TMI Blog2022 (2) TMI 1246X X X X Extracts X X X X X X X X Extracts X X X X ..... Technical Edn. Society (supra). After taking note of the material as recorded in para 10 of this order, there was no seized incriminating seized material so as to frame assessment for these two assessment years u/s. 153C. DR could not point out to the contrary. Being so, the judgment of the Supreme Court in the case Sinhgad Technical Edn. Society [ 2017 (8) TMI 1298 - SUPREME COURT] is squarely applicable to the facts of the present case. Since the assessment framed u/s. 153C of the Act to be based on material found during the course of search which relate to or belong to the assessee and since we have held that there is no seized material for addition made by the AO, we do not wish to address the arguments made by the ld. AR for the assessee that the condition precedent for initiating the proceedings u/s. 153C of the Act having not been satisfied in the present case, therefore the assessment is liable to be annulled. Accordingly, we hold that the addition made by the AO is not based on seized material found in the course of search and therefore the addition cannot be sustained. Taxability of capital gain arising out of transfer of land - main reason for treating the land as n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent : Capt. Pradeep Shoury Arya, Addl.CIT(DR)(ITAT) ORDER Per Chandra Poojari, Accountant Member These two appeals by the assessee are directed against the common order dated 30.9.2016 of the CIT(Appeals)-11, Bangalore for the assessment years 2008-09 2009-10. 2. We consider the facts as narrated in AY 2008-09 wherein, there was a search operation u/s. 132 of the Income-tax Act, 1961 [the Act] conducted in the case of M/s. SPR Developers Pvt. Ltd. on 8.12.2011. During the course of search proceedings, documents relating to the assessee was found and notice u/s 153C was issued. In response to notice, the assessee flied the return declaring income of Rs. 100/- being income from other sources and agricultural income of Rs. 17,500/-. The appellant has claimed exemption of long term capital gain on account of transfer of agriculture land measuring 13 Acre and 31 Guntas to the M/s. Good Life Shelters Pvt. Ltd [GSPL]. 3. The assessee contended that the land sold was not taxable as the same not being a capital asset within the meaning of section 2(14) of the Act. The transfer of these lands to the said company was by way of sale deed dated 16.07.2007. Also t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv) The assessee has not produced any bills/vouchers for the agricultural produce sold. v) With respect to compensation received on standing crops, the assessee has replied that no compensation was received towards standing crops. Hence, the AO concluded that the appellant has failed to prove that agricultural activity was carried out on the land sold till the date of transfer. (d) The AO also was of the view that after getting the land converted for the intended non agricultural purpose, the assessee has not approached the office of the Deputy Commissioner, Bangalore Rural, Bangalore with a fresh application for conversion of land after the expiry of two years from the date of passing the conversion orders. Therefore, by this action also it is deemed that the assessee had put to use the converted land for the intended purposes within two years from the date of order. This fact has once again been confirmed from the recital of the agreement to sell, dated 16.07.2007 entered into b/w the assessee and the, Goodlife Shelters Pvt Ltd. wherein, it is clearly mentioned that the lands which were converted in the year 2005-06 by virtue of orders passed by the Deputy Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .w.s. 143(3), the AO did not rely on the above documents, but he relied on the Sale Deed dated 16.7.2007 entered into between 1. Sri. T Prasanna Kumar Gowda (aka T. Prasanna Gowda) S/o. Sri. M Thimme Gowda 2. Smt. K Leelavathi W/o. Sri. M Thimme Gowda 3. Sri. Dasappa, S/o. Late Sri. Singrigowda (The Vendors) and M/s. Goodlife Shelters Pvt Ltd., having its Registered Office at 25/6, AG 6 Brigade Majestic First Main, Gandhinagar, Bangalore-560009. This being the reason for issue notice u/s. 153C, the original reason for issuing notice u/s. 153C did not survive. Assessment under section 153A is bad in law since the additions made do not arise out of any material seized during the search. An assessment can be made under section 153A of the Act only if there is incriminating material. It was submitted that the additions in respect of the agricultural lands do not emerge from the incriminating material seized during the course of search. Since the additions are made without any reference to incriminating material, the proceedings under section 153A are bad in law. In relation to the above, reliance is placed on the following rulings: a. Ruling of the Karnataka HC in CIT v. IBC Kn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is disclosure that the addition has been made. Since the additions are made without any reference to incriminating material, the proceedings under section 153C are bad in law. 8.4 In relation to the above, reliance is placed on the following rulings:- CIT v. Sinhgad Technical Education Society (397 ITR 344 (SC) CIT v. RRJ Securities Ltd. (380 ITR 412) (Del) CIT v. IBC Knowledge Park (287 ITR 261)(Kar) CIT v. Veerprabhu Marketing Ltd. (288 ITR 574(Cal) Pr. CIT v. Allied Perfumers P. Ltd. (431 ITR 237 (Del) Green Range Farms (P.) Ltd. v. DCIT (96 taxmann.com 249 9. On the other hand, the ld. DR submitted that the documents seized are incriminating material which lead to the addition to the total income, therefore the assessment framed u/s. 153C r.w.s. 143(3) of the Act is to be upheld. 