TaxTMI 
TaxTMI 
1985 (7) TMI 179
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.... Co. The appellant has bifurcated the land purchased from E.I.D. Parry & Co. as industrial area and farm section. According to the appellant, the industrial area comprises of one acre and 2362 sq. ft. and the farm section is comprised of 6 acres and 20 cents. There is no dispute regarding the liability for capital gains in respect of the industrial section. The dispute is regarding the capital gains arising on the sale of 6 acres and 20 cents alleged to be agricultural land by the appellant. The ITO came to the conclusion that- (1) the appellant purchased the land to utilise for its business of manufacture of tiles ; (2) in the sale deed in favour of the appellant there is no mention that what was purchased by the appellant was an agricultural land ; (3) the extent of the land is about 6 acres while the claim for agricultural expenses is very meagre ; (4) no kist has been paid by the appellant; (5) the erstwhile watchman of the appellant-company, Iyyamperumal, taking the land on lease is not supported by any stamped lease agreement and enquiries reveal that he has not paid any lease amount to the appellant-company nor did he confirm categorically that he executed any....
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.... assessment years 1908-69 and 1969-70 and the kist receipt and the lease deed executed by the watchman, Iyyamperumal, clearly go to establish the agricultural character of the land and in the absence of any evidence to show that the appellant has converted the land into non-agricultural land, the agricultural character of the land continues to be the same and the profits arising on the transfer of such a land are exempt from capital gains tax. 4. The contentions of the learned departmental representative can be summed up as under: (1) The appellant's predecessor in title E.I.D. Parry & Co. never held the land as agricultural land. The appellant-company was formed for manufacturing mosaic and other flooring tiles, cement pipes, store-ware and earthenware pipes, etc., and carrying on agricultural operations was not one of the objects for which the appellant-company was incorporated and since the appellant-company cannot carry on any operation not specified in the memorandum of association, it is obvious that the land in question could not have been purchased for any agricultural purpose or user and the land was never held or intended to be held by the appellant as agricultural ....
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....resent and future use to which the land is put and its potential value. We now proceed to apply the tests enunciated above to determine the general character of the land. 7. Environment and situation of land - The land in question is situated on the Suramangalam road outside the city limits of Salem Municipality and comes under Meyyanur Panchayat Board. On the north it is bounded by Salem junction and Yercaud road. It is now comprised in the Salem Postal Zone and has the pin code number 4. 8. Previous, present and future use to which the land is put and the intention of the appellant at the time of purchase - The land was originally purchased by E.I.D. Parry & Co. as early as 2-2-1898. E.I.D. Parry & Co., engaged in distillery and manufacture of sugar, could not have purchased the land for agricultural purpose. To a query by the ITO the company by its letter dated 19-2-1960 informed that it has sold the old 'Karkana building' to the appellant for Rs. 30,000. In the sale deed, executed by E.I.D. Parry & Co., there is absolutely no mention that the land sold by them to the appellant was an agricultural land. There is no evidence that E.I.D. Parry & Co., used this piece of land ....
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.... in his report, dated 26-8-1960 that the newly constructed building of Meccano Industries (P.) Ltd., at survey No. 64, Meyyanur village, Suramangalam Road, Salem, comprises a compound wall, concrete roofed shed and lean to structure with asbestos sheets. The appellant has also put up a guest house near the factory. The factory building with the godowns, guest house, etc., were leased out by the appellant to another private limited company under the name and style of Meccano Floorings (P.) Ltd., for Rs. 12,000 per annum for one portion and Rs. 4,500 per annum, for another portion. Later, the appellant entered into a licence agreement with one Kandaswamy Chettiar allowing the latter the use of the crushing section in the factory for crushing magnesite, cuddapah stones and all types of other stone-lumps into chips and powder at the rate of Rs. 17 per ton of finished material. On 11-2-1959 the appellant entered into an agreement with a group of three persons (S/Shri J.R. Mehta, A. Kolandai Pillai and G. Venkataram) agreeing to sell for Rs. 2,50,0006.2 acres of land out of 6.76 acres purchased from E.I.D. Parry & Co. The questions that have to be considered are. (1) Was it sold as an....
