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2015 (11) TMI 951

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..... ince we have held the land to be not ‘urban land’ and not exigible to wealth-tax, the issue of valuation of capital asset becomes academic and therefore is not adjudicated at this stage. - WTA No. 16/Bang/2014 to 29/Bang/2014 - - - Dated:- 31-3-2015 - SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER Cross Objection No. 86/Bang/2014, 87/Bang/2014, 88/Bang/2014, 89/Bang/2014, 90/Bang/2014, 91/Bang/2014, 92/Bang/2014, 93/Bang/2014, 94/Bang/2014, 95/Bang/2014, 96/Bang/2014 97/Bang/2014 For the Petitioner : Shri S.Chandrashekar, Advocate. For the Respondent : Shri C.H.Sundar Rao, CIT(DR). ORDER Per BENCH: The appeals by the Revenue and the cross objections by the assessees are directed against the identical orders of the CIT(A) for the assessment year 2005-06. 2. Brief facts relating to all these appeals are that the assessees are all owners of land located in Akkalenahalli- Mallenahalli villages. All the assessees had filed their returns of income as well as wealth-tax returns for the relevant assessment year. During the income-tax assessment proceedings of all the assessees, the relevant Assessing Officers .....

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..... that the assessee was aware of the reasons for reopening. Therefore, according to him, there was no justification in setting aside the assessment order by the CiT(A). In support of his contention, he placed reliance upon the following judgments: i. (2014) 221 Taxman 25 (Kar.) Aru G Toppannavar vs. CIT, Belgaum, wherein it was held that reopening is valid where detailed order is passed by the AO in which reasons were recorded for reopening of the case; ii. 8 ITD 141 (Mds) II Wealthtax Officer vs. Suresh Khanna; iii. 110 ITD 24 (Datamatrics. Vs. ACIT) 5. The learned counsel for the assessee, on the other hand, supported the order of the CIT(A) and submitted that the Hon ble Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. ITO (259 ITR 19) has clearly held that where the assessee, after filing return of income pursuant to the notice for reopening of the assessment, asked for the reasons recorded, the AO has to supply the reasons for such reopening and if the assessee files objections to such reopening, the AO has to dispose of the same before proceeding with the re-assessment proceedings. He submitted that in the case before us, though the assessee ha .....

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..... ra) that once a notice under section 148 is issued, the assessee has to file the return of income in response thereto and thereafter may request the Assessing Officer to furnish the reasons recorded for initiation of proceedings under section 147 / 148 of the Act which the Assessing Officer is bound to provide within a reasonable period of time so that the assessee could file its objections thereto and which the Assessing Officer has to dispose off by way of a speaking order thereon. 14.4 In the case on hand, we find that the assessee had filed its return of income for Assessment Year 2002-03 on 28.10.2002. In response to the notice under section 148 of the Act dt.31.3.2005, the A.R. of the assessee vide letter dt.27.4.2005 requested the Assessing Officer to treat the return filed on 28.10.2002 as having been filed in response to the notice issued under section 148 of the Act and therein also requested for provisions of the reasons recorded for initiating proceedings under section 148 of the Act. The failure of the Assessing Officer in providing the assessee with the reasons recorded for initiation of proceedings under section 148 of the Act, within a reasonable period of tim .....

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..... ct. In this view of the matter, we hold that the order of assessment passed under section 143(3) rws 148 of the Act dated 29/12/2008 for the assessment year 2005-06 without the Assessing Officer furnishing the recorded reasons for initiation of proceedings under section 147/148 of the Act to the assessee within reasonable time and prior to the completion of the assessment proceedings, renders this order of assessment invalid and unsustainable in law. The above referred decision of the co-ordinate bench of this Tribunal in the case of Synopsys International Ltd. (supra) is squarely applicable to the facts of the instant case of the assessee. In the case on hand also, the reasons recorded by the Assessing Officer for initiating proceedings under section 147 / 148 of the Act were not furnished to the assessee by the Assessing Officer during the pendency of assessment proceedings, in spite of being requested to do so by the assessee's letter dt.27.4.2005, 22.6.2005 and 27.3.2006. The reasons as recorded by the Assessing Officer were furnished to the assessee by the learned CIT(Appeals) by letter dt.13.2.2009 as recorded in his appellate order at para 4.3 at page 11 thereof. .....

