Sri. M.R. Anandaram (HUF), Bangalore V. Asst.C.I.T., Bangalore

CO 220/BANG/2015

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2313 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 20 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-05-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 31-03-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 07-12-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANJAY KUMAR CITIIIDR
• Assessee Lawyers: V CHANDRASHEKAR
• Keywords: Capital asset; Gift; Revision of order; Additional evidence; Date of conversion; Competent authority; Revised return
• Section: 143(3); 2(14); 148; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NOS.1169 TO 1172/BANG/2015 ASSESSMENT YEAR : 2007-08 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 6(3)(1), BENGALURU. VS. SHRI M.R. ANANDARAM (HUF) PAN: AABHM 9819G SHRI M.R. KODANDARAM (HUF) PAN: AABHM 9893E SHRI M.R. PATTABHIRAM (HUF) PAN: AACHM 7618G SHRI M.R. SEETHARAM (HUF) PAN : AAHHS 7324J GOKULA HOUSE, GOKULA, BENGALURU - 560 054. APPELLANT RESPONDENTS CO NOS.220 TO 223/BANG/2015 [IN ITA NOS. 1169 TO 1172/BANG/2015] ASSESSMENT YEAR : 2007-08 SHRI M.R. ANANDARAM (HUF) PAN: AABHM 9819G SHRI M.R. KODANDARAM (HUF) PAN: AABHM 9893E SHRI M.R. PATTABHIRAM (HUF) PAN: AACHM 7618G SHRI M.R. SEETHARAM (HUF) PAN : AAHHS 7324J GOKULA HOUSE, GOKULA, BENGALURU - 560 054. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 6(3)(1), BENGALURU. CROSS OBJECTORS RESPONDENT ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 2 OF 29 REVENUE BY : SHRI SANJAY KUMAR, CIT-III(DR) ASSESSEES BY : SHRI V. CHANDRASHEKAR, ADVOCATE DATE OF HEARING : 31.03.2016 DATE OF PRONOUNCEMENT : 27.05.2016 O R D E R PER BENCH THESE APPEALS ARE PREFERRED BY THE REVENUE AGAINS T THE RESPECTIVE ORDER OF CIT(APPEALS)-2, BENGALURU INTER ALIA ON THE FOLLOWING COMMON GROUNDS:- 1. THE ORDER OF THE CIT(APPEALS) IS OPPOSED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, W HETHER THE CIT(A) WAS RIGHT IN DELETING THE ADDITIONS MADE PLA CING RELIANCE UPON THE JUDGMENT OF THE CO-ORDINATE BENCH OF THE I TAT WHICH HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND THE ISS UE IS OPEN IN APPEAL FILED BY THE DEPARTMENT BEFORE THE HON'BLE H IGH COURT OF KARNATAKA? 3. FOR THESE AND SUCH OTHER GROUND THAT MAY BE URGE D AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT(A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 4. THE APPELLANT CRAVE LEAVE TO ADD, TO ALTER, TO A MEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 3 OF 29 2. THE FACTS IN BRIEF BORNE OUT FROM THE RECORD ARE THAT THE ASSESSEES ARE THE HUFS AND HAVE FILED RESPECTIVE RETURNS OF I NCOME FOR THE A.Y. 2007- 08. AN ORDER U/S. 143(3) WAS PASSED AND LATER ON I T WAS TRANSPIRED TO THE ASSESSING OFFICER THAT ASSESSEES HAVE NOT OFFERED I NCOME FROM LONG TERM CAPITAL GAIN ARISING FROM THE TRANSFER OF RESPECTIV E SHARES OF THE IMMOVABLE PROPERTY NEAR BANGALORE TO A BUILDER AT MUMBAI. HA VING NOTED THAT THE ASSESSEE ENTERED INTO JOINT DEVELOPMENT AGREEMENT ( JDA) ON 22.3.2007 WITH PINGYAO DEVELOPERS & TRADERS PVT. LTD., A BUIL DER AT MUMBAI FOR DEVELOPMENT OF 190 ACRES OF LAND BELONGING TO THEM, THE AO REOPENED THE ASSESSMENTS U/.S 147 OF THE INCOME-TAX ACT, 1961 [H EREINAFTER REFERRED TO AS THE ACT] BY ISSUING NOTICES U/S. 148 OF THE AC T. ACCORDINGLY, REASSESSMENTS WERE FRAMED IN WHICH THE AO DETERMINE D THE LONG TERM CAPITAL GAIN FOR THE ASSESSEES SHARE AND BROUGHT I T TO TAX, IN ADDITION TO INCOME DISCLOSED IN THE RETURNS. 