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2015 (11) TMI 980 - ITAT BANGALORE

2015 (11) TMI 980 - ITAT BANGALORE - TMI - Addition in the value of wealth - whether the CWT(A), right in holding the impugned lands are urban lands and the BIAPPA is municipality or notified area as defined in section 2(14)(iii) of the Act - Held that:- respectfully following the co-ordinate bench decisions in assessee own case in [2015 (11) TMI 951 - ITAT BANGLORE]and also coordinate bench decision, we hold that the impugned lands are not urban lands within the meaning of section 2(ea) of the .....

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er G Manjunatha, Accountant Member : These appeals filed by the revenue are directed against the separate but, identical orders of the Commissioner of Wealth -tax (Appeals) -III, Bangalore, dated 9-1-2013 u/s 16(3) r.w.s. 17 of the Wealth Tax Act, 1957 for the A.Y. 2005-06, 2006-07 and 2007-08. 1.The assessee has raised common grounds for all the three assessment years, except for the A.Y. 2006-07, where the assessee has challenged the validity of the reassessment proceedings. The only issue evo .....

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f the assessee for the A.Y. 2008-09, the AO noticed that the assessee has transferred certain lands and computed the capital gains and paid tax. Subsequently, the assessee has filed revised return and claimed the exemption on capital gain admitted in the original return, as the lands transferred is agricultural lands. The AO gathered information from the income tax proceedings, verified the wealth -tax returns filed by the assessee and observed that the assessee has declared the lands situated a .....

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the assessment years in question. Therefore, the AO sought to reopen the assessment and issued a notice u/s 17 of the wealth -tax Act, 1957. In response to notice issued u/s 17, the assessee filed a letter along with copies of wealth - tax returns filed earlier for the asst. year under consideration and requested to treat the same as returns filed in response to notice issued u/s 17 of the Act. Subsequently, the case was selected for scrutiny assessment. During the course of assessment, the AO i .....

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ed elaborate written submissions and questioned the chargeability of wealth tax to the impugned lands. The AO after considering the explanations, held that the impugned lands are converted lands, situated within 8 KM from the local limits of BBMP and also within the local limits of BIAAPA and brought to wealth tax. 3. The assessee preferred an appeal before the CWT(A) and challenged the validity of re-assessment and also impugned additions. Before CWT(A), the assessee made elaborate written subm .....

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m the said land. In support of his contention, the assessee relied upon plethora of case laws. Therefore, for the reasons stated above, he has prayed the CWT(A) to delete the impugned additions. However, the CWT(A) after considering the explanations, held that the impugned lands are converted from agricultural to non-agricultural purpose, situated within the limits of BIAAPA and BIAAPA is a municipality. With this observations, the CWT(A) confirmed the assessment order. Aggrieved by the order, t .....

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he issue is also covered in favour of assessee by the decision of ITAT orders in assessee family members case in WTA. No. 16/B/2014 to 29/B/2014. The ITAT, under similar facts and circumstances held that the impugned lands are not urban lands exigible to wealth-tax. Copies of relevant orders are furnished in paper book page No. 1 to 73. 5. The Departmental representative on the other hand, strongly supported the orders of Assessing Officer and CWT(A) and urged to confirm the CWT(A) order. 6. We .....

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s are urban lands and the BIAPPA is municipality or notified area as defined in section 2(14)(iii) of the Act. The ld. Authorised representative brought to the notice of the bench that the issue in this appeal is covered by assessee own case in ITA.No. 262/B/2013.We find that the co-ordinate bench of this tribunal in assessee own case in ITA No. 262/B/2013 for the assessment year had considered whether the impugned lands situated at Akkalenahalli- Mallenahalli Village pertaining to the assessee .....

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ds are not capital assets within the meaning of section 2(14). The relevant portion is reproduced hereunder. 8. It is now for us to consider as to whether the order passed by the co-ordinate bench of this Tribunal in the case of M.R. Seetharam (HUF) in ITA No.16154/Bang/2012 dt.13.6.2014 is applicable to the facts of this case. The land in question, which are sold by the assessee and subjected to the charge of LTCG by the authorities below, became the properties of the assessee's by virtue o .....

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by the assessee in respect of the said land. Agricultural activities were continued thereon right up to the date of sale thereof on 8.2.2008 and the same has been accepted by the Income Tax Department while determining the assessee's income and computing the taxes thereon. In fact no development activities have taken place on these lands even after six years after the date of sale and this was evident from the physical inspection undertaken by the Members of the Co-ordinate bench prior to th .....

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e now proceed to examine and take up for consideration the issues and reasons cited / raised by revenue in written submissions dt.12.9.2014 as to why the order of the co-ordinate bench of this Tribunal in the case of M.R. Seetharam (HUF) is not to be applied to the case in hand :- 1. Various factual and legal aspects of the order delivered in case of M R Seetharam (ITA No.1654/Bang/2012) need to be deliberated upon once again, especially in the context of the above mentioned appeals and only aft .....

