TMI Blog1981 (8) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... id not fall within the definition of " capital asset " as defined by s. 2(14) of the I.T. Act of 1961, as it stood at the material time, mainly because of the following two factors, viz., (1) it was entered in revenue records as agricultural land and was assessed to assessment on that basis, (2) a crop which yielded a gross annual normal income of less than Rs. 200 (two hundred) was grown on the same during the relevant years. It was the case of the assessee that accordingly the profit of Rs. 2,12,618 derived by her from this transaction was not exigible to tax as capital gains under s. 45 of the Act. The ITO by his order as per annex. " B " negatived the contention and included 45% of the amount of total capital gains accuring to her as her income for the relevant year. The appeal preferred by the assessee in so far as this question was concerned was dismissed by the AAC by his appellate order at annex. " C ". The Income-tax Appellate Tribunal, Ahmedabad Bench 'B', confirmed the order of assessment on a different ground. Thereupon three questions have been referred to us by the Tribunal at the instance of the assessee and one question has been referred to us at the instance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l having disagreed with the view taken by the ITO and the AAC that the land in question was not agricultural land and having taken the view that it was agricultural land. The question assumed importance because even if it was agricultural land, still the gains arising in the context of the transfer of such land would be exigible to tax as capital gains under s. 45 of the Act, in case the transfer of the land was effected on or after March 1, 1970. In the present case while the sale deed was executed in the sense that the assessee had appended her signature to the sale deed prior to March 1, 1970, the sale deed was presented for registration and was in fact registered " after " March 1, 1970. It was in this background that the question arose whether the transfer of the land in question was before March 1, 1970, or after March 1, 1970. The Tribunal took the view, that the transfer was effected after March 1, 1970, having regard to the fact that the transaction of sale was not complete till the document was presented for registration and was registered. As it was common ground that the document was presented for registration after March 1, 1970, the Tribunal formed the opinion that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not agricultural land and the Tribunal having taken the view that it was agricultural land). That is how three questions have come to be, referred to us at the instance of the assessee and one question has come to be referred to us at the instance of the Revenue. We may incidentally mention for the purposes of record that one more question had been referred at the instance of the assessee but that question is not debated before us as it is concluded against the assessee by a decision of this High Court rendered in Smt. Padmavati Jaykrishna v. CIT. [1975] 101 ITR 153. Under the circumstances, the main questions which have been debated before us are the aforesaid three questions raised at the instance of the assessee and one question raised at the instance of the Revenue. It is necessary to highlight one aspect of the matter. Whatever view is taken in regard to the three questions referred at the instance of the assessee, the assessee must in any case fail if the basic question as to whether or not the land concerned was agricultural land (referred, to us at the instance of the Revenue) is decided against the assessee. Since we are of the opinion that the Revenue is entitled to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly as in 1962. Compensation was paid in respect of this acquisition at the rate ranging from Rs. 6.90 per sq. yd. to Rs. 9 per sq. yd. Meanwhile there was a partial partition and a portion of the aforesaid land came to the share of the smaller HUF headed by the assessee's husband in 1955. There was a further partial partition in 1963, in the HUF headed by the husband of the assessee as a result of which the assessee and her husband acquiring an undivided 1/2 share in the parcel of land admeasuring 8,578 sq. yds., which was the subject-matter of the transaction effected in 1970 giving rise to the present controversy. From 1963 to 1970 this land continued to be assessed to land revenue even though residential buildings had already been constructed on the surrounding land and even though a portion of the original block of land had already been acquired by the Housing Board and houses were coming up on the acquired portion. (4) The gross agricultural income from this land during financial years 1966-67 1967-68 and for the period between 1-1-69 and 31-1-70 was Rs. 100, Rs. 178 and Rs. 182, respectively: (it needs to be emphasised that this was only the " gross " annual income which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land and in order to answer the question correctly a number of tests have been evolved. We have examined this question at considerable length in I.T.R. No. 92176 [CIT v. Sarifabibi