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The Income Tax Officer, Ward-2 (3) , Kozhikode Versus Shri Kalathingal Faizal Rahiman, Kozhikode.

2016 (5) TMI 322 - ITAT COCHIN

Sale of capital asset within the meaning of section 2(14) - nature of land - sale of agricultural land - Held that:- The reliance placed by the Assessing officer on the report of the Inspector of Income Tax to come to the conclusion that the land was not an agricultural land is misplaced. The Inspection was done by the Inspector after the transferee had constructed the building on the land. Even in the report of the Inspector, it is observed that there were some coconut trees on the land. Just b .....

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does not alter the character of the land and appreciation in the price of land cannot be seen in isolation and if agricultural operations were carried out by the assessee, the appreciation in the price of land alone would not lead to the conclusion that the land is not an agricultural land. The objection of the Revenue that coconut plantation could not have been carried out on the soil which was present on the said land and the reliance placed on the letter of the Gram. Panchayat Secretary canno .....

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ountant Member: This appeal of the Revenue arises from the order of the Ld. CIT(A), Kozhikode dated 10.06.2015 for the assessment year 2010-11. 2. The brief facts of the case are that the assessee filed its return of income for the assessment year 2010-11 declaring an income ₹ 4,41,496/-. The case of the assessee was selected for scrutiny through CASS by issuance of notice u/s. 143(2) of the Act. The assessment records revealed that the assessee sold property measuring 2 acres and 42.801 c .....

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as stated that the land in question was very close to the industrial park. The property sold by the assessee cannot be considered as agricultural property and was, therefore, liable for capital gains arising on its sale. Taking the cost in 1981 to be ₹ 35,000, the Assessing officer calculated the long term capital gain at ₹ 3,36,40,950/-. 3. Aggrieved by the assessment order dated 26.03.2013, the assessee preferred an appeal before the Ld. CIT(A) wherein the appeal of the assessee wa .....

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acts and in the circumstances of the case, the Commissioner of Income Tax(Appeals) is right in law in holding that the land sold by the assessee cannot be treated as a capital asset within the meaning of section 2(14) of the Income Tax Act? 3. The decision of the Hon ble ITAT, Cochin Bench in the case of M.J. Thomas vs. Dy. CIT, Circle-2(2), Ernakulam in I.T.A. No. 224/Coch/2011 dated 06-06-2014, relied on by the CIT(A) is distinguishable from the facts of the present case as in that case the as .....

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addressed to the Income Tax Officer (Inv.), Kozhikode in which it was stated that as per the building assessment register and copies of the building tax receipt there were four buildings in the ownership of Sri K Faisal Rahiman bearing building numbers CPV/438,439,440,441 in the transferred property which were used as residential quarters and also the failure of the assessee to furnish any evidence regarding the agricultural activities carried out have been considered. In view of this, is not t .....

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6. The Ld. DR submitted that the assessee had not declared the agricultural income from the land sold during the last four years preceding the relevant assessment year. It is the case of the Revenue that the intention to sell the land was commercial in nature as the transferee had built the buildings on the said land. The Ld. DR has relied upon the judgment in the case of Kalpetta Estate Ltd. vs. CIT 185 ITR 318 (Ker.) to support his submission that the burden is on the assessee to show that th .....

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sed his submissions upon the report of the Inspector of the Income Tax stating that the land in question was very near to the industrial park. He has also relied upon the letter dated 20-01-2011 of the Secretary, Grama Panchayat. He also relied upon the order of the Assessing officer to canvass his submissions. 8. The Ld. AR on the other hand has rebutted the aforesaid arguments raised by the Ld. DR and has argued that the land in question is agricultural land. He has placed heavy reliance on th .....

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hat only because the agricultural land was near to the highway as well as the industrial park, it would not mean that the same can be called as agricultural land. Rebutting the submissions of the Ld. DR that no agricultural income was earned, it was submitted by the Ld. AR that the net agricultural income was meagre and was therefore. not declared, as under the Income Tax Act, the same was not required to be declared if the agricultural income was below ₹ 5000. The Ld. AR has further submi .....

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sed the facts on record. The term Capital asset is defined u/s 2(14) of the Income-tax Act and the same is extracted below: (14) capital asset means - (a) property of any kind held by an assessee, whether or not connected with his business of profession; (b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) , but does not include - (i) any st .....

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poses of this sub-clause, jewellery includes - (a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel; (b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel. (Explantion 2 - For the purposes of this clause- (a) .....

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a committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand; or (b) in any area within the distance, measured aerially, - (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municip .....

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ay of the previous year . (iv) 61/2 per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, or National Defence Gold Bonds, 1980, issued by the Central Government. (v) Special Bearer Bonds, 1991, issued by the Central Government; (vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government. (Explanation, - For the removal of doubts, it is hereby clarified that property includes and shall be deemed to have always included any rights in or in relation to .....

