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Anil Plantations Pvt. Ltd. Versus Pr. C.I.T. – 2, Kolkata

2017 (9) TMI 959 - ITAT KOLKATA

Revision u/s 263 - amount received by it on compulsory acquisition of land non liablility to tax under the head ‘Capital gain’ - nature of land sold - According to the CIT in the case of the assessee the agricultural land lost its character as agricultural land after acquisition by the railways because they used the land acquired for non agricultural purpose therefore of the view that the AO ought not to have allowed exemption u/s 10(1) - Held that:- There is a distinction between requisitioning .....

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t proper in law. Since the order of the AO is not erroneous the CIT was not justified in invoking the jurisdiction u/s 263 of the Act. We therefore quash the order u/s 263 of the Act and allow the appeal of the assessee. - .T.A No.962/Kol/2017 - Dated:- 13-9-2017 - Sri N.V.Vasudevan, JM And Shri Waseem Ahmed, AM For The Appellant : Shri Paras Nath Keshari, FCA For The Respondent : Shri.G.Mallikarjuna, CIT(DR) ORDER Per N.V.Vasudevan, JM This is an appeal by the Assessee against the order dated 2 .....

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acquired by the Government under the Land Acquisition Act, 1894 for a public purpose viz., extension of North East Railway line from Agartala to Sabroom. An extent of about 3.63 acres of tea garden was compulsorily acquired for the aforesaid public purpose. The assessee received a compensation of ₹ 1,32,74,986/- on compulsory acquisition of the land. It is not in dispute that upto the date of acquisition the land was used for the purpose of agriculture as there was an existing tea garden o .....

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ory acquisition of a capital asset is also regarded as transfer of a capital asset capital gain that accrues or arises out of compulsory acquisition is chargeable to tax under the head capital gain . It is however to be mentioned that it is only in case where the asset which is the subject matter of transfer satisfies the definition of capital asset as defined u/s 2(14) of the Act that the capital gain can be brought to tax on its transfer. As we have already seen agricultural land as defined in .....

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n question was an agricultural land which was used for agricultural purpose and therefore not a capital asset within the meaning of section 2(14) of the Act. The assessee further submitted that the compensation received on compulsory acquisition will be in the nature of agricultural income within the meaning of section 10(1) of the Act and was therefore not liable to tax. The following was the reply of the assessee to the AO :- Agriculture income arose due to compensation received on acquisition .....

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agricultural purposes. Hence the compensation received amounting to ₹ 1,36t47,685/- by Government of Tripura is purely agricultural income in the meaning of Section 10( (1) and therefore, not liable to tax. Your honour will appreciate that the undernoted legal Judgements are squarely applicable in our present case :- (i) In CIT Vs. All India Tea and Trading Co. Ltd. (1979) 117 ITR 525 (Cal), It was held that as the land in question was agricultural land which was being used for agricultura .....

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to be treated as agricultural income since such compensation clearly had the character of rent or, in any case, had to be regarded as revenue derived from the land. Therefore compensation paid for acquisition of land by State Government can only be regarded as agricultural income which admittedly is not taxable. In the light of above legal position, we submit that we have rightly claimed the compensation received by state of Tripura on acquisition of our agricultural land amounting to ₹ 1, .....

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ore not chargeable to tax. 5. The CIT in exercise of his powers u/s 263 of the Act was of the view that order of the AO accepting the claim of the Assessee as stated in para-4 above was erroneous and prejudicial to the interest of the revenue. The crux of the order of CIT is that the assessee in the course of assessment proceedings before the AO took a stand that the amount received by it on compulsory acquisition of land was not liable to tax under the head Capital gain on the ground that the H .....

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tta High Court in the case of CIT vs All India Tea & Trading Co. Ltd. (1996) 219 ITR 544 (SC). According to the CIT in the decision rendered by the Hon ble Supreme Court it was noticed by the Hon ble Supreme Court that refugees from Bangladesh had occupied agricultural land on which agricultural operations were carried on. The Government acquired these lands and gave the lands so acquired to the refugees who occupied those lands. The refugees also continued to carry on agricultural operation .....

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u/s 10(1) of the Act on the basis of the cases cited by the assessee before the AO. The followed were the relevant observations of CIT :- I have carefully considered the arguments of the assessee. Reliance placed by assessee on the decision of Hon'ble Supreme Court in the case of All India Tea & Trading Co. Ltd. is of no help, because the facts of this case are different. In the case of assessee, the character of the land change after acquisition. Whereas in the case of All India Tea &a .....

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the AO should pass a speaking order, providing adequate opportunity of betng heard to the assessee. The impugned order u/s.143(3) 18/12/2014 is accordingly, set aside and assessment should be done as per above directions. 6. Aggrieved by the order of CIT the assessee has preferred the present appeal before the Tribunal. 7. We have heard the submissions of the ld. Counsel for the assessee, who submitted that order of the AO accepting the claim of the assessee that compensation received by the as .....

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e amount of compensation paid on its acquisition was not chargeable under the head capital gains as the said land was not a capital asset. The Hon ble Supreme Court further observed that It is clear, therefore, that at no point of time or at least till its acquisition the land lost its character of agricultural land. The ld. Counsel submitted that the above observations have been wrongly construed by CIT as a condition imposed by the Hon ble Supreme Court that the land acquired should continue t .....

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r, we will now summarise our opinions in the following terms: (i) The words held by-an assessee in Section 2(4A)of the 1922 Act include physical, actual, constructive and also symbolic possession of a property of any kind; (ii) A land is an agricultural land if it is used for agricultural purposes and, briefly speaking, an income derived from such land by agriculture. is an agricultural income ; (iii) Though ownership is a property, any land from which the income derived is an Agricultural incom .....

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nder the head Capital gains . for such land is not a capital asset; (vi) Even where any person other than the assessee uses an agricultural land belonging to the assessee for agricultural purposes with or without the consent of the assessee and such person derives agricultural income from it, any profits or gains arising from the sale, transfer, acquisition, etc., of such land is not taxable under the head Capital gains in the hands of the assessee; and (vii) The land is a capital asset where it .....

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s people after requisition for agricultural purposes who were also deriving agricultural income from those lands at the time of their acquisition in 1959. 29. Therefore, at all material times those lands were agricultural lands and they were held by the assessee as their owner although it lost their physical possession in 1949 by requisition. Though the assessee was prevented from EARNING any agricultural income from those lands due 'to the aforesaid requisition, those landless people by usi .....

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d should continue to be used for agricultural purpose. It was therefore submitted by him that order of the AO was neither erroneous nor prejudicial to the interest of the revenue. The ld. DR relied on the order of CIT and in particular on the decision of the Hon ble Andhra Pradesh High Court in the case of Suryanarayan Murthy 42 ITR 83 (AP) 9. We have given a very careful consideration to the rival submissions. We are of the view that the CIT was not justified in invoking his jurisdiction u/s 26 .....

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e agricultural land. Therefore if any income accrues on compulsory acquisition of agricultural land it is to be regarded as agricultural income and not chargeable to tax under the Act under the head capital gain . 10. The main contention of the CIT in the impugned order is that the land should continue to retain the character of an agricultural land even after acquisition. This, in our view, is based on wrong reading of the decision of the Hon ble Supreme Court in the case of CIT vs All India Te .....

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