Mohamed Ibrahim-[1982] 136 ITR 621 (Guj)] and the allied references disposed of by us on April 17, 1981. Instead of repeating the same reasoning we will quote an extract from the said decision wherein we have referred to the judgments cited before us and evolved an appropriate test. We may say that the facts in that case were similar to the facts in the present case (in fact the fact-situation of the present case is much better from the standpoint of the proponent of the view that the land is non-agricultural land). After setting out the facts of that case, we have formulated the tests in the course of the following passage extracted from the judgment (pp. 626-628): "All these facts and circumstances viewed in the light of the appropriate tests impel us to the conclusion that the lands are not agricultural lands in fact and truth (though they are labelled as such in the revenue records) for reasons which we will presently articulate. But before we do so we must advert to the propositions of law affirme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given a go by (it could not have been done without referring the matters to a larger Bench). These are decisions rendered on the facts of the individual cases and make no departure from the principles settled earlier. On an analysis of these decisions and the decision rendered by the Supreme Court in CWT v. Officer-in-Charge (Court of Wards), Paigah, [1976] 105 ITR 133, the following tests can be formulated in order to determine whether or not the land in question is agricultural land, as claimed by the assessee, which is immune from provisions pertaining to tax on capital gains. Circumstances which speak 'for' and 'against' the conclusion that the land is agricultural land. For Against (1) That it is entered as agricultural (1) When land is situated in land in revenue records and assessed an urban area within municipal as such under the Land Revenue Code. limits in the proximity of buildings and building sites. [Subject to the rider that it is a rebuttable presumption and can be destroyed by other circumstances pointing to the contrary conclusion. See, Commissioner of Wealth-tax v. Officer-in-charge (Court of Wards), Paigah [1976] 105 ITR 133 (SC)]. (2) That agricul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him by way of remuneration. We do not know what was spent for the purchase of the seeds. We do not know whether she owned any implements of agriculture at all. In any case the cost of growing the jowar must have far-exceeded the sum of Rs. 200 per annum. Even if a watchman was engaged he would have charged about Rs. 2,400 per annum. Can it be seriously contended that she was putting the land to agricultural use in a bona fide manner and incurring losses from year to year ? It must be realised that the land in question was sold for a total consideration of Rs. 2,34,063 (1/2 of Rs. 4,68,126 fetched by the entire plot of 8,578 sq. yds. in which she had 1/2 share). It was sold at the rate of Rs. 56 per sq. yd. A part of the original block of land from which the assessee got the land in question by way of partition, in due course was acquired by the Gujarat Housing Board under the Land Acquisition Act for a public purpose, viz., in order to construct houses for the low income group citizens as early as in 1962. Thus, from 1962 onwards, the main block of land had changed its character and had become non-agricultural land. It was acquired by the housing board at Rs. 10 per sq. yd. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because it was entered in the revenue records as agricultural land and the assessee was paying land revenue assessment on the basis that it was agricultural land. As we have discussed hereinbefore, it suited the assessee not to apply for permission to convert it into nonagricultural land because the assessee would be required to pay wealthtax on it and also to pay capital gains tax in case the land was sold. The mere fact that it stood in the records as agricultural land is of no importance. So also the fact that jowar was grown during these years which yielded a gross income of Rs. 200 cannot be considered as a circumstance pointing to the conclusion that it was agricultural land. It was an illusory user made either by way of stop-gap arrangement awaiting the sale of the land for non-agricultural purposes or awaiting the user of the land for non-agricultural purposes in order to be able to contend before the tax authorities that it was not liable to be included in the net wealth for the purposes of the wealth-tax return and to save the profits derived from the sale of such land (in the event of it being sold) from being taxed as capital gains. Taking a cumulative view of all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m April 1, 1970. Therefore, in respect of the assessment year 1970-71 if the land was a " capital asset " within the meaning of s. 2(14) by virtue of the fact that it was such agricultural land in respect of which a transfer was effected " after " March 1, 1970, the gains arising out of a transfer of such land would be exigible to tax as capital gains. This was the position as per the relevant provisions of the I.T. Act as they stood at the