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Asst. Commissioner of Wealthtax Versus M/s. M.R. Padmavathy Trust, Smt. M.R. Padmavathy (Indl.) , M.R. Jayaram (HUF) , M.R. Anandaram (HUF) , M.R. Anandaram (Indl.) M.R. Janakiram (HUF) , - Shri M.R. Janakiram (Indl) , M.R. Kondandaram (HUF) , Shri M.R. Kodandaram (Indl.) , M.R. Sampangiramaiah (HUF) , M.R. Sampangiramaiah (Indl.) , M.R. Seetharam (HUF) And Shri M.R. Seetharam (Indl.) And Vice-Versa

2015 (11) TMI 951 - ITAT BANGLORE

Lands pertaining to the assessee - whether are capital assets u/s 2(14) of the Income Tax Act? - whether the lands were capital assets in terms of the distance from the municipality and also the nature of the land and the activities carried on by the assessee on the said land? - Held that:- 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 as .....

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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 ide .....

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ous year and therefore long term capital gain has arisen on such transfer and that the assessee has also offered the same for taxation, and that subsequently, the assessees have filed revised returns of income claiming the entire capital gain admitted in the original returns of income filed, as exempt on account of treating the lands transferred as agricultural Land. The AO verified the wealth-tax returns filed by the assessees and observed that the assessees have not included the value of the u .....

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after, the assessees also requested the AO to supply copies of the reasons for reopening of the assessment. The AO, however, did not supply the reasons and proceeded to consider the land holdings of the assessees as urban land and brought it to tax. 3. Aggrieved, the assessees preferred appeals before the CIT(A) challenging both the validity of the reopening on the ground that the reasons for reopening were not given to the assessees and also on merits of bringing the land holding of the assesse .....

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he AO and submitted that the reopening of assessment has been consequent to the income-tax proceedings in the assessee s own case and the fact that the assessee had participated in the proceedings before the AO by filing detailed objections before the AO in treating the land as urban land clearly shows 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, .....

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n 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 has asked for reaso .....

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nd that it is not disputed by the revenue that the assessee had filed a letter asking the AO to treat the original returns filed by them as returns in response to the notice u/s 17 of the WT Act. It is the case of the assessee that thereafter, the assessee has requested the AO to supply the reasons for reopening. It is also not in dispute that the reasons were not supplied to the assessee. The argument of the learned Departmental Representative that since the assessee was aware of the reasons fo .....

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wealth-tax proceedings. But since the Wealth-tax Act provides separate provisions for reopening of the wealth-tax assessment and one of the conditions precedent for initiating the re-assessment proceedings is issuance of notice u/s 17 of the WT Act, the AO is bound to follow the procedure laid down for reopening of the assessments. We find that the decisions cited by the assessee as well as the Revenue have been extensively dealt with by the A bench of this Tribunal in the case of M/s.Suez Trac .....

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after 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 .....

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ngs under section 148 of the Act, within a reasonable period of time so that the assessee could efficiently represent / file objections to the same is, in our opinion, amply evident beyond any doubt from the facts on record and our observations thereon. The fact of non-provision of the reasons recorded for initiation of proceedings under section 147 / 148 of the Act before the completion of assessment proceedings for the relevant period and the furnishing of the said reasons recorded at the appe .....

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e Bangalore Tribunal in the case of K.V. Venkataswamy Reddy (supra) and of the ITAT, Mumbai in the case of Tata International Ltd. V DCIT (ITA No.3359 to 3361/Mum/2009 dt.29.6.2012), has recorded its findings at para 4.1.5 of its order which are extracted and reproduced hereunder : 4.1.5 From the discussion in paras 4.1.1 to 4.1.4 of this order (supra), it is clear that the settled proposition of law, as laid down by the Hon ble Apex Court, Hon ble High Court of Mumbai and as followed by the two .....