3. AGGRIEVED, THE ASSESSEES PREFERRED APPEALS BEFOR E THE CIT(APPEALS) WITH THE SUBMISSION THAT THE LAND WHIC H WAS SUBJECT MATTER OF THE JDA WAS HELD TO BE AGRICULTURAL LAND AND NOT CA PITAL ASSET U/S. 2(14) OF THE ACT IN ASSESSEES OWN CASE BY THE TRIBUNAL IN I TA NOS.1652/BANG/2002 DATED 21.11.2014 FOR A.Y. 2008-09, IN WHICH THE TRI BUNAL HAVING RELIED UPON SEVERAL DECISIONS OF DIFFERENT COORDINATE BENC HES AND FOLLOWING THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF LEELAVATI IN 21 TAXMAN.COM 148 (KAR) , HAS HELD THAT THE LAND OWNED BY THE ASSESSEES ARE AGRICULTURAL LANDS, DESPITE THE FACT THAT THEY STAN D CONVERTED IN VIEW OF THE ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 4 OF 29 FACT THAT CONVERSION WAS RESORTED ONLY FOR THE PURP OSE OF EITHER SELLING LANDS OR FOR DEVELOPING THE SAME AND THE ASSESSEE H AS NOT DONE ANYTHING BY ITSELF TO CHANGE THE PHYSICAL CHARACTERISTICS OF THE LAND FROM AGRICULTURAL TO NON-AGRICULTURAL. IT WAS ALSO CONTENDED THAT TH E POSSESSION OF LAND WAS NOT GIVEN TO DEVELOPERS AND FINALLY THE JDA WAS CAN CELLED AND THE REFUNDABLE MONEY WAS ALSO REFUNDED TO THE DEVELOPER . 4. BEING CONVINCED WITH THE EXPLANATIONS OF THE ASS ESSEE, THE CIT(APPEALS) HAS DELETED THE ADDITIONS. THE RELEVA NT OBSERVATIONS OF THE CIT(A) IN ITA NO.1169/BANG/2015 ARE EXTRACTED FOR T HE SAKE OF REFERENCE:- 4.6 I HAVE CAREFULLY CONSIDERED THE APPELLANT'S S UBMISSIONS AND PERUSED THE ASSESSMENT ORDER. IN THE COURSE OF THE HEARING, THE AR FOR THE APPELLANT FILED WRITTEN SUBMISSIONS FROM WHICH THE FOLLOWING PORTIONS ARE EXTRACTED AND REPRODUCED BELOW: THE APPELLANT SUBMITS THAT THE LANDS WHICH ARE THE SUBJECT MATTER OF THE JOINT DEVELOPMENT AGREEMENT (JDA) ARE HELD T O BE AGRICULTURAL LANDS & NOT CAPITAL ASSETS U/S 2(14) O F THE ACT IN THE APPELLANTS OWN CASE BY THE HONBLE INCOME TAX APPELLATE TRIBUNAL [ITAT] IN ITA NO.1652/BANG/2012, DATED 21/ 11/2014 FOR THE A.Y. 2008-09. THE HONBLE ITAT HAS, APART RELYING UPON SEVERAL OTHER DECISIONS OF DIFFERENT CO-ORDINATE BE NCHES ON THE SAME ISSUE, FOLLOWED THE DECISION OF THE JURISDICTI ONAL KARNATAKA HIGH COURT IN THE CASE OF LEELAVATHI IN 21 TAXMANN. COM.148 (KAR) IN COMING TO THE CONCLUSION THAT THE LANDS OW NED BY THE APPELLANT ARE AGRICULTURAL LANDS, DESPITE THE FACT THAT THEY STAND CONVERTED, IN VIEW OF THE FACT THAT THE CONVERSION WAS RESORTED TO ONLY FOR THE PURPOSE OF EITHER SELLING THE LANDS OR FOR DEVELOPING THE SAME & THE FACT THAT THE APPELLANT H AD NOT DONE ANYTHING BY ITSELF TO CHANGE THE PHYSICAL CHARACTER ISTICS OF THE LAND FROM AGRICULTURAL TO NON AGRICULTURAL. THE ISS UE BEFORE THE HON'BLE ITAT WAS WHETHER CERTAIN LANDS BELONGING TO THE APPELLANT WHICH WERE CONVERTED & SOLD WERE CAPITAL ASSETS EXIGIBLE TO CAPITAL GAINS OR NOT. THE HON'BLE ITAT HELD THAT THESE ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 