Case Law Details

Case Name : A. Ramesh Vs DCIT (ITAT Chennai)
Appeal Number : I.T.A. No.1838/Chny/2018
Date of Judgement/Order : 04/11/2022
Related Assessment Year : 2010-11

A. Ramesh Vs DCIT (ITAT Chennai)

ITAT Chennai held that test applied by AO that land was sold to a company which was not carrying agricultural operations is not justifiable for denying exemption to sale of agricultural land u/s 2(14) of the Income Tax Act.

Facts-

The assessee along with his wife sold 11 acres of land for a sum of Rs. 1,98,00,000/- to M/s. Shree Krishna Polystrap Pvt Ltd, by virtue of a sale deed dated. The above sale consideration was paid in the form of allotment of 12,60,000 equity shares of Rs. 10 to the assessee and allotment of 7,20,000 shares of Rs. 10 to his wife, by purchase company.

The assessee has claimed the capital gains arising on the sale of the above lands as exempt on the ground that the same is arising on sale of agricultural lands. In support of his claim for exemption, the assessee has furnished Village Revenue Officer’s certificate certifying that the said land is situated beyond 8 kms from municipal limits and that the assessee and his wife (co-owner of the impugned land) were carrying on agricultural activity in the said land.

AO was of the opinion that the gains arising from the sale of land would be assessable to tax as capital gains. AO observed that the assessee has not admitted any agricultural income for the assessment years 2008-09 and 2009-10 and therefore, the assessee has not utilized the said lands for carrying out agricultural activities.

On appeal, CIT(A) more or less expressed the same view and confirmed the order of AO. Being aggrieved, the present appeal is filed.

Conclusion-

The Assessing Officer came to a conclusion that the land sold to a company was not carrying agricultural operation and therefore, the case of the assessee does not fall under the exception provided under section 2(14) of the Act. In our considered opinion, the test applied by the Assessing Officer is not correct. It is for the Assessing Officer to ascertain as to whether the land sold by the assessee is an agricultural land as per revenue records, the assessee has carried agricultural operation or not and it is not for the Assessing Officer to see to whom the land was sold.

Held that it is very clear that the land sold by the assessee is an agricultural land used for agricultural purposes and entitled for exception provided under section 2(14) of the Act. Accordingly, we set aside the orders of authorities below and allow the appeal filed by the assessee.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 15, Chennai, dated 30.01.2018 relevant to the assessment year 2010-11. The only effective ground raised in this appeal of the assessee relates to whether the agricultural land sold by the assessee is liable for capital gain tax or exempt from taxation.

2. Facts are, in brief, that the assessee along with his wife Mrs. A. Jyothi ha sold 11 acres of land at Survey No. 123/4 and 124/2A in Nindra Mandal, Chithoor District for a sum of ₹.1,98,00,000/- to M/s. Shree Krishna Polystrap Pvt. Ltd., Chennai 600 017 by sale deed dated 07.05.2009. The above sale consideration was paid in the form of allotment of 12,60,000 equity shares of ₹.10 to the assessee and allotment of 7,20,000 shares of ₹.10 to his wife, by the purchaser company, M/s. Shree Krishna Polystrap Pvt. Ltd. Thus, the sale consideration received by the assessee was ₹.1 ,26,00,000/- and by his wife was ₹.72,00,000/-. The assessee has claimed the capital gains arising on the sale of the above lands as exempt on the ground that the same is arising on sale of agricultural lands. In support of his claim for exemption, the assessee has furnished Village Revenue Officer’s certificate dated 30.07.2012, certifying that the said land is situated beyond 8 kms from municipal limits and that the assessee and his wife (co-owner of the impugned land) were carrying on agricultural activity in the said land.

