ACIT Vs Ashok W. Wesavkar (ITAT Mumbai)
In this case of ACIT vs. Ashok W. Wesavkar, the issue revolved around the tax treatment of the sale of agricultural land by the assessee. The assessee, who was a professional architect, had sold agricultural lands to Mayank Land Pvt. Ltd. for a considerable sum. The assessee claimed that the sale of agricultural land was not liable for capital gains tax as it did not qualify as a capital asset.
The Assessing Officer denied the exemption and asserted that the assessee had not carried out agricultural activities on the land, and thus, the income was not offered for taxation as agricultural income in the income tax return. The Assessing Officer relied on a report by an Inspector stating that the land was not suitable for agricultural activity.
Upon appeal, the CIT(A) called for a remand report and examined the assessee under section 131 of the Income Tax Act. After considering the assessee’s contentions and evidence, the CIT(A) allowed the claim, stating that the sale consideration was not liable to be taxed as capital gains.
However, when the Revenue appealed the decision, there was a difference of opinion among the members of the Income Tax Appellate Tribunal (ITAT). As a result, the matter was referred to a Third Member.
The Honourable Third Member examined various case laws on the subject and explained the law regarding the sale of agricultural land. The key point considered was that the land in question was shown as “Lagavadi Yogya Sherta” (Cultivable land) in the land revenue record. The assessee had also grown vegetables and minor millets on the land, which further supported its agricultural nature. The location of the land was in Raigad District.
The Honourable Third Member highlighted that Section 2(14)(iii) of the Income Tax Act does not prescribe any condition that active agricultural activity must be present at the time of land sale. The only requirement is that the land should qualify as agricultural land.
Based on these considerations, the Honourable Third Member agreed with the view of the Learned Accountant Member and dismissed the Revenue’s appeal. Consequently, the consideration received by the assessee from the sale of agricultural land was not liable to be taxed as capital gains. The ruling upheld the claim of the assessee that the land did not qualify as a capital asset for taxation purposes. The assessment year in question was 2011-12.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
Order giving effect to the order passed by the Third Member.
On account of difference of opinion arising between the Members in respect of the above said appeal, following question was referred to Hon’ble Third Member for his decision:-
“Whether on the facts and in the circumstance of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 5,33,16,625/- made on account of Long Term Capital Gains.
2. Hon’ble President has nominated Shri Rajpal Yadav, Vice President (KZ) as the Third Member for taking decision on the point of difference between the Members constituting Division bench. The Third member, vide his order dated 25.1.2023, has agreed with the view taken by Hon’ble Accountant Member and held that the land sold by the assessee, being agricultural land not falling within the definition on the scope of capital asset, cannot be subjected to capital gain tax.
3. In view of the majority opinion, we hold that the land sold by the assessee is an agricultural land and hence the gain arising therefrom cannot be subjected to Capital gains tax.
4. In the result, appeal filed by the Revenue is dismissed.
Pronounced in the open court on 02.05.2023.
ORDER
Per Rajpal Yadav, Vice President (As a Third member:-
This appeal was earlier heard by the Mumbai Division ‘A’ Bench of the tribunal on 16.03.2022 and since there was a difference of opinion between the Learned Judicial Member and Learned Accountant Member who heard this appeal, therefore, the following question was referred to the Hon’ble President for third member nomination:
“Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs.5,33,16,625/ – made on account of Long Term Capital Gains”.
2. Since, the Hon’ble President of the ITAT has nominated me as third member in the aforesaid case, therefore, this appeal was accordingly heard by me on 10.11.2022. At the conclusion of the hearing, the ld. DR also sought time to file written submission. His request was accepted and his written submissions were taken on record. The ld. AR of the assessee was also given liberty to file reply to the said written submission, which was accordingly filed by him and the same has been taken on record.
3. The sole issue for determination, in this appeal, is as to whether the land sold by the assessee was an ‘agricultural land’ and hence, not falling within the definition of ‘capital asset’ as defined u/s 2(14) of the Income Tax Act (hereinafter referred to as the ‘Ace), thus, the gains earned on the sale of the land are not exigible to capital gains tax.
