TMI Blog1980 (9) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... ,17,000. The question that arises for our consideration in the present reference is whether capital gains in respect of the surplus realised by the assessee in the aforesaid sale for Rs. 2,17,000 is taxable as capital gains. In order to appreciate the nature of the controversy in the present proceedings, it is necessary to have a look at certain relevant facts leading to the present proceedings. During the accounting year, the assessee had sold the under mentioned lands situated in Vastrapur-Paldi area of Ahmedabad city for Rs. 2,17,000 to Saptkiran Co-operative Housing Society : --------------------------------------------------------------------------------------------------------------------------------------------------- Survey No. Area of the land Area sold during the owned by the accounting year assessee --------------------------------------------------------------------------------------------------------------------------------------------------- Sur. No. 71 7,744 sq. yds. 1,150 sq. yds. Sur. No. 72 /2/2 7,926 sq. yds. 3,719 sq. yds. Sur No. 191 3,420 sq. yds. 1,331 sq. yds. ----------------------------- -------------------------- 19,090 sq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ument of sale further reveals that land bearing survey No. 191 situated at Paldi-sim, Ahmedabad city taluka and which did not belong to the assessee was also sought to be acquired for the purpose of the Gujarat Housing Board by the State Govt. and so far as the said survey No. 191 was concerned, the award was declared by the Additional Land Acquisition Officer on August 13, 1960, and in pursuance of the said award, the land bearing survey No. 191 was acquired and possession of the said land was given to the Housing Board by the owner thereof. Actual possession of the land bearing survey No. 191 has been handed over by its owner on July 14, 1959, to the Government even prior to the award dated August 13, 1960. Thus, the Govt. of Gujarat had acquired survey No. 71 of village Vastrapur which belonged to the assessee and survey No. 191 of village Paldi for the purpose of the Gujarat Housing Board. It is pertinent to note that survey Nos. 71 and 72/2/2 both of village Vastrapur and survey No. 191 of the sim of village Paldi were situated adjoining one another. The case of the assessee is, that as per the compromise in the civil suit, the Gujarat Housing Board agreed to give possessio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agricultural lands. The assessee further relied upon the fact that the concerned lands were sold as agricultural lands and that they were not converted into non-agricultural land!; prior to their sale. The assessee also addressed a letter to the ITO on March 14, 1972, which is on record of this case and pointed out that the lands, bearing survey Nos. 71 and 72/2/2 at Vastrapur and survey No. 191 of Paldi were covered by the town planning scheme since 1960; that these lands were cultivated. It was, further mentioned by the assessee in the aforesaid letter in respect of the lands at Vastrapur that they were under cultivation by Panjrapole for consumption by the cattle under their care. But since S.Y. 2021, the said lands were cultivated by the assessee. The ITO, however, by his order dated March 23, 1972, held that as these lands were covered by the town planning scheme, they were sold as non-agricultural lands and that cultivation on building sites temporarily cannot convert such lands into agricultural lands. According to the ITO, whether the land was agricultural land or not almost depended on the fluctuating or ambulatory intention of the owner of the land. It was, further, obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act as the town planning scheme had applied only from October 1, 1970, and earlier, there was in operation merely draft scheme proposing these lands to be included in the final scheme subsequently. The AAC, therefore,' held that the reasoning of the Tribunal in the wealth-tax case cannot squarely apply, in so far as the present case is concerned, as the concerned lands were sold prior to the coming into force of the actual town planning scheme and they remained agricultural lands till they were subjected to the sale in question. The Revenue carried the matter in appeal to the Income-tax Appellate Tribunal. The Tribunal observed that at the time of the sale of the lands on January 1, 1968, they were actually not being put to non-agricultural use and that in the land revenue records, they were shown as agricultural lands. But, according to the Tribunal, the lands were clearly earmarked for residential construction purpose. As soon as the agreement of sale was executed by the assessee with Saptkiran Co-op. Housing Society Ltd. and which society became a confirming party when the actual sale took place on January 1, 1968, between the assessee and the Kiran Corporation, the intention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the said land which was produced by the assessee before the ITO shows that from the years 1961-62 to 1964-65, grass was being cultivated therein under method of cultivation No. 1, that is, the land was under the personal cultivation of the assessee. For the year 1965-66, cultivation column shows that Juwer was the crop which was cultivated. The same is the position for the years 1966-67 and 1967-68. In the year 1967-68, out of 1 acre 25 gunthas, in 30 gunthas millet was cultivated, while in 5 