TMI Blog1981 (8) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... about ten times its cost price (i.e., ₹ 2,12,618) did not fall within the definition of capital asset as defined by s. 2(14) of the I.T. Act of 1961, as it stood at the material time, mainly because of the following two factors, viz., (1) it was entered in revenue records as agricultural land and was assessed to assessment on that basis, (2) a crop which yielded a gross annual normal income of less than ₹ 200 (two hundred) was grown on the same during the relevant years. It was the case of the assessee that accordingly the profit of ₹ 2,12,618 derived by her from this transaction was not exigible to tax as capital gains under s. 45 of the Act. The ITO by his order as per annex B negatived the contention and included 45% of the amount of total capital gains accuring to her as her income for the relevant year. The appeal preferred by the assessee in so far as this question was concerned was dismissed by the AAC by his appellate order at annex 0 . The Income-tax Appellate Tribunal, Ahmedabad Bench 'B', confirmed the order of assessment on a different ground. Thereupon three questions have been referred to us by the Tribunal at the instance of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssumed importance before the Tribunal, the Tribunal having disagreed with the view taken by the ITO and the AAC that the land in question was not agricultural land and having taken the view that it was agricultural land. The question assumed importance because even if it was agricultural land, still the gains arising in the context of the transfer of such land would be exigible to tax as capital gains under s. 45 of the Act, in case the transfer of the land was effected on or after March 1,1970. In the present case while the sale deed was executed in the sense that the assessee had appended her signature to the sale deed prior to March 1, 1970, the sale deed was presented for registration and was in fact registered after March 1, 1970. It was in this background that the question arose whether the transfer of the land in question was before March 1, 1970, or after March 1, 1970. The Tribunal took the view that the transfer was effected after March 1, 1970, having regard to the fact that the transaction of sale was not complete till the document was presented for registration and was registered. As it was common ground that the document was presented for registration after March ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the AAC having taken the view that it was not agricultural land and the Tribunal having taken the view that it was agricultural land) That is how three questions have come to be referred to us at the instance of the assessee and one question has come to be referred to us at the instance of the Revenue. We may incidentally mention for the purposes of record that one more question had been referred at the instance of the assessee but that question is not debated before us as it is concluded against the assessee by a decision of this High Court rendered in Smt. Padmavati Jay-krishna v. CIT [1975] 101 ITR 153 . Under the circumstances, the main questions which have been debated before us are the aforesaid three questions raised at the instance of the assessee and one question raised at the instance of the Revenue. It is necessary to highlight one aspect of the matter. Whatever view is taken in regard to the three questions referred at the instance of the assessee, the assessee must in any case fail if the basic question as to whether or not the land concerned was agricultural land (referred to us. at the instance of the Revenue) is decided against the assessee. Since we are of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... falling within the low income group, by the Gujarat Housing Board as early as in 1962. Compensation was paid in respect of this acquisition at the rate ranging from ₹ 6.90 per sq. yd. to ₹ 9 per sq. yd. Meanwhile there was a partial partition and a portion of the aforesaid land came to the share of the smaller HUF headed by the assessee's husband in 1955. There was a further partial partition in 1963 in the HUF headed by the husband of the assessee as a result of which the assessee and her husband acquiring an undivided 1/2 share in the parcel of land admeasuring 8,578 sq. yds., which was the subject-matter of the transaction effected in 1970 giving rise to the present controversy. From 1963 to 1970 this land continued to be assessed to land revenue even though residential buildings had already been constructed on the surrounding land and even though a portion of the original block of land had already been acquired by the Housing Board and houses were coming up on the acquired portion. (4) The gross agricultural income from this land during financial years 1966-67 1967-68 and for the period between 1-1-69 and 31-1-70 was ₹ 100, ₹ 178 and ₹ 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is agricultural land or non-agricultural land depends on the peculiar facts pertaining to each parcel of land and in order to answer the question correctly a number of tests have been evolved. We have examined this question at considerable length in ITR No. 92/76 [CIT v. Sarifabibi Mohamed Ibrahim- [1982] 