4. The undisputed facts of the case are that the assessee, during the year, sold his land for a total consideration of Rs. 5,53,67,045/- and claimed the said receipt as non-taxable claiming that the land sold by him was an ‘agricultural land’ and did not fall within the ambit of ‘capital Asset’ as defined u/s 2(14)(iii) of the Act and therefore, not liable to capital gain tax. However, the Assessing Officer did not agree with the above contention of the assessee and held that the land sold by the assessee did not quality to be categorized as ‘agricultural land’. He, therefore, after giving benefit of cost of acquisition of Rs.20,50,875/-, subjected to amount of Rs.5,33,16,625/- to long-term capital gain tax.
5. Being aggrieved by the said order of the Assessing Officer, the assessee preferred appeal before the CIT(A). The ld. CIT(A), vide order dated 15.05.2007, after considering the submissions of the assessee, accepted the contention of the assessee that the land sold by the assessee was an ‘agricultural land’ and therefore, was not liable to be treated as a capital asset and could not be subjected to capital gains tax.
6. Being aggrieved by the above order of the CIT(A), the Revenue preferred appeal before the Tribunal which was listed before the Mumbai ‘A’ Bench of the Tribunal.
7. Before the Tribunal, the ld. AR of the assessee made submissions, which can be summarized in brief as under:
(i) The land, in question, was purchased by the assessee from a set of farmers on different dates during the period ranging from 1988 to 1995 who regularly undertook the agricultural activity on the said land.
(ii) In the land revenue records, as per ‘Extract 7/12’, the said land was recorded as agricultural land.
(iii) The Assessee has never applied for converting the land to Non-Agricultural land.
(iv) Agricultural Cess (Shet Sara) was paid. This receipts include a receipt dated 11.02.1992 which proves that the appellant was indulged in agricultural activities since then. The latest receipts were of the year 2008.
(v) The assessee entered into a Naukarnama (Deed of Employment) dated 21.04.2007 with one Mr. Dattamay L. Bhoir. As per the arrangement, the assessee/owner of the land hired local resident farmers who in turn carried out the farming activities and other ancillary activities on the said land. The profits from the agricultural activity were shared between the assessee and the said farmers.
(vi) The farm labourer with whom ‘Naukarnama’ was executed holds agricultural land in his personal capacity in a nearby village in the same Taluka Raigad. A perusal of 7/12 extract shows that since many years the farm labourer is cultivating rice. Further, it also proves that the farm labourer resides in the area where the impugned land is situated. This particular document proves the bona fides of the ‘Naukarnama’ as the farm labourer engaged is having his own agricultural land, resides in the vicinity and is regularly indulged in agricultural activities.
(vii) 7/12 extracts of two other agricultural lands held by the assessee proves that he is regularly engaged in agricultural activities.
(viii) ‘Form 6’ in which mutation entries are recorded wherein it is clearly mentioned that the appellant is an agriculturist.
(ix) Assessee has disclosed agricultural income in A.Y. 2010-11 which is accepted by the department.
8. However, the ld. Judicial Member did not agree with the contention of the assessee and held that most of the chunk of the land, in question, was a non-agricultural land and did not qualify as an `agricultural land’ and so as to exclude the same from definition and scope of the term ‘capital asset’ as provided u/s 2(14)(iii) of the Act. He further held that only a small portion of land, where as per the Revenue records, paddy was grown was to be treated as ‘agricultural land’ and accordingly, directed the Revenue to give the assessee the benefit of `agricultural land’ not falling in the definition of capital asset to the extent of 0.9 acres only out of total land sold of 11.07 acres. The main points, upon which the ld. Judicial Member based its findings, can be summarized as under:
did not support the contention of the assessee rather, corroborates physical verification report made by inspector of income tax, wherein, the land, in question, has been shown as barren land having no irrigation facilities.
(g) That the contention of the ld. AR of the assessee that ‘just because land is shown as barren, it cannot be said that agricultural land had become non-agricultural in nature’ was misconceived.