10. We have heard both the parties and perused the material on record. In the present case, the search took place u/s. 132 of the Act on 8.12.2011 in the case of SPR Developers Pvt. Ltd. [SPRDPL], 34/2, 5th Main, Gandhinagar, Bangalore. The documents were seized from the office of SPRDPL were as follows:- Seized material marked as A/SPRDPU19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3138*(551/244) = 5,71,635 Cost of improvement: 1,84,722*(551/389) = 2,61,650 Exempt income : 1,95,00,000 AY 2009-10 Particulars Sales Price/ Year Indexed cost/year Transfer expenses Indexed cost of improvement Exempt Capital gain Sale of agricultural land 5325000 (20/01/2009) 199695 (6/8/1993) 0 0 5125305 0 Total 5325000 199695 0 0 5125305 0 Sale of Agricultural land Cost : 83721*(582/244) = 199695 Exempt U/S : 5325000 10.2 Later the AO issued a Questionnaire on 8.1.2014 seeking details of property sold during the FY 2008-09 as follows:- 1. Details of land sold during the F Y 2007-08 relevant to A Y 2008-09 alongwith a copy of purchase deed and sale agreement. 2. Provide the details of mode of payment received. If the amount is received through bank acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from agricultural to Nonagricultural residential purpose vide Official Memorandum of Conversion bearing No. ALN(K)SR1912005-06 dated 21/06/2005 and bounded on the : East by Survey Nos 23.; West by Survey No 70. ; North by Survey No 69 and 72 ; South by Survey No 206 and 207. ; Item No.7 All the piece and parcel of converted land measuring 2 Acres in Sy. No. 22 of Devrakagganahalli village, Maralwadi Hobli, Kanakapura Taluk, converted from agricultural to Nonagricultural residential purpose vide Official Memorandum of Conversion bearing No. ALN(K)SR19/2005-06 dated 21/06/2005 and bounded on the: East by Survey Nos. 206 and 207.; West by Survey No 66. ; North by Survey No 75 ; South by Kirengere Kere Lake Border; Item No.8 All the piece and parcel of converted land measuring 1 Acres in Sy. No. 43 of Devrakagganahalli village, Maralwadi Hobli, Kanakapur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 1,30,000/- Survey No. Year Agri Land Holding in the name of the assessee Village 10 2000-2001 1 acre 9 guntas Manchanayakanahalli 10 2001-2002 1 acre 9 guntas Manchanayakanahalli 10 2002-2003 1 acre 9 guntas Manchanayakanahalli 10 2003-2004 1 acre 9 guntas Manchanayakanahalli 10 2004-2005 1 acre 9 guntas Manchanayakanahalli 58/3A 2000-2001 16 guntas Manchanayakanahalli 58/3A 2001-2002 16 guntas Manchanayakanahalli 58/3A 2002-2003 16 guntas Manchanayakanahalli 58/3A 2004-2005 16 guntas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the order framing the assessment not based on incriminating material is bad in law and assessments are liable to be annulled on this count. In this regard, the assessee has raised the following grounds:- 1. The order of the Hon'ble Commissioner of Income Tax (Appeals) is opposed to law and facts of the case. 2. The seized material adverted to in the assessment order having no bearing on the determination of the total income of the assessee as evident from the assessment order itself, the provisions of Section 153C are not at all applicable and the order is without jurisdiction. 3. There being no satisfaction as required in law to sustain an order u/s 153C inspite of being repeatedly contended, and there being no finding either by the Assessing Officer or by the Commissioner of Income Tax (Appeals) of any evidence to indicate the existence of such satisfaction before concluding the assessment or in the assessment order itself, the provisions of Section 153C are inapplicable; the assessment order itself cannot be interpreted as the required satisfaction to act u/s 153C. 4. The learned Commissioner was in error in holding that the satisfaction note had been repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred. 19. We, thus, find that the ITAT rightly permitted this additional ground to be raised and correctly dealt with the same groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7-08 there was a significant difference in the pattern of assessment for this year also, the return was filed for Nil income but there were certain documents and which showed that there were transactions of sale of development rights and from which profits were generated and taxable for the assessment year 2007-08. Thus, the receipt of Rs.44 crores as deposit in the previous year relevant to the assessment year 2008-09 and later on became subject matter of the writ petition before the Delhi High Court. That was challenging the validity of notice under section 153C read with section 153A. In dealing with such situation and the peculiar facts that the Delhi High Court upheld the satisfaction and the Delhi High Court found that the machinery provided under section 153C read with section 153A equally facilitates inquiry regarding existence of undisclosed income in the hands of a person other than searched person. The provisions have been referred to in details in dealing with a challenge to the legality and validity of the seizure and action founded thereon. We do not find anything in this judgment which would enable us to hold that the tribunal's understanding of the said legal pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based on any incriminating material found in the course of search of SPRDPL did not belong to the assessee, as such the assessments are to be held as bad in law. 10.14 For better understanding, we will go through the provisions of section 153C of the Act which is as follows:- 153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,- (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tance in the course of search of a person a copy of sale deed of some other person is found which does not per se indicate any undisclosed income and based on which on adverse inference can be drawn, the AO, however, has to make an assessment in the case of the other person u/s.153C of the Act for the six assessment years referred to in Sec.153A of the Act, even if no incriminating material was found in the course of search. This created hardship and this was the reason why the provisions of Sec.153C of the Act were amended by the Finance Act, 2014. With the amendment by the Finance Act, 2014, the AO of the other person after receiving the material from the AO of the Searched person has to make an Assessment based on the material so received by him which has a bearing on the determination of the total income of the other person. This is clear from the amended provisions of the law which reads thus: and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a