TMI Blog2018 (12) TMI 1756X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 10(1) of the Act. In the books of account, the assessee has shown this income as profit on sale of agriculture land being capital gains and not as agriculture income, we agree with the contention of the ld DR that the provisions of section 115JB is a self contained code and the AO cannot tinker with the books of accounts prepared by the assessee as per Schedule-VI of the Companies Act and once this income in question is not declared by the assessee or treated in the books of account as agricultural income, then the same cannot be allowed as deduction as per the provisions of section 115JB. The books profits for the purpose of Section 115JB of the Act shall therefore, include the amount being the amount on sale of impunged pieces of land. - Decided in favour of revenue - ITA No. 390/JP/2018 - - - Dated:- 13-12-2018 - Shri Vijay Pal Rao, JM And Shri Vikram Singh Yadav, AM Revenue by : Shri A.K. Rawat (JCIT) Assessee by : Shri Rajeev Sogani (CA) ORDER Vikram Singh Yadav, This is an appeal filed by the Revenue against the order of ld. CIT(A), Jaipur dated 01.01.2018 for the Assessment Year 2014-15 where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ltural land as capital gain and not as agricultural income. Further, even in the return of income, the assessee has not declared this income as agricultural income and has separately declared the agricultural income of ₹ 1,40,000/-. Only in the computation of book profits, the assessee has claimed deduction of this amount of ₹ 2,43,15,546/- as an allowable deduction. The ld. D/R has submitted that once the assessee in the books of account has not treated the said income as agricultural income, the same cannot be allowed as a deduction as the provisions of section 10(1) are not applicable on the said income of the assessee. The provisions of section 115JB is a self contained code and the AO cannot tinker with the books of accounts prepared by the assessee as per Schedule-VI of the Companies Act. Thus, in the books of account, the assessee has shown this income as profit on sale of agricultural land being capital gain, therefore, once this income in question is not declared by the assessee or treated in the books of account as agricultural income, then the same cannot be allowed as deduction as per the provisions of section 115JB. Once the capital gain arising on sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilar view was taken by the Hon ble Andhra Pradesh High Court in case of J. Raghottaama Reddy (supra) and held that the gain arising from sale of agricultural land is an agricultural income as per provisions of section 2(1A) of the IT Act. Following these decisions, the Tribunal in a series of decisions have taken the similar view even after insertion of Explanation-1 to section 2(1A) of the Act. The ld. A/R has submitted that in the Explanation, the revenue derived from land was excluded from the purview of agricultural income only in respect of the agricultural land which are treated as urban agricultural land or within the distance of 8 KM from the Municipal limits, therefore, the revenue derived from the agricultural land and any income arising from transfer of such land which is still a rural agricultural land beyond the distance of 8 KM from the Municipal limits fall in the definition Agricultural income as per section 2(1A) of the Act. In support of his contention, he has relied upon the following decisions:- Manubhai A. Sheth vs. N.D. Nirgudkar 128 ITR 87 (Bom) J. Raghottaama Reddy 169 ITR 174 (AP) Harrisons Malayalam Ltd. 32 SOT 497 (Coch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is the connection with an agricultural purpose and user and not the mere possibility of user of land, by some possible future owner or possessor, for an agricultural purpose. It is not the mere potentiality, which will only affect its valuation as part of assets , but its actual condition and intended user which has to be seen for purposes of exemption from wealth-tax. The Hon'ble Supreme Court in a subsequent decision in the case of Smt. Sarifabibi Mohmed Ibrahim v. Commissioner of Income-tax 204 ITR 631 has referred to the decision of the Constitutional Bench in the case of Commissioner of Wealth Tax Vs. Officer in Charge (Court of Wards) (supra) at page 637 and 638 as under: Whether a land is an agricultural land or not is essentially a question of fact. Several tests have been evolved in the decisions of this Court and the High Courts, but all of them are more in the nature of guidelines. The question has to be answered in each case having regard to the facts and circumstances of that case. There may be factors both for and against a particular point of view. The Court has to answer the question on a consideration of all of them-a process of evaluation. The in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticular case , (e) The fact that the land is assessed to the Land Revenue as agricultural land under the State Revenue Law is certainly a relevant fact but it is not conclusive. Whether a land is an agricultural land or nor is essentially a question of fact and several tests has to be applied as laid down by the Hon'ble Supreme Court and Hon'ble High Courts though all of them are mere in the nature of guidance. The question has to be answered in each case having regard to the facts and circumstances of the case. As it is clear that the Hon'ble Supreme Court has held that the land is assessed to land revenue as an agricultural land is not a conclusive fact and the question is to be decided by considering various factors including whether the land is used for cultivation and agriculture operations are carried out. Thus what is really required to be seen in connection with an agricultural land is the connection with agricultural purpose and user and not the mere possible of user of land by some possible future owner. The Hon'ble Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim v. Commissioner of Income-tax (supra) has also considered the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as the facts as held at page 642 and 643 as under: Now, we may consider the various circumstances appearing for and against the appellant's case. The facts in their favour are: land being registered as agricultural land in the Revenue records; payment of land revenue in respect thereof till the year 1968-69; absence of any evidence that it was put to any non-agricultural use by the appellants; that the land was actually cultivated till and including the agricultural year 1964-65; that there were agricultural lands abutting the said land and that the appellants had no other source