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..... fter examination of the relevant details, the Tribunal, at paragraphs 7 to 9 (on pages 9 to 42), has come to the conclusion that the land is not a capital asset u/s 2(14) of the IT Act. The relevant portion is reproduced hereunder: 7. Aggrieved, the assessee has come up before us with the present appeal. During the course of hearing, the submissions made by the learned AR are summarized as under: That the agricultural lands to an extent of 6 acres and 1 gunta situated at Akkalenahalli Mallenahalli of DevanahalliTaluq was converted. However, the assessee continued to cultivate the crops and was earning agricultural income from it. During the assessment year under consideration, the assessee had sold the same to M/s. ETL Corporate Services Private Limited, for a sum of ₹ 45,58,12,500/-; That the subject land was a part of around 600 acres of lands known as Gokula Farm being jointly cultivated by the family consisting of 10 children of Late Sri M.S. Ramaiah; and that the farm was a fully grown orchard comprising various fruit bearing trees besides seasonal crops such as tomato, pepper, ragi, paddy etc., and the income admitted by the assessee as agricultural i .....

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..... ural use within a period of two years from the date of conversion order, the conversion becomes null and void. Since the land continued to be for agricultural purposes and, thus, the said land was not put to non-agricultural use and, thereby, the land has retained its original nature of being an agricultural land; Relies on the following case laws: (i) H.S.Vijayakumar v. ACIT ITA No.108/Bang/2005 dated 28.11.2006; (ii) Hindustan Industrial Resources Ltd v. ACIT 221 CTR 710 (Del); (iii) M.S. SrinivasaNaicker v. ITO 292 ITR 481 (Mad) That the case laws, namely, (i) C Hanumantappa, s/o Chinnappa v. State of Karnataka 2007[4Kar LJ 394] and (ii) the judgment of the Hon ble jurisdictional High court in MadhavBhandopanthKulkarni Anr v. the Land Tribunal, Belgaum Ors [5 Kar LJ 13] relied on by the CIT (A) were distinguishable as the facts of the above cited cases were not comparable to the assessee s case as the assessee has been carrying on agricultural activity even after the conversion of land; That without prejudice, the subject land was an agricultural land and was not a capital asset within the meaning of s 2(14); assuming but not concedi .....

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..... , dealing with Municipalities cannot be extended to include the definitions provided in Part IX dealing with Panchayats and that the definitions of each of the referred Part of the Constitution has to be strictly interpreted; That the CIT (A) had failed to appreciate that both Panchayats and Municipalities perform similar functions viz., municipal functions. If all bodies performing municipal functions were to be treated as Municipalities, then there wouldn t be any land excluded from the definition of s. 2(14) of the Act as (in the country) lands will fall either under Municipality or Panchayat both of which perform Municipal functions; With regard to the CIT (A) s assertion from the byelaws of BIAAPA that it is entrusted with several municipal functions, particularly, in relation to land use, zoning, town planning etc., it was contended that BIAAPA performs only planning and zoning functions and does not perform any other municipal functions. Other major municipal functions were required to be performed by the respective municipalities/panchayats within the ambit of the area covered by BIAAPA and, thus, BIAAPA was a mere planning authority; Disputing the CIT(A) .....

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..... n of a Grampanchayatbe regarded as situated within municipality. Panchayats and Municipalities are distinct bodies. Panchayat operates in aPanchayat area as defined in Article 243(d) of the Constitution whereas a Municipality operates within the Municipal area as defined in Article 243P(d) of the Constitution. As there was a clear demarcation of the areas, any land falling within a Panchayat area cannot be a part of the Municipal area, and, thus, the disputed land was not a capital asset within the meaning of s. 2(14)(iii)(a) of the Act Relies on the following case laws: (i) K Parameshwaran v. ITO - 7 TTJ 194 ITAT, Chennai; (ii) ITO v. Venkataramana 46 TTJ 706 ITAT, Hyderabad; (iii) CIT v. P J Thomas 211 ITR 897 (Mad) In conclusion, the learned AR pleaded that (i) The subject land was an agricultural land and, thus, not liable to taxation; (ii) The CIT (A) had failed to appreciate that the conversion of land does not affect the character of it being agricultural land and more so when an extensive cultivation was being carried out and income from agriculture derived from the said land has been accepted by the Department; (i .....