challenge made to it, can justifiably hold such amendment to be retrospective. The justification behind giving retrospective effect to such amendment is to apply the real intention of the legislature from the date such provision was initially introduced. The intention of the legislature while introducing the provision is gathered, inter alia, from the Finance Bill, Memorandum Explaining the Provision of the Finance Bill. Any amendment to the substantive provision which is aimed at clarifying the existing position or removing unintended consequences to make the provision workable has to be treated as retrospective notwithstanding the fact that the amendment has been given effect prospectively. The above principles, if applied to the amendment to the provisions of Sec.153C of the Act by the Finance Act, 2014, can lead to only one conclusion that the said amendment is clarificatory and therefore should be held to be retrospective in operation. 10.18 A plain reading of the amended provisions of section 153C(1) of the Act, would show that the AO is required to arrive at a satisfaction that the seized assets, books of account or documents belongs to or relates to a person other tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment proceedings would abate and AO will make assessment after considering the original return of income as well as material found in the course of search. The assessment proceedings which have been completed as on the date of search u/s. 132 however will continue to remain valid. Thus, the former proceedings are referred to as abated assessment proceedings and latter proceedings are referred to as unabated assessment proceedings . Therefore the scope of making assessment on total income u/s. 153C in an unabated assessment proceedings is limited and can be only of assessing income that is not disclosed which is detected or which emanates from material found in the course of search of some other person and which relate to the assessee. 10.20 In the present case, the impugned addition made by AO is not based on any incriminating material found during the course of search. The addition cannot stand since there is no seized material in support of the addition made by the AO. The assessee in the return of income disclosed certain transactions as discussed in the assessment order which is reproduced in earlier part of this order and that cannot be the basis to make addition whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tural activities were carried on by the assessee till the date of transfer. The same can be evidenced from the RTC Copies provided by the competent authorities. 12. Without prejudice to the above, it was submitted that for the agricultural land to fall out of the purview of capital asset under section 2(14)(iii), the land should be situated beyond 8 kms from the local limits any municipality or cantonment board. This fact is acknowledged by the AO. The income-tax law does not mandate that agriculture activities should be carried out for the land to be construed as agricultural land. 13. Further, as per the conversion order, one of the conditions laid for the conversion to be valid is that the land should be used for the intended purpose i.e., residential use within 2 years from the date of conversion order. Failure to comply with the condition would render the land conversion to be invalid. In this backdrop, since the land had not been put to use for its intended purpose, the lands has automatically restored to its original nature of agriculture land on the expiry of two years. 14. The ld. AR submitted that the AO erred in stating that lands are nonagricultural lands since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses, the nature and characteristics of the land has been changed in June 2005 by virtue of conversion of land and it should be considered as transfer of capital asset within the meaning of section 2(14) of the Act. He relied on the orders of the lower authorities. 16. We have heard both the parties and perused the material on record. The assessee sold the agricultural land for Rs.1,95,00,000 by Sale Deed Sale Deed dated 16.7.2007 entered into between 1. Sri. T Prasanna Kumar Gowda (aka T. Prasanna Gowda) S/o. Sri. M Thimme Gowda 2. Smt. K Leelavathi W/o. Sri. M Thimme Gowda 3. Sri. Dasappa, S/o. Late Sri. Singrigowda (The Vendors) and M/s. Goodlife Shelters Pvt Ltd., having its Registered Office at 25/6, AG 6 Brigade Majestic First Main, Gandhinagar, Bangalore-560009. The description of schedule of properties has already been extracted in the earlier part of this order. 17. According to the AO, it is clear from the description of schedule of properties that the lands are converted from agricultural to non agricultural residential purpose. Therefore the nature of the lands is non agricultural when the transfer took place. Further, as per section 80 of the Karnataka Land Refo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... questionable. In fact, the land which was hitherto agricultural land does not automatically become a capital asset on the mere fact of conversion to non-agricultural purpose. The land even though converted for non-agricultural purpose continues to be agricultural land and does not become capital asset u/s. 2(14) if agricultural activities are being carried out on such land and no piece of land was used for nonagricultural purpose. 21. In the present case, even though the subject property was converted into non-agricultural land by the competent authority, the assessee continued agricultural operations in converted land and there was no evidence regarding non-agricultural activities brought on record by the AO. On the other hand, the assessee has filed copies of RTC which were obtained much after the date of sale of the land which shows that the crops Ragi and Paddy were cultivated in the said land. In such circumstances, it is not possible to hold that the land was non-agricultural land liable for capital gains tax. In other words, the AO unilaterally decided that the land was not subject matter of agricultural operations without any basis. Had he brought any material to suggest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.