5 OF 29 LANDS WERE NOT CAPITAL ASSETS U/S 2(14) OF THE ACT, DESPITE THE FACT THAT THEY STOOD CONVERTED AS ON THE DATE OF SA LE IN VIEW OF THE FACT THAT THE APPELLANT HAD NOT DONE ANYTHING BY IT SELF TO CHANGE THE PHYSICAL CHARACTERISTICS OF THE LAND FROM AGRIC ULTURAL TO NON AGRICULTURAL. THE LANDS WHICH ARE THE SUBJECT MATTER OF JDA ARE C ONTIGUOUS TO THOSE LANDS WHICH WERE SUBJECT MATTER OF THE DECISI ON OF THE ITAT AND ENJOY THE SAME PHYSICAL CHARACTERISTICS AS THEM. IN FACT THE ITAT MEMBERS WHO DECIDED THE MATTER CONDUCTED A PHYSICAL INSPECTION OF ALL THESE LANDS & HAVE SATISFIED THEM SELVES THAT THERE WAS NO DEVELOPMENT ON ANY OF THE LANDS EVEN A S ON THE DATE OF INSPECTION IN THE YEAR 2014 AND THAT THESE LANDS CONTINUED TO BE AGRICULTURAL LANDS AS FAR AS THE PHYSICAL CHARAC TERISTIC WERE CONCERNED IN AS MUCH AS THESE LANDS HAD FRUIT BEARI NG COCONUT & MANGO GROVES ON THEM. THESE FINDINGS ARE ALSO BROUG HT OUT BY THE ITAT IN PARA 7.3.7 OF THE SAID ORDER. IT IS FURTHER SUBMITTED WHEN THE INCOME ARISING OUT OF SALE OF LANDS WAS HELD AS NOT TAXABLE U/S 45 OF THE ACT BY THE ITAT IN THE ABOVE CITED CASE OF THE APPELLANT, THE QUESTION OF TAXING ANY INCOME ARISING OUT OF THE MERE SIGNING OF THIS JOA, WHEN NO ACTIVITY OF DEVELOPMENT IS CARRIED OUT, AS CAPITAL GAINS ALSO DOES NOT ARISE. IN VIEW OF THESE INCONTROVERTIBLE FACTS & THE POSITION IN LAW THAT THE LANDS WHICH FORMED THE SUBJECT MATTER OF THE JD A DO NOT CONSTITUTE CAPITAL ASSET U/S 2(14), THE QUESTION OF DETERMINING ANY INCOME BY WAY OF CAPITAL GAINS U/S 45 OF THE AC T DOES NOT ARISE. HENCE THE ADDITION OF RS.6,88,23,857/- BY WA Y OF LTCG AS DETERMINED BY THE AO NEEDS TO BE DELETED. 4.7 THE APPELLANT HAS ALSO FILED A COPY OF THE D ECISION OF THE HONBLE ITAT IN THE APPELLANTS OWN CASE VIDE ITA NO.262/BA NG/2013 DATED 21/11/2014 WHEREIN IT HAS HELD AS UNDER: 10.7 IN THE ORDER OF THE CO-ORDINATE BENCH IN THE CASE OF M.R.SEETHARAM (HUF) (SUPRA) [I.E. ITA.NO.1654/BANG/ 2012 DATED 13/6/2014], THE CO-ORDINATE BENCH OF THIS TRIBUNAL AT PARAS 7.3.8 TO 7.3.10 OF ITS ORDER HAS ALSO FOUND MERIT IN THE ARG UMENTS PUT FORTH BY THE LEARNED AUTHORISED REPRESENTATIVE THEREIN THAT OWING TO THE PECULIAR FEATURES OF LAW PREVAILING IN THE STATE, A N AGRICULTURIST IN THE STATE OF KARNATAKA HAS TO NECESSARILY GET HIS AGRIC ULTURAL LAND ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 6 OF 29 CONVERTED IF HE HAS TO SELL THE SAME TO A NON-AGRIC ULTURIST AND HENCE IS PLACED AT A DISADVANTAGE AS COMPARED TO AN AGRICULT URIST IN TAMIL NADU, ANDHRA PRADESH, ETC. WHO CAN DIRECTLY SELL TH EIR AGRICULTURAL LANDS TO NON-AGRICULTURISTS WITHOUT GETTING THE SAM E CONVERTED. IN THIS REGARD THE CO-ORDINATE BENCH OF THE TRIBUNAL AT PAR AS 7.3.8 TO 7.3.10 OF ITS ORDER HAS OBSERVED AND HELD: 7.3.8 FINALLY, THE MOST IMPORTANT ASPECT WHICH RE QUIRES TO BE CONSIDERED IS THAT AGRICULTURE IS A STATE SUBJECT A ND DIFFERENT STATES HAVE DIFFERENT REFORMS (LAWS) AS TO WHO CAN PURCHASE/OWN AGRICULTURAL LANDS IN THE RESPECTIVE STATES. TO ILL USTRATE FURTHER, IN KARNATAKA, NON-AGRICULTURISTS AND INDUS TRIAL COMPANIES ARE PROHIBITED FROM PURCHASING OF LANDS WHICH ARE C LASSIFIED