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..... after two years after the conversion order, the Revenue had relied on the judgment of the Hon ble jurisdictional High Court in the case of Mallikarjun Co-operative . v. State of Karnataka [ILR 1995 KAR 2230, 1995 (6) KarLJ 46 dt. 5.7.1995]. With regard to BIAAPA, the Revenue had placed its strong reliance on the judgment of the Hon ble Punjab Haryana High Court in the case of CIT v. Smt Rani Tara Devi (2013) 214 Taxman 321 [P H] when the agricultural land becomes a capital asset. 7.2. We have carefully considered the rival submissions, perused the relevant materials on record and also the various judgments of judiciary on a similar issue relied on by either of the party. The assessee-HUF had sold lands situated at Akklenahalli and Mallennahalli villages of DevanahalliTaluk to an extent of 6 acres and 1 gunta for a total consideration of ₹ 45,58,12,500/- vide a registered Sale Deed dated 12.4.2007 and, accordingly, admitted an income of ₹ 14,17,87,795/- as Capital Gains from the above transaction in its original return of income furnished to the Department. Subsequently, in its revised return of income dated 15.6.2009, the assessee had admitted income of ₹ .....

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..... 6,50,000 2008-09 16,50,000 2009-10 16,50,000 7.2.4. Though the said land was converted into nonagricultural purposes in the year 2004-05 and one of the mandatory conditions specified in the conversion order dated 19.7.2004 was that if the converted land was not used for the purpose for which it was converted within a period of two years from the date of conversion, the order of conversion stands cancelled. Apparently, the assessee had continued the agricultural operations in the converted lands also which is evident from the fact that incomes derived from such agricultural operations on the said lands declared by the assessee in its returns of income were accepted by the revenue for the AYs 2004-05 to 2009-10 (supra). No evidence was brought on record by the Revenue to suggest that the subject lands were utilized for any other purposes other than that of cultivation after conversion. This is evident from the fact that the incomes derived from such lands duly declared by the assessee which were accepted by the revenue. 7.2.5. Incidentally, the subject property was inspec .....

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..... onclusion, a number of tests will have to be undertaken as laid down by the Hon ble Supreme Court in the case of Sarifabibi Mohamed Ibrahim v. CIT reported in 204 ITR 631 (SC). The tests prescribed by the Hon ble Supreme Court as under: (i) Whether the land was classified in the revenue records as agricultural and whether it was subject to the payment of land revenue? (ii) Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time? (iii) Whether such user of the land was for a long period or whether it was of a temporary character or by any stop gap arrangement? (iv) Whether the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land? (v) Whether the permission under Land Revenue Code was obtained for the non-agricultural used of the land, if so, when and by whom [the vendor or the vendee]; whether such permission was in respect of the whole or a portion of the land; if the permission was in respect of a portion of the land and if it was obtained in the past, what was the nature of the user of the said portion of the l .....

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..... inheritance/in a partition/family arrangement as the case may be, the nature of the land use had not, however, undergone any change. Whether the lands which were used as agricultural lands even after its conversion loose its character of agricultural lands? 7.3. The stand of the AO was that once the agricultural lands were converted into non-agricultural, even though agricultural activity continues, the lands cannot be considered as agricultural lands. Countering the AO s assertion, the learned AR had argued that as per the mandatory conditions mentioned in the Certificate of conversion, if the subject land was not put to nonagricultural use within a period of two years from the date of conversion order, the conversion itself will become null and void. In this connection, the learned AR had placed strong reliance on the judgment of the Hon ble Jurisdictional High Court in the case of CIT v. Smt. K.Leelavathy (supra). 7.3.1. It is a fact that the land which was hitherto agricultural land does not automatically become a capital asset upon a mere fact of its conversion to non-agricultural purpose. The land even though converted for nonagricultural purpose, continue .....

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..... for the assessed tried to demonstrate that as per the Karnataka Land Revenue Act, 1964, section 83(2) read with sec. 95(2) mandates that the land holder should continue to pay the land revenue even after conversion. We need not go into this aspect for the reason that the period is too short a period and it is not a case where the revenue authorities have refused to levy land revenue by showing the reason of conversion or for the reason that the assessee has refused to pay such land revenue. The AO has recorded a finding that the land revenue records to show that ragi and horse gram were grown on the said land. The reasons recorded by the assessing officer as well as the CIT (A), to our mind, are not relevant for coming to the conclusion as to whether a particular asset is a capital asset within the meaning of sec. 2 (14) of the Incometax Act. The issue whether a particular land is agricultural land or not has been the subject matter of dispute in many a cases. In each of the judgments broad outlines have been given and it is suffice to say that the unanimous view of all the Hon ble Courts is that the issue should be decided on the facts and circumstances of the case. As we find th .....