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 Rs.22,90,570/-, on the ground that the capital gains which arose on the sale of the said lands was wrongly offered in the original return in as much as the same was exempt from tax being agricultural lands and hence excluded from the definition of 'capital asset' as per the provisions of s. 2 (14)(iii) of the Act. 7.2.1. The prime issues for consideration before us are two-fold, namely: (i) Whether the land can be treated as agricultural land even after conversion of agricultural land for non- agricultural/residential purpose? (ii) Whether the authorities below were justified in treating 'BIAAPA' as a municipality? 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 situat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsion. This is evident from the fact that the incomes derived from such lands duly declared by the assessee which were accepted by the revenue. 7.2.5. Incidentally, the subject property was inspected on 10-42014 by us accompanied by the learned DR, the AO and the learned AR of the assessee. During the course of inspection, we have noticed that the subject property was a part of large track of land having agricultural operations which consist of fully grown up fruits-yielding trees such as mangoes, sapota, coconut, jackfruit, apple, guava etc., appear to be existing 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 (Zilla Panchayat) 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. Ramaiah Road, Gokula, Bangalore, have, in their land situated in Akkelenahalli - Mallenahalli Village, Kasaba Hobli, Deva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the whole or 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 alterative user was of a permanent or temporary nature; (vii) Whether the land, though entered in the revenue records, had never been actually used for agriculture, that is, it had never been ploughed or tilled; whether the owner meant or intended to use it for agricultural purposes? (viii) Whether the land was situated in a developed area; whether its physical characteristics, surrounding situation and use of the lands in the adjoining area were such as would indicate that the land was agricultural? (ix) Whether the land itself was developed by plotting and providing roads and other facilities; (x) Whether there were any previous sales of portions of the land for non-agricultural use? (xi) Whether permission under Tenancy and Agricultural Lands Act was obtained because the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land does not automatically become a capital asset upon a mere fact of its conversion to non-agricultural purpose. The land even though converted for non-agricultural purpose, continues to be agricultural land and does not become a capital asset u/s 2 (14) of the Act, if agricultural activities were being carried out on such a land as on the date of its sale despite a fact that the land stands converted for non-agricultural purpose. 7.3.2. In the present case, as already discussed, even though the subject property was converted for non-agricultural 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 the findings of the earlier Bench of this Tribunal in the case of H.S.Vijaya Kumar v, ACIT, Hassan in ITA No.108/Bang/05 dated 28.11.2006. After taking into account the rival submissions of an almost identical issue to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 concerned authorities, we accept the contention of the assessee and hold that agricultural land in question are not a capital asset and, thus, the levy of capital gains is bad in law. 6.5. Before parting, we feel that mere evidences of Government Notification or orders on a likely use of a particular land would not ipso facto affect or on the same day change the character of the land. For example, the Government has notified many areas for setting up of special economic zones or industrial parks or for infrastructural developments such as road ways 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 wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as taken as a sale of capital asset 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 provisions and, therefore, we do not find any illegality in the finding recorded by the Appellate Commissioner and the Tribunal. . 7.3.6. In the case of M. ThimmeGowda [(i) Sri M. ThimmeGowda, (ii) Sri M.N. Manjunath, (iii) Sri Dasappa, (iv) Sri T. Suresh Gowda, (v) Sri T. PrasannaGowda v. Department of Income-tax, the earlier Bench of this Tribunal, in its findings in ITA 1464, 1465/B/08; 177,178,262 305/B/09 dated 30.12.2009, had dealt with an identical issue to that of the present issue under 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use of the land as nonagricultural 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 approach of the fact-finding authorities, namely, the income-tax authorities and the Tribunal, should to consider the question from the point of view of presumption arising from entries in the record of rights or actual user of the land and then consider whether that presumption is dislodged by other facts in the case. While coming to the above conclusion, the Hon'ble High Court considered the following facts. The presumption for nonagricultural used was obtained by the assessee before the sale of 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 cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial whether the land was situated outside the city limits or beyond 8 KMs. He further held that the cultivation of land till disposal is also irrelevant. He further held that no documentary evidence was produced to the effect that the 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 effect that assessee was doing cultivation of ragi etc., was sufficient to treat the land as agricultural land in the hands of the assessee, particularly because in the document, the nature of the land has been recorded as non-agricultural under the Karnataka Land Reforms Rules, 1966. While coming to the above conclusion we also held that this is a document maintained by the Government officials and treating the same as not valid in the absence of strict evidence to the contrary cannot be upheld. 