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r before completion of the assessment proceedings on 29/12/2008, 33 months after the request was made by the assessee by letter dated 16/4/2007. The subsequent furnishing of the reasons recorded to the assessee by the learned CIT(A) by letter dated 28/1/2010 does not achieve any purpose or mitigate the illegality of the action of depriving the assessee its right to raise objections against the initiation of proceedings under section 147/148 of the Act. In this view of the matter, we hold that th .....

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s 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 wer .....

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2.2009, about 45 months after the request was made by the assessee, does not achieve any purpose or mitigate the illegality of the action of depriving the assessee its right to raise objections against the initiation of proceedings under section 148 of the Act. In this view of the matter and following the decision of the co-ordinate bench of this Tribunal in the case of Synopsys International Ltd (supra), we hold that the order of assessment passed under section 143(3) r.w.s. 147 of the Act on 3 .....

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n land exigible to wealth-tax, the learned counsel for the assessee submitted that the ITAT in the assessees own case for relevant assessment year in the income-tax proceedings, has considered the issue and has held the said land to be agricultural land. Copy of the said order is filed by him at pages 48 to 90 of the paper book filed before us. The learned Departmental Representative, however, supported the orders of the authorities below. 8. Having regard to the rival contentions and the materi .....

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assessee on the said land. After 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 situate .....

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maiah; 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 income for the AYs 2004-05 to 2009-10 as accepted by the Department; That the capital asset as defined in s. 2(14) of the Act means property of any kind but does not include agricultural lands. The Income-tax Act has also not defined the agricultural land. Various Courts have recognized t .....

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l purposes. Thereby, the subject land was not a capital asset within the meaning of s. 2(14)(iii) of the Act; That in the said lands, the agricultural income derived was in accordance with s. 2(1A) of the Act; That the said lands were converted for nonagricultural purposes in the year 2004-05; that one of the mandatory conditions stipulated in the Order of conversion was that if the converted lands were not used for the purpose for which it was converted within a period of two years, the Order o .....

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n after the conversion of the agricultural lands for non-agricultural purposes, the assessee was carrying on the agricultural activities and also declaring income from such agricultural activities in its returns of income; That the AO in the assessment order held that once the agricultural lands were converted into nonagricultural, even though the agricultural activity continues, the lands cannot be considered as agricultural lands. However, without prejudice, as per the mandatory conditions in .....

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(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 asses .....

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e of the said property as on the date of conversion and not the original value claimed by the assessee in its computation of income. Assuming, on the date of conversion the agricultural lands being an exempted asset becomes a capital asset and, thus, a new asset springs up. Therefore, the cost for such lands for the purpose of computing capital gains should be the market value as on the date of conversion and indexation should be allowed on the said market value. It was not appropriate to adopt .....

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e treated as on the date of conversion as the basic cost of the asset and the same be indexed upto the year of sale in order to compute capital gains; With regard to the AO s stand that the subject land was within the jurisdiction of BIAAPA and the land ceased to be an agricultural land and the CIT (A) s reasoning that the BIAAPA was a municipal body as per the requirements of s. 2(14)(iii)(a) as it (i) performs municipal functions and (ii) municipality need not necessarily be an elected body et .....

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ation of the definitions cannot be extended to other parts of Constitution. In other words, the definitions provided in Part IX-A, 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 bod .....

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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) s averment that municipality need not necessarily be an elected body, it was contended that Article 243P(e) of the Constitution defines Municipality means an Institution of selfgovernment c .....

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e were local bodies referred to in sub-clause such as notified area committee, town area committee etc., which may not be comprised of elected representative and may also be constituted by statutory appointment, it was contended that to test if it is a Notified Area Committee or Town Area Committee or Town Committee ass referred to in s. 2(14)(iii)(a), the same has to be constituted under the Municipalities Act whereas BIAAPA has been constituted by virtue of a Notification under Karnataka Town .....

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ay of the previous year. As per the Census Report 2001 being the latest Census relevant to the AY under dispute, there was no mention of BIAAPA and evidently BIAAPA was not a Municipality in 2001. In the absence of such a Notification, BIAAPA cannot be considered falling within the exclusion contemplated in s. 2 (14)(iii)(a) of the Act. The population of Anneshwara Gram Panchayat within which the subject land situated had a total population of 4,607 as per the Census Report, 2001 and, thus, the .....

