TMI Blog2013 (9) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The assessees herein could not bring any credible evidence to prove existance of various trees on the land. Further, the assessees could not bring evidence to show that they carried out agricultural operations on maintenance of those trees, sale proceeds realised on sale of produce etc. The tax authorities have pointed out that the assessees themselves has described the impugned land as "Stadium land" in the conveyance deed and further in the Form 1B annexed to the conveyance deed, the impugned land was described as "Commercial land". - The land in question is not a agriculture land - Decided against the assessee. Taxability of capital gain - Year of transfer - section 2(47) - Held that:- the transfer has taken place only on 13/02/2008, thereby the capital gain arising therefrom is assessable in the assessment year 2008-09 Enhancement of sales consideration - Held that:- The intention of the owners with regard to the user and sale of land, singularly and cumulatively go to establish that the land in question was never held as an agricultural land wef 2001 and never sold as an agricultural land at the time of sale - The tax authorities have pointed out that the assessees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Rs.99,95,000/- only in the registered sale deeds executed subsequently on various dates. The assessing officer initiated proceedings in the hands of all the assessees herein u/s 153C of the Act. In response to the notices issued by the AO, they filed returns of income, but all of them claimed exemption of capital gains arising on sale of the above said land on the plea that the impugned land is an agricultural land. However, the Assessing Officer did not accept the said claim for the detailed reasons stated in the assessment order. The assessing officer also rejected the sale consideration declared in the registered conveyance deed and instead, adopted the sales rate as Rs.3,27,500/- per cent, i.e., the amount shown in the sale agreement and accordingly computed Long term capital gain. For the said purpose, the AO adopted the market value as on 1.4.1981 as the cost of land, which was determined at Rs.100/- per cent. Accordingly, the AO computed the long term capital gain at Rs.7,28,86,741/- and allocated the same between the assessees herein in proportion to the rights held by each of the assessees herein. The share of long term capital so determined was assessed in the hands o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, the Ld. CIT(A) took the view that the transfer has to be considered as having taken place in the assessment years 2006-07 to 2009-10 in proportion to the amount of sale consideration received in those years. 6. The Ld CIT(A) noticed that the assessees have sold 18.98 cents of land, vide document No.614/2008 dated 13.2.2008 to Sri Modieen Haji for a value of Rs.4,80,000/- as per the registered conveyance deed. The Ld CIT(A) further noticed that the assessing officer did not assess the capital gain arising there from. Accordingly, the Ld CIT(A) sent enhancement proposal to the assessee, in which he proposed to adopt the sale consideration at Rs.3,27,500/- per cent. The assessee, however, pleaded that the sale transaction had been completed much earlier, but the registration of the property was done much later. However, the Ld CIT(A) did not accept this plea and accordingly directed the assessing officer to assess the capital gain arising on sale of 18.98 cents of land by adopting the sale consideration as Rs.3,27,500/- per cent in the hands of the assessees herein. 7. In the appeals filed for the assessment year 2009-10, the assessees submitted that the assessing officer h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tural land. Further the Ld. CIT(A) has examined the issue relating to the nature and character of land in detail by applying various tests laid down by various High Courts including the Jurisdictional Kerala High Court and has finally come to the conclusion that the impugned lands cannot be considered as agricultural lands. The findings given by Ld CIT(A) finds place in paragraphs 4(i)(5) to 4(i)(5)(4) of his order. We notice that the first appellate authority has applied the tests laid down by Hon'ble Gujarat High Court in the case of CIT Vs. Siddharth J Desai (139 ITR 628) to the facts of the instant case. For the sake of convenience, we extract below the observations made by Ld CIT(A) on this issue in the order passed in the hands of Smt. Jubeena :- "4(i)(5) The Assessing Officer's findings, the appellant's grounds of appeals, her written submissions and the Assessing Officer's rejoinder are brought on record, supra. After examining the relevant records, let us examine as to whether the impugned land was an agricultural land or not based on the tests laid down in CIT vs. Siddharth J. Desai 139 ITR 628 (Guj.)(1983), in seriatim as under: (i) Whether the land was classified in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Muhammed Haji possessed a block of land in Bloc No. 39 R.S. No. 158/1, 158/5, 158/16 in Kottakkal village in Tirur Taluk.