55. On similar set of facts in the connected other cases, we have held that the land s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agriculturist in Karnataka is on a different footing from his counterparts in other States. If one were to conclude that since the present assessee had obtained a conversion order to enable it to sell its lands to a non- agriculturist (a Corporate), the subject land ceased to be a non- agricultural and, thus, become a Capital asset, though the subject land remains an agricultural land, the assessee then stands discriminated in the eyes of law vis-a-vis its counterparts in other States. Had the 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 agricultural operation and conversion was done only to facilitate sale of subject property to a corporate entity/non agriculturist. In substance, the Income-tax Act - a Central Act - is to be administered in such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.142(1) was issued on 2.2.2006 calling the assessee to file the return on or before 15.2.2006. The assessee filed a belated return on 13.3.2006 declaring income of Rs.7,67,570/-. There was no offer of any income on account of sale of property or investment in property. To the return the assessee appended a note to the effect that the assessee sold agricultural land at 77/74, Sheshagiri halli, Bidadi Hobli, Ramanagaram taluk, during April, 2004 for a total consideration of Rs.90,00,000/-. However, it was stated that it does not result in any capital gain since the land sold was agricultural land situated beyond 8 kms from corporation limit of Bangalore city as defined in section 2(14)(iii)(a) of the Act. This land measuring 9 acres was converted for non-agricultural purpose. It was further stated that though the land was converted, agricultural activities were carried on up to the date of sale. Therefore, what was sold was agricultural land within the meaning of section 2(14) and there was no capital gains tax arising out of such sales within the meaning of the definition of the term capital asset . Since the assessee did not offer any capital gain and claimed that it was agricu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty either in full or in part to any purchaser or purchasers of his choice and gave the assessee an absolute discretion to cancel or repudiate the contracts etc., Further, they authorized the assessee to receive any earnest money or to receive advance and also the full amount and then to sign and execute and deliver the conveyances in favour of the said purchaser/purchasers or their nominee or nominees or assignee or assignees. With respect to two other properties also similar GPA was executed by Shashidhar Reddy and Rachaiah in favour of the assessee almost on the same lines. 4. From the above the Assessing Officer came to the conclusion that the original owners already formed the layout subsequent to the conversion of the agricultural land for nonagricultural residential purpose and the GPA was only for specific and exclusive purpose of making arrangement to sell the sites as mentioned above. The Assessing Officer held that the character of the land has already been changed. He further noted as per the conversion orders issued by the Assistant Commissioner, Ramanagara Sub Division, the land so converted were required to be put to the use for the purpose intended (nonagricult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer concluded that since the land was already converted and put to use for formation of layout by the original owners, way back in the financial year 1995-96 itself, the assessee s version that the land was being used for non-agricultural purpose, was not justified. The Assessing Officer summoned the Assistant Commissioner, Ramanagara Sub-Division, calling for the original filed in connection with the conversion of the land, for inspection. A sworn statement was recorded u/s.131 on 5.12.2007. The conversion of the land into non-agricultural purpose was confirmed again by the Assistant Commissioner. He was again asked about the specific guidelines given by the State Government while giving permission for use of agricultural land to non-agricultural use. Answering to this question, he stated that there are about 12 conditions stipulated in the conversion order issued to the assessee. He was again asked if the land is not used for the specific non-agricultural residential purposes, what would be the repercussion. Answering to this, he stated that if the land is not used for the specific purpose for which it has been converted within the stipulated period of two years from the order, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, Mr. Tenzen stated that the intention was to construct building for education like nursing college, degree colleges etc., They were also taking steps to get recognition as a deemed university. The Assessing Officer found that the lands were acquired for the purpose of running educational institutions such as nursing college, degree college and to get recognition as a deemed university which he held proves that the land was purely non-agricultural at the time of purchase by that party. Consequentially, the assessee after conversion sold it as a nonagricultural land. He further noted that the land purchased by the Tibetan Childrens Village had constructed buildings for office premises and construction of hotel building was going on and one building for college building was also under progress. This was found out by the ITI and report by his report dt.28.12.2007 which also established the status of the land at the relevant point of time. 9. Coming to the land surrounded by or adjacent to the land in dispute whether it is urban or rural, the Assessing Officer made the following observations. He found that the land stood adjacent to well-known high traffic density state highway ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jection of the assessee was that though the assessee s land was converted for non-agricultural purpose, but it was never put to use for such converted purpose which was evident from the Government record in the form of RTC. 11. The assessee s contention was not accepted by