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. 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 a .....

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sale; (iv) The BIAAPA was not a Municipality and it was merely a Planning Authority; & (v) The subject land was situated in Anneshwara Gram Panchayat and, therefore, doesn t fall within the jurisdiction of a Municipality; 7.1. On the other hand, the submissions made by the learned DR are summed up as under: That the lands in questions were located within 8 K.Ms from Devanahalli Municipal Limits; That the lands were located within the jurisdiction of BIAAPA which is an authority as per the de .....

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A No.108/B/05 in the case of H.S. Vijayakumar v. ACIT, it wascontended that not only has the said case been distinguished by the CIT (A) on several counts but both the AO/CIT(A) in the present case have invoked several grounds as against the limited issues arising in the case of H.S. Vijayakumar which needs to be considered. This is besides the fact that the land under reference in the case cited by the assessee is situated in Hassan and nowhere in the vicinity of International Airport. In furth .....

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ugh the instruction was withdrawn with respect to the mode of computation of the cost of acquisition. Countering the assessee s assertion that the order of conversion had lapsed 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 j .....

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cres 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 ₹ 22,90,570/-, on the ground that the capital gains which arose on the sale of the said lands was wrongly offered .....

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? 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 30/2004-05 dated 19.7.2004 [source: Page 88 to 92 of PB AR] were sold to M/ .....

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maiah, the lands were further portioned [Refer: Para 3.2. of the Asst. order]. Even though, the subject property, among others, was converted as non-agricultural lands way back in 2004, agricultural activities, deriving agricultural income from the said lands, were continued unabatedly by the assessee and incomes admitted by it from such operations were accepted by the revenue from the AYs 2004-05 to 2009-10, the details of which are as under: Asst. year Agrl. Income [in Rs.] 2004-05 22,00,000 2 .....

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icultural 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 .....

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xisting in the subject property even on the date of sale. This clearly attributes the assessee s assertion that even on the date of transfer, the subject land was held to be agriculture. In this regard, we would like to refer to the Certificate of Senior Assistant Director of Horticulture (ZillaPanchayat) Devanahalli, Government of Karnataka, dated 23.4.2014 wherein it has been certified as under: This is to certify that M.R.Seetharam, s/o (of) Late M.S. Ramaiah residing at Gokula House, Dr M.S. .....

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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 purp .....

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finite conclusion, a number of tests will have to be undertaken as laid down by the Hon ble Supreme Court in the case of Sarifabibi Mohamed Ibrahim v. CIT reported in 204 ITR 631 (SC). The tests prescribed by the Hon ble Supreme Court as under: (i) Whether the land was classified in the revenue records as agricultural and whether it was subject to the payment of land revenue? (ii) Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time? (iii) Whet .....

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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 land on the material date; (vi) Whether the land, on the relevant date, had ceased to be put to agricultural use, if so, whether it was put to an alternative use; whether such ceaser and / or alternative user was of a permanent or temporary nature; (vii) Whether the land, though entered in the revenue records, had never b .....

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previous sales of portions of the land for non-agricultural use? (xi) Whether permission under Tenancy 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 nonagriculturist 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 .....

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d by his father as an investment. As could be seen from earlier documents of purchase which explicitly exhibit that the subject land had put to exclusive use for agricultural purposes only and in fact a grove [orchard] had been grown with fruits-yielding trees such as mangoes, sapota, coconuts, jack-fruits, etc., Incidentally, the surrounding lands were also subjected to agricultural activities as in the case of the property under dispute. Though the present assessee became the legitimate owner .....

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O 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 wa .....

