TaxTMI 
TaxTMI 
2015 (11) TMI 951
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....owners of land located in Akkalenahalli- Mallenahalli villages. All the assessees had filed their returns of income as well as wealth-tax returns for the relevant assessment year. During the income-tax assessment proceedings of all the assessees, the relevant Assessing Officers (AOs) noticed that all the assessees have transferred land during the relevant previous year and therefore long term capital gain has arisen on such transfer and that the assessee has also offered the same for taxation, and that subsequently, the assessees have filed revised returns of income claiming the entire capital gain admitted in the original returns of income filed, as exempt on account of treating the lands transferred as agricultural Land. The AO verified the wealth-tax returns filed by the assessees and observed that the assessees have not included the value of the 'urban land' in their wealth-tax returns for the relevant assessment years even though the assessees were holding the land at Akkalenahalli-Mallenahalli village. The AO, therefore, sought to reopen the assessments by issuing notice u/s 17 of the Wealth-tax Act, 1957 ('WT Act' for short). In response to the said notice, the assessees fil....
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....ed, the AO has to supply the reasons for such reopening and if the assessee files objections to such reopening, the AO has to dispose of the same before proceeding with the re-assessment proceedings. He submitted that in the case before us, though the assessee has asked for reasons for reopening of the assessment, the assessee was not supplied with the same thereby violating the principles of natural justice as held by the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra) and in similar set of facts, the Tribunal at Bangalore in the case of Suez Tractebles S.A has set aside the reassessment as invalid and unsustainable in law. Copy of the said judgment is filed before us. 6. Having regard to the rival contentions and the material on record, we find that it is not disputed by the revenue that the assessee had filed a letter asking the AO to treat the original returns filed by them as returns in response to the notice u/s 17 of the WT Act. It is the case of the assessee that thereafter, the assessee has requested the AO to supply the reasons for reopening. It is also not in dispute that the reasons were not supplied to the assessee. The argument of the learne....
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....reasons recorded for initiating proceedings under section 148 of the Act. The failure of the Assessing Officer in providing the assessee with the reasons recorded for initiation of proceedings under section 148 of the Act, within a reasonable period of time so that the assessee could efficiently represent / file objections to the same is, in our opinion, amply evident beyond any doubt from the facts on record and our observations thereon. The fact of non-provision of the reasons recorded for initiation of proceedings under section 147 / 148 of the Act before the completion of assessment proceedings for the relevant period and the furnishing of the said reasons recorded at the appellate stage by the learned CIT(Appeals) will render the order of assessment dt.31.3.2006 for Assessment Year 2002-03 invalid and unsustainable in law. 14.5 The co-ordinate bench of this Tribunal in the case of M/s. Synopsys International Ltd. V DDIT (International Taxation), to which one of us is party to, after considering the decisions of the Hon'ble Apex Court in the case of GKN Driveshafts (India) Ltd. (supra); of the Hon'ble High Court of Bombay in the case of VSNL (supra) and of the Bangal....
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....;s letter dt.27.4.2005, 22.6.2005 and 27.3.2006. The reasons as recorded by the Assessing Officer were furnished to the assessee by the learned CIT(Appeals) by letter dt.13.2.2009 as recorded in his appellate order at para 4.3 at page 11 thereof. In view of the undisputable fact that the reasons recorded by the Assessing Officer for initiating proceedings under section 148 of the Act for Assessment Year 2002-03 were never furnished to the assessee before the computation of assessment proceedings, the subsequent furnishing of the said reasons recorded by the learned CIT(Appeals) by letter dt.13.2.2009, about 45 months after the request was made by the assessee, does not achieve any purpose or mitigate the illegality of the action of depriving the assessee its right to raise objections against the initiation of proceedings under section 148 of the Act. In this view of the matter and following the decision of the co-ordinate bench of this Tribunal in the case of Synopsys International Ltd (supra), we hold that the order of assessment passed under section 143(3) r.w.s. 147 of the Act on 31.3.2006 for Assessment Year 2002-03 to be invalid and unsustainable in law. " Since the facts an....