(h) That even perusal of the copies of the sale deed qua the land, in question, executed by the assessee i.e. sale deed dated 02.04.2010 and 25.10.2010 do not contain the fact if the land, in question. was an agricultural land and cultivable, nor any source of litigation has been mentioned therein.
(i) The contention of the ld. AR that to purchase an agricultural land, the purchaser also needs to be an agriculturist is also not sustainable because the nature of the land. as per the copies of the sale deed, has never been recorded as ‘agricultural and’, rather word ‘Land’ is mentioned in the sale deed.
(j) That the decision of the Hon’ble Bombay High Court in the case of “Wealth-Tax vs. H.V. Mungale” reported in 1982(1983) 32 CTR Born 301 by contending that when the land is agricultural land even if not put to actual agricultural use, it may be presumed that it continues to be agricultural land, was not applicable to the facts and circumstances of the case, because when it is a proved fact on record that the major chunk of land was never put to agricultural use, except small fraction of the same, during the last about 10 years from the assessment year under consideration. The proposition mooted out by the assessee that agricultural land even if not put to agricultural use in a particular year will retain its nature as agricultural land, was not applicable.
(k) That the ld. CIT(A) wrongly proceeded on the premise that the Land Revenue Department has held land measuring 0.98 acre out of total land of 11.7 acres as fit for cultivation, when this land was never put to use, it cannot be said that it was cultivable nor any irrigation facilities was there nor it was case of the assessee that the land was cultivable but he could not cultivate the same who has rather come up with the nokaranama and receipt for taking rent from his tenant for cultivating the entire land in question, which was vague and unambiguous.
9. The ld. Accountant Member, however decided the issue in favour of the assessee on the following points:
(a) The land was subjected to land revenue/agricultural cess. The assessee has produced the receipts of payment of land revenue and this ,finding has not been rebutted by the Department.
(b) That as per the land revenue records i.e. 7/12 extract, the major part of ‘the land i.e. 9.08 acres out of 11.7 acres was shown as cultivable land (lagvadi yogya shetra)
(c) That even the land record also shows that even some of the cultivable lands were not cultivated during the year which are called `Rapad’ land and the other portion where the cultivation was done, ‘Bhat’, which means rice, was grown.
(d) That the ld. CIT(A) has noted that vegetables and other minor millets grown on the land were not mentioned in the revenue record in Raigad District. That the DDIT/Inspector had mis-understood the word `Ra pad’ as barren land, whereas, the land records have used the word ‘lagvadi Yogya Shetra’ for the land which is cultivable and Porkhral3 – Lagvadi Ayogya’ for non-cultivable land. As per 7/12 extract, the land measuring 9.08 hectares was cultivable land. That the ld. CIT(A) noted that ‘Ra pad’ does not mean that the land was barren but it means ‘cultivable’ upon which cultivation was not done.
(e) That the id. CIT(A) has referred to be statement of Shri Ashok Wesavkar in which he explained that the agricultural activities were done with the help of labour and subsequently the land was leased out. That the agricultural record itself mentioned 13hat’ (Rice) as acknowledgement of agricultural activity done.
(f) That the agricultural income offered by the assessee has been accepted by the department.
(g) That the CIT(A) has noted that as per the Naukarnama the names of the persons were mentioned and the said persons have accepted that they were doing labour and agricultural activities on the land in question The Id. CIT(A) noted that as per agreement, expenses on the agricultural activity were to be incurred by the labourer and only the profits were to be shared.
(h) That the ld. CIT(A) has further referred to the portion of the sale deed in which it was mentioned that together with all land, compound wall, constructions, trees, plants, hedges, water, watercourse, lights rights, liberties, privileges, easements and appendages whatsoever attached to the said property, which shows that the land was agricultural land.
(i) That further Shri Ashok Wesavkar stated that there were numerous trees of jamun, local desi mango, sagwan, bamboo and other trees on the land and there were nothing on record to rebut this statement.
(j) That the ld. CIT(A) has noted that as regards the comments of DDIT that agricultural income was not commensurate to the large area of the land, the caretaker and other labourer who were deployed there, used to consume the produce and only the surplus was shared.
