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2016 (6) TMI 175
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....f Karnataka? 3. For these and such other ground that may be urged at the time of hearing, it is humbly prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 4. The appellant crave leave to add, to alter, to amend or delete any of the grounds that may be urged at the time of hearing of the appeal." 2. The facts in brief borne out from the record are that the assessees are the HUFs and have filed respective returns of income for the A.Y. 2007- 08. An order u/s. 143(3) was passed and later on it was transpired to the Assessing Officer that assessees have not offered income from long term capital gain arising from the transfer of respective shares of the immovable property near Bangalore to a builder at Mumbai. Having noted that the assessee entered into Joint Development Agreement (JDA) on 22.3.2007 with Pingyao Developers & Traders Pvt. Ltd., a builder at Mumbai for development of 190 acres of land belonging to them, the AO reopened the assessments u/.s 147 of the Income-tax Act, 1961 [hereinafter referred to as "the Act"] by issuing notices u/s. 148 of the Act. Accordin....
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....ct that they stand converted, in view of the fact that the conversion was resorted to only for the purpose of either selling the lands or for developing the same & the fact that the appellant had not done anything by itself to change the physical characteristics of the land from Agricultural to Non agricultural. The issue before the Hon'ble ITAT was whether certain Lands belonging to the appellant which were converted & sold were Capital assets exigible to Capital gains or not. The Hon'ble ITAT held that these lands were not Capital Assets u/s 2(14) of the Act, despite the fact that they stood converted as on the date of sale in view of the fact that the appellant had not done anything by itself to change the physical characteristics of the land from Agricultural to Non agricultural. The Lands which are the subject matter of JDA are contiguous to those lands which were subject matter of the decision of the ITAT and enjoy the same physical characteristics as them. In fact the ITAT members who decided the matter conducted a physical inspection of all these lands & have satisfied themselves that there was no development on any of the lands even as on the date of inspe....
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.... lands which are classified as 'agricultural' in the revenue record". If an agriculturist intends to sell his agricultural lands to a company/nonagriculturist for the use of non-agricultural purposes, he must possess a conversion order obtained from the revenue authorities to utilise the subject land for non-agricultural purposes. However, the same law/rule is not prevalent in the neighbouring States of Tamil Nadu, Andhra Pradesh or in Maharashtra, Delhi, etc. In other words, the agriculturists of the said States are free to sell their lands as shown in the revenue records to non-agriculturists/Corporates without obtaining a conversion order. 7.3.9 Thus, it is evident from the fact that the agriculturists in other States can sell their agricultural lands without getting the same converted whereas the agriculturists in Karnataka cannot do so due to the Land Reforms Act prevailing in the State. As such, an agriculturist in Karnataka is on a different footing from his counterparts in other 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 and, thus become a Capital asse....
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....ssed u/s 16(3) r.w.s. 17 dated 9/01/2013 just two months prior to the passing of this impugned assessment order. In fact the proceedings under the Wealth Tax Act and the Income Tax Act were going on simultaneously and both these were re-opened proceedings u/s 17 of the WT Act & u/s 147 of the IT Act respectively. In the Wealth Tax assessment order (a copy of the same has been filed by the appellant), the Assessing Officer has taken a stand that these lands are owned and possessed by the appellant and are exigible to wealth tax in its hands. The AO has also assessed the Wealth arising out of the valuation of these lands as Wealth escaping assessment and has brought the same to tax. The stand taken by the AO for the very same assessment year in the Wealth Tax Assessment is diametrically opposed to the stand taken in the Income Tax Assessment. In the Wealth Tax assessment the AO has held that the impugned lands are owned and belonging to the appellant. In such an event it surpasses one's comprehension as to how the AO has held' that these lands are no longer owned and possessed by it for purposes of Income Tax assessment and that these very lands stand transferred to the devel....
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....nt, the Hon'ble ITAT has held in ITA NO.1654/Bang/2012 that no capital gains will arise from the sale/transfer of land, which is an agricultural land and not a capital asset u/s 2(14) of the Act. This being the case, even if one were to hold take the position that the lands stand transferred upon entering into JDA, what is transferred is only agricultural land and there cannot be any levy of capital gains tax on transfer of agricultural lands. Further these lands have been treated as lands owned and belonging to the appellant for wealth tax purposes even as on 31/03/2007, after the date of entering into of the JDA, the question of assessing any LTCG from the same on mere signing of a JDA does not arise. 4.12 The appellant has made additional submissions as under: "Further to the Written Submissions filed earlier, the appellant would like to place a decision of the Jurisdictional ITAT Bangalore Bench in support of its legal contentions. The Appellant relies on the decision of the Hon'ble ITAT Bangalore Bench in the case of K.N.Nagaraj & Smt.Sathya Prema in ITA NO.136 & 137/Bang/2012 by an order dated 14/8/2014, where the Hon'ble ITAT in para 20....