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..... of the either of the party and also the perusal of the orders of the authorities below, the Hon ble Court had held as under: 5. We find from the record that the Appellate Commissioner as well as the Tribunal followed an earlier ruling of the Tribunal rendered on December 30, 2009, in the case of T.Suresh Gowda [ITA NO.262/Bang/2009] wherein it appears, the question was resolved by looking into the date of permission for conversion as the cut-off line to decide as to whether the land was an agricultural land or otherwise. 6. It appears, the Tribunal had opined that the land retained its agricultural character till the date of order permitting non-agricultural use and, thereafter, it is not an agricultural land and, therefore, can be treated as capital asset. 7. The Appellate Commissioner as well as the Tribunal has applied this norm and while they did hold that the sale transaction in respect of the following extent of land: Conversion NotificationNo. and date Sy.No. Extent of area Date of sale Sale consideration No.ALNSR/94/98-99 DT.29.4.1999 .....

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..... poses. 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 ₹ 53 lakhs for 2004-05 and estimated agricultural income of the group at ₹ 56 lakhs. Therefore, it is difficult to come to the conclusion that in the hands of the assessee, the character of the land had changed. Merely because the original owners had made application to change the character of the land from agricultural to non-agricultural and certificate was issued to that effect. Even for the revenue, there is no case that the land has been used for the intended purpose. 38. In the decision of Gujarat High Court relied upon by the DR, in the case of Gordhanbhai Kahandas Dalwadi v. Commissioner of Income-tax (1981) 127 ITR 664, the Hon ble High Court held that the potential non-agricultural use does not alter the character of the land. This was a case wherein the land was purchased in 1954 and, subsequently, sold in 1969. The entries in the revenue records showed that the land was .....

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..... was paid by the assessee was agricultural revenue. The non-agricultural revenue was paid by the subsequent purchaser after making an application for the second time to revive the nature of the land which is evidenced by the letter dt 1.3.2005 which was written to the Secretary, Manchanayakanahally Gram Panchayat by the Tibetan Childrens Village. In the case decided by the Hon ble High Court, it was held that the correct test to be applied was whether on the date of sale of the land whether the land was agricultural or non-agricultural and not the intended purpose and how the purchaser was going to use land. ITA.305/Bang/2009 By the Revenue in the case of T. Suresh GowdaAY 2005-06 53. The revenue had taken an additional ground that is with regard to taking fresh additional evidence filed by the assessee without giving opportunity to the assessing officer. In this case, the assessing officer noticed that the assessee had sold land measuring 40 acres and 20 guntasat Seshagirihalli for ₹ 4,50,00,000/- on 7.4.04 to Tibetan Childrens village and claimed exemption from capital gains which worked out to ₹ 3,68,01,771/- on the ground .....

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..... 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 agriculture is a State subject and different States have different reforms (laws) as to who can purchase/own agricultural lands in the respective States. To illustrate further, in Karnataka, non-agriculturists and industrial companies are prohibited from purchasing of lands which are classified as agricultural in the revenue records. If an agriculturist intends to sell his agricultural lands to a company/non-agriculturist for the use of nonagricultural purposes, he must possess a conversion order obtained from the revenue authorities to utilise the subject land for non-agricultural purposes. However, the same law/rule is not prevalent in the neighbouring States of Tamil Nadu, Andhra Pradesh or in Maharashtra, Delhi etc. In other words, the agriculturists of the said States are free to sell their lands as shown in the revenue records to nonagriculturists/ Corporates without obtaining a conversion order. .....

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..... n authority as per the definition of asset in s. 2 of the Act; and (iii) the said lands were located within 8 KMs from BBMP as the crow flies or a person walks in a straight line (being the shortest distance) and, therefore, assets as per the definition of asset in section 2 (14)(iii)(b) [Refer: Para 4 on Page 4 of the Asst. Order]. 8.1. The CIT (A) was also of the view that it may be noted that BIAAPA is identified in its bye-laws as a Local Planning Area with its Zonal regulations prepared under clause (iii) of sub-section (2) of section 12 of the Karnataka Town and Country Planning Act, 1961. While justifying the need for the Zoning Regulations enforceable by BIAAPA, it is stated that the same are intended to promote public health, safety and the general social welfare of the community , and to ensure that most appropriate, economical and healthy development of the town takes place in accordance with the land use plan and its continued maintenance over the years. 8.1.1. During the course of hearing, the learned DR had placed strong reliance on the judgment of the Hon ble Punjab and Haryana High Court in the case of CIT v. Smt Rani Tara Devi (2013) 214 Taxman .....

