Shantaben Ganpatbhai Patel Vs ITO (ITAT Surat)
Summary: ITAT Surat partly allowed the assessee’s appeal for AY 2008-09 concerning compensation of ₹1.70 crore received on compulsory acquisition of land at Hazira on behalf of Essar Steels Ltd. The assessee had not filed a return of income. The Assessing Officer treated the Hazira land as a capital asset within section 2(14) of the Income Tax Act, 1961 and, in an assessment under sections 144 read with 147, made an addition of ₹53,58,334 as long-term capital gains and ₹1,16,41,667 as income from other sources relating to compensation for construction/assets on the land. The CIT(A) partly allowed the assessee’s appeal. Before the Tribunal, there was a delay of 3,675 days. The assessee explained through an affidavit that she was a senior citizen and widow, her son had died in 2010, another son suffered a paralytic attack in 2013, and she was dependent on her grandson. She stated that she became aware of the CIT(A)’s 17.11.2014 order only after a Tax Recovery Officer issued a notice on 10.07.2024 demanding ₹6,65,82,648 and proposing auction of her property. Considering these exceptional circumstances, the Tribunal condoned the delay while expressly stating that the condonation should not be treated as a precedent in other cases.
On merits, the assessee relied on Ambaben Jamubhai Patel, ITA No.3021/AHD/2014, order dated 13.04.2022, involving similar Hazira land acquisition and compensation paid by Essar Steel Ltd. The reproduced findings in that decision held that the Hazira Notified Area was not a municipal area or deemed municipality merely because certain provisions of the Gujarat Municipalities Act applied to it. Consequently, agricultural land situated there did not acquire the character of a “capital asset” under section 2(14). The earlier decision further examined the alternative claim under section 10(37), observing that agricultural operations were supported by the District Agricultural Officer’s certificate, the acquisition award recorded agricultural use, and the acquisition satisfied the conditions applicable to compulsory acquisition. It also discussed CIT Vs Ghanashyam (HUF), Hindustan Industrial Resources Ltd Vs CIT and CIT Vs Siddhrath J Desai while considering the nature of the land and compulsory acquisition.
Applying the earlier Tribunal decision to the present assessee, ITAT Surat found the facts identical. The record suggested that agricultural operations were carried on upon the land; the land was compulsorily acquired; and the income arose from compensation. The Tribunal therefore held that the land was agricultural land and that the surplus realised on compulsory acquisition was not liable to capital gains tax. Accordingly, the addition of ₹53,58,334 did not survive. As regards ₹1,16,41,667 relating to compensation for other assets, the Tribunal followed the treatment adopted in Ambaben Jamubhai Patel. Instead of sustaining the CIT(A)’s treatment based on a 50% cost of acquisition, it directed the Assessing Officer to grant 60% of ₹1,16,41,667 as the cost of acquisition. The appeal was consequently partly allowed. The Tribunal pronounced its order on 08.09.2026.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT SURAT
The appeal filed by the assessee is against the order passed by the Learned Commissioner of Income Tax (Appeals), [in short “CIT(A)”] dated 17.11.2014 for the Assessment Year (in short “AY”) 2008-09.
2. The assessee has raised the following grounds of appeal:
“1. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in confirming the action of the Assessing Officer in reopening the assessment by issuing notice u/s 148 of the Act and thereby framing assessment u/s 144 r.w.s. 147 of the Act.
2. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in confirming the action of the Assessing Officer in treating the land sold by assessee as capital asset within the meaning of section 2(14) of the I.T. Act, 1961.
3. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) as well as Id. Assessing officer has erred in not giving deduction to assessee u./s 10(37) of the I.T Act 1961 on account of compulsory acquisition of agricultural land.
4. On the facts and circumstances of the case as well as law on the subject, Ld. CIT(A) has erred in confirming action of assessing officer by sustaining the addition of Rs.53,58,334/- as long term capital gain on account of compulsory acquisition of land.
