detailed written submission was filed by the assessee before the learned Commissioner (Appeals). The assessee had submitted that the agricultural land sold was not a capital asset within the meaning of section 2(14) of the Act because it was situated at a distance of more than 10 kms from the limits of municipal corporation and the population of the Village Urawade was less than 10,000 as per the census of 2001 and the land was an agricultural land and was used as such by him. The assessee had filed certificate, dated 29-11-2011 issued by the Gramsevak of Grampanchayat Urawade, Dist. Pune claiming that the gains realized on sale of land were exempt from taxation.

The assessee has further stated that the assessing officer vide Para 11 of the assessment order accepted the fact that the said land is agricultural land and not a capital asset, however, rejected the contention that the gains realized on sale of the said land were exempted from taxation. It is the ground of the Revenue that they are accepting that the land sold as an agricultural land but since no agricultural activities were carried out in the said land and as such deduction under section 54B could not have been given to the assessee. The assessee had also filed 7/12 extracts, revenue records to show that the land was an agricultural land. The learned Commissioner (Appeals) after considering the detailed submissions of the assessee and assessment order observed that the assessing officer has himself admitted that the land to be an agricultural and as mentioned in the 7/12 extracts produced before him. The assessing officer has only looked into the quantum of agricultural income mentioned in the return of income by the assessee as decisive factor on the issue instead of conducting any specific enquiry regarding nature and character of the land and also whether agricultural activities were conducted or not as in conformity with section 54B of the Act. In absence of this exercise, the assessing officer did not accept the submissions of the assessee only on the premise that meager agricultural income was shown. The learned Commissioner (Appeals) was, therefore, of the opinion that in absence of any specific enquiry and definite reasons, the assessing officer though on one hand accepting the land to be an agricultural land as per 7/12 extract should have conducted an independent enquiry to find out whether agricultural activities were carried out or not before refusing to grant deduction under section 54B of the Act.

4. The records further demonstrates that the 7/12 extract as produced by the assessee clearly recorded the crops grown in Kharif season such as paddy and fodder grass and some fruit plantation since long which clearly indicated that the land in question was an agricultural land and as recorded in the revenue records and the assessee has been paying the land revenue of the said land from time to time. The assessing officer has not been able to bring on record anything contrary to the submissions made by the assessee in this regard to show and justify the stand taken by him. In fact the classification and assessment of land by the Land Revenue Authorities clearly certifies that the land is being used for agricultural purposes. The assessee has placed reliance on the following decisions :–

(i) CIT v. Minguel Chandra Pais (2006) 282 ITR 618 (Bom) : 2006 TaxPub(DT) 332 (Bom-HC)

(ii) CIT v. Smt. Debbie Alemao (2011) 331 ITR 59 (Bom) : 2011 TaxPub(DT) 464 (Bom-HC)

5. The learned Commissioner (Appeals) further observed whether a particular land is agricultural land or not is essentially a matter decided on facts. Profit motive in selling the land would not make any difference as decided in Gopal C Sharma v. CIT (1994) 209 ITR 946 (Bom-HC) : 1994 TaxPub(DT) 0726 (Bom-HC). It is in the light of the guidelines available from the decisions that the Hon”ble Bombay High Court upheld the findings of the Tribunal in respect of assessee’s claim that the land was agricultural so that there is no liability for capital gains tax as held in CIT v. Minguel Chandra Pais & Ors. (2006) 282 ITR 618 (Bom) : 2006 TaxPub(DT) 332 (Bom-HC). That for the purposes of wealth tax or capital gains tax or even for the purposes of determination of the character of income from such land as to whether it is agricultural income or not, ultimately it is a question of inference to be drawn from all the facts. One such fact is classification of the land in the revenue records. In the present case, in the 7/12 extracts, it is clearly mentioned the land to be agricultural land and the assessee had been paying revenue on such land. The Hon”ble Bombay High Court in the case of CIT v. Minguel Chandra Pais & Ors. (supra.) has held that land classified as agricultural land in the land records, subjected to land revenue, the Tribunal has rightly held the same to be an agricultural land. Section 2(14)(iii) of the Act exempts agricultural land from definition of capital assets. In the instant case, since facts clearly demonstrated that the land is an agricultural land and also for the fact that the assessing officer has not brought in any cogent material or evidences on record to negate assertions made by the assessee, the learned Commissioner (Appeals) provided relief to the assessee holding that the land in question is not a capital asset and therefore there arises no tax incident.