AS 'AGRICULTURAL' IN THE REVENUE RECORD'. IF AN AGRICU LTURIST INTENDS TO SELL HIS AGRICULTURAL LANDS TO A COMPANY/NON- AGRICULTURIST FOR THE USE OF NON-AGRICULTURAL PURPO SES, HE MUST POSSESS A CONVERSION ORDER OBTAINED FROM THE REVENU E AUTHORITIES TO UTILISE THE SUBJECT LAND FOR NON-AGRICULTURAL PU RPOSES. HOWEVER, THE SAME LAW/RULE IS NOT PREVALENT IN THE NEIGHBOURING STATES OF TAMIL NADU, ANDHRA PRADESH O R IN MAHARASHTRA, DELHI, ETC. IN OTHER WORDS, THE AGRICU LTURISTS OF THE SAID STATES ARE FREE TO SELL THEIR LANDS AS SHOWN I N THE REVENUE RECORDS TO NON-AGRICULTURISTS/CORPORATES WITHOUT OB TAINING A CONVERSION ORDER. 7.3.9 THUS, IT IS EVIDENT FROM THE FACT THAT THE AG RICULTURISTS IN OTHER STATES CAN SELL THEIR AGRICULTURAL LANDS WITH OUT GETTING THE SAME CONVERTED WHEREAS THE AGRICULTURISTS IN KARNAT AKA CANNOT DO SO DUE TO THE LAND REFORMS ACT PREVAILING IN THE S TATE. AS SUCH, AN AGRICULTURIST IN KARNATAKA IS ON A DIFFERENT FOO TING FROM HIS COUNTERPARTS IN OTHER STATES. IF ONE WERE TO CONCLU DE THAT SINCE THE PRESENT ASSESSEE HAD OBTAINED A CONVERSION ORDER TO ENABLE IT TO SELL ITS LANDS TO A NON-AGRICULTURIST AND, THUS BEC OME A CAPITAL ASSET, THOUGH THE SUBJECT LAND REMAINS AN AGRICULTU RAL LAND, THE ASSESSEE THEN STANDS DISCRIMINATED IN THE EYES OF L AW VIS-A-VIS ITS COUNTER-PARTS IN OTHER STATES. HAD THE STATE REFORM S ACT PERMITTED THE ASSESSEE TO SELL ITS AGRICULTURAL LAN DS WITHOUT CONVERSION TO A CORPORATE AS IN THE CASE OF OTHER S TATES (SUPRA), THE ASSESSEE WOULD NOT THEN BE REQUIRED TO GET THE LAND CONVERTED MERELY TO FACILITATE ITS SALE TO A CORPORATE AND TH E GAINS ARISING FROM SUCH SALE WOULD NOT HAVE BEEN EXIGIBLE TO CAPI TAL GAINS TAX WHICH IS THE SUBJECT OF A CENTRAL ACT (INCOME-TAX A CT). IN THE ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 7 OF 29 INSTANT CASE AS MENTIONED EARLIER EVEN AFTER CONVER SION, ASSESSEE WAS CARRYING ON AGRICULTURAL OPERATION AND CONVERSI ON WAS DONE ONLY TO FACILITATE SALE OF SUBJECT PROPERTY TO A CO RPORATE ENTITY/NON-AGRICULTURIST. IN SUBSTANCE, THE INCOME -TAX ACT - A CENTRAL ACT - IS TO BE ADMINISTERED IN SUCH A MANNE R TO ENSURE THAT AN ASSESSEE IS NOT SUBJECTED TO SUFFER DUE TO DIFFERENT STATE LAWS. 7.3.10 TAKING INTO ACCOUNT ALL THE ASPECTS AS DIS CUSSED IN THE FORE-GOING PARAGRAPHS AND ALSO IN CONFORMITY WITH T HE JUDICIAL PRONOUNCEMENTS ON THE ISSUE (SUPRA), WE ARE OF THE VIEW THAT THOUGH THE SUBJECT LAND WAS CONVERTED INTO NON-AGRI CULTURAL PURPOSES, CULTIVATION OF THE LAND FOR AGRICULTURAL PURPOSES TILL THE DATE OF SALE WAS CONTINUED UNABATED AND AS SUCH, TH E LAND SHOULD HAVE BEEN TREATED AS AGRICULTURAL LAND AND, THUS, E XEMPT FROM CAPITAL GAINS IN VIEW OF S. 2(14) OF THE ACT. IT IS ORDERED ACCORDINGLY.' THE EXTRACTED PORTION AT PARAS 7.3.8 TO 7.3.10 OF T HE ORDER IN THE CASE OF M.R.SEETHARAM (HUF) (SUPRA) INDICATES THAT THE CO- ORDINATE BENCH OF THE TRIBUNAL CAME TO THE CONCLUSI ON THAT MERE CONVERSION OF LAND FROM AGRICULTURE TO NON-AGRICULT URE COULD NOT BE TAKEN AS THE SOLE CRITERIA TO HOLD IT AS A CAPIT AL ASSET UNDER SECTION 2(14) OF THE ACT AND THAT IF THAT LAND IS U SED FOR AGRICULTURAL PURPOSES TILL THE DATE OF SALE, DESPIT