5. On the facts and circumstances of the case as well as law on the subject, Ld. CIT(A) has erred in sustaining the addition amounting to Rs. 1,16,41,667/- as 50% of compensation to be assessed under the head other sources and remaining 50% to be assessed under the head short term capital gain.
6. It is therefore prayed that above addition made by assessing officer and confirmed by Commissioner of Income-tax (Appeals) may please be deleted.
7. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
3. The Assessing Officer (in short “the AO”) observed that the assessee did not file her return of income for A.Y. 2008-09. The assessee received compensation during the year under consideration on account of compulsory acquisition by the Special Land Acquisition Officer, Hazira on behalf of Essar Steels Ltd. However, the said compensation was not offered for capital gain tax. The assessee received Rs.1,70,00,000/- falls as a compensation for surrender of and transferring of her ownership right over her land on behalf of Essar Steels Ltd. The said land is situated in Hazira notified area which was declared as notified area as per the notification of the Industries and Mines Department, Government of Gujarat, No.GHU/97(3)/GID/1096/866/G-1, dated 30th January 1997, under chapter XVI-A of the Gujarat Municipalities Act, 1963. According to the provisions of section 2(14)(iii)(a) & (b) of the Income Tax Act, 1961 (in short “the Act”), the said land is a capital asset as observed by the AO and hence applied the provisions related to capital gains. The statutory notices u/s 148 as well as 142(1) of the Act was issued to the assessee. Since the assessee has not given any details or has not replied the AO passed assessment order u/s 144 r.w.s. 147 of the Act and made addition of Rs.53,58,334/- in respect of Long Term Capital Gains (in short “LTCG”) in respect of land on account of compulsory acquisition of land as well as addition of Rs.1,16,41,667/- as income from other sources on account of receipt of consideration towards the construction on land.
4. Being aggrieved by the assessment order the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
5. There is a delay of 3,675 days in filing the appeal before the Tribunal for which the assessee has given the detailed affidavit thereby stating that the assessee is a senior citizen and is a widow. Assessee’s son expired in 2010 and second son had paralytic attack in the year 2013 and third son was not cooperative. The assessee was totally dependent on her grandson. The assessee was not aware of the order passed by the CIT(A) on 17.11.2014 and after almost 10 years, the Tax Recovery Officer, Surat issued notice to the assessee on 10.07.2024 to the assessee and thereby demanding Rs.6,65,82,648/- and the assessee’s property was proposed to be auctioned. Thus, the assessee came to know about the order on 10.07.2024 and immediately filed the appeal. The Ld. Departmental Representative (in short “Ld. DR”) relied upon the assessment order and the order of the Ld. CIT(A). The Ld. DR also opposed the delay condonation but has stated hereinabove the delay is condoned under the peculiar circumstances in the present assessee’s case. It is pertinent to note that under the special circumstances and the reasons cited by the assessee in assessee’s affidavit it appears to be the genuine scenario for filing the belated appeal before the Tribunal. Therefore, under exceptional circumstances, we are condoning the delay of 3,675 days. This delay condonation should not be taken as precedent in any other cases.
6. The Ld. Authorised Representative (in short “Ld. AR”) for the assessee submitted that in the case of Ambaben Jamubhai Patel being ITA No.3021/AHD/2014 for A.Y. 2007-08 order dated 13.04.2022 the Tribunal on the similar facts of compensation received in respect of acquisition of land related to Hazira land acquisition and the compensation paid by Essar Steel Ltd., the Tribunal has allowed the LTCG to the extent of fitting the cost of acquisition at 60% of Rs.13.00 lakhs as cost of acquisition. The Tribunal held as under:
“71. Considering the aforesaid legal position, we are of the view that by setting up of an industrial area by way of notification under section 16 of GIDA, the notified area would not be a deemed municipality, though, certain provision of Gujarat Municipalities Act are applicable for day to day affairs of the notifies area. Hence, we hold that the Hazira Notified area is not municipal area or deemed municipality therefore, the agriculture land situated in such notified area would not partake the character of agriculture land as ‘capital asset’ as defined under section 2(14) of the Act and the value of compensation received on acquisition of such land is not be taxable under Income tax Act. Thus, the appeal of assessee is liable to be succeeded on this issue alone.