material time. The position is not in dispute that such was the legal position obtaining in the course of the relevant assessment year. It is unfortunate that the ITO and the AAC were not aware of this position. Perhaps it was because the alteration in the law had taken place recently that possibly the ITO and the AAC did not realise the implication of the amendment brought about by the Finance Act of 1970. Under the circumstances, they did not examine whether the assessee was liable to pay tax under the head of " Capital gains " in respect of this transaction from this perspective. Moreover, the ITO and the AAC have taken the view that it was non-agricultural land and in any case the profit yielded by the transaction was exigible to tax as capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the 1922 Act reads as under: " The Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, and shall communicate any such orders to the assessee and to the Commissioner." It is argued that r. 27 confers a right on the respondent (in this case, the Revenue) to support the order under appeal on any of the grounds decided against the respondent, but if the decision giving rise to the appeal is one in which no such ground was urged, there can be no question of supporting the ultimate order on a ground decided against it. In other words, it is argued that the ground must be raised before the AAC and the AAC must have decided the ground against the respondent before the respondent can support the ultimate order on the basis of the said ground. It is contended that the argument based on the relevant provision as amended by the Finance Act of 1970 was not urged before the AAC. Since the argument was not addressed, there was no decision against the Revenue on that point. Since there was no decision against the Revenue on this point, the ultimate order could not be supported on this reasoning. Such is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the first time. It was in that context that the Supreme Court had observed that the appellate powers of the Tribunal are embodied in s. 33(4) and that the Appellate Tribunal may after giving both the parties to the appeal an opportunity of being heard pass such orders thereon as it thinks fit in exercise of those powers. The word " thereon " merely restricts the jurisdiction of the Tribunal to the " subject-matter " of the appeal. The Supreme Court observed that in the case before the court the subject-matter of the appeal before the Tribunal was the question as to what should be the proper written down value of the buildings, machinery, etc., of the assessee for calculating the depreciation allowance. Since this was the subject-matter it was open to the department, in the appeal filed by the assessee before the Tribunal, to support the finding of the AAC with regard to the written down value on any of the grounds decided against it. In substance the view taken is that so long as the subject-matter of the dispute before the Tribunal is the same as the subject-matter which was in dispute before the AAC, even a new argument to support the ultimate conclusion of the AAC can be advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he dispute was the exigibility to tax under the head of " Capital gains " in respect of the gains arising out of the transaction of the sale of the land in question. No doubt the ITO had taken the view that the income was exigible to tax on the reasoning that it was not agricultural land. The fact, however, cannot be gainsaid that the subject-matter of the controversy remained the same, viz., whether the profit made on the transaction was exigible to tax. No doubt a new reasoning in the context of the amended provisions introduced by the Finance Act of 1970 was sought to be urged. All the same the subject-matter remained the same. In other words, though the reasoning called into aid was altogether different from the reasoning advanced before the AAC, the subject-matter of the controversy remained identical. Under the circumstances, the ratio of Mahalakshmi Textile Mills'case [1967] 66 ITR 710 (SC) is attracted and the Tribunal was justified in permitting the assessee to raise this contention. In so far as CIT v. Karamchand Premchand P. Ltd. [1969] 7.4 ITR 254 (Guj) is concerned, the assessee in that case had not questioned the decision of the ITO on a point decided against him in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , considered and decided by the Appellate Assistant Commissioner, and the decision on it does not form part of the order of the Appellate Assistant Commissioner, there can be no appeal against it. This much was not disputed, and indeed could not be, disputed, by the learned advocate appearing on behalf of the assessee. Further onwards, it has been observed as under at p. 696: " If the matter, had been the subject-matter of the appeal it would have been open to the Tribunal to allow the assessee to raise a new ground of appeal but it must be with reference to the same subject-matter of the appeal and not with reference to a different subject-matter." After considering all the relevant decisions the ultimate conclusion has been expressed at p. 700, to the effect that the