(k) That the Ld. CIT(A) has noted that the Inspector made the physical verification much after the sale of land and the assessee was never informed about the visit. Moreover there was nothing on record to show that the land has been put to non-agricultural use.
(m) That the facts of the case was duly covered by the decision of the Hon’ble Bombay High Court in the case of “CIT vs. H.V. Mungale” (supra).
The ld. Accountant Member thereafter summed up his findings as under.
“To recapitulate it is undisputed that land does not fall in the area, where it will be disentitled from the category of agricultural land. The Assessing Officer’s adverse inference that though land has been recorded in the land revenue record as ‘agricultural land’ but the land revenue has not been regularly paid stands rebutted on the basis of receipts in this regard of land revenue payment referred by learned CIT(A). That the land was barren is clearly negated from the record itself which shows that the 9.08 hectares was cultivable land out of 11.7 hectare. Hence inference that the land was not cultivable and barren is absolutely unsustainable.
Moreover inference that no agricultural activity was done also stands rebutted from the land revenue records itself which shows that the crops were produced. Once it is amply clear that the land is agricultural land, land revenue is being paid, crops are being cultivated, no permission for non-agriculture use is there, adverse inference cannot be drawn if the produce is not commensurate with the area of land. This is duly approved by Hon’ble Bombay High Court decisions referred herein below. As reiterated by Hon’ble Bombay High Court in these decisions that lack of commensurate generation of surplus cannot be used as yardstick for the land to be non- agricultural when the land was not used for non-agricultural purposes.”
10. In the written submissions, the ld. DR has mainly relied upon the decision of/the Hon’ble Supreme Court in the case of “Smt. Sarifabibi Mohammed Ibrahim vs. CIT” reported in (1993) 204 ITR 631, wherein, the Hon’ble Supreme Court has laid down the following 13 tests which are required to be considered to determine as to whether the land in question is agricultural land or not’:
1) Whether the land was classified in the revenue records as agricultural and whether it was subject to the payment of land revenue?
2) Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time?
3) Whether such user of the land was for a long period or whether it was of a temporary character or by way of a stop-gap arrangement?
4) Whether the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land?
5) Whether, the permission under section 65 of the Bombay Land Revenue Code was obtained for the non-agricultural use of the land? If so, when and by whom (the vendor or the vendee)? Whether such permission was in respect of the whole or a portion of the land? If the permission was in respect of a portion of the land and if it was obtained in the past, what was the nature of the user of the said portion of the land on the material date?
6) Whether the land, on the relevant date, had ceased to be put to agricultural use? If so, whether it was put to an alternative use? Whether such cesser and/or alterrtative user was of a permanent or temporary nature?
7) Whether the land, though entered in revenue records, had never been actually used for agriculture, that is, it had never been ploughed or tilled? Whether the owner meant or intended to use it for agricultural purposes?
8) Whether the land was situated in a developed area? Whether its physical characteristics, surrounding situation and use of the lands in the adjoining area were such as would indicate that the land was agricultural?
9) Whether the land itself was developed by plotting and providing roads and other facilities?
10) Whether there were any previous sales of portions of the land for non-agricultural use?
11) Whether permission under section 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, was obtained because the sale or intended sale was in favour of a non-agriculturist? If so, whether the sale or intended sale to such non-agriculturist was for nonagricultural or agricultural user?
12) Whether the land was sold on yardage or on acreage basis?
13) Whether an agriculturist would purchase the land for agricultural purposes at the price at which the land was sold and whether the owner would have ever sold the land valuing it as a property yielding agricultural produce on the basis of its yield?
The ld. DR, in his submission, has tried to convince that the land, in question, of the assessee does not satisfy the aforesaid 13 test laid down by the Hon’ble Supreme Court to qualify as ‘agricultural land’. Therefore, the same is required to be treated as capital asset liable to be subjected to capital gains tax.
11. The ld. AR, on the other hand, has replied to each of the contentions of the id. DR by way of a chart, wherein, not only the contention of the ld. DR but the counter-comments of the ld. AR/assessee have been mentioned. Therefore, it will be appropriate to reproduce comments and counter-comments as under:
