TaxTMI 
TaxTMI 
TaxTMI 
2022 (4) TMI 1609
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.... dismissing the ground relating to assumption of jurisdiction u/s 153A of the Act. 3. The Hon'ble Commissioner of Income Tax (Appeals)-11 ought to have appreciated that the ratio of the Karnataka High Court decision in M/s. Canara Housing Development Company is not applicable on the facts of the present appeal. 4. The Hon'ble Commissioner of Income Tax(Appeals)-11 ought to have held that there being no material/ documents found during the course of search revealing undisclosed income, the initiation of proceedings and passing of the order u/s 153A is bad in law. 5. The Hon'ble Commissioner of Income Tax(Appeals)-11 without considering the material on record and the written submissions, erred in upholding the addition of Rs. 3,38,75,000/- as business income 6. The Hon'ble Commissioner of Income Tax (Appeals)-11 failed to appreciate that mere agreement of sale will not create any right, title or interest in favour of the agreement holder and the amount received is only an `advance' not liable for income tax. 7. The Hon'ble Commissioner of Income Tax(Appeals)-11 ought to have held that no part of Rs. 3,38,75,000/- can be brought to tax as business inc....
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.... seized from the Appellant; it was seized only from the premises of SPR Developers Private Limited ('SPR Developers'), in whose case, proceedings were initiated separately. As a result, proceedings under section 153A of the Income-tax Act, 1961 ('the Act') were initiated in the Appellant's case. Proceedings under section 153A are bad in law 7. The ld. AR submitted that assessment under section 153A is bad in law since the additions made do not arise out of any material seized during the search. An assessment can be made under section 153A of the Act only if there is incriminating material. 8. The Appellant submits that the additions in respect of the agricultural lands at Hampapura and Ramnagara Taluk do not emerge from the incriminating material seized during the course of search. Since the additions are made without any reference to incriminating material, the proceedings under section 153A are bad in law. 9. In relation to the above, reliance is placed on the following rulings: a. CIT v. IBC Knowledge Park (69 taxmann.com 108)(Kar); b. Best Infrastructure (India) Pvt. Ltd. (397 ITR 82)(Kar); c. CIT v. Kabul Chawla (380 ITR 573)(Del). 10. The ld. DR supported the orde....
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....sition, the Assessing Officer is empowered to reopen those proceedings and reassess the total income, taking note of the undisclosed income, if any unearthed during the search. For this purpose. the fetters imposed upon the Assessing Officer by the strict procedure to assume Jurisdiction to reopen the assessment under Sections 147 and 148, have been removed by the non obstante clause with which such section (1) of Section 153A opens. The time-limit within which the notice under Section 148 can be issued as provided in Section 149 has also been made inapplicable by the non obstante clause. Section 151 which requires sanction to be obtained by the Assessing Officer by issue of notice to reopen the assessment under Section 148 has also been excluded in a case covered by Section I53A. The time-limit prescribed for completion of an assessment or reassessment by Section 153 has also been done away with in a case covered by Section 153A. With all the stops having been pulled out the Assessing Officer under Section 153A has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by Section 153A, by even making reassessments without any fetters,....
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....cer will reopen the assessments or reassessments already made (without having the need to follow the strict provisions or complying with the strict conditions of Sections 147, 148 and 151 and determine the total income of the assessee. Such determination in the orders passed under Section 153A it would be similar to the orders passed in any reassessment, where the total income determined in the original assessment order and the income that escaped assessment are clubbed together and assessed as the total income. In such a case, to reiterate, there is no question of any abatement of the earlier proceedings for the simple reason that no proceedings for assessment or reassessment were pending since they had already culminated in assessment or reassessment orders when the search was initiated or the requisition was made. 35. Thus, it is clear that once a search/requisition is made u/s 132 of the IT Act, the Assessing Officer is bound to issue notice u/s 153A to the assessee to furnish the return for each Assessment Years falling within six Assessment Years immediately preceding the Assessment Year relevant to the previous year in which search conducted or requisition was made. Conseq....
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....course of original assessment. It is also submitted that in the case of pending assessments, the jurisdiction to make original assessment and assessment u/s. 153A merges into one. Only assessment shall be made separately for each assessment year on the basis findings of search and other material existing or brought on record by the AO. 39. In the case of first category, where the assessment is not pending on the date of initiation of search or making requisition, as the case may be, the assessment u/s. 153A would be in the nature of reassessment. Thus, the legislature has carved out the nature of assessment u/s 153A as assessment or reassessment in two different situations. According to the ld. AR, for AYs 200910 to 2012-13, wherein already assessment orders were passed u/s. 143(3) or time limit to issue notice u/s 143(2) is lapsed, the assessment u/s. 153A of the Act can be framed only on the basis of seized incriminating material. In these assessment years, initiating proceedings u/s. 153A is valid, however, the AO cannot resort to roving and fishing enquiry to find out whether any income has escaped assessment during the reassessment proceedings when there is no incriminating ....