gunthas each, Mag and Tuwer were cultivated. Thus, so far as survey Number 72/2/2 is concerned, the record of rights shows that at the time of sale of this land it was being cultivated as agricultural land. So far as survey Number 71 is concerned, in all it admeasures 1 acre 24 gunthas. The pani patrak for this land which was also produced before the ITO shows that it was under personal cultivation, that is, by method No. 1 from 1961-62 all throughout thereafter up to 1967-68. Up to 1964-65, the cultivation column shows that grass was grown on the said land. In 1966-67, along with grass, is shown Juwer ; while for 1967-68, 6,544 sq. yds. are shown to be fallow; and 1,150 sq. yds. which came ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said land was ever put to any agricultural use by the assessee at the relevant time when he decided to sell it to the Co-operative Housing Society in question. It is, therefore, submitted by Mr. Raval for the Revenue that the Tribunal was justified in treating these lands as non-agricultural lands and in further holding that the capital gains which arose on the transaction of sale of this land by the assessee were liable to be brought to tax. In this connection, it is necessary to recall certain well established facts which clearly emerge from the record of this case. So far as survey Numbers 71 and 72/2/2 are concerned, originally they were agricultural lands and it is not the case of the Revenue that at any time they were actually put to non-agricultural use by the assessee after obtaining orders of the Collector under s. 66 of the Land Revenue Code. These lands were also-being assessed as agricultural lands and the land revenue was being paid accordingly. At the time when they were sold, they were being treated as agricultural lands. But the only ground on which the Tribunal has held against the assessee- is that agricultural operations, appear to have been planted by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Maganlal Morarbhai v. CIT [1979] 118 ITR 224. The Division Bench of this court in terms disapproved of such practice being adopted by the Tribunal to entertain new contentions for the first time in second appeal when such contentions were not urged before the lower authorities. It was observed in the penultimate para. of the said judgment as under : " Before concluding our judgment, we may point out that in para. 8 of its order, the Tribunal has proceeded to set out the facts which were no one's case. For example, to say that an area of six acres and fifteen gunthas, with a well in it, is a very small piece of land, is, to say the least, totally unjustified. To say that it could not have been possibly made use of for agricultural purposes and that for a number of years, the land was not used for agricultural purposes, are statements which are not borne out by the earlier part of the Tribunal's own order and which are not borne out by the admissions made before the AAC, by the ITO himself and by Pani Patraks on the record. To say that the land was being used as kitchen garden and to compare the use of growing juwer and tuver and other crops to kitchen garden purposes, is, to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yds. which remained with the assessee, out of survey No. 71, several agricultural crops like bajri, juwer and tuwer were grown. So far as survey No. 72/2/2 is concerned, formerly grass was grown but from 1965-66, for the rest of the years, till the date of sale, juwer was grown, and in the last year 1967-68, bajri, mag and tuwer were also grown. So far as survey No. 191 is concerned, it was shown as cultivable land admeasuring 2 acres 31 gunthas and was assessed to land revenue at Rs. 9.87. The aforesaid two features, viz., actual user of the land as agricultural lands at the relevant time and the record of right entries raise a strong presumption in favour of the assessee to the effect that the concerned lands at the time of the sale were agricultural lands. These presumptions which clearly arise on the record of the case have remained practically unrebutted by the Revenue. The Tribunal has completely ignored this aspect and has not raised the necessary presumptions of law which clearly arise on the record of the case. When the Tribunal, as final court of fact failed to raise legal submissions which arise on the record of the case, its order suffered from a patent illegality. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... While upholding the said contention of the petitioners, this court in Hirendrakumar's case [1980] 21 GLR 8 3, placed reliance on the two letters written by the Government to the Housing Commissioner laying down this policy. It was observed with reference to these letters that the two letters particularly the letter of February 1, 1966, from the Government to the Housing Board showed that the Government was of the opinion that urban land situated in a locality where development activity had started should not be acquired for the purposes of the Gujarat Housing Board and the clarification by the circular of July 24, 1967, being annex. D to the petition in that case did not in any way alter the position so far as lands situated in developed area were concerned. The clear guideline laid down by the Government in the letter of February 1, 1966, was that the lands in developing area of lands in the vicinity of which development activity had started or development started should not be acquired for the purposes of the Housing Board. This court also