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....te Sri M.S. Ramaiah; and that the farm was a fully grown orchard comprising various fruit bearing trees besides seasonal crops such as tomato, pepper, ragi, paddy etc., and the income admitted by the assessee as agricultural income for the AYs 2004-05 to 2009-10 as accepted by the Department; That the capital asset as defined in s. 2(14) of the Act means property of any kind but does not include agricultural lands. The Income-tax Act has also not defined the agricultural land. Various Courts have recognized that the lands must not only be capable of being used for agricultural purposes but should have been actually used as such; and that if a land was ordinarily used for the purposes of agriculture or for purposes of agriculture or for purposes subservient to or allied to agriculture, it would be agricultural land. It was an un-denying fact that in the subjected lands, agricultural activities deriving agricultural income was conducted and, thus, the said land was put to use for extensive agricultural purposes. Thereby, the subject land was not a capital asset within the meaning of s. 2(14)(iii) of the Act; That in the said lands, the agricultural income derived was in a....
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....ctivity even after the conversion of land; That without prejudice, the subject land was an agricultural land and was not a capital asset within the meaning of s 2(14); assuming but not conceding, if one were to accede with the reasoning of the CIT (A) that once the land was converted, it becomes a capital asset, then the cost of land for the purpose of indexation should be the guideline value issue by the Government or the market value of the said property as on the date of conversion and not the original value claimed by the assessee in its computation of income. Assuming, on the date of conversion the agricultural lands being an exempted asset becomes a capital asset and, thus, a new asset springs up. Therefore, the cost for such lands for the purpose of computing capital gains should be the market value as on the date of conversion and indexation should be allowed on the said market value. It was not appropriate to adopt the cost of land as it applies to agricultural land as on date of acquisition while treating the asset as capital asset being converted land in which agricultural operations were carried on; That if the assessee were to be held to have sold converted....
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....ired to be performed by the respective municipalities/panchayats within the ambit of the area covered by BIAAPA and, thus, BIAAPA was a mere planning authority; Disputing the CIT(A)'s averment that municipality need not necessarily be an elected body, it was contended that Article 243P(e) of the Constitution defines 'Municipality' means an Institution of selfgovernment constituted under Article 243Q and Article 243R requires that all the seats in a Municipality shall be filled by persons chosen by direct election from the territorial constituencies in the Municipal area. Thus, a Municipality has to essentially be an elected body. BIAAPA is not an elected body and is an appointed body and, hence, BIAAPA does not qualify to be considered a Municipality. Relies on the case law in CIT v. Murali Lodge [194 ITR 125 (Ker)]; With regard to the CIT (A)'s stand that there were local bodies referred to in sub-clause such as notified area committee, town area committee etc., which may not be comprised of elected representative and may also be constituted by statutory appointment, it was contended that to test if it is a Notified Area Committee or Town Area Committee or Town Committee ass....
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....re so when an extensive cultivation was being carried out and income from agriculture derived from the said land has been accepted by the Department; (iii) Without prejudice, the cost of acquisition in terms of s. 49 of the Act ought to have been taken as on the date of conversion and indexed up-to the date of sale; (iv) The BIAAPA was not a Municipality and it was merely a Planning Authority; & (v) The subject land was situated in Anneshwara Gram Panchayat and, therefore, doesn't fall within the jurisdiction of a Municipality; 7.1. On the other hand, the submissions made by the learned DR are summed up as under: That the lands in questions were located within 8 K.Ms from Devanahalli Municipal Limits; That the lands were located within the jurisdiction of BIAAPA which is an authority as per the definition of 'asset' in s. 2 (14) of the Act; The lands were located within 8 K.Ms of BBMP limits as the crow flies; That the lands were already converted as nonagricultural lands before the date of sale and were sold as converted lands; That the lands were purchased by companies and as per the Karnataka Land Reforms Act, no company is permitted ....