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....ment order is passed, it would stand reopened. In the eye of law there was no order of assessment. It meant that the AO "shall assess or reassess the total income of six assessment years. Once the assessment is reopened, the assessing authority can take note of the income disclosed in the earlier return, any undisclosed income found during search or and also any other income which is not disclosed in the earlier return or which is not unearthed during the search, in order to find out what is the "total income" of each year and then pass the assessment order. 42. It is important to note that Canara Housing (supra) was also a case where some material was unearthed during the search. Further, the High Court was clear that the addition to the income already disclosed would have to be based on some material unearthed during the search. This is clear from the observation in para 9 of the decision to the effect: "The AO is empowered to reopen those proceedings and reassess the total income, taking note of the undisclosed income, if any, unearthed during the search." It was further observed that in the facts of that case if the CIT had come across any income that the AO had not taken....
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....Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under section 153A merges into one. Only one assessment shall be made separately for each assessment year on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer. (vii) Completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment." 44. In the above decisions it was further considered judgement in the case of Filatex India Ltd. v. CIT-IV (49 taxmann.com 465 (Delhi) reference pb 1387 and observed that one of the questions framed was whether the ITAT erred on facts and in law in not holding that re-computation of book profit, de-hors any material found during the course of search, in the order passed under Section 153A of the Act was without jurisdiction, being outside ....
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.... (supra), paraphrases inter alia, the following line in CIT v. Chetan Das Lachman Das (supra): "This, however, does not mean that the assessment under Section 153A can be arbitrary or made without any relevance or nexus with the seized material". However, the immediately next line in CIT v. Chetan Das Lachman Das (supra)reads: "Obviously an assessment has to be made under this Section only on the basis of seized material....". 47. The decision of the Rajasthan High Court in Jai Steel (India), Jodhpur v. ACIT (2013) 1 ITR-OL 371 (Raj) involved a case where certain books of accounts and other documents that had not been produced in the course of original assessment were found in the course of search. It was held where undisclosed income or undisclosed property has been found as a consequence of the search, the same would also be taken into consideration while computing the total income under Section 153A of the Act. The Court then explained as under:- 22. In the firm opinion of this Court from a plain reading of the provision along with the purpose and purport of the said provision, which is intricately linked with search and requisition under Sections 132 and 132A of the Act, ....
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.... no incriminating material was found during search. The Bombay High Court relied on the earlier decision in CIT v. M/s. Murli Agro Products Ltd. (supra) and discussed the scope and ambit of the proceedings for assessment and reassessment of total income under Section 153A (1) of the Act and the provisos thereto. One of the specific pleas taken by the Assessee was that if no incriminating material was found during the course of search in respect of an issue then no addition in respect of any issue can be made to the assessment under Sections 153A and 153C. It was observed that the assessment or reassessment under Section 153A arises only when a search has been initiated and conducted and, therefore, "such an assessment has a vital link with the initiation and conduct of the search." The Court then reproduced and affirmed the decision of the Special Bench of the ITAT in All Cargo Global Logistics Ltd. v. DCIT [2012] 23 taxmann.com 103 (Mumbai) (SB) and answered the question as regards the scope of the assessment of total income as under:- "53. ....We are of the view that for answering this question, guidance will have to be sought from section 132(1). If any books of account or oth....
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....ment Years falling within six assessment years referring to in clause- (b). Sub-clause-(b) of section 153 A, empowers the AO to assess or reassess, the total income of six Assessment Years immediate to preceding assessment year relevant to the previous year in which search is conducted or requisition is made. The proviso provided to section 153A, however made it clear that assessment or reassessment, if any relating to any assessment year falling within the period of six Assessment Years referring to in this sub- section pending on the date of initiation of search u/s 132 or making of the requisition u/s 132A as the case may be shall abate. From the reading of above provision, it is very clear that although the legislature specifically not mentioned about unabated assessment, the legislature consciously provided for abetment of assessment as per which any proceedings is pending in respect of any of six assessment years, then the same shall be abate and the AO shall have power to assess or re- assess the total income of those years. As regards to other years which assessment have already been completed and the assessment orders determining the total income are subsisting at the time....
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....case of Canara Housing Development Co. Ltd. (supra) wherein it was held as under:- "Section 153A starts with a non obstante clause. The fetters imposed upon the Assessing Officer by the strict procedure to assume jurisdiction to reopen the assessment under sections 147 and 148, have been removed by the non obstante clause with which sub-section (1) of section 153A opens. The time-limit within which the notice under section 148 can be issued, as provided in section 149 has also been made inapplicable by the non obstante clause. Section 151 which requires sanction to be obtained by the Assessing Officer before issue of notice to reopen the assessment under section 148 has also been excluded in a case covered by section 153A. The time-limit prescribed for completion of an assessment or reassessment by section 153 has also been done away with in a case covered by section 153A. With all the stops having been pulled out, the Assessing Officer under Section 153A has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by Section 153A, by even making reassessments without any fetters, if need be. Therefore, it is clear even if an assessmen....