72. Now adverting to the issue whether the land acquired is agriculture land and /or being used for agriculture purpose and assessee is eligible for exemption under section 10(37) of the Act. The assessing officer while rejecting the eligibility of section 10(37) held that the assessee has not produced any evidences regarding agriculture activities carried out on the land and that the District Agriculture officer, Zilla Panchayat Surat has written letter to Collector that many part of the land is under sea water and part of land is barren. The ld CIT(A) affirmed the action of assessing officer by taking view similar view.
73. Before, us the learned Senior Counsel for the assessee vehemently argued that for seeking eligibility under section 10(37), the assessee has fulfilled the four conditions of this subsection, viz., (i) such land is situated in any area referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of Section 2; (ii) such land during the period of two immediately preceding the date of transfer, was being used for agricultural purpose by such Hindu Undivided Family (HUF) or individual or a parent of assessee; (iii) such transfer is by way of compulsory acquisition under any law or a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India and (iv) such income has arisen from the compensation or consideration for such transfer received by such assessee on or after the 1st day of April, 2004.
74. We have already held the land is not situated within a municipal area, thus, first condition is satisfied. So far as second condition, is concerned, we find it is certified by District Agricultural Officer, Surat vide his letter dated 16.06.2014 that the agricultural operation are carried in the land. Further the award was passed in financial year 2007-08, in the award the Special land Acquisition Collector on a number of stances mentioned that the land under acquisition is used for the agriculture purpose, this prove beyond doubt the land was being used for agricultural purposes, not only on date of acquisition but till the date of acquisition all throughout, but in any case for more than two years. The land in the revenue record is also shown as agriculture land. For third condition, we find that that first award is by consent; however, as held by Hon’ble Supreme Court in the case of CIT Vs Ghanashyam (HUF) (supra) it was held that consent award which has followed all steps of compulsory acquisition has to be regarded as an award of compulsory acquisition. There is no dispute that the State Government before starting the acquisition proceedings, initiated under Land Acquisition Act 1894, issued notice under section 4 & 6 of that Act. So far as second award is concerned, it is undisputedly an award of compulsory acquisition. For fourth condition, there is no dispute the income arisen on compensation.
75. The Hon’ble Delhi High Court in Hindustan Industrial Resources Ltd Vs CIT (supra) held that when award passed by District Collector (Land Acquisition) is a document which established beyond doubt that the land in question was an agricultural land. Thus, on the date of purchase, the land in question was an agricultural land and on the date of acquisition, the character of the land continued to be agricultural.
76. Further, the Hon’ble Gujarat High Court in CIT Vs Siddhrath J Desai (supra) while considering the fact that the assessee had purchased a piece of agricultural land which was situated in an area not included in the municipal limits. There was no development in the surrounding area indicating any potentiality for the development of the land. For the period of three years immediately after its purchase, agricultural activity was carried on in the land. At or about the time of its subsequent sale, the land was not actually put to agricultural use. All the while, however, the land continued to be listed in the revenue record and it was assessed to land revenue. On 22-11-1968, the assessee obtained permission of the competent authority under section 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, for the sale of the land to a co-operative housing society. On 1-2-1969, the assessee sold the land to the society. On 5-2- 1969, the society obtained the permission for non-agriculture use of the land, under section 65 of the Bombay Land Revenue Code, 1869, from the competent authority. The assessee claimed that the surplus realised by him on the sale of land was not liable to be taxed as capital gains as the land in question was agricultural land. The ITO held that since no agricultural operations were carried on immediately before the sale of the land, the land could not be treated as agricultural on the date of its sale and, therefore, the surplus realised by the assessee was liable to