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....ultural land. 11. We now proceed to scrutinise the alleged agricultural user of the land. According to the appellant, the land was cultivated with coconut and banana plants, and cholam and vegetables were grown. The expenses and income under the head 'garden maintenance' are as under : Assessment Income Expenses Year Rs. Rs. 1961-62 195 This includes Rs. 32.50 and Rs. 2.50 as building maintenance expenses and Rs. 45 as miscellaneous expenses........... 1962-63 1,109 ....
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....ar 1968-69 is alleged to be the lease amount paid by the watchman of the appellant-company. The existence of a garden, incurring of expenditure for the maintenance of the garden, growing of certain plants and planting of trees, salary disbursed to a garden supervisor and sale of coconuts to the managing director, are not sufficient and cannot stamp the land with the character of an agricultural land. As rightly pointed out by the AAC, a few saplings of the coconut brought by the managing director from his native place and planted in the garden and a few of the coconuts being taken possession of by him for which nominal charges were made to the appellant-company, cannot establish that the land in question is an agricultural land. The garden maintenance account, as rightly pointed out by the AAC, can only be taken to mean that expenditure was incurred for maintaining the usual garden around a house or factory. The alleged lease of over 6 acres of land to the appellant-company's watchman for cultivation for a paltry amount of Rs. 275 per year seems to suggest a feeble attempt at securing evidence for some agricultural user of the land. When there is no evidence of regular and systemat....
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....imits to the scope of the 'agricultural land', or, in other words, this exemption had to be necessarily given a more restricted meaning than the very wide ambit given to it by the Full Bench of the Andhra Pradesh High Court." Again the Supreme Court observed : "... The determination of the character of land, according to the purpose for which it is meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case. What is really required to be shown is the connection with an agricultural purpose and user and not the mere possibility of user of land, by some possible future owner or possessor, for an agricultural purpose. It is not the mere potentiality, which will only affect its valuation as part of 'assets' but its actual condition and intended user which has to be seen for purposes of exemption from wealth-tax...." Again the Supreme Court observed : "... One of the objects of the exemption seemed to be to encourage cultivation or actual utilisation of land for agricultural purposes. If there is neither anything in its condition, nor anything in evidence to indicate the intention of its owners or possessors, so as to con....
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....tting apart of the land for agricultural purposes and the condition of the land and the intention of the owner do not indicate connection with any agricultural purpose, we have to hold that the land sold by the appellant was not an agricultural land. 13. In Krishna Iyer v. Addl. ITO [1966] 59 ITR 145 (Ker.), the assessee's claim for exemption from wealth-tax was rejected having regard to- (a) the location of the land ; (b) the price for which it was purchased ; and (c) the poor income which the land yielded as an agricultural land. In Venugopala Varma Rajah v. CED [1967] 64 ITR 359 (Ker.), the land was forest land and it was pleaded that it should be exempt on the ground that it was capable of being put to agricultural use. This argument was repelled and the Kerala High Court made the following observations : "'Agricultural land', as we understand it, is land on which a prudent owner will undertake any of the processes of farming in its widest sense. The fact that a particular area is being used for agriculture may indicate that the land is agricultural in character. But a current user is by no means conclusive. During a period of food shortage, a building site wh....
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....fer, namely, vesting of title, took place. In the case of immovable property worth Rs. 100 and above, no title passes to the transferee until the conveyance by the executor is registered under the Indian Registration Act, 1908. The fact that a transaction of sale of immovable property has been partly performed by delivery of possession to the purchaser and there was payment of consideration in entirety would not amount to a 'transfer' so long as there is no registered sale deed. Since charge to capital gains arises only on the execution of a registered deed of transfer, we direct that capital gains should be recomputed by taking into account only those transfers which were completed by registered deeds of transfers to the individual purchasers in the relevant previous year. 16. The last point in dispute relates to the computation of capital gains. The learned departmental representative contended that objection regarding the quantum of capital gains computed has not been specifically raised in the grounds of appeal and it is not open to the appellant to raise the issue at this stage before the Tribunal. The grounds of appeal are wide and comprehensive enough to include the plea ....