* I affirm that, I am convinced by the Agricultural Officer's affidavit and Regional enquiry Report that the above said land has been used for cultivation cashew, coconut tree etc. years back. This certificate is allowed to be produced before the Income-tax Officer, Calicut Village Officer, Kottakkal. *Emphasis supplied by the CIT(A) This certificate relies on the first certificate which is not be (sic.) accepted as a reliable certificate for the reasons stated supra. Further, this certificate states that the so called cultivation happened years back without specifying the year(s). thus, the above two certificates furnished by the appellant before the Assessing Officer at the time of assessments could not considered as having evidentiary value. (3) The third certificate: "CVC No. 80/2011 The Village Officer, Kottakkal dated 24-3-2011 To Respected Revenue Divisional Officer Tirur Sir Sub: In connection with the type of land with re-survey no. 158/1, 158/5, 158/16 in block no. 39, Kottakkal village. Ref: 1) Application of T.P. Jameela, W/o P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional Thahasildar, Tirur. Date : 15/07/2011" *Emphasis supplied by the CIT(A) The above two certificates were furnished by the appellant before the appellate authority. The fourth certificate relies on the third certificate dt. 24.2.2011 above, in that the Village officer (VO) once again relies on one of the appellant's assertion only. He has not issued the certificate based on any contemporaneous record. However, realizing the reality, the VO coins a new term "residential based agricultural land". Further, reports that the appellants cultivated coconut, areca nut etc. but while issuing certificate he specifies the crops as coconut and plantain only against specific land. The most astonishing aspect is that based on this certificate, the RDO issues certificate but introduces a new term for the property as a 'House Property'. Further, he specifies all crops viz. coconut, areca nut, plantain, cashew etc and (2) the period of cultivation as till 2006 about which the Village Officer has not mentioned anything in his report at all. This being so, the examination of appellants records with the Assessing Officer indicates that by a letter dt. 04.11.2010 she claimed that the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to accept agricultural income claimed by Shri Usman Kutty and held that his process is a ploy, a deliberate attempt made to get agricultural income assessed and hence assessed the sum shown by him as an income from "other sources" in the earlier years. The most important aspect is that the appellants admittedly handed over the possession of the land to Shri Abdu Haji in 2006 itself. Shri Abdu Haji has commenced construction of the shopping complex called as Smart City in 2006 itself. However, the appellant, her brothers S/Shri Anwar Sadath and Usman Kutty are showing agricultural income of Rs. 10,000/year and Rs. 20,000/- each, respectively even after 2006 and upto assessment year 2008-09. This claim also proves that their cash flow statement with regard to agricultural income is farce. The existence of coconut trees, cashew plants, incurring of expenditure for carrying on of agricultural activities, the maintenance of the troves, etc. are not produced to establish that the impugned land is an agricultural land. As the basic agricultural operations like tilling of the land, sowing of seeds, planting and similar work usually done on an agricultural land are completely absent in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting place. The District Valuation Officer, Chennai, based on Shri Abdu Haji's submissions, reported under column 3.4 Table: period of const. 04/05 to 03/09 (April 2005 to March 2009). This report evidences that the construction started 2005 implies commencement of the construction when sale negotiation is going on. Shri Anwar Sadath who was the prime mover of the appellants family, was in real estate business and must have been a close associate of Shri Abdu Haji for a long time because Shri Anwar Sadath admitted by an affidavit dt. 17.12.2010 that he was a benamie of Shri Abdu Haji between 2004 2007. Hence Shri Abdu Haji must have started the construction in 2005 itself. The Assessing Officer has also recorded a finding in the assessment order based on seized/impounded materials (purchase of building materials etc.) that the construction commenced in 2006. The annexed photos taken immediately after the search and seizure operations around July/August 2008 also speak volume about the nature and use of the impugned land, construction period etc. Further, the Assessing Officer finds that Shri Anwar Sadath, his mother and siblings have sold adjacent properties of 'Smart Trade City' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urposes. There is no evidence of regular and systematic carrying on of the basic agricultural operations like ploughing, tilling of the land, manuring, watering, planting of saplings, sowing of seeds, etc. Even if there was existence of some coconut trees, cashew plants etc. it cannot clothe the land in question with the character of agricultural land. The Assessing Officer has brought materials for the usage of non agricultural purposes by the owners. Further (1) It is obvious that the user of the land was never held from 2001 onwards by the appellants as agricultural land for the reasons that it was used for non agricultural purposes. The very fact that the land was sold by the appellants as commercial land at the rate of Rs.3,27,500/-per cent shows that the land was never sold as an agricultural land. (2) Even as per the cash flow statements filed by the appellant, the appellant has not disclosed any sale proceeds of agricultural produce except the alleged receipt of the sum of Rs. 20,000/year. (3) The price paid by the purchaser is a very strong piece of evidence to show that what was sold by the appellant was not an agricultural land. (4) The land is