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....e furnished to the Department. Subsequently, in its revised return of income dated 15.6.2009, the assessee had admitted income of Rs. 22,90,570/-, on the ground that the capital gains which arose on the sale of the said lands was wrongly offered in the original return in as much as the same was exempt from tax being agricultural lands and hence excluded from the definition of 'capital asset' as per the provisions of s. 2 (14)(iii) of the Act. 7.2.1.The prime issues for consideration before us are twofold, namely: (i) Whether the land can be treated as agricultural land even after conversion of agricultural land for non-agricultural/residential purpose? (ii) Whether the authorities below were justified in treating 'BIAAPA' as a municipality? 7.2.2. Before analysing the arguments of the assessee on the issue, we shall now proceed to deal with the sequence of events which apparently took place, chronologically, as under: 7.2.3. The assessee had in its possession certain acres of agricultural lands, out of which, lands to the extent of 6 acres and 1 gunta situated at Akkalenally and Mallenahally converted as non-agricultural vide Conversion order No.ALN(D) SR 30/2004-05 ....
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....t of large track of land having agricultural operations which consist of fully grown up fruits-yielding trees such as mangoes, sapota, coconut, jack-fruit, apple, guava etc., appear to be existing in the subject property even on the date of sale. This clearly attributes the assessee's assertion that even on the date of transfer, the subject land was held to be agriculture. In this regard, we would like to refer to the Certificate of Senior Assistant Director of Horticulture (ZillaPanchayat) Devanahalli, Government of Karnataka, dated 23.4.2014 wherein it has been certified as under: "This is to certify that M.R.Seetharam, s/o (of) Late M.S. Ramaiah residing at Gokula House, Dr M.S. Ramaiah Road, Gokula, Bangalore, have, in their land situated in Akkelenahalli - Mallenahalli Village, KasabaHobli, DevanahalliTaluk bearing Sy Nos. 29, 30/1, 30/2, 37/1p, 37/4p, 37/6p, 37/7p, 37/10p, 37/13p, 37/16p, fruit yielding mango, sapota, coconut, cashew, coco, jack-fruit, rose apple, guava trees aged 25 - 30 years." 7.2.6. Ostensibly, neither the AO nor the CIT (A) had disputed the fact in clear terms that even after the conversion of the land for non-agricultural purposes, the assessee ha....
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.... user was of a permanent or temporary nature; (vii) Whether the land, though entered in the revenue records, had never been actually used for agriculture, that is, it had never been ploughed or tilled; whether the owner meant or intended to use it for agricultural purposes? (viii) Whether the land was situated in a developed area; whether its physical characteristics, surrounding situation and use of the lands in the adjoining area were such as would indicate that the land was agricultural? (ix) Whether the land itself was developed by plotting and providing roads and other facilities; (x) Whether there were any previous sales of portions of the land for non-agricultural use? (xi) Whether permission under Tenancy and Agricultural Lands Act was obtained because the sale or intended sale was in favour of non-agriculturist, if so, whether the sale or intended sale to such nonagriculturist was for non-agricultural or agricultural user? (xii) Whether the land was sold on yardage or on acreage basis? & (xiii) Whether an agriculturist would purchase the land for agricultural purposes at the price at which the land was sold and whether the owner would have ever sold th....
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.... purpose. 7.3.2. In the present case, as already discussed, even though the subject property was converted for nonagricultural purpose vide Conversion Order dated 19.7.2004, the assessee continued the agricultural operations in the converted lands which was evident on our site visit and also from the fact that incomes derived from such agricultural operations on the said lands declared by the assessee in its returns of income which were accepted by the Revenue for the AYs 2004-05 to 2009-10. 7.3.3. At this juncture, we would like to refer to the findings of the earlier Bench of this Tribunal in the case of H.S.Vijaya Kumar v. ACIT, Hassan in ITA No.108/Bang/05 dated 28.11.2006. After taking into account the rival submissions of an almost identical issue to that of the present issue under dispute, the Tribunal has held as under: "6.4. In this case also various conditions imposed by the Deputy Commissioner, Hassan were not fulfilled by the assessee prior to the sale of the said land. It is observed that permission has been accorded for residential purposes and whereas the sale has been made to Indian Oil Corporation for putting up a service station. This contradiction itself....