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....t is reopened, the assessing authority can take note of the income disclosed in the earlier return, any undisclosed income found during search and also any other income which is not disclosed in the earlier return or which is not unearthed during the search, in order to find out what is the 'total income' of each year and then pass the assessment order." 53. Hence we are of the view that this contention of the learned counsel for the assessee cannot be accepted. As rightly contended by the DR, there is no requirement for an assessment made under section 153A of the Act being based on any material seized in the course of search. Further under the second proviso to section 153A pending assessment or re-assessment proceedings in relation to any assessment year falling within the period of six assessment years referred to in section 153A(b) of the Act shall abate. Thus the Assessing Officer gets jurisdiction for six years assessment years referred to in section 153A(b) of the Act for making an assessment or re-assessment. It is not the complaint of the assessee that any income, which is already subjected to assessment under section 143(3) or under section 148 of the Act compl....
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....erted lands is brought to tax as 'Short Term Capital Gains'. Further, based on the admission made by the Appellant during the course of search, the short term capital gains earned by Shri C H Krishnappa are taxed in the hands of the assessee. 15. During the year, the Appellant entered into agreement for sale with SPRD for transfer of converted land situated at Hampapura. The AO opined that since the lands are acquired and sold within a short duration, the activity carried on by the Appellant is 'adventure in the nature of trade' liable for tax under the head 'Income from Business'. As an alternative, the AO also sought to tax the surplus arising on the transfer of land as 'Short Term Capital Gains'. 16. The Appellant strongly objected to the AO's approach of bringing to tax the income earned on transfer of agricultural land as 'Business Income' or 'Short Term Capital Gains' for the following reasons:- a. No transfer of capital asset has taken place since the Appellant has only transferred the possession of the land through unregistered agreement for sale; b. The agricultural lands are held as 'investments' and not 'stock in trade' c. The said addition is not based on any in....
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....ng the UAFS. 21. It is also to be noted that the UAFS would not be recognized for the purpose of section 53-A of the Transfer of Property Act, 1882 since for the purposes of those provisions, the agreements for sale are required to be registered for section 53-A to apply. Hence, section 2(47)(v) of the Act would not apply to the UAFS. 22. It is also submitted that merely because the Appellant has reflected the above transaction in his income-tax return as being exempt, does not imply that the UAFS results in income under the Act. In this regard, reliance is placed on the well-settled principles that taxation cannot be based on estoppel and that it can be only under the provisions of the Act. Transfer of land is not adventure in nature of trade 23. The transfer of land is not an 'adventure in the nature of trade'. In this regard, the following facts are relevant: a. The land was held by the Appellant as an agricultural land. b. It is not falling within 8 kms from the local limits of any Municipal or Cantonment Board as referred in section 2(14)(iii)(a) and also not falling within the notified area as per provisions of section 2(14)(iii)(b). c. The land is actually classif....
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....purposes and no such permissions were obtained from the concerned authority. 24. In light of the above, the ld. AR submitted that it cannot be stated that the Appellant carried on an 'adventure in the nature of trade'. In this regard, reliance is placed on the following rulings: a. Madhya Pradesh HC in CIT v. Suresh Chand Goyal (163 Taxman 54); b. Chennai ITAT in ITO v. Mrs. Chitra Rajendran (81 taxmann.com 155); c. Hyderabad ITAT in Goutham Constructions Co. v. ITO (39 taxmann.com 181); d. Chennai ITAT in ITO v. Smt. Ayisha Fathima (73 taxmann.com 78); e. Hyderabad ITAT in Smt. M. Vijaya v. DCIT (49 taxmann.com 26); f. Chennai ITAT in ITO v. Chandar HUF (12 taxmann.com 305). 25. Without prejudice, it was submitted that the arrangements with VBEHCSL are presently terminated pursuant to an arbitration arrangement and hence the Appellant continues to be the owner of the lands 26. Without prejudice, he further submitted that no development has taken place on the proposed lands to be transferred due to dispute on titles to the land; the land that was to be converted has not been converted. Hence, the terms of the MOU have not been complied with for the transfer to be reg....
