George Stanley Vs DCIT (Kerala High Court)
No Evidence of Cultivation, No 10(37) – Benefit Mere Trees Don’t Make Land Agricultural – Kerala HC Orders AO to Examine 54F Claim- Rubber Trees Not Enough – Kerala HC Says Agricultural Use Must Be Proved, Directs AO to Reconsider 54F Claim
Assessee, a non-resident, sold 94 cents of land with a residential building in Pathanamthitta for ₹6.20 crore, claiming the property was agricultural land & hence not liable to capital gains tax. AO rejected the claim, holding that the property was not agricultural in nature & assessed long-term capital gains accordingly. Both CIT(A) & ITAT (Cochin Bench) upheld the addition.
Aggrieved, Assessee approached the High Court contending that the land was planted with rubber, coconut, mango, & jackfruit trees, as certified by the Village Officer, & hence qualified as agricultural land u/s 10(37).
The Court noted that Assessee relied only on a Village Officer’s certificate & photographs showing the presence of trees but produced no evidence of actual agricultural activity or agricultural income in the preceding two years — a mandatory condition u/s 10(37).
It was further observed that the buyer himself had confirmed before AO that the land was non-agricultural & used for commercial purposes. The sale deed also contained no endorsement from the Sub-Registrar indicating agricultural use, & Assessee had failed to disclose the sale in his return of income.
Bench held that mere existence of trees or rubber plants does not make land agricultural unless agricultural operations or income are proved. Assessee’s contradictory claims- first stating that agricultural income was earned by his parents & later by himself – further weakened his case.
Additionally, the Court questioned the sale of alleged agricultural land to a non-resident, noting that such a transaction would have required compliance with FEMA restrictions, further undermining the Assessee’s claim.
Assessee alternatively claimed exemption u/s 54F for reinvestment of the sale proceeds. Although this claim was raised during assessment, it was rejected since it was not included in the original return. The Court held that AO should have considered the 54F claim on merits, since such exemption claims, even if not made in the return, can be adjudicated when raised during assessment. The Bench emphasized that the AO is not a tax gatherer but a quasi-judicial authority obligated to examine legitimate claims.
Held
- The land not proved to be agricultural; exemption u/s 10(37) denied.
- The matter remanded to AO for fresh adjudication of exemption claim u/s 54F on merits.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
The appeal, at the instance of the assessee, questions the findings of the Income Tax Appellate Tribunal, Cochin, in ITA No.587 of 2022 with respect to the assessment year 2014-15.
2. The appellant-assessee, a non-resident, had a substantial deposit in its bank accounts which was later transferred abroad. The appellant, in reply to a query, pointed out that he sold 94 cents of land with a residential building situated in Pathanamthitta Village for a consideration of Rs.6,20,40,000/-, stated to be an agricultural land, having no liability to capital gains tax. The assessing authority by the impugned assessment order refused to extend the afore benefit and has sought to assess the long-term capital gain on the afore value of consideration in accordance with the Income Tax Act, 1961 (hereinafter referred to as “Act”). The appeal against the above assessment was unsuccessful, and the further appeal tothe Tribunal also met with no success.
3. It is in such circumstances that the appellant-assessee is before this Court.
4. Heard Sri.Sreehari Indukaladharan, the learned counsel for the appellant-assessee, and Sri.P.G.Jayasankar, the learned Standing Counsel for the respondent-revenue.
5. The first ground of challenge against the assessment as above is with reference to the status of the property as an “agricultural land”. True, the provision of Section 10(37) of the Act provides for non-inclusion of the capital gains arising from the transfer of “agricultural land”. In the case at hand, the appellant-assessee had relied on certain photographs and a certificate from the Village Officer in support of his contention as above. A perusal of the certificate from the Village Officer shows that during the financial year 2011-12, there were ten coconut trees, one jackfruit tree, one mango tree, as well as around 100 tapping rubber trees. The Village Officer further certifies that after the sale of the properties, along with the demolition of the residential building, the trees, including the rubber trees, were cut down. However, we notice that the buyer of the property had certified before the assessing authority that there were no agricultural activities in the property. He has also stated that the land was a commercial one. We further notice that the appellant-assessee was provided with the required copies of the incriminating statement from the buyer of the property, as well as the clarifications obtained by the Department. This Court further notices that the sale of the property, as well as the claim for non-liability to taxation, was never disclosed in the return filed for the year under assessment. Furthermore, the documents of the Sub Registrar’s office where the sale deed was registered also did not contain any endorsement as regards the nature of the property to be agricultural. Again, the appellant-assessee has not been in a position to provide the nature of the agricultural activities carried out, as well as the details of agricultural income/expenses for any period. The assessing authority has categorically found that the appellant-assessee had taken contradictory stands by originally contending that his parents were taking income from the property and later changed his statement, saying that he himself was receiving it.
6. Apart from all the above, under the provision of Section 10(37) of the Act, it was the duty of the appellant-assessee to have established that “such land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purposes”. A perusal of the assessment order shows that the appellant-assessee has not taken any steps in that regard. So, even assuming that the property was planted with rubber trees, when there was no evidence to show the same was being put to agricultural purpose, the appellant-assessee could not have raised any claim for non-liability of tax.
7. There is no dispute with respect to the fact that the transfer of a capital asset has taken place. There cannot be any dispute as regards the liability to capital gains as against such transfer. However, when the appellant-assessee claims non- liability to capital gains tax, since what is transferred is an agricultural land, the burden of proof would be on the appellant-assessee. Viewed from that angle, we notice that apart from relying on the certificate of the Village Officer and a confirmation from a rubber tapper, which only supports the existence of the rubber trees, no evidence was adduced by the appellant-assessee to prove agricultural activity. It was incumbent on the part of the appellant-assessee to have proven that on the date of transfer, the property in question was agricultural in nature.
8. We also notice that the appellant-assessee had sold the property to a non-resident. If the appellant-assessee had a case that the property was an agricultural property, how the same could be sold to a non-resident is also not clear, with reference to the provisions of FEMA Regulations.
9. In such circumstances, we are of the opinion that the appellant-assessee has not been able to prove that he was entitled to non-liability to capital gain tax in a manner known to law.
10. The second question arising for consideration is as to whether the rejection of the claim for deduction with reference to Section 54F of the Act was correct. We notice that the appellant-assessee has raised the above claim even at the stage of assessment. However, it was not considered since, according to the assessing authority, such a claim was not made originally through the return. The first appellate authority has concluded that the details thereof “were not available” with the authorised representative of the assessee. The Appellate Tribunal also concurred with the above findings. We are of the opinion that even if a claim is not being raised through a return, when the Department seeks to levy a capital gains tax, it was incumbent on the part of the assessing authority to have verified the claim raised under Section 54F of the Act, not sticking to technicalities, when such a claim was raised by the appellant-assessee, as an alternate plea. The officer, in such circumstances, was not to act as a tax gatherer and ought to have adjudicated on the claim raised by the assessee. Insofar as it is not so done, we are of the opinion that the matter has to travel back to the assessing authority for a proper adjudication on the claim under Section 54F of the Act.
Resultantly, this Income Tax Appeal would stand partly allowed, remitting the matter back to the assessing authority for a proper adjudication on the claim raised by the appellant-assessee under Section 54F of the Act.