E THE FACT THAT IT IS CONVERTED TO NON-AGRICULTURAL USE ARE AGRICULTURAL LANDS AND NOT CAPITAL ASSETS UNDER SECTION 2(14) OF THE ACT.' 4.8 ON GOING THROUGH THE SUBMISSIONS AND ALSO THE E VIDENCE PRODUCED IN SUPPORT OF THE SUBMISSIONS, I FIND THAT THEY ARE FACTUALLY CORRECT. FURTHER THE APPELLANT HAS ALSO PLACED ON RECORD THE FACT THAT THESE VERY LANDS WERE ASSESSED TO WEALTH TAX AS CAPITAL ASSETS BELONGING TO THE APPELLANT BY A WEALTH TAX ASSESSMENT ORDER PASSED U /S 16(3) R.W.S. 17 DATED 9/01/2013 JUST TWO MONTHS PRIOR TO THE PASSIN G OF THIS IMPUGNED ASSESSMENT ORDER. IN FACT THE PROCEEDINGS UNDER TH E WEALTH TAX ACT AND THE INCOME TAX ACT WERE GOING ON SIMULTANEOUSLY AND BOTH THESE WERE RE-OPENED PROCEEDINGS U/S 17 OF THE WT ACT & U/S 147 OF THE IT ACT RESPECTIVELY. IN THE WEALTH TAX ASSESSMENT ORDE R (A COPY OF THE SAME HAS BEEN FILED BY THE APPELLANT), THE ASSESSIN G OFFICER HAS TAKEN A STAND THAT THESE LANDS ARE OWNED AND POSSESSED BY T HE APPELLANT AND ARE EXIGIBLE TO WEALTH TAX IN ITS HANDS. THE AO HAS ALS O ASSESSED THE WEALTH ARISING OUT OF THE VALUATION OF THESE LANDS AS WEAL TH ESCAPING ASSESSMENT AND HAS BROUGHT THE SAME TO TAX. THE ST AND TAKEN BY THE AO ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 8 OF 29 FOR THE VERY SAME ASSESSMENT YEAR IN THE WEALTH TAX ASSESSMENT IS DIAMETRICALLY OPPOSED TO THE STAND TAKEN IN THE INC OME TAX ASSESSMENT. IN THE WEALTH TAX ASSESSMENT THE AO HAS HELD THAT THE IMPUGNED LANDS ARE OWNED AND BELONGING TO THE APPEL LANT. IN SUCH AN EVENT IT SURPASSES ONE'S COMPREHENSION AS TO HOW TH E AO HAS HELD' THAT THESE LANDS ARE NO LONGER OWNED AND POSSESSED BY IT FOR PURPOSES OF INCOME TAX ASSESSMENT AND THAT THESE VERY LANDS STA ND TRANSFERRED TO THE DEVELOPER. THIS KIND OF A DICHOTOMY IS NOT PERM ITTED IN LAW AND IT IS THUS CLEAR THAT THE WEALTH TAX ASSESSMENT ORDER SUP PORTS THE APPELLANT AND IS OPPOSED TO THE STAND OF THE AO IN THE INCOME TAX ASSESSMENT FOR THE VERY SAME ASSESSMENT YEAR. 4.9 IT IS SIGNIFICANT TO NOTE FROM THE DECISION OF THE HON'BLE ITAT THAT THE MERE ACT OF OBTAINING A CONVERSION ORDER F ROM THE COMPETENT AUTHORITY OF THE STATE GOVERNMENT DOES NOT RENDER T HE LAND NON- AGRICULTURAL IN VIEW OF THE MANDATORY CONDITION LAI D DOWN BY THE STATE GOVERNMENT THAT THE LAND NOT ONLY CEASES TO BE NON- AGRICULTURAL BUT REMAIN AGRICULTURAL AS BEFORE IF THE LAND FOR WHICH CONVERSION WAS SOUGHT WAS NOT PUT TO USE FOR ANY PURPOSE OTHER THA N AGRICULTURE WITHIN A PERIOD OF TWO YEARS FROM THE DATE OF THE ORDER OF CONVERSION. 4.10 IN VIEW OF THE ABOVE DECISION OF THE ITAT, B ANGALORE BENCH IN THE APPELLANT'S OWN CASE, WHICH IS BINDING, THE LAN D IN QUESTION, WHICH IS THE PROPERTY TO BE DEVELOPED AS PER THE JDA, HAS TO NECESSARILY BE HELD TO BE AGRICULTURAL LAND AND NOT A CAPITAL ASSE T AND HENCE CANNOT BE ASSESSED TO TAX BY THE APPLICATION OF SECTION 45 OF THE ACT, WHICH PROVIDES FOR TAXING AN INCOME ARISING OUT OF THE SA LE OR TRANSFER OF A CAPITAL ASSET. THE APPELLANT HAS ALSO PLACED ON REC ORD A COPY OF THE PARTITION DEEDS DATED 18/11/2005 AND 28/6/2006 AND ALSO GIFT DEEDS EXECUTED BY SMT.GOWRAMMA AND SHRI M.R. RAMAIAH. THE SE DOCUMENTS CONFER AND EXPLAIN