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....chargeable to tax and section 48, clause (ii), then proceeds to add that such profits or gains shall be computed by deducting from the full value of the consideration of the transfer 'the cost of acquisition of the capital asset'. The words 'the capital asset' in section 48, clause (ii), are clearly intended to refer to the capital asset which is transferred as mentioned in section 45. They are identificatory words to denote the property transferred and they do not introduce any requirement that the property transferred shall be capital asset at the date of acquisition. The law says that when property which is a capital asset is transferred, profits or gains arising from the transfer shall be liable to tax and you shall compute such profits or gains by deducting from the consideration for the transfer, what cost you to acquire the 'capital asset' that is, the property transferred. The difference between the consideration for the transfer of the property and the cost of acquisition of the property would represent the profits or gains arising from the transfer of the property and they would be taxable as capital gain under section 45. This appears to be the plain natural construction....
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....vations of the High Court and since the appellant's contention has the effect of importing two legal fictions-one under section 48(ii) and the other under section 55(2)(i), the contention raised on behalf of the appellant cannot be accepted. 19. Emphasis was laid on the use of the words 'the cost of acquisition of the capital asset' in section 48(ii) and it was contended that in order to attract this provision, the asset transferred must be a capital asset both at the time of acquisition as well as transfer and since in the present case, the asset transferred was capital asset only at the time of transfer and not at the time of acquisition, the capital gains cannot be computed by resorting to section 48(ii) and the cost of acquisition in such cases must be taken as the market value at the time when the agricultural land came to be converted as non-agricultural land. 20. The identical contention was raised on behalf of the assessee in the case reported in Ranchhodbhai Bhaijibhai Patel's case and the Gujarat High Court repelled the contention by observing as under : "... The only condition for attracting the charge to tax which is laid down in section 45 is that the property....
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.... from the words used. It is well settled that what is unexpressed by the Legislature must be taken as unintended. As pointed out by the Gujarat High Court in Ranchhodbhai Bhaijibhai Patel's case, 'we cannot presume a certain intention on the part of the Legislature and then bend the language of the section with a view to make it accord with such a presumed intention'. A plain reading and construction of sections 48 and 55(2) clearly suggests that the Legislature did intend that even in cases where the property transferred was capital asset on the date of transfer and not a capital asset on the date of acquisition, it should be brought within the taxation ambit under those sections. If the Legislature has intended otherwise a suitable provision would have been made indicating what should be the cost of acquisition in case where the property transferred was a capital asset on the date of transfer and not a capital asset on the date of acquisition. When the capital. asset becomes the property of the assessee in the various contingencies specified under section 49 of the Act, how the cost of acquisition should be computed is provided in that section. If the Legislature intended that th....
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....nts, cultivating cholam, etc. The extracts maintained from the adangal register showed that cholam was cultivated in some part of the land. A lease deed executed by one Iyyamperumal clearly went to establish that the land has been leased out to him for agricultural purposes. There was no evidence to show that the assessee had at any time converted the land into non-agricultural at all. The land was situated outside the city limits. Even though the agreement to sell included several provisions imposed by the vendees for their convenience likely to indicate that the land was non-agricultural, all this happened only after the assessee parted with the land. The assessee had incurred expenses and earned also some agricultural income from these lands. A certificate from the village karnam indicated that the land was under cultivation for nearly 10 years. A kist receipt was also produced. 4. For the department, it is pointed out that the assessee purchased the land from E.I.D. Parry & Co. They never held the land as an agricultural land. The assessee-company was formed for the manufacture of tiles, cement pipes, etc., and carrying on agricultural operations was not one of the objects f....