placed reliance on the earlier judgment in the case of Maganbhai Vanarashibhai Patel v. State of Gujarat [1975] 16 GLR 839; [1976] AIR 1976 Gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he permission of the Collector under s. 63 of the Tenancy Act to sell these lands for non-agricultural purpose. The very fact that such permission was asked for under the Tenancy Act shows that these lands were agricultural lands, otherwise such permission could never have been asked for and such application could never have been entertained under s. 63 of the Tenancy Act. The sixth feature of this case is that the land in question were covered only by the draft town planning scheme at the relevant time and the final scheme was approved only in 1970. that is, two years after the sale in question. Thus, at the relevant time, when the lands were subjected to sale, they were covered only by the proposed scheme. The seventh feature of the case is that the order of the Tribunal in the wealth-tax case had no relevance for deciding the present controversy for the simple reason that the Tribunal in the wealth-tax proceedings had wrongly assumed that the final town planning scheme had come into force so far as the lands in question were concerned. That assumption was factually absolutely incorrect. The eighth feature of the case is that the lands in question were sold by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral use only since they were acquired by the assessee in 1952 and they were so situated that they could not have been used for building or non-agricultural purpose at any time during the relevant period. The only contentions which the Revenue had pressed in service in that case were that the draft town planning scheme had been applied to the area; that the lands had been plotted out by the assessee and that the plots of land had been sold to different persons on the basis of yardage. The contention of the revenue was that these features clearly showed that the lands were non-agricultural and, consequently, they were liable to be included in the computation of net wealth of the assessee under the W.T. Act, 1957. Repelling this contention, on behalf of the revenue, this court held that such lands cannot be included in computing the net wealth under the aforesaid Act as they remained agricultural lands in spite of the aforesaid features. In this connection, it has been observed by this court in Narandas' case [1971] 80 ITR 39 (Guj), that if the land is used for agricultural purposes, ordinarily it would be correct to say that the land is agricultural land and vice versa. But even this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellate Assistant Commissioner in his order. It is in evidence that neither the, assessee nor the persons to whom the assessee has sold different plots of land have, at any time, made any attempt to put this land to non-agricultural use ... It is under these circumstances that the fact that the lands have been subjected to agricultural use throughout the relevant period (sic). The fact that the land was never intended to be used during the relevant period as a building site or for any other non-agricultural purpose lends support to the contention that they did not cease to possess their original character, namely, agricultural. This court further observed that the aforesaid fact raised a prima facie presumption about the character of the lands being agricultural lands and this presumption was not displaced by the other side by leading cogent evidence. The only grounds put forward by the revenue for displacing the presumption were three, viz., (1) that the draft town planning scheme was applied to the area in which these lands were situated; (2) that the lands were plotted out by the assessee in the year 1959 and (3) that these plots of land were sold to different persons on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one provided some evidence of the character of the land from the point of view of its purpose. That the property was classified in the revenue records as agricultural land was not conclusive and such entries could raise only a rebuttable presumption. Therefore, the Appellate Tribunal was asked to determine afresh whether the lands were agricultural after giving an opportunity to both sides to lead further evidence. While considering the aforesaid question, the Supreme Court observed : " The determination of the character of the land, according to the purpose for which it is meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case. What is really required to be shown 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." In the aforesaid decision, the Supreme Court noted the eight conclusions reached by the Ful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Repelling the said contention of the Revenue, this court held on the aforesaid facts that what has to be considered is not what the purchaser did with the land or the purchaser was supposed to do with the land, but what was the character of the land at the time when the 'sale took place. The fact that the land was within municipal limits or that it was included within a proposed town planning scheme was not by itself sufficient to rebut the presumption arising from actual use of the land. The land had been used for agricultural purposes for a long time and nothing had happened till the date of the sale to change that character of the land. The potential non-agricultural value of the land for which a purchaser may be prepared to pay