subject-matter of the appeal before the Tribunal can only be the decision, express or implied, of the AAC and the jurisdiction of the Tribunal is restricted to the subjectmatter of the appeal. It has further been held that once the subjectmatter of the appeal has been determined, the Tribunal has very wide powers to deal with all questions of fact and law pertaining to that subject-matter of appeal and that, on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1970, or "subsequent" to March 1, 1970. In view of the provisions contained in S., 47(viii) if the transaction was effected " before " March 1, 1970, the assessee would be entitled to succeed in case the land in question was agricultural land for the gains derived out of the transaction would be exempted from tax under the head of, " Capital gains ". That is why the, question as to " when " the, transaction, was " effected " has assumed great significance in the present case. What we have to determine is whether transaction of sale can be said to have been effected on the date on which the conveyance is " signed " or whether it can be said to have been treated as having been effected only when it is registered ". Section 47(viii) provides that "any transfer of agricultural land in India effected before the 1st day of March, 1970, shall not be treated as a transfer for the purpose of capital gains ". The expression placed under spotlight is " transfer effected ". The date on which " transfer was effected " can but mean only one thing, viz., the date on which the transfer became operative or complete or the date on which the transfer was brought about. A glance at s. 54 falling w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court. In Ram Saran Lall v. Domini Kuer, AIR 1961 SC 1747, the question arose in the context of a right of pre-emption claimed under Muhammadan law. Under the Muhammadan law a demand to enforce the right of pre-emption called talab-i-mowasibat has to be made after the completion of the sale. The outcome of the matter depended an the determination of the date on which the transaction of sale became complete. The sale deed was executed on January 31, 1946. The deed was presented at the registration office on the same day. The person claiming the right of pre-emption made the demand in order to enforce the right immediately after the document was presented for registration. The document was copied out in the Registrar's book on February 9, 1946. In the context of these facts the question arose whether the person claiming the right of pre-emption was right in the contention that the demand was made " after " the transaction was " complete " having regard to the fact that the demand was made after the execution of the deed though before the document was copied in the Registrar's books. The High Court took the view that the transaction of sale became complete only upon the document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed only on October 10, 1947. Though Ex. A-19 was registered on June 22, 1948, under s. 47 of the Registration Act, the agreement would take effect from July 5, 1947. " (Emphasis added). It must, however, be realised that the question before the Supreme Court had arisen in the context of two rival documents which were in the field. In K. J. Nathan's case, AIR 1965 SC 430, the decision rendered by the Supreme Court in the earlier case (Ram Saran Lall v. Domini Kuer, AIR 1961 SC 1747) was not considered because it does not appear to have been cited before the court. Later on, the same question came up before the Supreme Court in Hiralal Agrawal v. Rampadarath Singh, AIR 1969 SC 244. The question arose in the context of s. 16 of the Bihar Land Reforms (Fixation of Ceiling Area and Acquisition of Surplus Land) Act. Sub-section (1) of s. 16 provides that there can be no transfer to a person who together with the land already held by him acquires land by transfer which in, the aggregate makes the area in excess of the ceiling area. Subsection (2) of s. 16 provides that no registering authority can register such a deed of sale and there can be no valid transfer unless the sale deed is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stration book by the official concerned ? That, however, is the vital question from the standpoint of the I.T. Act and W.T. Act, because the date of transmission of title from the vendor to the vendee is extremely relevant for determining who is liable to bear the tax burden. Counsel for the assessee contended that the law OD the subject was laid down in the two decisions of the Privy Council in Kalyanasundaram Pillai v. Karuppa Moopanar, AIR 1927 PC 42, and Venkat Subba Srinivas Hegde v. Subba Rama Hegde, AIR 1928 PC 86, and that the ratio of these decisions was that the transaction of sale would become complete with effect from the date on which the document was executed having regard to the effect of s. 47 which gave retrospective effect to the transaction upon the document being registered. In Kalyanasundaram's case, AIR 1927 PC 42, trust deed was executed on September 9, 1891. It was, however, registered six days later, on September 15, 1891. Between these two dates the executant of the document adopted the appellant