6. At the time of hearing, the learned Departmental Representative has placed strong reliance on the findings of the assessing officer. The learned Departmental Representative placed reliance on the decision of the Co-ordinate Bench of the Tribunal in ITA No. 699/PN/2013, ITA No. 700/PN/2013 and ITA No. 701/PN/2013 for assessment year 2009-10. In these cases, the Tribunal had referred to the decision of the Hon”ble Bombay High Court in the case of CIT v. V.A. Trivedi (1988) 172 ITR 95 (Bom) : 1988 TaxPub(DT) 214 (Bom-HC) wherein it was held that ” to ascertain the true character and nature of the land, it must be seen whether it has been put to use for agricultural purposes for a reasonable span of time, prior to the relevant date and further whether on the relevant date the land was intended to be put to use for agricultural purposes for a reasonable span of time in the future.” The Hon”ble Bombay High Court in the case of Gopal C. Sharma v. CIT, (1994) 209 ITR 946 (Bom-HC) : 1994 TaxPub(DT) 0726 (Bom-HC) has held that ” merely because the land was shown as agricultural in the revenue records was held to be not the conclusive test to determine that the land as agricultural land.” The learned Departmental Representative vehemently argued that no evidences were brought on record by the assessee to show that agricultural activities were being carried out or the related expenses. Even, agricultural income was very meagere. The learned Departmental Representative maintained in his submissions that the land was neither agricultural land nor any agricultural activities were carried out in that land in order to qualify for deduction under section 54B of the Act.

7. Per contra, the learned Authorised Representatives invited our attention to the facts of the case relied upon by the learned Departmental Representative as herein above mentioned. In that case, as per the 7/12 extracts, the land was Jirayat fallow land i.e. land being not capable of cultivation. However, in this case of the assessee, in the 7/12 extracts, it is clearly pointed out that the land is an agricultural land and even the revenue records shows that the revenue had been played by the assessee on such land. Therefore, factually the case is substantially different from that of the assessee. In that case referred by the learned Departmental Representative, apart from 7/12 extracts, no other evidences were brought on record and therefore, it was held that 7/12 extracts is not a decisive test in order to determine the nature and character of the land. However, in the case of the assessee, it is clear cut position that the 7/12 extracts directly states the land to be an agricultural land. In such situation, the assessee has placed reliance on the decision of the Hon”ble Bombay High Court as have been mentioned in the submissions made before the learned Commissioner (Appeals) which also formed the part of the decision taken by the learned Commissioner (Appeals). That further, the learned Authorised Representatives emphasized that irrespective of having entire machinery, the Revenue Authority i.e. Assessing officer has not conducted any specific enquiry nor has brought in any evidence on record to negate the assertions made by the assessee. The assessing officer has simply rejected the submissions of the assessee based on suspicion and guess work which is not permissible within the ambit of Income Tax Act. The learned Authorised Representatives of the assessee therefore, prayed that the relief provided to the assessee by the learned Commissioner (Appeals) may be sustained.

8. We have perused the case records and heard the rival contentions. We have also considered the judicial pronouncements placed on record. The definition of capital asset excludes agricultural land and certain criteria have been placed in this statue to qualify the land as agricultural land. The facts on records demonstrate that both the parties have accepted the land to be an agricultural land. The 7/12 extracts clearly demonstrates the fact that the land to be an agricultural land. The assessing officer though agreed the land to be an agricultural land but denied benefit of deduction under section 54B of the Act to the assessee on the ground that the land was not used by the assessee for agricultural purposes for the preceding two years from the date of transfer of such land. The assessing officer has not conducted any specific enquiry to negate the assertions made by the assessee that the land was used for agricultural purposes. As per the 7/12 extracts, kharif season crops were grown on that land.