THE TITLE OF THE APPELLANT TO TH E IMPUGNED LANDS AND FURTHER DEMONSTRATE THAT THESE IMPUGNED LANDS ARE C ONTIGUOUS TO THE AGRICULTURAL LANDS, WHICH ARE THE SUBJECT MATTER OF THE DECISION OF THE HON'BLE ITAT REFERRED TO ABOVE AND ENJOY THE SAME P HYSICAL CHARACTERISTICS AND ALSO LOCATED IN AKKALENAHALLI A ND MALLENAHALLI VILLAGES, KASABA HOBLI, DEVANAHALLI TALUK. IN VIEW OF THIS FACT, IT IS CLEAR THAT THE IMPUGNED LANDS ARE IDENTICAL IN PHYS ICAL PROPERTIES AND UNDER CULTIVATION AS THE LANDS, WHICH ARE THE SUBJE CT MATTER OF THE DECISION OF THE HON'BLE ITAT. IN FACT, IT IS ALSO N OTICED IN THE SAID TRIBUNAL ORDER THAT THE HON'BLE MEMBERS OF THE TRIB UNAL HAVE PERSONALLY INSPECTED THE PHYSICAL CHARACTERISTICS O F THESE LANDS IN THE YEAR 2014, WHICH IS A GOOD SEVEN YEARS AFTER THE DA TE OF JDA, AND FOUND ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 9 OF 29 THAT THESE LANDS ARE UNDER CULTIVATION WITH FRUIT-B EARING AND COCONUT TREES IN ABUNDANCE. 4.11 IN FACT, AS SUBMITTED BY THE APPELLANT, THE H ON'BLE ITAT HAS HELD IN ITA NO.1654/BANG/2012 THAT NO CAPITAL GAINS WILL ARISE FROM THE SALE/TRANSFER OF LAND, WHICH IS AN AGRICULTURAL LAND AND NOT A CAPITAL ASSET U/S 2(14) OF THE ACT. THIS BEING THE CASE, EV EN IF ONE WERE TO HOLD TAKE THE POSITION THAT THE LANDS STAND TRANSFERRED UPON ENTERING INTO JDA, WHAT IS TRANSFERRED IS ONLY AGRICULTURAL LAND AND THERE CANNOT BE ANY LEVY OF CAPITAL GAINS TAX ON TRANSFER OF AGRICU LTURAL LANDS. FURTHER THESE LANDS HAVE BEEN TREATED AS LANDS OWNED AND BE LONGING TO THE APPELLANT FOR WEALTH TAX PURPOSES EVEN AS ON 31/03/ 2007, AFTER THE DATE OF ENTERING INTO OF THE JDA, THE QUESTION OF ASSESS ING ANY LTCG FROM THE SAME ON MERE SIGNING OF A JDA DOES NOT ARISE. 4.12 THE APPELLANT HAS MADE ADDITIONAL SUBMISSIONS AS UNDER: 'FURTHER TO THE WRITTEN SUBMISSIONS FILED EARLIER, THE APPELLANT WOULD LIKE TO PLACE A DECISION OF THE JURISDICTIONA L ITAT BANGALORE BENCH IN SUPPORT OF ITS LEGAL CONTENTIONS . THE APPELLANT RELIES ON THE DECISION OF THE HON'BLE ITAT BANGALORE BENCH IN THE CASE OF K.N.NAGARAJ & SMT.SA THYA PREMA IN ITA NO.136 & 137/BANG/2012 BY AN ORDER DAT ED 14/8/2014, WHERE THE HON'BLE ITAT IN PARA 20 OBSERV ES 'THE CIT ACCEPTS THAT AS PER THE JDA DATED 26/10/1994 AS WEL L AS AGREEMENT DATED 11/11/2000 THERE WAS NO CLAUSE REGA RDING DELIVERY OF POSSESSION, AT THE TIME OF AGREEMENT A ND THAT POSSESSION WAS TO BE DELIVERED ONLY AT THE TIME OF REGISTRATION OF SALE DEED. THE CIT HOWEVER IGNORES THESE CLAUSES AS ACCORDING TO HIM THE SUBSTANCE OF THE TRANSACTION HAS TO BE SEEN OVER THE FORM OF TRANSACTION. IN OUR VIEW THESE CONCLUSIONS ARE W ITHOUT ANY BASIS. FIRST THE CIT CANNOT REWRITE THE AGREEMENT B ETWEEN THE PARTIES JUST BY MAKING A CASUAL OBSERVATION THAT TH E SUBSTANCE OF THE TRANSACTION HAS TO BE SEEN OVER THE FORM OF TRA NSACTION. THE LEGAL CONSEQUENCES FLOWING OUT FROM THE WRITTEN AGR EEMENT CANNOT BE BRUSHED ASIDE BY THE CIT JUST BECAUSE IT SUITS THE INTEREST OF THE REVENUE'. ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 10 OF 29 IN PARA 2 4 THEY OBSERVE THAT 'THE CONDITION NECESSARY FOR APPLICATION OF SECTION 53 A OF THE TRANSFER OF PROPERTY ACT CANNOT BE PRESUMED TO EXIST AND THE TAX AUTHORITIES CANNOT BLINDLY APPLY THESE PROVISIONS BY MERELY RELYING UPON THE FACT TH AT THERE WAS AN AGREEMENT FOR SALE AND DELIVERY OF POSSESSION BY TH E TRANSFEROR/SELLER TO THE TRANSFEREE/ PURCHASER. IF SUCH A COURSE IS PERMITTED TO BE ADOPTED AND TAX AUTHORITIES ARE ALL OWED TO LEVY & COLLECT TAX ON CAPITAL GAINS & LATER IT TURNS OUT THAT THE TRANSACTION IS RESCINDED, THERE IS NO MECHANISM UNDER THE ACT BY WHICH THE ASSESSEE CAN CLAIM REFUND OF THE TAXES LE VIED AND COLLECTED'. IT WOULD BE RELEVANT TO MENTION HERE THAT IN THE AB OVE SAID CASE THE CIT HAD ORDERED REOPENING U/S 263 RELYING UPON THE DECISIONS OF T.K.OAYALU & CHATURBHUJ KAPADIA. THE FACT THAT THE TRIBUNAL HAS HELD THAT THE AGREEM ENT BETWEEN THE PARTIES WOULD DECIDE AS TO WHEN POSSESSION IS I NTENDED TO BE GIVEN IS OF GREAT IMPORTANCE TO DETERMINE THE YEAR OF TAXABILITY OF CAPITAL GAIN. IN THE PRESENT INSTANCE THE PARTIES HAVE CLEARLY AG REED THAT THE DEVELOPER WILL GET POSSESSION ONLY UPON COMPLETION OF THE CONSTRUCTION OF THE OWNERS SHARE OF THE CONSTRUCTED AREA & HANDING OVER OF THE SAME TO THE APPELLANT & NOT ANY TIME BEFORE. IN VIEW OF THIS CLEAR LEGAL CONTRACT BETWEEN THE TW O INTERESTED PARTIES IT WOULD BE GROSSLY WRONG TO SUGGEST THAT P OSSESSION STANDS TRANSFERRED IMMEDIATELY UPON THE SIGNING OF THE JDA.' 4.13 CONSIDERING THE FACTS AND THE JDA PLACED ON R ECORD, I FIND MERIT IN THE ADDITIONAL SUBMISSIONS AS MADE ABOVE B Y THE APPELLANT. 4.14 HENCE, RESPECTFULLY FOLLOWING THE DECISION O F THE JURISDICTIONAL BANGALORE BENCH OF THE HON'BLE ITAT IN THE APPELLANT'S OWN CASE, WHERE THESE LANDS HAVE BEEN TREATED AS AG RICULTURAL LANDS, I DELETE THE ADDITION OF RS.6,88,23,857/- MADE BY WAY OF LTCG TO THE INCOME RETURNED BY THE APPELLANT IN THE REASSESSMEN T PROCEEDINGS.' ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 11 OF 29 5. AGGRIEVED, THE REVENUE HAS PREFERRED APPEALS BEF ORE THE TRIBUNAL. THE LD. DR, BESIDES PLACING RELIANCE UPON THE ASSES SMENT ORDER, HAS CONTENDED THAT IN VIEW OF THE JUDGMENT OF THE JURIS DICTIONAL HIGH COURT IN THE CASE OF CIT V. DR. T.K. DAYALU [2011] 14 TAXMANN.COM 120 (K AR.) , THE CAPITAL GAIN HAS TO BE CHARGED ON TRANSFER OF THE L AND TO THE DEVELOPER. HE FURTHER CONTENDED THAT ONCE THE CONSIDERATION WAS R ECEIVED AND POSSESSION WAS HANDED OVER TO THE DEVELOPER, TRANSF ER OF THE IMMOVABLE PROPERTY TAKES PLACE AND THE CAPITAL GAIN HAS TO BE CHARGED ON THE ASSESSEE. 6. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER AU THORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT THE ASSESSEES OW NED SHARES IN THE AGRICULTURAL LAND WITH REGARD TO WHICH JDA WAS EXEC UTED BY THE ASSESSEES WITH PINGYAO DEVELOPERS & TRADERS PVT. LTD. OF MUMB AI, WHO WAS LATER ON CALLED AS THE DEVELOPER. IN THIS JDA, IT WAS AGR EED UPON THAT THE DEVELOPER WOULD PAY AN INTEREST-FREE REFUNDABLE SEC URITY DEPOSIT OF A SUM OF RS.45 CRORES AS PER THE TERMS STIPULATED IN THE JDA. 7. CONSEQUENT TO THE JDA, POWER OF ATTORNEYS WERE ALSO EXECUTED IN FAVOUR OF THE DEVELOPER TO FACILITATE EXECUTION OF THE WORK, BUT UNFORTUNATELY THIS JDA WAS NOT MATERIALIZED AND CONSTRUCTION WAS NEVER STARTED AND THE JDA