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....ntention of the assessee and hold that agricultural land in question are not a capital asset and, thus, the levy of capital gains is bad in law. 6.5. Before parting, we feel that mere evidences of Government Notification or orders on a likely use of a particular land would not ipso facto affect or on the same day change the character of the land. For example, the Government has notified many areas for setting up of special economic zones or industrial parks or for infrastructural developments such as roadways and railways. After identifying particular areas, the Government notifies that a particular area would be used for non-agricultural purposes. It is thereafter only that the acquisition start and accordingly the land of farmers are acquired. It would be travesty of justice, if a view has to be taken that when once a Notification is given by the Government, the agricultural land becomes non-agricultural land i.e., even prior to the issue of acquisition notices. As long as there is no change in the physical characteristics of the land in question, we cannot be held that there is a conversion." 7.3.4. The jurisdictional High Court in the case of CITG v. Smt K. Leelavathy rep....
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....use granted by the Asst. Commissioner, viz., after May 10,2004, whereas the earlier sale transaction dated April 7, 2004, is held to be in respect of an agricultural land. We do not find the reasoning and the principle enunciated by the Tribunal for making a distinction as to whether the land was agricultural land or otherwise in the case of T. Suresh (supra) apply to the present case to be obnoxious or violating any statutory provisions and, therefore, we do not find any illegality in the finding recorded by the Appellate Commissioner and the Tribunal." 7.3.6. In the case of M. ThimmeGowda [(i) Sri M. ThimmeGowda, (ii) Sri M.N. Manjunath, (iii) Sri Dasappa, (iv) Sri T. Suresh Gowda, (v) Sri T. PrasannaGowda]v. Department of Income-tax, the earlier Bench of this Tribunal, in its findings in ITA 1464, 1465/B/08; 177,178,262 & 305/B/09 dated 30.12.2009, had dealt with an identical issue to that of the present issue under consideration. The main issue before the earlier Bench was: Whether the land sold by the assessee was agricultural in nature or not? After duly analysing the rival submissions and also various judgements of judiciary as mentioned in its findings and also deliberat....
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....ltural land was very high but the Hon'ble High Court held that the use of the land as non-agricultural is totally immaterial. Entries in the record of rights are good prima facie evidence regarding land being agricultural and if the presumption raised either from actual user of the land or from entries in revenue records is to be rebutted, there must be material on the record to rebut the presumption. The approach of the fact-finding authorities, namely, the income-tax authorities and the Tribunal, should 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 other facts in the case. While coming to the above conclusion, the Hon'ble High Court considered the following facts. The presumption for non-agricultural used was obtained by the assessee before the sale of the land. Coming to the facts in the instant case, the previous owner made an application for conversion, obtained the permission, but with the condition that the land should be used for the intended purpose within two years, otherwise the original character of the land, i.e., agricultu....
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.... or beyond 8 KMs. He further held that the cultivation of land till disposal is also irrelevant. He further held that no documentary evidence was produced to the effect that the land converted was treated as agricultural land within the meaning of s. 2 (14)(iii)(b). ......................................................................................... 54. On similar issues in the connected case, we had held that the evidence produced by the assessee before the assessing officer and Commissioner of Income-tax (A) to the effect that assessee was doing cultivation of ragi etc., was sufficient to treat the land as agricultural land in the hands of the assessee, particularly because in the document, the nature of the land has been recorded as non-agricultural under the Karnataka Land Reforms Rules, 1966. While coming to the above conclusion we also held that this is a document maintained by the Government officials and treating the same as not valid in the absence of strict evidence to the contrary cannot be upheld.. 55. On similar set of facts in the connected other cases, we have held that the land sold by the assessee is to be treated as agricultural land and the reasons giv....
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.... States. If one were to conclude that since the present assessee had obtained a conversion order to enable it to sell its lands to a non-agriculturist (a Corporate), the subject land ceased to be a non-agricultural and, thus, become a Capital asset, though the subject land remains an agricultural land, the assessee then stands discriminated in the eyes of law vis-à-vis its counter-parts in other States. Had the State Reforms Act permitted the assessee to sell its agricultural lands without conversion to a Corporate as in the case of other States (supra), the assessee would not then be required to get the land converted merely to facilitate its sale to a corporate and the gains arising from such sale would not have been exigible to Capital Gains tax which is the subject of a Central Act (Income-tax Act).In the instant case as mentioned earlier even after conversion, assessee was carrying on agricultural operation and conversion was done only to facilitate sale of subject property to a corporate entity/ non agriculturist. In substance, the Income-tax Act - a Central Act - is to be administered in such a manner to ensure that an assessee is not subjected to suffer due to differ....