That matter in similar facts and circumstances had come up for adjudication before us in ITA No. 1471/PUN/2013 for assessment year 2009-10 decided on 31-7-2019 where the Co-ordinate Bench of the Tribunal, Pune has held and observed as under :–

“7. We have perused the case records and heard the rival contentions. We have also considered the judicial pronouncements placed on record. It is an undisputed fact that the 7/12 extracts were provided to the Revenue Authorities wherein clearly it is stated that the land in question was agricultural land. Even, there is certificate from Deputy Director, Town Planning, Pune stating that at the time of transfer the lands were agricultural land. Similarly, in the Sale Deed itself it is clear that the lands in question were agricultural land. On the contrary, though the Revenue is taking the transaction as business income they have not brought in any evidence on record neither they have conducted any specific enquiry to show that it is business transaction. The assessee through his learned Authorised Representatives claims that he was never cross examined by the assessing officer.

8. We find that the Hon’ble Bombay High Court in the case of CIT v. Smt Debbie Alemeo (supra.) has held that “land shown as agricultural land in revenue records, admittedly the land was shown in the revenue records as agricultural land and no permission was ever obtained for non agricultural use by the assessee. Permission for non agricultural use was obtained for the first time by the purchaser after it purchased the land. As regards the contention of the Revenue that no agricultural income was shown from this land, it was explained by the assessee that the agricultural income derived by sale of coconut grown on the land was just enough to maintain the land and there was no surplus. Therefore, land which was shown as agricultural land in the revenue records and never sought to be used for non agricultural purposes by the assessee till it was sold has to be treated as agricultural land, even though no agricultural income was shown by the assessee from this land and therefore, no capital gain was taxable on the sale of the said land.”

Reverting to the facts of the present case, in the 7/12 extracts, it is clearly mentioned that the land in question is agricultural land. It is true that in the return of income, no agricultural income was shown by the assessee again since there was no surplus. Further, the assessee never obtained any permission regarding changing of agricultural land to non agricultural land. It was only for the first time after the land was sold by the assessee, it was converted from agricultural to non agricultural land on the basis of application made by the purchaser i.e. TATA International DLT (P) Ltd. This permission was granted by Deputy Director, Town Planning, Junnar, Khed, Pune on 2-6-2010.

9. In the case of CIT v. Dhable, Bobde, Parose, Kale, Lute & Chowdhari, (1992) 202 ITR 98 (Bom) : 1994 TaxPub(DT) 726 (Bom-HC), the Hon’ble Bombay High Court has observed that “the case of the Revenue mainly appears that the intention of the assessee is to do business. However, no materials was brought in on record by the Revenue in support of this stand except the allegation that some of the members of the assessee AOP, had also entered into similar deals in their individual capacity and that the land in question was sold by the assessee within three months from the date of purchase. The Hon’ble Jurisdictional High Court further held that “the onus of proving that the land formed part of the business assets of the assessee is on the Department and in the absence of any evidence to that effect the presumption will be that the land was held as a capital asset by the assessee and the income from transfer thereof was not income from business.”

In view of the matter and judicial pronouncements as referred hereinabove, we set aside the order of the learned Commissioner (Appeals) and direct the assessing officer to delete the addition from the hands of the assessee on this issue. Thus, ground No. 1 raised in appeal by the assessee is allowed.”

In view of the matter, we do not find any infirmity with the findings of the learned Commissioner (Appeals) and relief provided to the assessee by the learned Commissioner (Appeals) is hereby sustained.

9. In the result, appeal of the Revenue in ITA No. 1707/PUN/2013 is dismissed.

10. Since appeal of the Revenue is dismissed, Cross Objection (CO No. 82/PUN/2014) filed by the assessee being supportive of the order of learned Commissioner (Appeals) becomes infructuous and hence, is dismissed.

11. In the combined result, appeal of the Revenue in ITA No. 1707/PUN/2013 and cross objection filed by the assessee in CO No. 82/PUN/2014 are dismissed.