be taxed as capital gains. On appeal, the AAC reversed the decision of the ITO. On further appeal, the Tribunal affirmed the decision of the AAC. On reference before High Court held that having regard to the facts and findings recorded by the Tribunal, it was obvious that not only the physical characteristics of land, in the instant case, but the user also was agricultural. Even though the land was not actually put to agricultural use since about one year prior to the sale, there was no evidence to establish that it was converted to any other use. The fact that permission under section 63 of the Bombay Tenancy and Agricultural Lands Act was obtained by the assessee to sell the lands to the society for residential purposes would not, militate against the land continuing to be agricultural on the date of its sale, as the permission was obtained only about two and a half months prior to the sale. Therefore, till the land was held by the assessee its character as agricultural land was not changed either as a result of its reclassification on in the revenue records or by the actual alteration of its use. Again, there was no evidence on record to show that there was any development in the surrounding area or that the land itself was developed prior to its sale. The land was located on the outskirts of the village but it was not situate in the municipal limit. The land must, therefore, be taken as having been situate in a rural area and it continued to have an agricultural bias right up to the date of its sale. Further, there was no evidence or material on record to indicate that the price offered for the land by the society, even proceeding on the basis that” the intended user of his part was non-agricultural, would not have been offered by an agriculture who wanted to purchase the land for purely agricultural user. There being no evidence on record as regard the nature of the soil, its fertility, its suitability and adaptability for raising cash crops, the irrigation facility and such or similar factors which had a great bearing on the valuation of an agricultural land, it would be hazardous to come to the conclusion that the price offered was such that no agriculturist would have paid the same if he wanted to purchase the land for purely agricultural purposes. Accordingly, the land was an agricultural land and the surplus realised on a sale thereof was not liable to be assessed to capital gains tax. The High Court laid down thirteen test to determine whether the land would be agriculture land by applying such test.
77. So far as reliance of revenue on the report of NRSC is concerned, which was otherwise relied by ld CIT(A) in ten cases. The ld DR for the revenue while making her submissions by referring various parts of it submitted that no agriculture activity or evidence of any crop is found on various parcel of the land from 1999 to 2012. And only shrubs were found with no sign of any crop or vegetables of the parcels of land. Further the satellite images shows that no agriculture activities were carried on the land. The ld DR also submitted that report of NRSC is scientific report and conclusive proof. We do not find merit in the submissions of the ld DR, as disclaimer, attach to the said report, NRSC, itself reported the shape file provided by CIT(A) did not match with field boundaries of the reference satellite data, with implication on accuracies of location area. Further, in absence in absence of adequate number of GCPs, rubber sheeting technique carried out also did not yield the desirable results. And that concurrent ground truth was not available for thus study and interpretation is exclusively based on the manifestation of features and experience of the interpreter, which could be subjective. It is also mention in the last para in the disclaimer that results have to be corroborative in association with the ground observation, available, if any. Thus, the report itself contents vague observation and cannot be used as evidence or conclusive or expert report based of any scientific evidence against the assessee. Moreover, said report was not provided to the assessee. Thus, by applying of such test we find that the land of the assessee acquired by Special Land acquisition officer is agriculture land. In the result, the assessee is also succeeded on this issue/ ground as well.
78. Considering the facts that we have already held that the land of the assessee is not ‘capital asset’ as the same does not fall in municipal area, Hazira Notified area is not a municipality or deemed municipality and on alternative plea also held eligible for exemption under section 10(37), therefore, all other pleas or counter pleas of the parties and the remaining issues arising thereto have become academic.
79. …..