situated near Kott ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land coming to 2 acres 20 cents was sold to Shri Abdu Haji. The sale was fixed for Rs. 3,27,500/- per cent. We have received more than Rs. 7 crore towards transaction. This amount was received by our brother Shri Anwar Sadath on behalf of us. The details of the amount are written on the backide of the agreement (original). Qn 5: How much amount was received while selling 20 cents of land 2 years back? Ans 5: This was an exchange with the land where PNB is located in Kottakka town. I don't know its original price. Only Shri Anwar Sadath knows about this transaction. The amount given by Shri Abdu Haji is not utilized for this transaction. Shri Anwar Sadath's statement dt. 17.7.2008 Qn 2: You have stated about size of 30 cents of land near Smart Trade Centre and the purchase of 11 cents of land and building nearby your house in the statement dated 14.07.2008. Pl explain about the transaction. Ans: The above 11 cents of land and building was purchased from Edakkandan Saidalavi staying at Chulliparamba, Vengara and 30 cents of land was sold to the same person. The land sold was our ancestral property with 15 legal heirs. Even though the transaction has been made before one yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for which the major purchaser (Shri abdu Haji) used it even before registration, singularly and cumulatively go to establish that the land in question was never held as an agricultural land from 2001 onwards. Even if it was an agricultural land before 2001, it was converted into a non agricultural land from 2001 onwards. 4(i)(5)(1) Alternatively, we can examine as to whether the character of the land sold by the appellant is as an agricultural land or not as under: Whether a particular land is agricultural land or not must depend on the general nature or character of the land and various factors. The various factors that should have to be taken into account as held in Rasiklal chimanlal Nagri vs. CWT 56 ITR 608 (Guj) are: (a) The situation of the land and its surroundings. This is an important factor as it would affect the land and its capacity of being used for agricultural purposes and it would also indicate the purpose for which the land would ordinarily be used. (b) The physical characteristics of the land would be another factor to be taken into account. (c) The intention of the owner as gathered from all the relevant circumstances would also have a bearing on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were claimed to have been sold to others in 2006 itself although registration was done in 2008. (7) There is a tar road between the properties in the same plot. (8) Part of the property was rented out for fish market. If we take the all the factors and circumstances, it is clear from the above that the land was never sold as an agricultural land and the land did not retain the character of the agricultural land at all at the time of sale. The above analysis of the sale transaction, the mode, purpose and the manner in which the appellant sold the land clearly brings out one salient feature, viz., the agricultural character of the land was lost at least in 2001 itself. The transfer that was effected by the appellant was transfer of a capital asset as defined u/s. 2(47) of the Act and not a piece of agricultural land. the property that could fetch a price of Rs.3,27,500 per cent bear eloquent testimony to only one fact, namely, what was sold is only a capital asset and not an agricultural land. So, taking into account the location, the general characteristics of the land, the previous, present and future user of the land and the intention of the owners, as gathered from all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imal test of 'agricultural land is laid down by the Supreme Court in these words: "....even if we could give a wider connotation to the term 'agricultural' than the one it carries with it in the Income-tax Act, we cannot dispense with credible evidence of at least appropriation or setting apart of the land for a purpose which could be regarded as agricultural land for which the land under consideration could be reasonably used without an alteration of its character. This, we think, is the minimal test of 'agricultural land' which should be applied in such cases." From the observations of the Supreme Court extracted above, the following requirements have to be satisfied before a land can be held as 'agricultural land': (1) The condition of the land and the intention of the owners must indicate connection with an agricultural purpose. (2) There must be credible evidence of appropriation or setting apart of the land for agricultural purposes. (3) Not only the actual condition of the land has to be seen but also the intended user of the land. The above observations and the tests propounded by the Supreme Court were made in a case where no agricultural operations were carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lands concerned. The prudent owner is the common man of the common law, sane and sensible, reasonable and responsible, averse to gambling and speculative experiments, but nonetheless prepared for normal risks and legitimate expenditure" From the above two Kerala High Court decisions, it is obvious that unless the current user of the land for agricultural purposes is the natural, ordinary and prudent user of the land, it cannot have the benefit of exemption from Capital Gains tax. The land that was sold for Rs.3,27,700/- per cent was not put to agricultural use, as the same has become a commercial shopping complex. At least from 2001 onwards, this land was used for non agricultural purposes, as the appellant could not establish user for non agricultural purposes as held supra. Hence, the alleged agricultural user is neither the ordinary nor the natural user of the land. The object of exemption from Capital Gains tax is to encourage cultivation or actual utilization of land for agricultural purposes. It is, therefore, imperative to give a reasonable meaning to the term 'agricultural land' and not to give an unrestricted scope for interpreting the term. 4(i)(5)(4) To sum up, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agricultural income even in the returns of income filed after the date of search. In the cash flow statements, meagre amount of agricultural income was shown by each of the assessees, but they could not give any credible evidence in support of the same. Even though these assessees have admitted that the possession of land was given in January 2006 itself, still they have shown agricultural income in the years relevant to the assessment years 2007-08 and 2008-09. These facts prove that the agricultural income shown in the cash flow statements do not have any basis. Further, it is seen that theses assessees could not produce any evidence to prove existence of coconut trees, cashew plants etc., nor could they furnish any evidence to show that they did carry on agricultural activities on the impugned land. 12. The assessing officer has ascertained that the impugned land was used for conducting foot ball tournament during the years 2001-02 to 2005-06. However, the assessees have contended that only a portion of land was used for tournament purposes, that too only during summer. However, as pointed out by Ld CIT(A), the assessees herein could not bring any credible evidence to prove e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the four years in proportion to the amount of sale consideration received in each of the years. The assessee is disputing the said decision of Ld CIT(A). The Ld Counsel appearing for the assessee placed reliance on the decision dated 28-09-2012 rendered by this bench in the case of G. Sreenivasan Vs. DCIT (2013)(140 ITD 235)(Cochin) to contend that the capital gain is assessable in the year in which the possession was handed over to the buyer in part performance of contract as per the provisions of sec. 2(47)(v) of the Act. Accordingly he contended that the decision rendered by the Ld CIT(A) to the effect that the capital gains is assessable in the year in which the sale consideration was received is not correct proposition of law. 15. On this issue, we are inclined to agree with the contentions of Ld A.R. The provisions of sec. 2(47) with defines the word "transfer" are relevant here. For the sake of convenience, we extract below the provisions of clause (v) and (vi) of sec. 2(47) of the Act:- "2(47) "transfer", in relation to a capital asset, includes, ...... (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion afresh at the end of the Assessing Officer, since the Ld. CIT(A) has taken the decision without causing enquiries from the buyers of the property. Accordingly, we set aside the order of the Ld. CIT(A) on determination of actual sale consideration of 18.98 cents and restore the same to the file of the Assessing Officer with the direction to examine the issue afresh by carrying out necessary enquiries and take appropriate decision in accordance with law. 18. We shall now take up the appeals filed for the assessment year 2009-10, wherein the assessees are contesting the decision of Ld CIT(A) on the following issues:- (a) Nature and character of 32.19 cents of land sold during this year. (b) Validity of enhancing the sale consideration for the purpose of computing the capital gain. 19. There is no dispute with regard to the fact the 32.19 cents of land, which was sold during the year under consideration was located adjacent to the 222.93 cents of land discussed in the preceding paragraphs. We have already upheld the view of the ld CIT(A) that the 222.93 cents of land, referred supra, cannot be considered as an agricultural land. Since the 32.19 cents of land, which is unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the provisions of sec. 50C of the Act. However, we find that neither the AO nor the Ld CIT, did make any reference to the provisions of sec. 50C of the Act for the said purpose and hence, in our view, there is no necessity to refer to the provisions of sec. 50C of the Act. In any case, on a careful perusal of the provisions of sec. 50C of the Act, we notice that the said section is applicable only if the consideration received or accruing as a result of transfer of a capital asset, being land and building or both is less than the value adopted or assessed or assessable by any stamp valuation authority. In the instant cases, there is no allegation that the sale consideration was less than the value adopted by the stamp valuation authority. Hence, the provisions of sec. 50C are not applicable to the facts of the instant cases. 23. In the instant cases, the AO has adopted the sale value at Rs.3,27,500/- per cent for 32.19 cents of land sold in May, 2008, since a major portion of adjacent land falling in the same survey number was sold for Rs.3,27,500/- per cent in January, 2006. Apparently, the AO has adopted the rate of Rs.3,27,500/- under the belief that there was understatemen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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