of income except the income from the said land. As against the above facts, the facts appearing against their case are: the land was situated within the municipal limits - it was situated at a distance of one kilometer from the Surat railway station; the land was not being cultivated from the year 1965-66 until it was sold in 1969; the appellants had entered into an agreement sale with a Housing Co-operative Society to sell the said land for an avowed non-agricultural purpose, namely, construction of houses; they had applied in June 1968 and March 1969 for permission to sell the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n it was sold. This issue was again considered by the Hon ble Bombay High Court in the case of Gopal C Sharma Vs CIT 209 ITR 946 and by following the decision of Hon'ble Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim v. Commissioner of Income-tax (supra), the Hon'ble High Court has observed and held in para 13, 24 to 26 as under: 13. The expression 'agricultural land' is not defined under the Act. The question as to whether the land in question was liable to be considered as agricultural land for purpose of income-tax is liable to be decided with reference to the criteria laid down by judicial decisions of the Supreme Court and High Courts. The underlying object of the Act to exempt 'agricultural income' from income-tax is to encourage actual cultivation or defacto agricultural operations. Actual user of the land for agricultural purpose or absence thereof at the relevant time is undoubtedly one of the crucial tests for determination of the issue. It is well settled that the nature and character of land may undergo a change depending upon its situation, growth of locality, zone in which it is situate and its potentiality. According to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer as a crucial factor for determination of the issue. Applying the ratio of the Supreme Court judgment in Smt. Sarifabibi Mohmed Ibrahim's case (supra) to the facts of the case, we hold that the reference lands could not be considered as 'agricultural lands' on the date of transfer. 25. The AAC and the Tribunal were more than justified in highlighting the fact that the reference lands were situate in heavy industrial zone and that the said lands were not in fact used or intended to be used for agricultural purpose at the relevant time since several years. The AAC also recorded finding of fact based on relevant evidence that at least 10 acres of the land out of 25 acres was in fact used for non-agricultural purposes by Larsen Toubro Ltd. since the year 1960, i.e., for 7 years prior to the date of transfer of the land. If the relevant tests laid down by the Supreme Court in Smt Sarifabibi Mohmed Ibrahim's case (supra) and the test laid down by this Court in V.A. Trivedi's case (supra) are to be applied to this case as they ought to be, it would become obvious that the finding of fact arrived at by the ITO, the AAC and the Tribunal cannot be charac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the revenue before the Hon'ble Supreme Court and the Hon'ble Supreme Court in the case of Union of India Vs. S. Muthyam Reddy (supra) has held as under: 1. This appeal is by special leave against an order passed by the High Court of Andhra Pradesh in a batch of cases. By that order, the High Court considered the effect of a combined reading of sections 2(1A) and 2(14 ) of the Income-tax Act, 1961 ('the Act') and has held that (i) capital gains arising from sale of land used for agricultural purposes would be revenue derived from such land and, therefore, 'agricultural income' within the definition under section 2(1A) with the result that Parliament would have no legislative competence to tax such agricultural income; and (ii) amended section 2( 14)(iii) should be read down to preserve its constitutionality. All land used for agricultural purposes whether situated in areas mentioned in section 2(14)( iii)(a) and (b) should be held to be excluded from the definition of 'capital asset'. Thus section 2(14)( iii) should read as excluding from capital asset agricultural land in India, not being land situated in the areas mentioned therein. U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion cannot be invalid. 6. Inasmuch as there is no challenge to the validity of the Explanation to section 2(1A) inserted into the Act by the Finance Act, 1989, we are afraid, we cannot examine the correctness of the said submission. We leave open this question to be raised for consideration in an appropriate proceeding. 7. In the result, we allow this appeal and set aside the order of the High Court. No order as to costs. Thus, the decisions were set aside by the Hon'ble Supreme Court as it is held in para 3 of the Hon'ble Supreme Court s order (supra). Accordingly, the decisions relied upon by the ld AR would not help the case of the assessee. The ld AR has also relied upon the various decisions of this Tribunal on this point, however, all those decisions were on different set of facts and were passed without considering the decision of the Hon'ble Supreme Court in the case of Union of India Vs. S. Muthyam Reddy (supra). Accordingly, those decisions are no more a binding precedent. 7.3 It is pertinent to note that incentive of exempting the agricultural land from definition of capital asset and consequently from chargeability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -VI of the Companies Act and once this income in question is not declared by the assessee or treated in the books of account as agricultural income, then the same cannot be allowed as deduction as per the provisions of section 115JB. The books profits for the purpose of Section 115JB of the Act shall therefore, include the amount of ₹ 2,43,15,546/-, being the amount on sale of impunged pieces of land. 10. Before parting, we may add that we have gone through the various decisions cited by the ld AR at the Bar and the same have already been dealt with by the Coordinate Bench in above referred decision in case of Sunil Bansal. The said decisions doesn t support the case of the assessee as the same have been rendered in peculiar facts of the case and without considering the decision of the Hon'ble Supreme Court in the case of Union of India Vs. S. Muthyam Reddy (supra). Accordingly, those decisions are no more a binding precedent. 11. In the result, we set aside the order of the ld. CIT(A) and confirmed the findings of the Assessing Officer. In the result, appeal of the Revenue is allowed. Order pronounced in the open Court on 13/12/2018. - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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