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....e when we say this we must not be understood to mean that the intention as to user is altogether an irrelevant consideration ; it is certainly a factor which would bear on the nature or character of the land but it does not afford a sole or exclusive criterion for determining whether a land is agricultural land or not...." Continuing, their Lordships observed : "... Whether a particular land is agricultural land or not must depend on the general nature or character of the land, and various factors would have to be taken into account. The development and use of the lands in the adjoining area and the surroundings and situation of the land would be an important factor which would have a bearing on the question whether the land is agricultural land or not. This factor may affect the land and its capacity of being used for agriculture and would also indicate the purpose for which the land would ordinarily be likely to be used. The physical characteristics of the land would be another factor to be taken into account. The physical characteristics may show the general nature or character of the land particularly in regard to its adaptability for being used for agricultural purpose. ....
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....1963] 48 ITR 472 (Mys.), the land was requisitioned in 1944 or 1945 for the purpose of locating a military aerodrome. The land had been levelled and an airstrip constructed thereon and for over 15 years the land was being used as an airstrip. On those facts it was held that the land was not agricultural land. The fact that at some future time the Government may derequisition the land thereafter, the owner of the land may take steps to reconvert it into agricultural land was not considered a relevant consideration. In Avtar Singh Rangwala v. CIT [1972] 84 ITR 96 (Punj. & Har.) agricultural land belonging to the assessee was requisitioned by the Government for being used as a parade ground by the police authorities. Grass was grown on the land till the requisition by the Government, the land was irrigated, payment was made for the canal water and the land was also assessed to land revenue. The land was within the municipal limits of Amritsar and was also included in a town planning scheme. Their Lordships of the Punjab and Haryana High Court held that merely on the ground that the land had been requisitioned, it could not be concluded that the land had ceased to be agricultural land ....
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....onths before the valuation date, the land would not cease to be agricultural, merely because it does not happen to be under the plough on the valuation date. Particularly, in a case of the type before us when it is admitted or proved that the land in dispute was agricultural land for a long time, till about two years before the valuation date in the instant case, it would be presumed to continue to remain as agricultural land unless something definite has in the meantime happened to make it non-agricultural. Till the user of the land is actually changed, or other definite indications to the contrary are available in a given case, it is safe to presume that a property would normally continue to be put to the use to which it has been put all along for a long time." 10. The meaning of 'agricultural land' came up for consideration in two estate duty cases before the Kerala High Court. In V. Venugopala Varma Rajah v. CED [1969] 72 ITR 226 (Ker.), their Lordships held that whether a land is agricultural or not, has to be determined with reference to its nature and not to the use to which it may be put at a particular time. They held: "... It is well-known that the extensive areas o....
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.... at liberty to grow any fruit or forest trees or plantation for fuel. There were other considerations connected with the planting of trees, payment of irrigation rates, etc., and at the relevant period there were several palmyrah trees and palm trees on the said lands and the assessee was deriving income from the land, part of which was cultivated with blackgram, horsegram, etc. There was a well in the property. The land itself had been described in the revenue records as 'punjai'. On the facts, their Lordships of the Madras High Court after discussing all the decided cases in extenso held that the land was agricultural in nature. The position was summarised as under : "... The test as to whether the land is capable of being used for agriculture has to be understood in the sense of the quality or nature of the land, or its being fit for cultivation, as it is. The classification of the land in the revenue records of the State Government would throw some light on the problem. The situation within the municipal limits or the application of a town planning scheme to the area would not be conclusive. The proposition urged for the revenue that there can be no agricultural land within ....