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, what is to be decided is whether the land in question is an agricultural land or not. It is pertinent to mention here that the term agricultural land or agricultural purpose are not expressly defined under the Act. In the case of CWT vs. Officer-in-charge (Court of Wards), Paigah, 105 ITR 133, the Hon ble Supreme Court held that the agricultural land must be a land which could be said to be either actually used or ordinarily used or meant to be used for agricultural purpose, that is to say, it .....

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for the same he has relied upon the certificate of the Village Officer certifying that the subject land was used for coconut plantation and for growing other agricultural crops from 1981 onwards and the assessee was earning agricultural income out of it. In the absence of any record maintained by the State Government, we see no reason to disbelieve the certificate of the Village Officer and the same cannot be rejected solely on the basis that it was issued post the sale of land by the assessee. .....

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d the fact that the State Government did not maintain any record for cultivation in the State and also the fact that agriculture as an entity was largely unorganised and held as under: 26. Now the question arises for consideration is in the absence of records maintained by the state government for cultivation whether the material filed by the assessees would be sufficient to prove to show that the assessees were using the land for agricultural purpose / and the land in question has any connectio .....

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evidences from the agriculturists for cultivation may be far-fetched. In respect of corporate companies that are engaged in cultivation, may maintain evidence for purchase of fertilizers, payment of wages to labourers and in respect of sale of agricultural produces. However, such kind of evidence may not be expected from individual farmers so long as the government does not regulate the cultivation of land and sale of agricultural produce in this country. This ground reality cannot be ignored by .....

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ing forward from the revenue to show that the state government was maintaining any record. In fact, the assessing officer, after examining the Village Administrative Officer, Additional Tahsildar and Agricultural Officer, found that the Village Administrative Officer and Tahsildar are not maintaining any record for the purpose of cultivation. Even the Agricultural Officer is not maintaining any records for cultivation. The records available with the state government are only the register for col .....

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Kerala. From the remand report filed by the assessing officer the food production of the state appears to have been estimated on the basis of the farmers, who were registered on the records of paddy field without considering the actual cultivation. Therefore, the state government for the purpose of food production considers the paddy fields and the agriculturists as a basis for food production. In those situations, the assessee has produced certificates from the village officer to show that the .....

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he subject lands were subjected to cultivation. 28. We have carefully gone through the judgment of the apex court in the case of Sarifabibi Mohmed Ibrahim And Others vs CIT (1993) 204 ITR 631 (SC). In the case before the Apex Court, the assessee sold a piece of land situated within the revenue limits of Navagaon village in the municipal limits of Surat municipality. In the year 1967, the assessee agreed to sell the land to a housing society. The assessee claimed the gain on transfer of such land .....

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ed as agricultural land and the village officer certified that the land was subjected to cultivation. The assessee is contributing to the Agricultural Labourer s Welfare Fund and also paying revenue tax as agricultural land which is evidence from Basic Tax Register. In view of the material available on record disclosing the cultivation of land, this Tribunal is of the considered opinion that judgment of the Apex Court in the case of Sarifabibi Mohmed Ibrahim And Others (supra) may not be applica .....

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ot available for treating the land as capital asset u/s 2(14) of the Act. Therefore, as observed earlier, what is required is the connection between the land and the agricultural purpose and if the land is cultivated in any of the earlier years, this Tribunal is of the considered opinion that the land has to be treated as agricultural land. The material evidence produced by the assessees are - (i) the certificate issued by the Village Officer; (ii) certificate issued by the Agricultural Officer; .....

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that the subject lands were subjected to cultivation. In those circumstances, this Tribunal is of the considered opinion that the subject lands were agricultural lands beyond the municipal limits or beyond 8 kms radius of the notified municipality. Therefore, the subject land cannot be treated as capital asset within the meaning of section 2(14) of the Act; hence not liable for capital gain tax under the Income-tax Act. 14. The Ld. DR has tried to distinguish the aforesaid judgment relied upon .....

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out by the assessee. 15. The reliance placed by the Assessing officer on the report of the Inspector of Income Tax to come to the conclusion that the land was not an agricultural land is misplaced. The Inspection was done by the Inspector after the transferee had constructed the building on the land. Even in the report of the Inspector, it is observed that there were some coconut trees on the land. Just because the transferee had not used the land for agricultural purposes, the land does not lo .....

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addition based on evidences collected behind the back of the assessee and held as under:- Per contra, the Ld. Departmental Representative submitted that since the assessee was shareholders in various companies. The assessee himself should have obtained the letter from the company directly. We do not agree with the submission of the Ld. DR. One of the basic principles of natural justice is that no evidence collected behind the back of the assessee could be used against the assessee unless an opp .....

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