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in mind the sacrosanct principle that the Tribunal should not concern itself with the possible implications on Revenue that the orders passed by it may have. The Tribunal is expected to pass orders which, in its opinion, are correct in law, based on facts and circumstances, irrespective of implications on the revenue or for that matter on the assessee's case also. 3. Apart from the above mentioned assessees, many other assessees have sold lands in this area which is arguably one of the areas .....

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of a converted land in the state of Karnataka. The order of this Tribunal will confine itself to deciding the taxability or otherwise of the gains arising from the sale of the lands in question in accordance with the provisions contained in the Income Tax Act, 1961. If Revenue expects this Tribunal to decide the question framed in the above cited reason, then such expectation is either borne out of ignorance or mischievous in nature. If mischievous, then Revenue would be well advised to avoid s .....

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l reading of the above, we draw the following conclusions as regards the decision rendered in the order in the case of M.R. Seetharam (HUF) :- 10.1 There is no dispute as regards the fact that the lands in question stood converted, as on the date of sale, in the records of the land revenue authorities of the State Government, as but for this fact, the sale of the lands in question to corporates could not have taken place in the State of Karnataka. Thus the fact that the lands sold are therefore .....

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the reasons to support the proposition that the land continued to be agricultural lands as the permission was not acted upon within the given time and that the lands in question continued to be used only for agricultural purposes. The co-ordinate bench of this Tribunal at para 7.2.6 of its order in the case of M.R. Seetharam (HUF) (supra), citing the mandatory condition in the conversion order, observed that - …. 10. The land should be used for the said purpose within two years from the .....

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e bench of this Tribunal held that the lands sold are agricultural lands and not capital assets u/s. 2(14) of the Act. 10.3 The co-ordinate bench of this Tribunal has proceeded to hold that the lands sold are agricultural lands and not capital assets u/s.2(14) of the Act on the basis of its findings rendered from paras 7.2.7 to 7.3.10 of its order in the case of M.R.Seetharam (HUF) (supra) and has come to the following important conclusions :- (i) The lands in question do not cease to be agricul .....

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d therefrom in the returns of income filed before the Department in this period; (b) The assessee did nothing to change the physical character of land from agricultural to non-agricultural even after obtaining the permission to convert; (c) The land continued to be agricultural land in actual physical condition even after a period of six years after its sale. (d) The assessee obtained permission to convert the land merely to facilitate its sale to corporate entity as the sale would otherwise not .....

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an (ITA No.108/Bang/2009 dt.28.11.2006). (ii) T. Suresh Gowda & Others (ITA Nos.1464 & 1465/Bang/2008; 177, 178, 262 & 305/Bang/2009 dt.30.12.2009). The Tribunal also placed reliance on the decision of the Hon'ble jurisdictional High Court of Karnataka in the case of - (iii) CIT V. Smt. K. Leelavathy reported in (2012) 21 taxmann.com 148 (Kar) dt.2.1.2012. 10.4.2 In all the above three cited cases (supra) the facts are that the respective assessees sold their agricultural lands, .....

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case of H.S. Vijaykumar (supra), the assessee therein sold the land to a corporate entity as in the case on hand. All the requirements which led the coordinate bench of this Tribunal to hold that the lands sold are agricultural lands and not capital assets under section 2(14) of the Act in the case of M.R. Seetharam (HUF) (supra) are also found in the case on hand before us. 10.4.3 The co-ordinate bench of this Tribunal in the case of M.R. Seetharam (HUF) (supra) has also placed reliance on the .....

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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 land and the same is exempt from capital gains in view of section 2(14) read with secti .....

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s 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 Notification No. .....

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,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 provisions and, therefore, we do not find any illegality in the finding recorded by the Appellate Commissioner and the Tribuna .....

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not exigible to tax from capital gains in view of section 2(14) r.w. sections 45 and 48 of the Act despite the fact that the land in question was a converted land as on the date of sale. The co-ordinate bench of this Tribunal in its order in the case of M.R. Seetharam (HUF) (supra) has only followed this proposition of law laid down by the Hon'ble jurisdictional High Court of Karnataka, vindicating the stand of the Tribunal in the cases of H.S. Vijaykumar V ACIT, Hassan (supra), T. Suresh G .....

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the Act and not to determine the definition of converted land in the state of Karnataka and other issues pertaining to the status of land as sought for by the Revenue in its written submissions. We also find that the decision in the case of Madhav Bhandhopanth Kulkarni 2003(5 Kar. LJ 13, relied on by Revenue, is not germane to decide the issue before us. 10.7 In the order of the co-ordinate bench in the case of M.R. Seetharam (HUF) (supra), the co-ordinate bench of this Tribunal at paras 7.3.8 .....

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agriculturists without getting the same converted. In this regard the co-ordinate bench of the Tribunal at paras 7.3.8 to 7.3.10 of its order has observed and held :- 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 f .....

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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 agriculturist in Karnataka is on a different footing from his coun .....