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....er of definitions and authorities discussed by this Court in Raja Benoy Kumar Sahas Roy's case [1957] 32 ITR 466 (SC) have a direct bearing. In that case, this Court held that the wider meaning given to agricultural operations, such as breeding and rearing of live-stock, poultry farming or dairy farming will not be applicable. It held that the correct test to apply would be to find out whether human labour had been applied to the land itself, in order to extract from its natural powers, added to or aided by other natural or artificial sources of strength to the soil, a product which can yield an income...." 13. The Andhra Pradesh High Court considered the question in Smt. Manyam Meenakshamma v. CWT [1967] 63 ITR 534. The Division Bench did not follow the decision of the Madras High Court in Sarojini Devi's case to the effect that it was enough that the land was capable of being used for agricultural purposes, but were inclined to agree with the view of the Mysore High Court in Sri Krishna Rao L. Balekai's case that the present characteristics and not the potentialities of a land are the proper criterion. The conflict between the views contained in Sarojini Devi's case and Smt. M....
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....hown is the connection with an agricultural purpose and user and not the mere possibility of user of land, by some possible future owner or possessor, for an agricultural purpose. It is not the mere potentiality, which will only affect its valuation as part of 'assets', but its actual condition and intended user which has to be seen for purposes of exemption from wealth-tax. One of the objects of the exemption seemed to be to encourage cultivation or actual utilisation of land for agricultural purposes. If there is neither anything in its condition, nor anything in evidence to indicate the intention of its owners or possessors, so as to connect it with an agricultural purpose, the land could not be 'agricultural land' for the purposes of earning an exemption under the Act. Entries in revenue records are, however, good prima facie evidence...." Since it was found that the Full Bench of the Andhra Pradesh High Court had not considered the question from the point of view of a rebuttable presumption as to the land being agricultural, arising from the fact that it was assessed to land revenue and since not even a finding that the conclusion reached by the taxing authorities that the ....
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....16. I do not, however, agree with my learned brother that the capital gains should be computed at a figure of Rs. 2,28,902. The assessment to capital gains is made under section 45. The mode of computation of the income is specified in section 48; sections 49 and 50 of the Act relate to the determination of cost in certain cases. The relevant provisions are as under: "45 (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 53, 54, 54B and 54D, be chargeable to income-tax under the head 'Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place." "48. The income chargeable under the head 'Capital gains' shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely : (i) expenditure incurred wholly and exclusively in connection with such transfer ; (ii) the cost of acquisition of the capital asset and the cost of any improvement thereto." "49. (1) Where the capital asset became the property of the assessee- (i) on any ....
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....d as adjusted." 17. The income chargeable under the head 'Capital gains' should be computed by reducing the cost of acquisition of the capital asset and costs of improvement, etc., from the full value of the consideration received. The expression used is 'cost of acquisition of the capital asset'. What is the cost of acquisition of the 'capital asset' where the assessee purchased a non-capital asset which after undergoing transformation became a capital asset by the time of the transfer attracting capital gains? Where an assessee purchased undisputably agricultural land and due to changes taking place on the land itself or all around or on account of the specific action taken by the assessee himself, it becomes non-agricultural land and a capital asset, the question would be whether the cost of acquisition of the 'capital asset' is the original cost at which the assessee purchased the agricultural land, i.e., a non-capital asset, or something else. 18. Here a non-capital asset is converted into a capital asset and the profit on its transfer is to be computed. Cases on the other side where capital investments have been converted into stock-in-trade have come up for considerati....
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....gir Vakil Mills Co. Ltd. v. CIT [1963] 49 ITR 137, the Supreme Court considered Bai Shirinbai K. Kooka's case and since in the latter case the assessee was a dealer even earlier when the shares which he sold in the accounting year were originally purchased, the profits were computed as the excess of the sale price over the original cost price. In CIT v. Hantapara Tea Co. Ltd. [1973] 89 ITR 258 (SC), the assessee-company, which carried on the business of manufacture and sale of tea, used in its business thatch, bamboo and fuel, etc., grown in its tea estate. In computing the profits of the business the Supreme Court held that the assessee was entitled to deduct by way of expenditure the market value of the thatch, bamboo and fuel, etc., grown by it and utilised for the purpose of the tea business. In Anil Starch Products Ltd. v. CIT [1966] 59 ITR 514 (Guj.), the assessee-company formed originally for the manufacture and sale of industrial starch subsequently set up another plant for producing destrose, a pharmaceutical product, of which starch is the raw material. Their Lordships of the Gujarat High Court held that the real profits by acting on commercial principles were to be ascer....