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....earlier part of this order. 17. According to the AO, it is clear from the description of schedule of properties that the lands are converted from agricultural to non agricultural residential purpose. Therefore the nature of the lands is non agricultural when the transfer took place. Further, as per section 80 of the Karnataka Land Reforms Act, 1964, the agricultural land cannot be transferred to a non agriculturist. Hence, in view of the above status of law in Karnataka an agricultural land can be transferred only to an agriculturist. The above mentioned lands were transferred to GSPL It means that the lands were transferred to a person who is other than agriculturist also because of the fact that the lands transferred were converted from agricultural to non agricultural residential purpose. 18. According to the AO, the above land was duly converted as non-agricultural land and sale of above land constitutes capital asset in terms of section 2(14) of the Act. Further the assessee placed following evidence with regard to agricultural income earned from the above property and also produced details of RTC which have been reproduced in the earlier part of this order. 19. Thus, th....
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.... Ragi and Paddy were cultivated in the said land. In such circumstances, it is not possible to hold that the land was non-agricultural land liable for capital gains tax. In other words, the AO unilaterally decided that the land was not subject matter of agricultural operations without any basis. Had he brought any material to suggest that the said land was not subject to agricultural operations by brining on record evidence to suggest that land was not used for agricultural purposes, then our decision would have been different. In our opinion, similar issue came for consideration before this Tribunal in ITA No. 1169 to 1172/Bang/2015, order dated 27.5.2016 in the case of Shri M.R. Anandaram (HUF) & Ors. wherein it was held as under:- "9. But in the instant case, the issue in dispute is with regard to chargeability of the capital gain on the impugned transaction. Our attention was drawn to the order of the Tribunal in the connected cases i.e., Shri M.R. Seetharam v. ACIT in ITA No. 1654/Bang/2012 dated 13.6.2014, in which the Tribunal has held that the agricultural land was transferred to buyer and the issue was raised, whether capital gain has accrued on such transactions. The Tr....
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....lity? 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 30/200405 dated 19.7.2004 [source: Page 88 to 92 of PB AR] were sold to M/ s. ETL Corporate Services Private Limited for a sum of Rs. 45.58 crores. The subject property was a part of around 600 acres of lands known as 'Gokula Farm' which was originally purchased by Late Sri M.S.Ramaiah, the father of Sri M.R. Seetharam - HUF - way back in 1951 [Source: Page 6 of Sale Deed dt.12.4.2007]. The same has been jointly cultivated by the family, comprising of 10 children of Late M.S.Ramaiah. These lands were, subsequently, partioned in 1970 and after the death of Sri M.S. Ramaiah, 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....
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....tuated in Akkelenahalli - Mallenahalli Village, Kasaba Hobli, Devanahalli Taluk 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 has been carrying on agricultural operations and also admitting incomes from such lands in its returns of income. The AO's stand that once the agricultural lands were converted into non-agricultural, even though agricultural activities continued; the lands cannot be termed as agricultural land is, in our view, not the correct proposition of law. This is apparent from the fact that one of the mandatory conditions contained in the conversion order that "10. The land should be used for the said purpose 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.....
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....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 non-agriculturist 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 the land valuing it as a property yielding agricultural produce on the basis of its yield?" 7.2.7. In view of the norms prescribed by the Hon'ble Supreme Court in its judgment (supra), we are of the view that the facts making in the present case, the issue requires to be decided as to whether the subject land was an agriculture land. The land in question was inherited by the assessee (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,....
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....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 goes to show that the permission accorded does not militate against the land becoming non- agricultural land. The first appellate authority also went by the fact that the land was sold on yardage basis to Indian Oil Corporation. This single circumstance in our considered opinion does not change the character of the land for the reason that 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....
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....y 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 reported in (2012) 21 taxmann.com 148 (Kar) dated 2.1.2012 had an occasion to analyse the provisions of s. 2 (14) read with sections 45 and 48 of the Act. Briefly, the substantial questions of law raised by the Revenue before the Hon'ble Court was that - "1. Whether the appellate authorities were correct in holding 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....
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....? .After duly analysing the rival submissions and also various judgements of judiciary as mentioned in its findings and also deliberating upon the sections 80 and 84 of the Karnataka Land Reforms Act, 1961, the earlier Bench had recorded its findings as under: "37 ............................................................................................................. (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 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....
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.... the original character of the land, i.e., agricultural nature, would be restored. Then the assessee or the subsequent purchased has 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 C....
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....e 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 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 granted. 7.3.8. Finally, the most important aspect which requires to be considered is that ....
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....ch a manner to ensure that an assessee IS not subjected to suffer due to different State laws. 7.3.10. Taking into account all the aspects as discussed in the fore- going paragraphs and also in conformity with the judicial pronouncements on the issue (supra), we are of the view that though the subject land was converted into non-agricultural purposes, cultivation of the land for agricultural purposes till the date of sale was continued unabated and as such, the land should have been treated as agricultural land and, thus, exempt from capital gains in view of s. 2 (14) of the Act. It is ordered accordingly." 10. Moreover, in the instant case, the JDA was also finally cancelled vide Deed of Cancelation dated 5.5.2015 and copy of which is available at pages 240 to 254 of the compilation and the refundable security received by the assessee was returned back to the developer. Through JDA, though it was agreed to hand over possession of land to the developer, but in fact possession was never handed over to the developer for further activities of development. Therefore, there was no transfer of asset in favour of the developer at any point of time. In the instant case, undisputedly ag....