the Commissioner of Income-tax (Appeals). He held the criteria for determination whether the land is agricultural or non-agricultural has been amplified in the treatise of Sampath Iyengar which briefly he records vide page 4 and 5 of his order. Accordingly, two tests were adumbrated in different cases, viz., (i) whether the price of land is such that no bonafide agriculturist would purchase the same at such price for genuine agricultural operations, and (ii) whether the price is such at which no prudent owner would agree to sell it even if he worked out the price on the capitalization method, taking into account its optimum yield in most favourable circumstances. In short, the price which the land fetches is an important criteria. The other criteria, is whether the land has been assessed to land revenue or not; whether agricultural activities are carried on or not; whether the land is capable of agricultural o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... void. This fact is highlighted by the statement of the State Government Officer, Shri. Karigowda, Assistant Commissioner, Ramanagar Sub Division, who appeared on 5.12.2007 and stated that if the land is not used for the specific purpose within two years of conversion, the conversion shall be deemed to have been cancelled. It is further submitted the lands were not put to residential use. This is evidenced by the photographs taken by the ITI at the time of enquiry on 27.12.07 i.e., almost three years and eight months after the sale. The photographs are found at pages 67 to 69 of the department s paper book. There is no sign of residential sites having been formed. The schedule to the sale deed reproduced at pages 4 to 6 of the assessment i.e., pages 1 to 43 of the department s paper book shows that the lands are sold in the measuring form of acres and guntas and not as residential sites. The report of ITI indicates that there is no sign of layout or residential sites having been formed. These factors indicate the lands were not put to use for the purpose for which it was converted. Thus, the lands to the extent of 12 acres and 38 guntas had lost their non-agricultural status as on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee had carried on certain agricultural activities. We find at page 12 the land used was to the extent of 1.38 acres and the crop grown was Ragi. So also at page 14 it is mentioned that the extent of land utilized was two acres for growing Ragi. He reiterated the submission made before the Departmental authorities that RTC form is a record issued by the Government which consistently show that there were agricultural activities going on. 16. He further submitted inviting our attention to written submission made before the Commissioner of Income-tax(A) on 21.7.2008 particularly at page 4, briefly which is as under. It was submitted that the LAO has concluded that the sites were formed for formation of layout. This conclusion is wrong for the reason if the sites had been formed by the original owners as held by the LAO at page 4 of the assessment order, the RTC records proves it wrong. Secondly, it was further submitted a very strong denial is also in the form of photographs taken by the ITI wherein one could see the construction of buildings by the Tibetan childrens' Village, but there is no evidence of any sites having been formed in the area. The photographs were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.08, the assessee s representative submitted since the land which was converted to non-agricultural purposes was not put to use for the converted purpose, it retains its original status which is also evident from the statement given by the Assistant Commissioner, Ramanagara Sub Division. The finding of the Assessing Officer that the data was filled year after year without verification is incorrect. The reality is that RTCs are not entered mechanically. The Village Accountants are expected to do the entries by actually carrying out the inspection in the land coming within the jurisdiction during the year. The entries in the RTC are made thereafter. The Commissioner of Incometax(A) is wrong in confirming the finding of the Assessing Officer to the contrary. It is a government record and it cannot be simply brushed aside. It may be true in stating ...the entries in the RTC alone shall not be considered as conclusive evidence to prove the case of the assessee. In the instant case, the Assessing Officer has not rebutted that assessee carried out the cultivation activities. In the absence of any rebuttal, the recordings in the RTC and also the facts of cultivation, coupled with the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asamma by deed dt.26.9.95. It is almost similar in the case of other assessee where they have purchased the land from various persons. Though the land was purchased on the basis of the certificate issued by the Village Accountant of Ramanagara taluk dt.22.6.2006 mentioned above, the assessee s representative submitted it is clear that the assessee was cultivating ragi, vegetables and horsegram on the land. Merely because the assessee did not disclose any income, it does not mean that the agricultural activities were not undertaken as claimed by the revenue authorities. 18. Inviting our attention to the report of the Income-tax Inspector, Ward-3, Mandya, dt.27.12.2007, the representative submitted it is clear that even after conversion of the agricultural land into non-agricultural, assessee has not made any tax payment to Tahsildar or to the Grama Panchayat which is also clear from the letter hereinabove mentioned dt.1.3.2005. 19. Inviting our attention to the written submission at page 44, the learned representative submitted the conclusion of the Assessing Officer that the assessee had not carried out any agricultural activity is wrong. While answering to question no.8, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the decision relied by the revenue authorities in the case of Commissioner of Income-tax v. Gemini Pictures Circuit P. Ltd., (1996) 220 ITR 43 is distinguishable on facts as the Hon'ble Supreme Court had referred to Gordhanbhai Kahandas Dalwadi 127 ITR 664 (supra). In the instant case, non-agricultural taxes were collected from the Tibetan Children's Village and it was not the assessee who had paid conversion charges and penalty for failure for using the land for certified purpose. He again invited our attention to the decision of the Supreme Court in Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy (1957) 33 ITR 466. 