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.... be deducted from the full value of the consideration received by him", their Lordships considered the scope of the expression 'acquisition of the capital asset, and held that even in the case of a self-created asset only any cost incurred by the assessee in creating or producing it would represent the cost of acquisition of such capital asset and would be deductible from the value of the consideration received by the assessee as a result of the transfer of such capital asset. Their Lordships in coming to this conclusion dissented from the decision of the Madras High Court in CIT v. K. Rathnam Nadar [1969] 71 ITR 433 and of the Calcutta High Court in CIT v. Chunilal Prabhudas & Co. [1970] 76 ITR 566. In K. Rathnam Nadar's case (being a Madras High Court decision, the ratio is binding on us) dealing with the question of goodwill, the Madras High Court held that goodwill is a capital asset under section 2(14). They, however, held that being a self-generated asset it has no cost in terms of money in its creation or acquisition. It is stated : "... Goodwill is created by the trading activities of the assessee, and probably by the name he has earned and the goodwill he has created am....
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....that adoption of the market value introduces a fiction runs counter to the observations in the majority judgment in Bai Shirinbai K. Kooka's case: "In a trading or commercial sense this (i.e., adoption of the market value) seems to us to accord more with reality than with fiction." In fact, their Lordships themselves in the subsequent case of Mohanbhai Pamabhai set out the object of the charging provision as taxing 'profits or gains' meaning 'real or net profits or gains'. In order to arrive at real or net profits or gains the cost which has been incurred by the assessee in acquiring the capital asset must be deducted. 22. Thus, on the one extreme we have cases of the type of K. Ratnam Nadar of self-generating assets, the original cost of which is nil but one which results in transfer of a capital asset. On the other extreme are cases where the assessees purchase capital assets and sell them after a period. The capital gains in these latter cases would be the difference between the full consideration and the purchase price. In between lie cases where an assessee acquires a non-capital asset such as agricultural land, retains it for some period during which either on accoun....
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....capital asset during the course of years. 23. Apart from the above, sections 48, 49 and 50 would also support the view taken above of adopting the market value as the cost of acquisition. In section 48(ii) the Legislature has purposely used the words 'the cost of acquisition of the capital asset'. [Emphasis supplied]. If the intention was to adopt the cost of acquisition of the particular property at whatever time it was acquired, there was no necessity to particularly refer to 'capital asset' especially having stated in the earlier part of section 48 as a result of the transfer of the capital asset the following amounts'. Section 49 takes particular care to deal with cost of acquisition in cases where a capital asset became the property of the assessee on a distribution of assets on partition, under gift or will, etc. Special provision for computing the cost of acquisition in the case of depreciable assets obtains in section 50 ; the depreciation allowed under the Act is to be reduced from the cost at which the assessee had purchased the assets. When the Legislature has taken special care to deal with the above two types of acquisition of assets and has taken particular care no....
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....rm the above. If the nature of the asset, whether capital or not, is not relevant for either computation of capital gains or even consideration of the asset as a short-term capital asset, clause (a) of Explanation (i) excluding the period subsequent to the date on which the company goes into liquidation would be meaningless. If a share is a capital asset, the assessee's interest in the company even after its liquidation could be said to be a capital asset in the same way as a non-capital asset prior to its conversion could be treated as a capital asset for calculating the period-this is the gist of the revenue's contention. If there is no difference between holding of a capital asset and non-capital asset, there could be no purpose in enacting Explanation (ii) either. I have no doubt, therefore, that in computing the capital gains in the circumstances considered herein the market value of the asset on 'the day it became the capital asset should be treated as the cost of acquisition for the purposes of section 48(ii). 25. On a consideration of the evidence before us, I hold that what the assessee purchased is an agricultural land. The predecessor owner, E.I.D. Parry & Co., purcha....