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....cultural land though it was converted into non-agricultural residential purpose, the case was selected for scrutiny and notice u/s.143(2) was issued on 26.6.2006. 2. The Assessing Officer formed the opinion that the land sold was non-agricultural as evidenced by document impounded during the course of survey and also on the basis of the registered agreement deed dt.25.2.2004. The assessee sold the immovable property held by him as GPA holder to the extent of 9 acres to M/s. Tibetan Childrens' Village having its office at Dharmsala, Centt - 176216, Kangra District, Himachal Pradesh, for a consideration of Rs. 90 lakhs. The Assessing Officer noticed as per the GPA, the above land was already converted from agricultural land to non-agricultural residential purpose during the financial year 2005-06 itself by the original owners of the land. All the three original owners made an application before the Assistant Commissioner, Ramanagara Sub-division for conversion of the land and the same was approved by orders, dt.15.5.1995 in respect of two owners and order dt.20.12.1995 in respect of the one owner. Subsequent to the conversion of the land, the original owners had formed residential ....
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....tural) within two years from the date of the conversion order, otherwise the order was to be treated as null and void automatically. Particularly clause (10) of the conversion order specified as under : "10. The conversion of land hitherto shall be utilized for the proposed purpose within two years otherwise the land conversion shall be considered as cancelled." Any lapse on the part of the applicant to fulfill the conditions was a punishable offence u/s.96 of the Karnataka Land Revenue Act, 1964, as per clause 11 of the conversion order. As per clause (12), the land revenue for the converted land would be levied from the date of the order. The Assessing Officer held after the lapse of two years the assessee has not approached the Assistant Commissioner, Ramanagara Sub-Division with fresh application for conversion of the land and it is proved that the land has been put to use for the purpose for which it was converted within the period of two years. He further held this fact has been confirmed by the recital of the agreement entered into between the assessee and the Tibetan Childrens' Village wherein it is clearly stated that the land was converted in 1995-96 by virtue of the ....
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....onversion order is deemed to be cancelled. 6. In the instant case, Assessing Officer noticed from the case records produced by the Assistant Commissioner, the original owners submitted layout plan as approved by the local Grama Panchayat authorities. Subsequent to receipt of the conversion order, the original owners gave an undertaking before the Assistant Commissioner that the land would be used for the purpose for which it was converted, i.e., non-agricultural residential purpose, that too within a period of two years. From the above facts, the Assessing Officer came to the conclusion that the land has lost its original agricultural nature and characteristics in April 1999 by virtue of the conversion order. These facts were put before the assessee's representative asking why the land under reference should not be considered as capital asset within the meaning of section 2(14) of the IT Act. The simple reply of the assessee's representative was that though the lands were converted, agricultural activities were going on. 7. The Assessing Officer held though the asessee's representative was harping that the agricultural activities were carried on till the date of the sale, even ....
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....ng between Bangalore and Mysore at about 18 kms away from the corporation limits of Bangalore and is also located in the thickly populated industrial belt. It was a fast growing industrial area and hence, the assessee could fetch good price of Rs. 10 lakhs only because of this. The Assessing Officer further found from the enquiry conducted with the land revenue authorities that the jurisdiction for collection of land taxes in respect of agricultural land lies with the Revenue Officer headed by Tahsildar. In other words, collection of taxes from sites and lands converted for nonagricultural purpose lies with the Grama Panchayat. In the instant case taxes were being collected by the Grama Panchayat instead of Tahsildar, which strengthens the departmental stand that the land was non-agricultural. On the basis of the above facts, he concluded that the lands under reference were non-agricultural and there cannot be exemption u/s.2(14) from the capital gains tax. These points were considered by the various decisions of the Apex court and High Courts and he, particularly relied on the following decisions : i) CIT v. Gemini Pictures P. Ltd., (1996) 220 ITR 43 (SC); ii) Mahaveer Enterpr....
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.... or not; the intention of the owner for which he is retaining the land and such intention not being fluctuating or ambulatory; character of adjoining land; description of the land in the official records, etc., 12. The Commissioner of Income-tax (Appeals) held that RTC record alone is not the determinative factor of the nature of the land. In the instant case, the land revenue records show that the land was converted and also the tax records show that nonagricultural tax was paid on the land during the relevant period. The Commissioner of Income-tax (Appeals) further held the most of the facts found by the Assessing Officer support the view that the land is non-agricultural. Even if there were some agricultural operations, at best, he held it was a stop-gap arrangement which would not entitle the land for exemption u/s.2(14) of the Act. Aggrieved by the above order, assessee is in appeal before the Tribunal. 13. Except for variations in the dates of issuance of notice by the revenue authorities, area of the land sold, schedule of the property, date of conversion of the land etc., the facts are identical in the case of Dasappa in ITA.1465/Bang/2008. 14. The learned representat....