23. He further submitted that in the case of Prasanna Gowda, one of the assessee's before us, the Commissioner of Incometax(A) has decided the issue in assessee's favour on facts and particularly assessee's representative relied on the decision at page 5 para 4 of his order. In this case, according to the Commissioner of Income-tax(A), the Assessing Officer considered the land as capital asset because of the orders of conversion of land for non-agricultural purpose. However, the Commissioner of Income-tax(A) took note of clause (10) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any evidence in support of the claim of acticultural activities other than RTC. The assessee was questioned and requested to produce the details of the crops cultivated, yield per acre, expenses incurred towards agricultural operations and the gross amount of sale proceeds on account of the sale of agricultural produce. There was no evidence forthcoming from the assessee. On the other hand, the department sufficiently established that no agricultural activities were carried out, as under : a) Conversion of land from agricultural purposes to nonagricultural purposes, i.e., development of residential layout had taken place in the Financial Year 1995-96, i.e., 10 years before the date of transfer of the land; b) The assessee has acquired the land in the Financial Year 1995-96 by way of execution of GPA by the original landlords in favour of the assessee for the purpose of sale of sites formed by the landlord. As such, the fact has been clearly highlighted in the registered GPA without any ambiguity; c) Subsequent to conversion of the land for non-agricultural purposes, the taxes were collected by the Grama Panchayat instead of Tahashildar, indicating that no agricultural act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. He invited our attention to para 3.10 of the Commissioner of Income-tax(A)'s order in the case of Suresh Gowda dt.10.2.2009. The facts in para 3.10 narrated therein as under: 3.10 The Hon'ble ITAT, Bangalore in the case of Shri. M. V. Chandrashekar v. DCIT, Circle -2(1),Bangalore (ITA No.663/Bang/2002 dt.6.12.2002), which was also affirmed by the Hon'ble High Court of Karnataka, decided a similar issue vide ITA No.209/2003 dt.2.1.2008. The facts of the case are that the assessee is an agriculturist who purchased agricultural land of about 41 acres between 1977 and 1992 at Goolimangala village, Sarjapur Hobli, Anekal Taluk and the entire land purchased was agricultural land, which was not a converted land. The land so purchased is also in green belt area and even the assessee never applied for conversion of land use. During the previous year relevant to the Assessment Year 1998-99 the assessee sold about 35 acres of land and the remaining was still with the assessee. Some plantation was made and was converted into smaller size of plots and after incurring development expenses, sold the same to different parties. The Assessing Officer held that the transaction carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It may be construed that this converted land must be utilized for the purpose permission has been accorded within two years. (9) This order is issued as per the written agreement of the individual dt.27.7.94 and the individual is covered by agreement terms. In the event if the individual violates the terms of agreement the government is at liberty to initiate action against such individual as per the provisions of the land revenue act clause 84 of 1996. 30. In reply to the above, assessee's representative briefly submitted as under. The assessee is an agriculturist. Inviting our attention to the decision of the Commissioner of Income-tax(A) in the case of Thimme Gowda (ITA.178/B/09), he submitted the undisputed facts are that the lands are situated beyond 8 kms from the corporation limits. The lands were converted to commercial/residential usage in 1999, but was never put to use for the converted purpose. The land was used for agricultural cultivation. He further submitted that for the land to be treated as agricultural land, carrying on of agricultural activities is of paramount importance. Phani extracts was produced before the Assessing Officer to prove the facts that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not put to use for the intended purpose within the specified period of two years from the date of conversion. Agricultural land regained the character of agricultural land in 1997, 2001 i.e., after two years. The taxes paid in respect of the land was levied as agricultural land and not as non-agricultural land. This is evidenced by phani extracts in respect of these lands which show that the taxes were levied as agricultural land and not as nonagricultural land. Evidence to this effect was also produced. 31. The learned representative for the assessee again brought our attention to the application made by the Tibetan Childrens' Village, dt.1.3.2005 in which it was stated that assessee had not made renewal application after the lapse of time and Tibetan Childrens' Village. It was they who not only paid the penalty but also got the land converted by making renewal application. If the land had been used for intended purpose, there was no need of renewal application and payment of penalty. 32. Inviting our attention to page 5 of the paper book dt.27.1.09, the assessee's representative submitted the report of the Horticultural, Agricultural and Sericultural Departments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eads as under : Section 84: Uncultivated land may be required to be cultivated.