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....clay or other materials from this land has been or could be taken or utilised for the purpose of the assessee's factory. It, thus, means that apart from the factory building and the godowns attached to it, the remaining 6 and odd acres of land was clearly not useful to the assessee for its business of the making. Why the assessee-company started its business of the making in Salem is beyond our purview. But it is clear that if in an auction along with necessary godowns and factories some land also included had to be purchased, the character of that land cannot be regarded as the same as godowns and factory in which the assessee was interested. In other words, the claim of the assessee that while it purchased the godown and factory premises in a single auction sale the remaining agricultural lands inseparable from the auctioned buildings came to, it cannot be altogether rejected (sic). It is in this context that the reference of the learned departmental counsel to the assessee being a company formed for the purpose of tiles manufacture and not doing agriculture as one of its objects in the memorandum or articles of association has to be analysed. In the first place, merely because c....
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....is Rs. 2,50,000. It may be that on going into the details of the case, further evidence would be forthcoming to show that the land had been converted either by way of 'actual condition' or 'intended user' (as laid down by the Supreme Court), on a prior date. I, therefore, think in the interest of justice that the matter must go back to the AAC to find out the particular date on which such conversion took place. The AAC would give full opportunity to the ITO and the assessee to produce details and fixing the date, arrive at the market value of those lands as on that date which would be the cost of acquisition of the capital asset. I agree with my learned brother that capital gains would be assessable with regard to the transfer of the immovable property only when a conveyance deed is executed and registered under the Indian Registration Act. The value of the full consideration for the purpose of computation of capital gains also has to be separately found out for each plot of land registered on each date. 27. It was pointed out by the learned counsel for the department that the question of quantum of capital gains was not raised specifically and should not be gone into. This obje....
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....income so taxable. 28. For statistical purposes, the appeal is partly allowed. The members having differed, the following question is referred to the President for reference to the Third Member : "Whether, on the facts and in the circumstances of the case, the capital gains assessable for the assessment year 1968-69 would be Rs. 2,28,902 or any lesser amount ?" Per Shri D. Rangaswamy, Vice President - This appeal has come to me as a result of difference of opinion between the Judicial Member and the Accountant Member on the following question, as set out by them: "Whether, on the facts and in the circumstances of the case, the capital gains assessable for the assessment year 1968-69 would be Rs. 2,28,902 or any lesser amount ?" 2. The assessee had claimed exemption from capital gains of the profit of Rs. 1,97,607 which has arisen out of sale of 6.2 acres of land out of 6.76 acres of land purchased from E.I.D. Parry & Co., on the ground that the land sold was agricultural land. The said land of 6.76 acres were purchased by sale deed dated 2-2-1898 from E.I.D. Parry & Co., a company incorporated under the English Companies Act. The assessee-company had bifurcated th....
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....n as referred to me and quoted above prima facie appears to be a general question rather than pinpointing the real point of difference which was with reference to the definition of the cost of acquisition. The department's case was that the Judicial Member has categorically held that the land sold was never from the inception an agricultural land. For this purpose he referred to page 6 of the Judicial Member's order where he has referred to the fact of there being no evidence that the seller of the property used this piece of land as an agricultural land or was paying any land revenue and, on the other hand, the evidence showed that the assessee purchased from E.I.D. Parry & Co., the factory buildings and godown with the vacant land adjoining them. Again in paragraph No. 9 on page 7 he has reiterated that 'it is, therefore, obvious that the assessee never purchased any agricultural land for any agricultural purpose but only a factory building and land for carrying on its manufacturing activity'. Whereas, the assessee's counsel pointed out that in paragraph No. 10 the Judicial Member has referred that the agricultural character of the land was lost when the transfer took place by ex....