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....e., on the completion of two years from the date of conversion order. 15. Coming to the objection of the Departmental authorities that the lands were not used for agricultural activities, the assessee's representative submitted the facts in brief as follows. The lands were used for agricultural activities. This is evident by documents like RTC extracts produced before the Assessing Officer and the appellate authorities. This fact of producing RTC is evidenced by the observation of the Assessing Officer at page 18 para 7 and page 24, para 2 of the departmental paper book and also at page 14 last paragraph and page 15 of the Commissioner of Income-tax (Appeals)'s order in the departmental paper book. It is further admitted that the assessees did not maintain any records for the agricultural activities. The assessee's representative submitted RTC is an official record to show that the nature of usage of land situated in the specific revenue jurisdiction of the State Government and this land has thus been shown to have been used for agricultural cultivation. The assessee's representative brought our attention to the paper book dt.27.1.1999, particularly page 4 which is the conversion....
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....ate as December, 2007, i.e., almost 3 and half years after the sale of land, and thirdly if the sites had been formed what could have been sold to the Tibetan Childrens' Village should have been in terms of these sites and not the land as a whole without any mention of the site plans. The schedule to the sale deed indicates that the land is sold as a consolidated survey number and only a reference to the conversion order has been made. The above facts clearly proves that the sites were never formed either by the original owners or by the assessee. The assessee owned 12 acres and 29 guntas at Sheshagirihalli. Of these 11 acres and 38 guntas were converted into non-agricultural purpose under conversion order dt.29.4.1999, while 31 guntas were converted under conversion order dt.10.5.2004. The assessee transferred the lands on 7.4.2004 and the conversion of 31 guntas was done on 10.5.2004, after the transfer of lands. At least 31 guntas remained agricultural land which is also a fact not taken note off by the Assessing Officer. Within two years of the conversion, the land should have been utilized for the purpose it was intended ie., nonagricultural purpose. It was never acted upo....
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.... years brings back the character of agricultural land. He further objected to the Assessing Officer's finding that the assessee had not declared agricultural income for the purpose of income-tax. The assessee did not disclose any income because he was having no income from agricultural operations. The character of the adjoining land is not the sole criteria. The assessee fetched high price because of the location of the land. In view of the above, the high price fetched by the assessee cannot be a point against the assessee and it does not change the character of land as such. The learned representative for the assessee has produced a copy of the certificate issued by the Village Accountant, Ramanagara Taluk, dt.22.6.2006, to the effect that the assessee had grown ragi, vegetables and horsegram in sy.no.77:43, 77:44 and 77:43 in a total area of 9 acres during the years 2002-03, 2003-04 and 2004-05. 17. The assessee's representative produced a letter from Tibetan Childrens' Village authorities dt.1.3.2005 that was addressed to Manchanayakanahalli Grama Panchayat to the effect that the Tibetan Childrens' Village authorities purchased land to the extent of 143 acres and 27 guntas an....
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....ated that the assessee carried out agricultural activities. Since the assessee has not made any application, it shows that even after the conversion, the assessee had put the land for agricultural purpose and not for non-agricultural and residential purpose. In the hands of the assessee, the character remains as agricultural land. It is an admitted position that the assessee has not paid any conversion charges as the assessee was using the land for agricultural purpose. The conversion by making the penalty is a subsequent event that is subsequent to the sale of land by the assessee to Tibetan Childrens' Village. 20. In the premises of the above facts, the assessee's representative again brought our attention to the decision of the Gujarat high Court decision in the case of Dr. Motibhai D. Patel v. Commissioner of Income-tax (1981) 127 ITR 671 wherein the Hon'ble High Court held that the permission to convert the land to non-agricultural use does not make the land non-agricultural. If the permission is not obtained before the date of sale and fetching of high price is not the potential criteria. He further submitted the smallness of the income derived from sale of agri....
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.... order which shows that if the land remains unutilized for the purpose for which it was converted within two years from the date of the order, then the order becomes unoperational. He held the conversion order was not valid on the date of sale, except a portion of the land in the case of the assessee i.e., Prasanna Gowda in ITA.177/Bang/2009. Thus, he held that it is a strong presumption that the status of the land was an urban land. Therefore, in the case of Prasanna Gowda, the Commissioner of Income-tax(A) allowed the appeal partly and in the case of Timme Gowda in ITA 178/Bang/2009, the appeal was allowed. The learned representative thus submitted the facts are identical in all the cases. 24. The main issue involved in this case is whether the land sold by the assessee was agricultural in nature or not. The DR submitted that in order to decide whether a piece of land is agricultural in character or it is a capital asset is essentially a question of fact to be determined by the cumulative effect of all the relevant factors. The burden of establishing the above fact by cogent and reliable evidence that the land was used as agricultural land or was capable of being used so at the....