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iscussed, even though the subject property was converted for nonagricultural purpose vide Conversion Order dated 19.7.2004, the assessee continued the agricultural operations in the converted lands which was evident on our site visit and also from the fact that incomes derived from such agricultural operations on the said lands declared by the assessee in its returns of income which were accepted by the Revenue for the AYs 2004-05 to 2009-10. 7.3.3. At this juncture, we would like to refer to th .....

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esidential 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 .....

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ciously levied agricultural land tax. No adverse inference can be drawn. The ld. Counsel for the assessed tried to demonstrate that as per the Karnataka Land Revenue Act, 1964, section 83(2) read with sec. 95(2) mandates that the land holder should continue to pay the land revenue even after conversion. We need not go into this aspect for the reason that the period is too short a period and it is not a case where the revenue authorities have refused to levy land revenue by showing the reason of .....

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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 that the facts of the case clearly point out that the land in question continued to be agricultural land and was put to use as such, prior to sale to Indian Oil Corporation, despite the permission obtained from the .....

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s or for infrastructural developments such as roadways and railways. After identifying particular areas, the Government notifies that a particular area would be used for non-agricultural purposes. It is thereafter only that the acquisition start and accordingly 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 ac .....

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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 nonagricultural purpose and consequently recorded a perverse finding? & 2. Whether the appellate authorities were correct in holding that though the land is converted into nonagricultural, in view of the cultivation of the land till the date of sale, the land should be treated as agricultural la .....

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in 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 n .....

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as this sale was after the date of permission for non-agricultural use granted by the Asst. Commissioner, viz., after May 10,2004, whereas the earlier sale transaction dated April 7, 2004, is held to be in respect of an agricultural land. We do not find the reasoning and the principle enunciated by the Tribunal for making a distinction as to whether the land was agricultural land or otherwise in the case of T. Suresh (supra) apply to the present case to be obnoxious or violating any statutory pr .....

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er consideration. The main issue before the earlier Bench was: Whether the land sold by the assessee was agricultural in nature or not? 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………………………………… .....

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p;…………………….…………… 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 ret .....

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ion 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 w .....

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ted 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 appr .....

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the land. Coming to the facts in the instant case, the previous owner made an application for conversion, obtained the permission, but with the condition that the land should be used for the intended purpose within two years, otherwise 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 don .....

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he assessee also what was paid by the assessee was agricultural revenue. The non-agricultural revenue was paid by the subsequent purchaser after making an application for the second time to revive the nature of the land which is evidenced by the letter dt 1.3.2005 which was written to the Secretary, Manchanayakanahally Gram Panchayat by the Tibetan Childrens Village. In the case decided by the Hon ble High Court, it was held that the correct test to be applied was whether on the date of sale of .....

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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 that the land situated in a rural area i.e., 8 Kms away from the limits of Bangalore Mah .....

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land converted was treated as agricultural land within the meaning of s. 2 (14)(iii)(b). …………………………………………………………………………….. 54. On similar issues in the connected case, we had held that the evidence produced by the assessee before the assessing officer and Commissioner of Income-tax (A) to the effec .....

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. On similar set of facts in the connected other cases, we have held that the land sold by the assessee is to be treated as agricultural land and the reasons given is applicable in the instant case of the assessee as the facts are identical………………. 7.3.7. The fact that the assessee had continued the agricultural operations unabated in the subject property on the date of sale even though the said land was converted for non-agricultural purposes by a Conver .....

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s 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 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 Karnatak .....

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hra 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. 7.3.9. Thus, it is evident from the fact that the agriculturists in other States can sell their agricultural lands without getting the same converted whereas the agriculturists in Karnataka cannot do so due to the Land Reforms Act prevailing in the State. As such, an agri .....

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State Reforms Act permitted the assessee to sell its agricultural lands without conversion to a Corporate as in the case of other States (supra), the assessee would not then be required to get the land converted merely to facilitate its sale to a corporate and the gains arising from such sale would not have been exigible to Capital Gains tax which is the subject of a Central Act (Income-tax Act).In the instant case as mentioned earlier even after conversion, assessee was carrying on agricultura .....