-- Where the Assistant Commissioner having jurisdiction over any area in which any land is situated is satisfied that any land within such area has remained uncultivated for a period of not less than two consecutive years without sufficient cause, he may be notice served upon the land owner and any other person entitled to be or in possession of the land require such persons to cultivate the land within one year from the date of service of such notice. Reading of the section makes it clear that if the Assistant Commissioner having jurisdiction over the area is satisfied that the land within his jurisdictional domain remained uncultivated for a period of not less than two consecutive years without sufficient cause, he may issue a notice to the land owner or to any other person entitled to be in possession of the land requiring them to cultivate the land within one year from the date of service of the notice. The case of the Department is that no such notice was issued by the competent authority. Therefore, the land was utilized for non-agricultural purpose as intended. We are unable to agree with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verified the area physically. The material available in the hands of the assessee is enough to show the nature of the land prima facie at the time of the sale and not the use by the subsequent purchaser. In the instant case, the above facts prima facie leads to the conclusion that the character of the agricultural land has not been lost. It is true the assessee had no case that the entire land was used for agricultural activities. But the RTC certificates produced by the assessee also indicates that the lands were used for agricultural activities. However, we find that there is a specific finding by the Commissioner of Income-tax(A) in the case of Prasanna Gowda in ITA No.177/Bang/09 that 10 acres and 10 guntas of land sold on 2.6.06 converted on 2.4.06 was capital asset and he further directed to compute long -term capital gains on this sale. In the absence of any evidence to the contrary, we confirm the order of the Commissioner of Income-tax(A) in ITA.177/Bang/2009 to this extent on facts. 34. Coming to the decision relied by the DR reported in Merchant (ZM) v. Commissioner of Income-tax - 177 ITR 512(Bom), wherein there was a specific finding by the Tribunal that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had used the land for growing ragi. In the absence of contrary evidence, the evidence adduced by the assessee coupled with the Village Accountant's certificate, we have to come to a reasonable presumption that the assessee's assertion that the land was used for some kind of agricultural activity, is to be accepted. 36. Coming to the decision relied by the learned DR in the case of Commissioner of Income-tax v. Shiv Chand Satnam Paul - 231 ITR 663 (P H), this was a case wherein the Tribunal held that the land was located within the municipal limits and does not fall within the ambit of capital asset. The Hon'ble High Court held that the Tribunal become coming to such a conclusion should have satisfied itself regarding the remaining two ingredients mentioned in Section 2(14)(iii)(a) regarding population not less than 10,000 according to the last preceding census and the land was situated in any area within such distance, not being more than eight kilometres from the local limits. Therefore, this decision relied by the DR is not applicable to the instant case. 37. Coming to the decision reported in CWT v. Officer-in-charge (Court of Wards), Paigah, the issue involved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng up of educational institutions and other related purposes. According to the assessee, the land in his hands had retained the agricultural character till the date of sale, for the reason that the assessee was doing agricultural activity. We have hereinabove in para 34 mentioned that the department had estimated the agricultural income at Rs.53 lakhs for 2004-05 and estimated the agricultural income of the group at Rs.56 lakhs. Therefore, it is difficult to come to the conclusion that in the hands of the assessee, the character of the land had changed. Merely because the original owners had made application 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 wherein the land was purchased in 1954 and subsequently sold in 1969. The entries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gricultural use of the land. In the instant case of the 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 the land whether the land was agricultural or nonagricultural and not the intended purpose and how the purchaser was going to use the land. 39. Now, we proceed to deal with the various appeals separately, as under. ITA.1464/Bang/2008 - By the assessee, Shri. M. N. Manjunath - Assessment Year.2005-06 : 40. In the first effective ground, the assessee's grievance is that the revenue authorities were not justified in bringing to tax the income on sale of land as non-agricultural. We have elaborately dealt with this issue and given our findings in the paragraphs 33 to 38 above and we have concluded that the land was ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein we have held that the revenue authorities were not justified in holding that the land sold by the assessee was not agricultural land and consequentially charging long-term capital gains on such sale. 46. Coming to the third ground which is against charging of interest u/s.234B, we hold that the Assessing Officer may give consequential relief after giving effect to our order. 47. In the result, appeal by the assessee is allowed. 23. In the present case, the main reason for treating the land as nonagricultural is that the land was converted for usage of non-agricultural purposes. However, the assessee filed revenue records wherein it is stated that the land still continued to be agricultural land wherein crops like Ragi Paddy were cultivated by the assessee. Further, it was brought on record by the assessee that the land revenue was paid as applicable to agricultural land only. The land got converted by the assessee for nonagricultural purposes and conversion permission was granted on the condition that the land should be used for non-agricultural purposes within two years, otherwise original character of the land i.e., agricultural in nature would be restored. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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