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....he appellant. 4.14 Hence, respectfully following the decision of the jurisdictional Bangalore Bench of the Hon'ble ITAT in the appellant's own case, where these lands have been treated as agricultural lands, I delete the addition of Rs. 6,88,23,857/- made by way of LTCG to the income returned by the appellant in the reassessment proceedings." 5. Aggrieved, the Revenue has preferred appeals before the Tribunal. The ld. DR, besides placing reliance upon the assessment order, has contended that in view of the judgment of the jurisdictional High Court in the case of CIT v. Dr. T.K. Dayalu [2011] 14 taxmann.com 120 (Kar.), the capital gain has to be charged on transfer of the land to the developer. He further contended that once the consideration was received and possession was handed over to the developer, transfer of the immovable property takes place and the capital gain has to be charged on the assessee. 6. Having carefully examined the orders of lower authorities in the light of rival submissions, we find that the assessees owned shares in the agricultural land with regard to which JDA was executed by the assessees with Pingyao Developers & Traders Pvt. Ltd. ....
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....ld that the agricultural land was transferred to buyer and the issue was raised, whether capital gain has accrued on such transactions. The Tribunal has held that though the subject land was converted into non-agricultural land purpose, but cultivation of land continued till the date of sale. Thus, the land should have been treated as agricultural land and exempt from capital gains in view of section 2(14) of the Act. While holding so, the Tribunal has also observed that 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, 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 could not have been exigible to capital gains tax which is the subject of a Central Act. The Tribunal has also observed in that case that, even after conversion the assessee was carrying on agricultural operation and conversion was done only to facilitate sale of subject property to a corporate entity/non-agriculturist. The relevant observations of the Tribunal rendered in that case are extracted hereunder for the sake of refe....
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....ah, the lands were further portioned [Refer: Para 3.2. of the Asst. order]. Even though, the subject property, among others, was converted as non-agricultural lands way back in 2004, agricultural activities, deriving agricultural income from the said lands, were continued unabatedly by the assessee and incomes admitted by it from such operations were accepted by the revenue from the AYs 2004-05 to 2009-10, the details of which are as under: Asst. year Agrl. Income [in Rs.] 2004-05 22,00,000 2005-06 22,00,000 2006-07 16,50,000 2007-08 16,50,000 2008-09 16,50,000 2009-10 16,50,000 7.2.4. Though the said land was converted into non-agricultural purposes in the year 2004-05 and one of the mandatory conditions specified in the conversion order dated 19.7.2004 was that if the converted land was not used for the purpose for which it was converted within a period of two years from the date of conversion, the order of conversion stands cancelled. Apparently, the assessee had continued the agricultural operations in the converted lands also which is evident from the fact that incomes derived from such agricultural operations on the....
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....urpose within two years from the date of this order [Refer: Pages 88 to 92 (including English translation) of PB AR]". 7.2.6. As a matter of perception, s. 2(14) defines 'capital asset'. Capital asset does not include agricultural land. However, agricultural land situated within any municipality, notified area committee, town area committee, town committee will cease to be an agricultural land. Whether the subject land is agricultural or otherwise is essentially a question of fact. In coming to a definite conclusion, a number of tests will have to be undertaken as laid down by the Hon'ble Supreme Court in the case of Sarifabibi Mohamed Ibrahim v. CIT reported in 204 ITR 631 (SC). The tests prescribed by the Hon'ble Supreme Court as under: (i) Whether the land was classified in the revenue records as agricultural and whether it was subject to the payment of land revenue? (ii) Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time? (iii) Whether such user of the land was for a long period or whether it was of a temporary character or by any stop gap arrangement? (iv) Whether....
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....ee (HUF), among others, as the same having been purchased by his father as an investment. As could be seen from earlier documents of purchase which explicitly exhibit that the subject land had put to exclusive use for agricultural purposes only and in fact a grove [orchard] had been grown with fruits-yielding trees such as mangoes, sapota, coconuts, jack-fruits, etc., Incidentally, the surrounding lands were also subjected to agricultural activities as in the case of the property under dispute. Though the present assessee became the legitimate owner of the subject property on inheritance/in a partition/family arrangement as the case may be, the nature of the land use had not, however, undergone any change. Whether the lands which were used as agricultural lands even after its conversion loose its character of agricultural lands? 7.3. The stand of the AO was that once the agricultural lands were converted into non-agricultural, even though agricultural activity continues, the lands cannot be considered as agricultural lands. Countering the AO's assertion, the learned AR had argued that as per the mandatory conditions mentioned in the Certificate of conversion, ....