2.1 The Assessing Officer has noted that as per the recitals in the sale deed, the aforesaid lands come to be held by the assessee and his wife through Document No. 12, Book No. 3 dated 14.11.2007. The said land has been sold on 07.05.2009, which shows that the assessee did not carry out any agricultural activity even for 3 years and also sold the land for non agricultural purposes. Therefore, the Assessing Officer was of the opinion that the gains arising from the sale of land would be assessable to tax as capital gains. The AR of the assessee filed a letter dated 29.02.2016 and submitted that the assessee’s family was holding the agricultural land from 1957 onwards and the said land was transferred to the assessee and to his wife by the assessee’s mother Mrs. Sarmishta through a Release Deed No. 12/2009 dated 14.11.2007 and therefore the period of holding of the said land is from 1957 onwards and not from 2007. He has also submitted that the land is located in Nindra Village, which is beyond 8 kms from the nearby municipality and contended that the land did not fall within the scope of capital asset as per section 2(14) of the Income Tax Act, 1961 [“Act” in short] and the agricultural income earned by the assessee was used for captive consumption. After examining the above explanations, the Assessing Officer has observed that the assessee has not admitted any agricultural income for the assessment years 2008-09 and 2009-10 and therefore, the assessee has not utilized the said lands for carrying out agricultural activities. The Assessing Officer has further observed that so far as agricultural produce used for own consumption, the assessee has not produced any evidence such as expenditure incurred on input cost like seeds, manure, labour cost, etc. nor has returned any agricultural income in any of the assessment years after becoming the owner of the land. The Assessing Officer, by following the judgement in the case of Sarifabibi Mohmed Ibrahim & Ors v. CIT (1993) 203 ITR 631 (SC) and applying the test, as has been evolved in the above judgement, came to the conclusion that the impugned lands have to be held as non-agricultural in nature for the following reasons:

(a) The land is surrounded by factories/industries like Prudential Sugars Factory, Eskay Agro Tech Ltd.

(b) The buyer has purchased the land for non-agricultural purposes and the sale consideration for 11 acres was ₹.1 .98 crores, which is not a price normally obtained in the sale of agricultural land.

(c) The mode of settlement of the sale consideration was by way of allotment of equity shares in the purchaser company, which again is not a practice known in the sale of agricultural lands.

(d) The assessee has not returned agricultural income nor adduced any evidence to show that expenditure on necessary inputs like seeds, fertilizers, labour, etc. were incurred and nowhere in the sale deed, the land is mentioned as agricultural land.

From the above, the Assessing Officer came to a conclusion that the character of the land sold by the assessee is non-agricultural land and therefore, the case of the assessee does not fall under the exception provided under section 2(14) of the Act. Accordingly, the Assessing Officer calculated the long term capital gains at ₹.1,26,00,000/- and brought to tax. On appeal, the ld. CIT(A), more or less expressed the same view and confirmed the order of the Assessing Officer.

3. On being aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that as per the revenue records, the land is an agricultural land and the assessee was carrying agricultural operation and whatever amount is generated out of agricultural operation were utilized for personal consumption and thee was nothing left over income for offering for taxation. Therefore, on the ground of no agricultural income was offered for taxation cannot be considered the land is not an agricultural land and the assessee has not carried out agricultural operation. He has pointed out by referring to the order passed by the Revenue Divisional Officer, Chittoor dated 31.12.2009, wherein, the RDO has granted permission to convert the agricultural land into non-agricultural purpose subject to certain condition. He also filed a letter issued by the Village Revenue Officer dated 20.07.2012, wherein he has stated that the assessee is carrying the agricultural activities and subsequently sold it to Shree Krishna Polystrap P. Ltd. The ld. Counsel has also filed a letter issued by the Tahsildar dated 02.05.2018, wherein, it was mentioned that the land is situated 18 kms away from Nagari Municipality and 22 kms far away from Puttur Municipality. By referring to pattadar pass book, the ld. Counsel has submitted that the land is Punja land and water facility through Bore and therefore, the assessee was carrying agricultural operation.

4. On the other hand, the ld. DR has strongly supported the orders of the authorities below and submitted that the assessee has not fulfilled the conditions stipulated under section 10(37) of the Act.

5. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. The assessee and his wife sold land admeasuring 11 acres at Survey No. 123/4 and 124/2A in Nindra Mandal, Chithoor District through sale deed dated 05.2009 to M/s. Shree Krishna Polystrap Pvt. Ltd., Chennai and received the sale consideration in the form of equity shares. It is an undisputed fact that the land is 8 kms away from the nearby municipality. As per the certificate issued by the Village Revenue Officer, the land is an agricultural land and the assessee has also carried agricultural activities. According to the Assessing Officer, the land is not agricultural land, because, for the assessment years 2008-09 and 2009-10, the assessee has not offered any agricultural income and for that the assessee has filed a detailed explanation before the Assessing Officer by stating that the land is a dry land and he has earned ₹.60,000/- and the same is utilized for self consumption and therefore, not offered for taxation. We find that when there is no taxable income, it is not necessary that the assessee is required for filing return of income and offering the same for taxation. That apart, the Assessing Officer, by following the judgement of the Hon’ble Supreme Court in the case of Sarifabibi Mohmed Ibrahim & Ors v. CIT (supra), rejected the claim of the assessee and the reasons are mentioned hereinabove para 2.1.

6. In this case, the Inspector of the Department was deputed to carry out an inspection of the land and submitted his report, wherein, it was mentioned that there is a factory of packing strips (PVC), which was non-operative from a long time and the distance of the said land from the nearest municipality i.e., Nagiri Municipality, Chittoor district was 18 kms approximately. It was also mentioned in the report that the said land was surrounded by a sugar factory and its quarters on north side, on the east side, Nagiri Nagalapuram road was separating a local milk diary and the land, on the west side, a land belongs to Ms. A. Preethi using for agricultural activity and on the south side, a land with unwanted crops belongs to Eskay Agro Tech Ltd., and other than the sugar factory, there was no other industry can be seen near the said land.

7. From the above report that the sugar factory is situated nearer to assessee’s land as there is sizeable agricultural activities are carried out and it is clear that it is an agricultural belt as sugar mill was established. Therefore, it cannot be said that the land is not an agricultural land.

 7.1 The Assessing Officer came to a conclusion that the land sold to a company was not carrying agricultural operation and therefore, the case of the assessee does not fall under the exception provided under section 2(14) of the Act. In our considered opinion, the test applied by the Assessing Officer is not correct. It is for the Assessing Officer to ascertain as to whether the land sold by the assessee is an agricultural land as per revenue records, the assessee has carried agricultural operation or not and it is not for the Assessing Officer to see to whom the land was sold.

 7.2 One more reason stated in the assessment order that subsequent to the sale, the land was converted into non-agricultural purposes and thereby, the claim of the assessee was denied. Vide order dated 31.12.2009, the Revenue Divisional Officer has accorded permission for conversion of the agricultural land into non-agriculture purposes, which means, before sale of the land, the land was an agricultural land. Moreover, as per the certificate of the Village Revenue Officer, the assessee was carrying out agricultural operation. Therefore, the Assessing Officer was not correct in denying the benefit.

 7.3 The observation of the Assessing Officer that the sale consideration of ₹.1.98 crores for 11 acres is abnormal. The assessee sold his land in acre and it comes to near about ₹.18,00,000/- per acre is, in our opinion, not abnormal. The assessee wanted to sale his land and the purchaser wanted to purchase the land for non-agricultural purposes and therefore, the rate at ₹.18 to 20.00 lakhs per acre cannot be said that it is abnormal.

 7.4 One more objection raised by the Assessing Officer that the sale consideration received by the assessee was in the form of equity share. We find that the law does not prohibit in receiving the sale consideration by equity shares, whether the sale consideration received by the assessee or not is a material fact to be considered. In this case, the assessee has received the sale consideration. Thus, the objection of the Assessing Officer is unwarranted.

8. From the above, it is very clear that the land sold by the assessee is an agricultural land used for agricultural purposes and entitled for exception provided under section 2(14) of the Act. Accordingly, we set aside the orders of authorities below and allow the appeal filed by the assessee.

4. In the result, the appeal filed by the assessee is allowed.

Order pronounced on the 04th November, 2022 in Chennai.

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