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....d subsequent to conversion of the land; d) At the time of transfer of the land, no standing crop or trace of agricultural activities were found as evidenced from the contents and description of the property recorded in the registered sale deed ; e) The property under reference is located in the thickly populated industrial belt/suburb of Bangalore which is about 18 kms away from the corporation limits of Bangalore; f) The price fetched i.e., Rs. 10 lakhs per acre cannot be construed as high on account of the land being a non-agricultural since the actual cost of acquisition of the lands was Rs. 3 lakhs i.e., about Rs. 33,000/- per acre in the year 1995-96; g) The lands under reference were actually acquired by the buyer for the purpose of construction of educational institutions such as nursing college, degree colleges etc., and to get recognition in the long run as deemed university. This once again goes to prove that the land was purely non-agricultural in nature at the time of sale; h) The assessee had not shown any income from the so-claimed agricultural activity in the return filed by the assessee for Assessment Years 1995-96 to 2004-05. This was sufficient proof to ....
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....ndicate an intention to earn profit which is in the nature of trade. The view of the Assessing Officer was upheld by the Commissioner of Income-tax(A). In appeal before the ITAT, the assessee raised two grounds. i) That the surplus on sale of agricultural land would be subject to tax only under the head income from capital gains and not as income from business; ii) That, as the lands sold being beyond the notified area, the surplus of sale would not be liable to tax under the head income from capital gains. The Hon'ble ITAT after considering the facts of the case, held that the transaction should be regarded in the nature of capital assets and not a business transaction. 27. The learned DR submitted the facts are identical in the instant case as well. The DR submitted from the date of conversion, the agricultural character of the land has been lost. In the agreement, sale deed etc., it is referred as the sale of nonagricultural land. The learned DR submitted Section 80 the Karnataka Land Reforms Act, 1961, bars transfer of agricultural land to a non-agriculturist. If it is violated then u/s.84 of the above Act, uncultivated land may be required to be cultivated at the i....
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....ion of the crop ragi. Evidence to the effect that the lands were used for agricultural purpose even on the date of sale, in the form of record of rights and Phani extracts (RTC) were issued by the Village Accountant in Form No. 2 of the Karnataka Land Reforms Rules, 1966. This is a statutory record maintained by the government as required under the Karnataka Land Reforms Rules, 1966. Though request for conversion was made and order was passed, two years were lapsed and the agricultural activities were continuing. Even the Assessing Officer apparently has not disputed the facts. In the case of T. Prasanna Gowda, 2 acres of land was converted during 1995, 53 acres of land was converted in 1999 and 10 acres; 10 guntas was converted in 2004. Still the facts remain that the lands were never used for non-agricultural purpose. No sites were formed nor any houses were built. The Assessing Officer deputed the Inspector for enquiry only in 2007. Even at this time, there was no layout formed except the building constructed by the Tibetan Children's Village for their office. The land was agreed to be sold to Tibetan Children's Village in the early part of 2003-04. If the land was to be....
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....a is found in the assessment record of Thimme Gowda for earlier years which bears the evidence for existence of grown crops like coconut, sapota and mango which are permanently yielding year after year. The income has been increasing as against reduced expenditure towards maintenance year after year. The income was divided between the land owners ie., Thimme Gowda and Suresh Gowda for the Assessment Year 2005-06, which was estimated at Rs. 53 lakhs. During the assessment proceedings for Assessment Year 2004-05, after examining the circumstances pertaining to agricultural income, the ACIT estimated the income of the assessee group at Rs. 56 lakhs. Condition of cultivation remained almost the same with regard to yield and production and rates. Hence, the assessee's representative submitted appeal by the assessee is liable to be allowed. 33. Hearing the rival submissions, going through order of revenue authorities and relevant materials before us and the cases cited by both the parties, we are of the view that the appeal by all the assessees are to be allowed. The revenue mainly relies among others on Sections 80 and 84 of the Karnataka Land Reforms Act, 1961 to show that agricu....