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....at no layout plan was obtained, nor the land had been subject to any change in physical characteristics. A person can obtain higher amount by adopting a particular methodology of valuation and this by itself does not result in an asset becoming a capital asset. Non-payment of land revenue for a period of one month and 10 days from 8.2.99 to 20.3.99 cannot also be a circumstance which can be held against the assessee. This is too short period and it is not the case of the revenue that land revenue has (have) not consciously levied agricultural land tax. No adverse inference can be drawn. The ld. Counsel for the assessed tried to demonstrate that as per the Karnataka Land Revenue Act, 1964, section 83(2) read with sec. 95(2) mandates that the land holder should continue to pay the land revenue even after conversion. We need not go into this aspect for the reason that the period is too short a period and it is not a case where the revenue authorities have refused to levy land revenue by showing the reason. of conversion or for the reason that the assessee has refused to pay such land revenue. The AO has recorded a finding that the land revenue records to show that ragi and horse gram ....
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....olding that the land which is the subject-matter of sale is agricultural land as on the date of sale without taking into consideration the conversion of land to non-agricultural purpose and consequently recorded a perverse finding? & 2. Whether the appellate authorities were correct in holding that though the land is converted into non-agricultural, in view of the cultivation of the land till the date of sale, the land should be treated as agricultural land and the same is exempt from capital gains in view of section 2(14) read with sections 45 and 48 of the Act?" 7.3.5. After taking into account the submissions of the either of the party and also the perusal of the orders of the authorities below, the Hon'ble Court had held as under: "5. We find from the record that the Appellate Commissioner as well as the Tribunal followed an earlier ruling of the Tribunal rendered on December 30, 2009, in the case of T. Suresh Gowda [ITA NO. 262/ Bang/ 2009] wherein it appears, the question was resolved by looking into the date of permission for conversion as the cut-off line to decide as to whether the land was an agricultural land or otherwise. 6. It ap....
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....................................................................................................... .......... (On page 22) ............................................................ Coming to the instant case of the assessee, it is not disputed that in the revenue records, the entry is not changed, it continues as agricultural land. According to the revenue, the intention and purpose of the sale is for the use of Tibetan Childrens' Village for the setting up of educational institutions and other related purposes. According to the assessee, the land in his hands had retained the agricultural ITA 1464, 1465/ B/ 08; 177,178,262 & 305/B/09 Page - 47 character till the date of sale, for the reason that the assessee was doing agricultural activity. We have hereinabove in para 34 mentioned that the department had estimated the agricultural income at Rs. 53 lakhs for 2004-05 and estimated agricultural income of the group at Rs. 56 lakhs. Therefore, it is difficult to come to the conclusion that in the hands of the assessee, the character of the land had changed. Merely because the original owners had made application to change the character of the land from agricultural to ....
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....1464,14651 El 08, 177, 178, 262 & 3051 El 09 Page - 49 to pay penalty and make a further application to obtain permission to revive the land for intended purpose. The assessee has not done this even according to the revenue. This was done by the subsequent purchaser i.e., Tibetan Childrens' Village, which compels to conclude that what the assessee held at the time of sale was agricultural land. It is true the facts is on border line, but the evidence produced before us in the form of RTC showing agricultural income etc., is in assessee's favour. Secondly, the Hon'ble Gujarat High Court considered the land revenue paid was for agricultural use of the land. In the instant case of the assessee also what was paid by the assessee was agricultural revenue. The non-agricultural revenue was paid by the subsequent purchaser after making an application for the second time to revive the nature of the land which is evidenced by the letter dt 1.3.2005 which was written to the Secretary, Manchanayakanahally Gram Panchayat by the Tibetan Childrens' Village. In the case decided by the Hon'ble High Court, it was held that the correct test to be applied was whether on th....
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....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 given is applicable in the instant case of the assessee as the facts are identical ............." 7.3.7. The fact that the assessee had continued the agricultural operations unabated in the subject property on the date of sale even though the said land was converted for non-agricultural purposes by a Conversion Order of the State Government way back in 2004 [19.7.2004] with a rider that the land should be used for the purpose for which the conversion was granted within two years from the date of issue of the said order. However, on the date of sale i.e., on 12.4.2007,the subject land was under active cultivation for agricultural purpose only. This is evident from the fact that when we inspected the same on 10.4.2014, the said land - a part of large track of land - was having agricultural operations with fully grown up fruits-bearing trees. Thus, the conversion order dated 19.7.2004 had lost its sanctity since the said property was not put use for non-agricultural purposes within two years for which conversion was gr....