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..... d body, but, an appointed body and, therefore, BIAAPA does not qualify to be considered as a Municipality. 8.3.1. To strengthen the above view, it is appropriate to refer to the judgment of the Hon ble Kerala High court in the case of CIT v. Murali Lodge reported in (1992) 194 ITR 125 (Ker). The issue before the Hon ble Court was Whether the land in question situated within Guruvayur Township can be treated as a capital asset within the definition of section 2(14) of the I.T. Act? After having considered the facts of the issue and also in conformity with the judgment of the Hon ble Supreme Court in the case of Garden silk Weaving Factory v. CIT [(1991) 189 ITR 512 (SC)], the Hon ble Kerala High Court had, comprehensively, dealt with the issue of Whether the local authority is a Municipality? as under: (On page 127) ...... From the plain and unambiguous language employed in the section [2(14)(iii)(a)], it is clear that, if the agricultural land is situated outside the jurisdiction of a municipality then no tax on any profits or gains arising from the transfer of such land will be chargeable under the head capital gains . The question, therefore .....

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..... ity are elected by the members of the council. The commissioner is appointed by the Government in consultation with the council. It is the duty of the commissioner to carry into effect the resolutions of the council unless it be that the said resolution is suspended or cancelled by the Government. The municipality contemplated under section 2(14)(iii)(a) must be one which satisfied the above requirements. All the local authorities included in the brackets must satisfy the above requirements to be known as a municipality . The position, however, would have been different had the section contained a definition which takes in its fold the local authorities included in the brackets, namely, municipal corporation notified area committee, town area committee, town committee or such other similar local authority . In that event, the Guruvayur Township can be said to be a municipality. The plan language employed in the section, however, makes it clear that the intention of the Legislature is not to treat every local authority as a municipality; but, on the other hand, only those local authorities which have all the trappings of a municipality as stated above can be said to be municipali .....

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..... falling within the scope of clause (iii) of s. 2 (14). 8.3.3. In this connection, we would like to point out that the said land was situated between the developed sectors of Panchkula on one side and on the other-side it was within a radius of 1 KM from the District headquarters, colleges, hospitals etc., whereas in the present case, the subject property was surrounded by lush green agricultural lands. Therefore, we are of the view that the case law relied on by the Revenue is not directly applicable to the issue on hand. 8.3.4. Further, while deciding the issue against the assessee, the Hon ble Court had distinguished the judgment of Hon ble Kerala High Court in Murali Lodge s case (supra) in an identical issue, with the following observations: 29. With respect, we are unable to agree with the view expressed by the Kerala High Court in the aforesaid judgment. The expression by any other name appearing in item (a) of clause (iii) of section 2(14) has to be read ejusdem generis with the earlier expressions i.e., municipal corporation, notified area committee, town area committee, town committee. The Court has also not considered the scope and ambit of section 3 .....

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..... r consideration on 31.7.2008, admitting a total income of ₹ 14.86 crores and, subsequently, a revised return of income was filed on 15.6.2009 admitting an income of ₹ 22.9 lakhs i.e., well before the initiation of assessment proceedings which eventually started only on 19.11.2010. Thus, the assessee was within its domain to revise its income and also furnish a revised return of income before the initiation of its assessment proceedings. Therefore, the argument of the learned DR doesn t carry any conviction and, accordingly, the same is rejected. Since the Tribunal, in the assessee s own case in income-tax proceedings with regard to the same subject matter, has taken the stand and held the land to be agricultural land and the definition of capital asset in the Income-tax Act is similar to the definition of urban land under the Wealth-tax Act, we respectfully follow the order of the co-ordinate bench of the Tribunal and hold the said land to be not urban land exigible to capital gains tax. 9. Since we have held the land to be not urban land and not exigible to wealth-tax, the issue of valuation of capital asset becomes academic and therefore is not adjudica .....

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