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t 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. Whether the BIAAPA can be treated as a municipality and, consequently, the issue falls within the ambit of s. 2 (14)(iii) (a) of the Act? 8. Further, the AO took a stand that (i) the subj .....

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ed 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 .....

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he expression by any other name appearing in Item (a) of clause (iii) of s. 2 (14) has to be read ejusdem generis with the earlier expression i.e., municipal corporation, notified area committee, town area committee. It was, further, submitted the fact that the Legislature took a conscious decision to specify the words whether known as municipality, municipal corporation, notified area committee, town area committee, town committee or any other name in brackets. This mean, it was argued, that th .....

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as contemplated by s. s. 2 (14) of the Act. 8.3. We have carefully considered the reasoning of the authorities below and also the divergent contentions of either of the party on the issue. Indeed, BIAAPA performs only planning and zoning functions, but, does not perform any other municipal functions as canvassed by the Revenue. Other major municipal/panchayat functions are required to be performed only by an elected body, namely, the respective municipality/panchayat within the ambit of the are .....

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ection from the territorial constituencies in the Municipal area and, thus, clear that a municipality has to necessarily be an elected body whereas BIAAPA was not an elected 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 .....

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ellip;……………………………………………………………...... 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 . .....

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cultural land in dispute cannot be said to be situated in an area which is comprised within the jurisdiction of a municipality. The word municipality used in the section considered in the light of the various expressions used in the brackets, namely, whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name must be held to take in its fold a township also, counsel for the Revenue submits. Of the various words includ .....

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meaning of the section. Therefore, to find a solution to the problematic dispute, we have to give a meaning to the word municipality which stands undefined in the Act. Generally understood, municipality means a legally incorporated or duly authorised association of inhabitants of a limited area for local governmental or other public purposes [Black s Law dictionary]. The above definition more or less is reflected in the provisions contained in Chapter III of the Kerala Municipalities Act, 1960. .....

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overnment 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 .....

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se local authorities which have all the trappings of a municipality as stated above can be said to be municipalities within the meaning of the section. The Guruvayur Township, constituted under the Guruvayur Township Act, considered in this backdrop, cannot be said to be a municipality. The Guruvayur Township is not an autonomous body like a municipality. It is constituted by the Government by a Notification issued under the Guruvayur Township Act. To put it differently, the members of township .....

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on ble Court was: Whether the land owned by the assessee which was acquired under the provisions of the Land Acquisition Act, was an agricultural land or a capital asset within the meaning of s. 2 (14) of the Act in order to determine the taxability of amount of compensation received by the assessee? After taking into account the relevant facts of the case, the Hon ble Court was of the view that it was to be regarded as a capital asset within the meaning of s. 2 (14) of the Act for the following .....

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nicipality etc., it was held by the Court that Haryana Urban Development Authority was a local authority in terms of s. 3 of the Haryana Urban Development Authority Act, 1977 and, thus the local authority in terms of s. 3(31) of the General Clauses Act means a Municipality. Therefore, conversely, the expression Municipality in s. 2 (14) of the Act would include a local authority; & (iv) in view of the above, it was held the land, subject matter of acquisition, was a capital asset falling wit .....

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e 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 ex .....

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parently, there is no judgment rendered by the Hon ble jurisdictional High Court on this issue. In the given circumstances, following the judgment of the Hon ble Supreme Court in the case of CIT v. Vegetable Products Limited reported in 88 ITR 192 (SC), we hold that where two views are possible on an issue, the view in favour of the assessee has to prevail. Accordingly, in conformity with the judgment of the Hon ble Kerala High Court in Murali Lodge s case (supra) which is directly applicable to .....

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n as it was not liable for capital gains etc., 9.1. On the other hand, the learned AR submitted that in the original return of income furnished, the assessee had inadvertently and due to wrong advice, it had declared income from Lon term capital gains aggregating to ₹ 14.7 crores from the sale agricultural lands. On being appraised of the legal position to the effect that the sale of land was under active agricultural cultivation which was exempt from tax and also excluded from the definit .....

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