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ral 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 agricultural operation and conversion was done only to facilitate sale of .....

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n 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. The extracted portion at paras 7.3.8 to 7.3.10 of the order in the case of M.R. Seetharam (HUF) (supra) indicates that the co-ordinate bench of this Tribunal came to the conclusion that mere conversion of land from agriculture to non-agriculture coul .....

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is whether BIAPPA is to be treated as a municipality as contemplated by the provisions of section 2(14) of the Act. The co-ordinate bench of this Tribunal in its order in the case of M.R. Seetharam (HUF) (supra), agreeing with the view taken by the Hon'ble High Court of Kerala in the case of CIT V Murali Lodge reported in (1992) 194 ITR 125 (Ker), has held that BIAPPA is not a Municipality, but a mere planning body. The relevant portion of its order at paras 8.3 to 8.3.5 is extracted hereun .....

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hich is, admittedly, a mere planning authority. We are also differ with the interpretation of the CIT (A) that municipality need not necessarily be an elected body. In this context, we refer to the Article 243P(e) of the Constitution of India which explicitly defines Municipality means an Institution of self-Government constituted under Article 243Q and Article 243R requires that all the seats in a Municipality shall be filled by persons chosen by direct election from the territorial constituenc .....

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ed 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)……………& .....

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the agricultural land of the assessee sold in public auction can be said to be situated in an area which is comprised within the jurisdiction of a municipality. The case of the Revenue is that it is, because the GuruvayurTownship is a municipality within the meaning of that word in the section. On the other hand, counsel for the assesssee submits that the GuruvayurTownship, though a local authority cannot be said to be a municipality and, therefore, the agricultural land in dispute cannot be sai .....

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r the Revenue laid emphasis on the words by any other name . These words, counsel argues, take colour from the preceding words, and, if that be the position, the GuruvayurTownship also can be called a municipality. May be that the Guruvayur township can be called a local authority. But all local authorities cannot be called municipalities. Only those local authorities which have all the trappings of a municipality can be treated as a municipality within the meaning of the section. Therefore, to .....

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7 with the assistance of the standing committee of the council, chairman, commissioner, etc., will administer the provisions of the Act. The council consists of such number of members as are prescribed. They are called councillors. They are elected by the residents of the area coming within the jurisdiction of the municipality. The chairman and vice-chairman of the municipality are elected by the members of the council. The commissioner is appointed by the Government in consultation with the cou .....

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akes 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 th .....

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ves of the residents of the area. That the Central Government also has understood the position thus is obvious from the draft notification dated February 8, 1991, published in the Gazette issued under section 2 (14)(iii)(b) of the Income-tax Act…… 8.3.2. We have, with due regards, perused the judgment of the Hon ble P & H High Court in the case of CIT v. Smt. Rani Tara Devi (supra) as relied on by the learned DR. The only issue before the Hon ble Court was: Whether the land own .....

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as situated between the developed sectors of Panchkula on one side and on the other side, it was 1 KM from the district headquarters; (ii) that the land was extensively developed area and nearer to colleges, hospitals, district headquarters etc., (iii) with regard to the assessee s claim that in terms of s 2(14) an agricultural land was excluded from the capital asset, if it was not a land situated in an area which was comprised within the jurisdiction of municipality etc., it was held by the Co .....

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(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 .....

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notified area committee, town area committee, town committee. The Court has also not considered the scope and ambit of section 3 (31) of the General Clauses Act defining local authority. 8.3.5. At this juncture, we would like to point out that there are two views on the issue, one in favour of the assessee as held by the Hon ble Kerala High Court [in Murali Lodge s case] and other against the assessee as ruled by the Hon ble P & H High Court (supra). Apparently, there is no judgment rendere .....

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thorities below were not justified in holding that the subject land could not be treated as agricultural lands and that the proceeds received from its sale was exigible to tax under the head capital gains . It is ordered accordingly. We are also in agreement with the view taken by the co-ordinate bench in the case of M.R. Seetharam (HUF) (supra) that BIAPPA is not a Municipality but a mere planning body. 12. With respect to the issue raised by the learned Departmental Representative on the accep .....

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of revenue and the learned Authorised Representative of the assessee, was done to satisfy themselves about the physical characteristics of the lands in question. On inspection thereof, having been satisfied that no non-agricultural activity had taken place even after six years of its sale, the Members of the co-ordinate bench were convinced that the lands were agricultural in nature (i.e. having orchards, etc.) as on the date of sale. The presence or absence of the present owners at the time of .....

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he considered view that the conclusions reached by the co-ordinate bench of this Tribunal in the case of M.R. Seetharam (HUF) (supra) squarely applies to the facts of the case on hand. We, therefore, following the decisions of the co-ordinate benches of this Tribunal in the cases of H.S. Vijayakumar (supra), T. Suresh Gowda and Others (supra), M.R. Seetharam (HUF) (supra) and the Hon'ble Karnataka High Court in the case of Smt. K. Leelavathy (supra) hold as under :- (i) The lands in question .....

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