80. Next ground of appeal relates to partly confirming the action of assessing officer in taxing Rs. 6,50,000/- as capital gain and not treating the same as part of compensation. The assessing officer treated part of compensation of Rs.13.00 lakh as income from ‘other sources’. On appeal, the Id. CIT(A) held that this component of compensation is given for constructed property on the land consisting of pucca house, pucca wall etc., apart from natural grown grass. The assessee claimed that compensation in respect of aforesaid aspect is actually the compensation in respect of land only and not assessable under the head “other sources”. The Id CIT(A) held that action of Assessing Officer is not correct on taxability of such amount under the head “income from other sources”. The constructed property on the land is a ‘capital asset’ and income earned on sale or acquisition is assessable under the head “capital gains” only. The Ld. CIT(A) further observed that the assessee either at the assessment stage or appellate stage has not furnished any evidence or details of cost of acquisition, so he estimated @ 50% of Rs. 13.00 lakh as cost of acquisition. Therefore, the addition was reduced to Rs.6,50,000/- and directed the assessing officer to assess under the head “capital gain” in place of income under the head “other sources”. Before us, the learned Senior Counsel urged that some of the assessee(s) were paid additional and separate compensation in relation to standing trees and such compensation is to be treated as part of land and thus exempt. Sh Rasesh Shah, the Id AR for the other assessee also supported the submissions of learned Senior Counsel and in addition filed his detailed written submissions inter alia stated therein that as per Form-G of Award passed by Special Land Acquisition Collector no bifurcation was furnished between trees, construction and other items, so no addition on account of LTCG can be made. As recorded above the learned DR for the revenue supported the order of ld CIT(A). On consideration of facts, we find that in some of the cases, there is payment against the built-up units/ pucca houses. Additional payments were also made only for those landowners who were holding such built-up unit. We find that no evidence was furnished by the land owners about the cost of acquisition or improvement thereof, either before the assessing officer or before Id CIT(A). Even before us, no such estimate of cost of such built-up structure is furnished. As recorded above the Id CIT(A) estimated the cost of acquisition of built-up units/ pucca structure @ 50% of the cost awarded for such built-up / pucca structure in the award. Considering the area where in the such built-up unit or pucca house is situated, it our view, the estimation of it’s cost of acquisition is on lower side, therefore we deem it fit and proper to increase it to 60%, would be reasonable and fair. Therefore, we direct the Assessing officer to treat the cost of acquisition @ 60% of Rs. 13.00 lacs as cost of acquisition. In the result, the corresponding ground of appeal is partly allowed.”
7. We have heard both the parties and perused all the relevant materials available on record. It is pertinent to note that the AO has added the LTCG to the extent of Rs.53,58,334/- out of the total compensation of Rs.1,70,00,000/-, thereby treating land as capital asset. The Assessing Officer also made addition of Rs. 1,16,41,667/- as income from other sources thereby observing that the trees, well, Kachcha huts, Pakka huts etc. should not be treated as agricultural land and the compensation received for its acquisition should be taxed under the head income from other sources. The assessee has given the details before the CIT(A) wherein it is categorically mentioned that the compensation received is only for the land and not for the structure on the property/land. From perusal of records and the details it was found that the assessee received compensation for land Rs. 53,58,334/- and compensation for other assets at Rs. 1,16,41,667/-. In fact in case of Ambaben Jamunabhai Patel (supra), the facts were identical as the said assessee therein received compensation of Rs. 7 lakh against the value of land and Rs. 13 lakh received for pukka huts, pukka house, water tank. The compensation was received on account of compulsory acquisition of her land by Special Land Acquisition Officer, Hazira, M/s Essar Steel Ltd., and the land is situated at Taluka Choryasi, District Surat only.
The Tribunal in case of Ambaben Jamunabhai Patel (supra) already held that the land is not situated within the Municipal area, thus, first condition is satisfied. As regards to second condition, in fact, in present assessee’s case also records suggests that agricultural operation are carried in the land. As regards to third condition the land was acquired compulsorily and the fourth condition that there was no dispute that the income arise from compensation only. Accordingly, the land was an agricultural land and the surplus realized on a compensation from acquisition thereof was not liable to capital gain tax. Therefore, the addition to the extent of Rs.53,58,334/- does not survive. As regards to the addition to the extent of compensation of Rs.1,16,41,667/- as 50% of compensation to the assets under the head “other sources” by the CIT(A), the Tribunal held in case of Ambaben Jamubhai Patel (supra) has allowed the LTCG to the extent of fitting the cost of acquisition at 60% of Rs.13,00,000/- (therein as cost of acquisition). The same is applicable in present assessee’s case as well and the Assessing Officer is directed to grant 60% of Rs. 1,16,41,667/- as cost of acquisition. Thus, the appeal of the assessee is partly allowed to the extent of the observation made hereinabove.
8. In result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 08.09.2026