as his son and executed a deed of partition between himself and the guardian of the son. In the context of these facts the question arose whether the adoption had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42, and reiterated the effect of registration in the following portion (p. 87) : "Registration does not depend upon his (the donor's) consent, but is the act of an officer appointed by law for the purpose, who, if the deed is executed by or on behalf of the donor and is attested by at least two witnesses, must register it if it is presented by a person having the necessary interest within the prescribed period. Neither death, nor the express revocation by the donor, is a ground for refusing registration, if the other conditions are complied with. " So far as this case is concerned, it does not directly deal with the effect of s. 47. The ratio of the decision is that the transaction of gift is complete if the other formalities are completed and the document of gift is executed and that the donor cannot resile from his action before the document is registered. The ratio of both the decisions of the Privy Council is to the effect that a transaction of gift made by a document which is subsequently registered becomes operative from the date on which the document of gift was executed. No doubt a reference has been made to s. 47 but mainly the decisions are rested on the effect of reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he property of a transferee in a different year. The date on which the transaction is effected would be extremely relevant and would have critical significance for a very good reason. The same property cannot belong exclusively to II A " as also exclusively to " B " at any one point of time. Either " A " owns it exclusively or " B " owns it exclusively at any given point of time. But not both. If one were to take the view that a transaction is complete when the document is copied in the books of the Registrar, the date would remain uncertain. It may be copied after a very long time since no time-limit is provided by the Act. Neither the transferor nor the transferee would know whether a transfer has been effected. And he would not be able to compute his, profits or gains or to include such profits or gains in the return under the head of "Capital gains ". Nor would he be able to decide whether or not the asset in question should be treated as his property during the relevant period. If his title is not extinguished till the document is copied out in the books of the Registrar, he would have to treat the property in question as his capital asset notwithstanding the fact that he has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he I.T. Act is concerned, it is not possible to take the view that the transfer is effected on the date on which the document is copied out in the books of the Registrar. In other words, the ratio of the decisions in Ram Saran Lall v. Domini Kaur, AIR 1961 SC 1747, K. J. Nathan v. S. V. Maruthi Rao, AIR 1965 SC 430, and Hiralal Agrawal v. Rampadarath Singh, AIR 1969 SC 244, rendered in the context of the right of pre-emption claimed under the Muhammadan law and the dispute arising under the Tenancy Act and in the context of competing documents executed and registered on different dates, will not be attracted in so far as the provision contained in s. 45 of the Act is concerned. In interpreting the expression " transfer of capital asset " it would not be possible to take the view that the transfer is effected on the date on which the document is copied. We are, therefore, of the opinion that s. 47 would be attracted even in respect of a transaction of sale when the question arises in the context of the decisive date for ascertaining the date on which the transfer of a capital asset becomes effective under s. 45 of the I.T. Act. Once we take this view, the transaction must be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lands in question were on the date of their transfer agricultural lands ? One question which was raised by way of a corrigenda and which has been numbered as question No. 4 as per the order of the Tribunal dated July 4, 1978, is covered against the assessee by a decision of this High Court in Smt. Padmavati Jaykrishna v. CIT [1975] 101 ITR 153 (Guj). The said question is, therefore, answered in the manner indicated hereunder: Question Answer 4. Whether, on the facts and in the In the affirmative and against in the circumstances of the case, the the assessee in view of Smt. the Tribunal was right in holding that Padmavati Jaykrishna v. CIT the interest deficit to the extent of Rs. [1975] 101 ITR 153 (Guj) 6,453 was not deductible while determining the total income ? Reference answered accordingly. There will be no order regarding costs. The learned counsel for the assessee applies for a certificate of fitness to appeal to the Supreme Court under s. 261 of the I.T. Act. We do not consider this to be a fit case for the grant of a certificate. The certificate is, therefore, refused. I.T.R. No. 156/78. For the same reasons the questions referred to us in the allied ..... X X X X Extracts X X X X X X X X Extracts X X X X
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