a large price would not detract from its character as agricultural land at the date of the sale. The land in question was, therefore, agricultural land. This court relied upon various previous judgments of this court in support of the view taken by it. In Manilal Somnath's case [1977] 106 ITR 917 (Guj), it was further observed that the fact that the assessee had obtained permission of the Collector under s. 63 of the Tenancy Act showed that the land i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Previous transactions regarding the land showed that as far back as 1942, the land was being sold by the yardage and not by the bigha or acre. The Tribunal took the view that the land was non-agricultural land when it was sold. Disagreeing with the. aforesaid conclusion of the Tribunal, this court, on reference, held that the order of the Tribunal, showed that it had not considered the question from the point of view of the presumption arising in favour of the assessee in the case from the actual user of the land and entries in revenue records and then finding out whether that presumption could be said to be rebutted or dislodged by other factors in the case. In that connection, it was observed : " Prima facie land could be said to be agricultural which is either actually used, ordinarily used or is meant to be. used, for agricultural purposes. If it is actually used at the relevant date for agricultural purposes and there are no special features, as for example, a building plot being used for agricultural purposes as a stop-gap arrangement, it would be agricultural land. Potential use of the land as agricultural land is wholly immaterial. Entries in the record of rights are g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was no law taxing capital gains on the statute book. Hence, the idea of arranging a facade of agricultural use with a view to avoid possible tax on capital gains could not have been present in the mind of the assessee. The lands lay fallow for a few years after 1952, but if land is to be used for agricultural purposes either by rotation or otherwise it has to be allowed to lie fallow. The lands were attempted to be used for agricultural purposes from 1959-60, and from 1962-63, were used exclusively for growing juvar. The agreements for sales showed that crops were standing on the lands in question. The fact that for two decades, a large part of the lands was being used for non-agricultural purposes would not permanently condemn the lands as non-agricultural. What had to be seen was not the intermediate use but the actual user of the lands at the time of sale and the. actual character of the lands at the date when the sale took place. Application to reconvert the lands was made in 1952, and the sale took place sixteen years later. There was nothing to show that in the intervening period these lands had lost their regained character of agricultural lands. The lands had been includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be agricultural land." It was further observed (ibid): "The land had undoubtedly potential non-agricultural value and for the potential non-agricultural value the purchaser was prepared to pay high price, but such potential non-agricultural value does not detract from the character of the land as agricultural land at the date of sale. It is true that agricultural land would not be sold by yardage at the rate of Rs. 6.95 per square yard, but this high price reflects potential non-agricultural value. It would not mean that the land has ceased to be agricultural because of this price. It follows that the Tribunal committed an error of mixed question of fact and law when it came to the conclusion that the land had ceased to be agricultural land on the date of the sale and that when it was sold it was not agricultural land." We have already noted that the facts of the present case clearly show that the Tribunal had committed a similar error of mixed question of law and fact when it held without drawing the necessary legal presumption that the lands in question were non-agricultural lands at the date of their sale. It is necessary to note a further salient fact that in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sagreeing with the Tribunal took the view that the land had been purchased as far back as 1928 and since that date it was being used as agricultural land. The Tribunal had itself referred to the fact that the entries in the record of rights showed that over several years crops were being grown on the land. The presumptions arising from the actual user of the land for agricultural purposes and from the entries in the record of rights had not been rebutted by any other factor or special circumstances of the case. The Tribunal had erred in law in disregarding these presumptions and in holding that the land had lost its agricultural character on the date of sale because of the permission granted under the Bombay Tenancy and Agricultural Lands Act. It was, therefore, held that the land which D had sold after getting it on partial 'partition was agricultural land on the date of its sale and profits arising therefrom were not liable to be taxed as capital gains. In, the light of the aforesaid legal position and in view of the proved and admitted facts as emerging on the record of this case and to which we have made a detailed reference in the earlier part of this judgment, it appears cl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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