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.... this would indicate the other way. If the land has not been used within two years of issue of conversion order, notice should have been issued to utilize the land for agricultural purpose within one year. Since the notice has not been issued, the claim of the assessee that the assessee was doing agricultural activity, prima facie to be accepted, in the light of the papers produced before us. The assessee has produced a letter from the Tibetan Childrens' Village to the Secretary, Manchanayakana Halli Grama Panchayati, to the effect that they had purchased 143 acres and 27 guntas of land in Seshagirihalli, the land was converted for residential purpose between 1996-1999. It further states that "though the conversion certificate was issued for the purpose of formation of residential layout, no such layout was formed by our earlier owners, i.e., the 'assessee' ". It is further stated in the letter that the land remained on the records of Land Revenue authorities. In the absence of renewal application from earlier owners, they requested to renew the conversion granted and further submitted that they are willing to pay the requisite charges and fees for renewal of the conver....
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....dertaken by the assessee. In this case, the said City Survey Officer said that the land bearing survey No. 1393, 1394 and 1395 was agricultural land. The land fell within the town planning scheme and was also within the municipal limits of Surat city. There was a specific finding by the Tribunal that the City Survey Officer's report was inaccurate when it said that the land bearing the three survey numbers was agricultural land, but not used for agricultural purposes because it was common ground and there was a structure of their own which had been rented out to two tenants. It was in these circumstances, the Tribunal held that the land revenue assessment was not determinative of the issue. In these circumstances, the Tribunal held "In the absence of any evidence to show that the land was put to any agricultural use at any point of time prior to the date of sale apart from the activity of growing vegetables and grains for the domestic use of the assessee, it could not be treated as agricultural land. Coming to the instant case of the assessees i.e., Thimmegowda and Suresh gowda for the Assessment Year 2005-06, agricultural income was estimated at Rs. 53 lakhs and for Assessment....
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....hat could be treated as agricultural land within the meaning of section 2(e)(i) of the Wealth-tax Act, 1957. The Hon'ble High Court held, the land could be treated as agricultural land for the following reasons : (i) the area was 108 acres abutting the Hussain Sagar tank; (ii) the land had two wells in it; (iii) it was capable of being used for agricultural purposes; (iv) it had not been put to any use which could change the character of the land by making it unfit for immediate cultivation; and (v) it was classified and assessed to land revenue as "agricultural land" under the A. P. Land Revenue Act. On further appeal the Hon'ble Supreme Court held the first four features considered by the High Court and based upon absence of any user for non-agricultural purposes were inconclusive, and the fifth feature alone provided some evidence of the character of the land from the point of view of its purpose. The property was classified in the revenue records as agricultural land was not conclusive and such entries could raise only a rebuttable presumption. The Hon'ble Supreme Court further held, the character of the land and the purpose for which it meant or set apa....
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.... land was agricultural continued to be so. The land revenue paid was for agricultural use, but permission for non-agricultural use was obtained but not before the date of the sale. In these circumstances, the Hon'ble High Court upheld the presumption that the land is agricultural. The Hon'ble High Court came to the above conclusion inspite of the fact that this land was situated in an industrially developed area where the potential use of the land as non-agricultural 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 be 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 factors i....
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....is ground by the assessee is allowed. 41. Coming to the second effective ground, the assessee's representative submitted he is under instruction not to press this ground. Hence, this ground is dismissed as not pressed. 42. Coming to effective ground No. 3, which is against bringing to tax an amount of Rs. 1,14,000/- as lease rentals when in fact the assessee was not entitled for the same nor had received any amount. This issue has been dealt with by the Commissioner of Income-tax(A) at page 6, by observing as under : "The next issue raised is that the Assessing Officer has erred in bringing to tax an amount of Rs. 1,14,000/- as lease rentals as the appellant was not entitled for the same nor received any amount (Ground No. 4). It is seen from the assessment order that the addition has been made because as per lease agreement, the appellant was to get Rs. 1,14,1000/- as lease income. The appellant's contention is that the lease agreement was not acted upon and therefore, he is not entitled to any income. However, the appellant has led no evidence in support of his contention. He has also not given any confirmation from the other party of the agreement that the lease ag....
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....al purposes even after conversion of the land for non-agricultural purposes. In similar circumstances, in the case of Shri M.R. Anandaram (HUF) v. ACIT (supra), the Tribunal observed that though the said land was converted for non-agricultural purposes, but cultivation of land continued till the date of sale of the land. Thus, the land should have been treated as agricultural land and exempt from capital gain in view of section 2(14) of the Act. The Tribunal also observed that even after conversion, the assessee was carrying on agricultural operations and conversion was done only to facilitate the sale of subject property to a corporate entity/nonagriculturist. These observations of the Tribunal have been extracted in the earlier part of this order. 24. The Madras High Court in the case of CIT v. Ashok Kumar Rathi (404 ITR 173)(Mad) held that if the land is recorded as agricultural land in the revenue records, it would only enure in favour of the assessee as agricultural land and assessee is entitled to get exemption from tax., 25. The Hyderabad Bench of the Tribunal in Tulla Veerender v. Addl. CIT (160 TTJ 435)(Hyd) held that when the land which does not fall under the provisi....