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....corporation, notified area committee, town area committee. It was, further, submitted the fact that the Legislature took a conscious decision to specify the words 'whether known as municipality, municipal corporation, notified area committee, town area committee, town committee or any other name' in brackets. This mean, it was argued, that the body referred to must essentially be a municipality even though it may be known by any other name. The municipality has been defined in the Constitution and one need not and should not look any further for its definition. The Constitution, it was averred, defines municipality to be an elected body for the purposes of selfgovernance. 8.2.1. In conclusion, it was pleaded that in the present case, BIAPPA is not an elected body for the purpose of self-governance and, clearly, is not a municipality as contemplated by s. s. 2 (14) of the Act. 8.3. We have carefully considered the reasoning of the authorities below and also the divergent contentions of either of the party on the issue. Indeed, BIAAPA performs only planning and zoning functions, but, does not perform any other municipal functions as canvassed by the Revenue. Other major municip....
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....el for the assesssee submits that the GuruvayurTownship, though a local authority cannot be said to be a municipality and, therefore, the agricultural land in dispute cannot be said to be situated in an area which is comprised within the jurisdiction of a municipality. The word 'municipality' used in the section considered in the light of the various expressions used in the brackets, namely, 'whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name' must be held to take in its fold a township also, counsel for the Revenue submits. Of the various words included in the brackets, learned counsel for the Revenue laid emphasis on the words 'by any other name'. These words, counsel argues, take colour from the preceding words, and, if that be the position, the GuruvayurTownship also can be called a municipality. May be that the Guruvayur township can be called a local authority. But all local authorities cannot be called municipalities. Only those local authorities which have all the trappings of a municipality can be treated as a municipality within the meaning of the section. Therefore, to find a solution....
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....ship Act. To put it differently, the members of township committee are not elected representatives of the residents of the area. That the Central Government also has understood the position thus is obvious from the draft notification dated February 8, 1991, published in the Gazette issued under section 2 (14)(iii)(b) of the Income-tax Act......" 8.3.2. We have, with due regards, perused the judgment of the Hon'ble P & H High Court in the case of CIT v. Smt. Rani Tara Devi (supra) as relied on by the learned DR. The only issue before the Hon'ble Court was: Whether the land owned by the assessee which was acquired under the provisions of the Land Acquisition Act, was an agricultural land or a capital asset within the meaning of s. 2 (14) of the Act in order to determine the taxability of amount of compensation received by the assessee? After taking into account the relevant facts of the case, the Hon'ble Court was of the view that it was to be regarded as a capital asset within the meaning of s. 2 (14) of the Act for the following reasons: "(i) that the acquired land was situated between the developed sectors of Panchkula on one side and on the other side, it was 1 KM from t....
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....ent rendered by the Hon'ble jurisdictional High Court on this issue. In the given circumstances, following the judgment of the Hon'ble Supreme Court in the case of CIT v. Vegetable Products Limited reported in 88 ITR 192 (SC), we hold that where two views are possible on an issue, the view in favour of the assessee has to prevail. Accordingly, in conformity with the judgment of the Hon'ble Kerala High Court in Murali Lodge's case (supra) which is directly applicable to the present case, we hold that the authorities below were not justified in holding that the subject land could not be treated as agricultural lands and that the proceeds received from its sale was exigible to tax under the head 'capital gains'. It is ordered accordingly. 9. During the course of hearing, the learned DR argued that in the original return of income furnished by the assessee, it had conceded that it was liable for capital gains and, thus, the assessee cannot change its stand later on as it was not liable for capital gains etc., 9.1. On the other hand, the learned AR submitted that in the original return of income furnished, the assessee had inadvertently and due to wrong advice, it had declared inc....