136 ITR 621 (Guj)] and the allied references disposed of by us on April 17, 1981. Instead of repeating the same reasoning we will quote an extract from the said decision wherein we have referred to the judgments cited before us and evolved an appropriate test. We may say that the facts in that case were similar to the facts in the present case (in fact the fact-situation of the present case is much better from the standpoint of the proponent of the view that the land is non-agricultural land). After setting out the facts of that case, we have formulated the tests in the course of the following passage extracted from the judgment (pp. 626-628) : All these facts and circumstances viewed in the light of the appropriate tests impel us to the conclusion that the lands are not agricultural lands in fact and truth (though they are labelled as such in the revenue records) for reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). In these three decisions (we repeat) the principles enunciated in the earlier judgments referred by us have not been given a go-by (it could not have been done without referring the matters to a larger Bench). These are decisions rendered on the facts of the individual cases and make no departure from the principles settled earlier. On an analysis of these decisions and the decision rendered by the Supreme Court in CWT v. Officer-in-Charge (Court of Wards), Paigah, [1976] 105 ITR 133 , the following tests can be formulated in order to determine whether or not the Hand in question is agricultural land, as claimed by the assessee, which is immune from provisions pertaining to tax on capital gains. Circumstances which speak 'for' and 'against' the conclusion that the land is agricultural land. For Against (1) That it is entered as agricultural land in revenue records and assessed as such under the Land Revenue Code.[Subject to the rider that it is a rebuttable presumption and can be destroyed by other circumstances pointing to the contrary conclusion. See Commissioner of Wealth-tax v. Officer-in-charge (Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss than ₹ 200 during the last 3 years preceding the relevant period. What was grown was jowar. The assessee, a housewife, having an income of about ₹ 3 lakhs from investment in shares and dividend and interest income, was growing jowar on this land. Surely she herself did not go on the land to cultivate it. In any case she has not given evidence in this behalf. She must have employed some peasant to grow the jowar crop. We do not know what was paid to him by way of remuneration. We do not know what was spent for the purchase of the seeds. We do not know whether she owned any implements of agriculture at all. In any case the cost of growing the jowar must have far-exceeded the sum of ₹ 200 per annum. Even if a watchman was engaged he would have charged about ₹ 2,400 per annum. Can it be seriously contended that she was putting the land to agricultural use in a bona fide manner and incurring losses from year to year? It must be realised that the land in question was sold for a total consideration of ₹ 2,34,063 ( of ₹ 4,68,126 fetched by the entire plot of 8,578 sq. yds. in which she had share). It was sold at the rate of ₹ 56 per sq. yd. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and she herself had considered this land to be non-agricultural land, in fact treated it as building site land. It is not in dispute that the land is situated in the midst of developed lands and there are buildings round about. The land was situated within the Corporation limits of Ahmedabad within Draft Town Planning Scheme No. 29 framed on March 3, 1967, which was sanctioned on November 21, 1968, and was eminently suitable for construction of houses. Such land cannot be characterized as agricultural land merely because it was entered in the revenue records as agricultural land and the assessee was paying land revenue assessment on the basis that it was agricultural land. As we have discussed hereinbefore, it suited the assessee not to apply for permission to convert it into nonagricultural land because the assessee would be required to pay wealth-tax on it and also to pay capital gains tax in case the land was sold. The mere fact that it stood in the records as agricultural land is of no importance. So also the fact that jowar was grown during these years which yielded a gross income of ₹ 200 cannot be considered as a circumstance pointing to the conclusion that it was ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts is necessary. It is an admitted position that while the sale deeds were signed by the vendors prior to March 1, 1970, the same were not presented for registration till March 1, 1970. The ITO and the AAC were not conscious of the fact that the definition of the expression capital asset contained in s. 2(14) of the I.T. Act had undergone a change by the Finance Act of 1970 and that cl. (viii) had been inserted in s.47; and accordingly they did not examine this aspect. These changes were introduced with effect from April 1, 1970. Therefore, in respect of the assessment year 1970-71 if the land was a capital asset within the meaning of s. 2(14) by virtue of the fact that it was such agricultural land in respect of which a transfer was effected after March 1, 1970, the gains arising out of a transfer of such land would be exigible to tax as capital gains. This was the position as per the relevant provisions of the I.T. Act as they stood at the material time. The position is not in dispute that such was the legal position obtaining in the course of the relevant assessment year. It is unfortunate that the ITO and the AAC were not aware of this position. Perhaps it was because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andum of appeal, but the Tribunal, in deciding the appeal, shall not be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal under this rule : Provided that the Tribunal shall not rest its decision on any other ground unless the party who may be affected thereby has had a sufficient opportunity of being heard on that ground . 27. The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him . Now s. 33(4) of the 1922 Act reads as under : The Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, and shall communicate any such orders to the assessee and to the Commissioner . It is argued that r. 27 confers a right on the respondent (in this case, the Revenue) to support the order under appeal on any of the grounds decided against the respondent, but if the decision giving rise to the appeal is one in which no such ground was urged, there can be no question of supporting the ultimate order on a ground decided against it. In other words, it is argued that the ground must be rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand Mills' case [1967] 63 ITR 232 (SC) arose in the context of the fact that though the provisions contained in para. 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, were applicable at the relevant time a contention based on these provisions was not raised till the matter came before the Tribunal. The Tribunal permitted the contention to be raised by the department. Thereupon the assessee took an objection and argued that it was not open to the Tribunal to permit the department to raise such a contention for the first time. It was in that context that the Supreme Court had observed that the appellate powers of the Tribunal are embodied, in s. 33(4) and that the Appellate Tribunal may after giving both the parties to the appeal an opportunity of being heard pass such orders thereon as it thinks fit in exercise of those powers. The word thereon merely restricts the jurisdiction of the Tribunal to the subject-matter of the appeal. The Supreme Court observed that in the case before the court the subject-matter of the appeal before the Tribunal was the question as to what should be the proper written down value of the buildings, machinery, etc., of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he language of s. 33(4). The observation is to the effect that there is nothing in the I.T. Act which restricts the Tribunal to the arguments urged or points raised before the departmental authorities. Whether the allowance was admissible under one head or another the subject-matter of the appeal remained the same and the claim of the assessee could be allowed under a head under which it was not claimed if in fact a deduction was claimed albeit on a different ground. The same reasoning will apply in the present case where the subject-matter of the dispute was the exigibility to tax under the head of Capital gains in respect of the gains arising out of the transaction of the sale of the land in question. No doubt the ITO had taken the view that the income was exigible to tax on the reasoning that it was not agricultural land. The fact, however, cannot be gainsaid that the subject-matter of the controversy remained the same, viz., whether the profit made on the transaction was exigible to tax. No doubt a new reasoning in the context of the amended provisions introduced by the Finance Act of 1970 was sought to be urged. All the same the subject-matter remained the same. In other wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal. Since the AAC had taken the view that the gains arising out of the transaction were exigible to tax, the Revenue could not have appealed against it. But the ultimate conclusion that it was so exigible to tax can certainly be supported by recourse to any legal argument based on facts not in dispute. We find support for this view from CTT v. Steel Cast Corporation [1977] 107 ITR 683 (Guj). B. J. Divan C.J., speaking for the Division Bench, has dealt with this question in the following passage (p. 695): A fortiori, if a particular matter is not considered and decided by the Appellate Assistant Commissioner, and the decision on it does not form part of the order of the Appellate Assistant Commissioner, there can be no appeal against it. This much was not disputed, and indeed could not be disputed, by the learned advocate appearing on behalf of the assessee . Further onwards, it has been observed as under at p. 696 : If the matter had been the subject-matter of the appeal it would have been open to the Tribunal to allow the assessee to raise a new ground of appeal but it must be with reference to the same subject-matter of the appeal and not with reference to a differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1961? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in not accepting the assessee's contention that in view of the provisions of section 47 of the Registration Act, the transfer was effected on the dates of execution of the sale deeds? The material facts are not in dispute. The vendors had signed the sale deeds before March 1, 1970, but the sale deeds were not presented for registration before March 1, 1970. A great deal turns on the question whether or not the transaction of sale was effected prior to March 1, 1970, or subsequent to March 1, 1970. In view of the provisions contained in s. 47(viii) if the transaction was effected before March 1, 1970, the assessee would be entitled to succeed in case the land in question was agricultural land, for the gains derived out of the transaction would be exempted from tax under the head of Capital gains . That is why the question as to when the transaction was effected has assumed 'great significance in the present case. What we have to determine is whether a transaction of sale can be said to have been effected on the date on which the conveyance is signed or whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgued that it is only in such a situation that the retroactivity principle embodied in s. 47 would be attracted and that out of two or more documents in the field (in case all are registered) the document which was executed earlier would prevail notwithstanding the fact that it might have been registered later. The ratio of a number of decisions of the Supreme Court and Privy Council will have to be correctly understood in order to resolve the question of interpretation in the light of the rival contentions. We must first deal with the law laid down by the Supreme Court. In Ram Saran Lall v. Domini Kuer, AIR 1961 SC 1747, the question arose in the context of a right of pre-emption claimed under Muhammadan law. Under the Muhammadan law a demand to enforce the right of pre-emption called talab-i-mowasibat has to be made after the completion of the sale. The outcome of the matter depended on the determination of the date on which the transaction of sale became complete. The sale deed was executed on January 31, 1946. The deed was presented at the registration office on the same day. The person claiming the right of pre-emption made the demand in order to enforce the right immediately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt. The question arose in the context of a memorandum recording the factum of an equitable mortgage created earlier. The document was executed on July 5, 1947, but it was registered on June 22, 1948. It appears that the mortgagor executed a deed of mortgage in favour of another party on October 10, 1947. It was in this context that the Supreme Court observed as under (p. 439): If the mortgage by deposit of title deeds was effected on May 10, 1947, or on July 5, 1947, the legal position would be the same, as the mortgage deed in favour of the 3rd defendant was executed only on October 10, 1947. Though Ex. A-19 was registered on June 22, 1948, under s. 47 of the Registration Act, the agreement would take effect from July 5, 1947 . (Emphasis added). It must, however, be realised that the question before the Supreme Court had arisen in the context of two rival documents which were in the field. In K.J. Nathan's case, AIR 1965 SC 430, the decision rendered by the Supreme Court in the earlier case (Ram Saran Lall v. Domini Kuer, AIR 1961 SC 1747) was not considered because it does not appear to have been cited before the court. Later on, the same question came up before the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vis-a-vis the vendee in relation to the property sold by the vendor to the vendee. In other words, the question as to when the transaction of sale became complete as between the vendor and the vendee in the sense of extinguishment of the right of the vendor and the creation of the right of the vendee was never in issue. When did the vendor cease to be the owner and when did the vendee become the owner of the property? On the date of the execution of the sale deed which was subsequently registered? Or at some later date when it was presented for registration or was copied out in the registration book by the official concerned? That, however, is the vital question from the standpoint of the I.T. Act and W.T. Act, because the date of transmission of title from the vendor to the vendee is extremely relevant for determining who is liable to bear the tax burden. Counsel for the assessee contended that the law on the subject was laid down in the two decisions of the Privy Council in Kalyanasnndaram Pillai v. Karuppa Moopanar, AIR 1927 PC 42, and Venkat Subba Srinivas Hegde v. Subba Rama Hegde, AIR 1928 PC 86, and that the ratio of these decisions was that the transaction of sale would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Subba Rama Hegde, AIR 1928 PC 86. The point at issue was expressed by the High Court in the judgment which gave rise to the appeal before the Privy Council as under (p. 87): Can a donor of immovable property, when the gift can only be effected by a registered document, resile from his action before the document had been registered, and if the donee refused to give back the document, can the donor obtain an injunction from the court restraining the donee from proceeding to register the document? The Privy Council referred to its earlier decision in Kalyanasundaram's case, AIR 1927 PC 42, and reiterated the effect of registration in the following portion (p. 87) : Registration does not depend upon his (the donor's) consent, but is the act of an officer appointed by law for the purpose, who, if the deed is executed by or on behalf of the donor and is attested by at least two witnesses, must register it if it is presented by a person having the necessary interest within the prescribed period. Neither death, nor the express revocation by the donor, is a ground for refusing registration, if the other conditions are complied with . So far as this case is concerned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital asset, the question will have to be decided in which previous year the transaction was effected . In other words, the expression effected in the context in which it is used would mean the previous year in which the transfer of a capital asset became complete or operative in the sense of the title of the transferor being extinguished and the title of the transferee being created. It must be realised that an anomalous situation would arise in the context of the W.T. Act, if a capital asset were to be treated as being of the ownership of the transferor at one point of time in one year whereas it is treated as the property of a transferee in a different year. The date on which the transaction is effected would be extremely relevant and would have critical significance for a very good reason. The same property cannot belong exclusively to A as also exclusively to B at any one point of time. Either A owns it exclusively or B owns it exclusively at any given point of time. But not both. If one were to take the view that a transaction is complete when the document is copied in the books of the Registrar, the date would remain uncertain. It may be copied after a very lon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the revenue laws like W.T. Act, I.T. Act and E.D. Act. And far reaching consequences would ensue depending on whether or not the officer under the Registration Act decides to copy out the document in his register at an earlier date or a later date. It may be mentioned that in the Registration Act there is a time-limit for the presentation of a document before the Registrar but there is no time-limit for copying out the document in the books of the Registrar. We are, therefore, of the opinion that in so far as the expression transfer of capital asset effected in the previous year occurring in s. 45 of the I.T. Act is concerned, it is not possible to take the view that the transfer is effected on the date on which the document is copied out in the books of the Registrar. In other words, the ratio of the decisions in Ram Saran Lall v. Domini Kaur, AIR 1961 SC 1747, K. J. Nathan v. 5. V. Maruthi Rao, AIR 1965 SC 430, and Hiralal Agrawal v. Rampadarath Singh, AIR 1969 SC 244, rendered in the context of the right of pre-emption claimed under the Muhammadan law and the dispute arising under the Tenancy Act and in the context of competing documents executed and registered on differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfers in question were not transfers effected before March 1, 1970, as contemplated in section 47(viii) of the Income-tax Act, 1961? In the negative and against the Revenue. 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not accepting the assessee's contention that in view of the provisions of section 47 of the Registration Act, the transfer was effected on the dates of execution of the sale deeds? In the negative and against the assessee. Question referred at the instance of the Revenue. 5. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the lands in question were on the date of their transfer agricultural lands? In the negative and against the Revenue. One question which was raised by way of a corrigenda and which has been numbered as question No. 4 as per the order of the Tribunal dated July 4, 1978, is covered against the assessee by a decision of this High Court in Smt. Padmavati Jaykrishna v. CIT [1975] 101 ITR 153 (Guj). The said question is, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fers effected before March 1, 1970, as contemplated in section 47(viii) of the Income-tax Act, 1961? In the negative and against the Revenue. 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest deficit to the extent of ₹ 6,453 was not deductible while determining the total income? In the affirmative and against the assessee in view of Smt. Padmavati Jaykrishna v. CIT [1975] 101 ITR 153 (Guj). Question referred at the instance of the Revenue. Question Answer 4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the lands in question were, on the date of their transfer, agricultural lands? Reference answered accordingly. In the negative and against the assessee. There will be no order regarding costs. The learned counsel for the assessee applies for a certificate of fitness to appeal to the Supreme Court under section 261 of the Income-tax Act. We do not consider t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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