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.... holder cultivating the land, the old vendor's name, 19, East India Sugar Factory has been mentioned. According to the assessee's counsel, that shows that the old company was having that as an agricultural land. With these evidences as well as the reference in the original agreement of sale between the assessee- company and E.I.D. Parry & Co. entered on 11-2-1959 where in paragraph No. 5 of the deed there is a specific reference to the vendor releasing to the purchaser of the part and parcel of land together with all hedges, ditches, trees, well, fences, water, waterways, liberties, rights, privileges, casements, advantages and appurtenances whatsoever referred thereto, he argued that these aspects should be considered in fairness. 5. As against that, the departmental representative's argument was that these citations in the agreement of sale are the usual citations for any land but in the case of agricultural land there will be a specific description about the land being an agricultural land. As regards the adangal register, to which reference was made by the learned counsel, the departmental representative referred to the order of the Judicial Member and submitted that the Jud....
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.... with the point of difference. THIRD MEMBER ORDER Per Shri T.D. Sugla, President - On a difference between the learned members who heard the appeal originally, the following point has been stated : "Whether, on the facts and in the circumstances of the case, the capital gains assessable for the assessment year 1968-69 would be Rs. 2,28,902 or any lesser amount ?" The then President nominated Shri D. Rangaswamy, the then Vice President (Southern Zone), as the Third Member to dispose of this case within the meaning of section 255(4) of the Act. It was, inter alia, submitted before the learned Third Member that there was a circular of the CBDT having a direct bearing on the issue and that the said circular had not been considered by the learned members who originally heard the appeal. The learned Third Member took the view that the matter should go back to the Bench to consider the applicability or otherwise of the circular in question. He also indicated that it would be open to the Bench to send the appeal back to the AAC for examination of the evidence or to consider the applicability or otherwise of the circular in question, etc. 2. Against the aforesaid order of the....
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....ugh the entire order of the learned Judicial Member and having regard to the point of difference formulated by the learned Members. I am of the view that the learned Judicial Member had also proceeded on the basis that the land when purchased was an agricultural land, i.e., not a capital asset and that it was a capital asset, i.e., non-agricultural land, when sold during the previous year. Since this has also been the basis of the order of the learned Accountant Member, I do not consider it necessary to go further into this aspect of the question. 4. The agreement of sale is dated 19-8-1966. The proceedings relate to the assessment year 1968-69 for which the previous year ending is 30-6-1967. In terms of the agreement of sale the assessee is to divide its agricultural land into different sizes of plots and to convey it to the eventual buyers as per the directions of the assessee's buyers. It has, thus, been taken by both the learned Members that 19-8-1966 may be conveniently treated as the date of conversion of the agricultural land into a non-agricultural land. While the learned Judicial Member has held, following the Gujarat High Court decision in the case of Ranchhedbhai Bhai....
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....to the CBDT to withdraw the circular retros- pectively and the effect of withdrawal of the circular will be that the earlier circular will not apply to the previous years commencing thereafter. For this purpose, the learned counsel has placed reliance on the decisions of the Kerala High Court in the cases of CIT v. B.M. Edward, India Sea Foods [1979] 119 ITR 334 (FB) and CIT v. Geeva Films [1983] 141 ITR 632. According to the departmental representative, however, the circular withdrawn cannot be applied to the proceedings after the withdrawal irrespective of the assessment year or the previous year involved. That income chargeable to tax has to be computed on commercial principles has, it has been argued, also been held by the Supreme Court in the case of Miss Dhun Dadabhoy Kapadia v. CIT [1967] 63 ITR 651. 6. Having heard the parties at length and after carefully going through the orders of the learned Members, I am of the view that the Gujarat High Court's decision in the case of Ranchhodbhai Bhaijibhai Patel squarely applies to the facts of this case. It is pertinent to mention that the fact that the expression 'cost of acquisition of the capital asset' was used in section 48....