WAS CANCELLED THROUGH A DEED OF CANCELLATION DA TED 5.5.2015 AND ON CANCELLATION OF JDA, THE REFUNDABLE SECURITY DEPOSI T WAS REFUNDED TO THE DEVELOPER. IT IS ALSO NOTICED THAT OUT OF TOTAL ST IPULATED AMOUNT OF ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 12 OF 29 REFUNDABLE SECURITY DEPOSIT OF RS.45 CRORES, THE AS SESSEE HAS RECEIVED ONLY RS.36 CRORES, WHICH WAS REFUNDED ON CANCELLATI ON OF THE JDA. THEREFORE, THIS JDA WAS NEVER MATERIALIZED. IT IS ALSO EVIDENT FROM THE JDA THAT ASSESSEE HAS RECEIVED REFUNDABLE SECURITY DEPO SIT AND NOT THE SALE CONSIDERATION ON ACCOUNT OF TRANSFER OF LAND TO THE DEVELOPER. POSSESSION OF THE LAND HAS NEVER BEEN TRANSFERRED TO THE DEVEL OPER. IN THESE CIRCUMSTANCES, PROVISIONS OF SECTION 2(47)(V) OF TH E ACT CANNOT BE INVOKED. 8. WE HAVE ALSO CAREFULLY PERUSED THE JUDGMENT OF H ON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. DR. T.K. DAYALU (SUPRA) AND WE FIND THAT IN THAT CASE, THE AGREED SUM WAS RECEIVED BY THE AS SESSEE AS A NON- REFUNDABLE DEPOSIT AND IN ADDITION TO THE SAME, HE WAS ALSO ENTITLED FOR STRUCTURES TO BE CONSTRUCTED BY THE DEVELOPER AT FR EE OF COST ON THE BASIS OF SUCH AGREEMENT. THUS, IN THAT CASE, THE ASSESSEE H AS RECEIVED THE AMOUNT ON 26.1.1996 AND POSSESSION WAS HANDED OVER ON 30.5.1996 AND THE PROJECT WAS COMPLETED IN THE YEAR 2003-04. THE CONTROVERSY IN THAT CASE WAS WITH REGARD TO THE YEAR OF TAXABILITY OF T HE CAPITAL GAIN. IN THAT CASE, IT WAS HELD BY THEIR LORDSHIPS OF THE HON'BLE HIGH COURT OF KARNATAKA THAT SINCE THE POSSESSION WAS FINALLY TRANSFERRED I N THE A.Y. 1997-98, THE CAPITAL GAIN IS TO BE TAXED IN THE YEAR IN WHICH TH E NON-REFUNDABLE MONEY WAS RECEIVED OR THE PROJECT WAS COMPLETED. ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 13 OF 29 9. BUT IN THE INSTANT CASE, THE ISSUE IN DISPUTE IS WITH REGARD TO CHARGEABILITY OF THE CAPITAL GAIN ON THE IMPUGNED T RANSACTION. OUR ATTENTION WAS DRAWN TO THE ORDER OF THE TRIBUNAL IN THE CONNE CTED CASES I.E., SHRI M.R. SEETHARAM V. ACIT IN ITA NO.1654/BANG/2012 DAT ED 13.6.2014, IN WHICH THE TRIBUNAL HAS HELD THAT THE AGRICULTURAL L AND WAS TRANSFERRED TO BUYER AND THE ISSUE WAS RAISED, WHETHER CAPITAL GAI N HAS ACCRUED ON SUCH TRANSACTIONS. THE TRIBUNAL HAS HELD THAT THOUGH TH E SUBJECT LAND WAS CONVERTED INTO NON-AGRICULTURAL LAND PURPOSE, BUT C ULTIVATION OF LAND CONTINUED TILL THE DATE OF SALE. THUS, THE LAND S HOULD HAVE BEEN TREATED AS AGRICULTURAL LAND AND EXEMPT FROM CAPITAL GAINS IN VIEW OF SECTION 2(14) OF THE ACT. WHILE HOLDING SO, THE TRIBUNAL HAS ALSO O BSERVED THAT HAD THE STATE REFORMS ACT PERMITTED THE ASSESSEE TO SELL IT S AGRICULTURAL LANDS WITHOUT CONVERSION TO A CORPORATE AS IN THE CASE OF OTHER STATES, THE ASSESSEE WOULD NOT THEN BE REQUIRED TO GET THE LAND CONVERTED MERELY TO FACILITATE ITS SALE TO A CORPORATE AND THE GAINS AR ISING FROM SUCH SALE COULD NOT HAVE BEEN EXIGIBLE TO CAPITAL GAINS TAX WHICH I S THE SUBJECT OF A CENTRAL ACT. THE TRIBUNAL HAS ALSO OBSERVED IN THAT CASE T HAT, EVEN AFTER CONVERSION THE ASSESSEE WAS CARRYING ON AGRICULTURA L OPERATION AND CONVERSION WAS DONE ONLY TO FACILITATE SALE OF SUBJ ECT PROPERTY TO A CORPORATE ENTITY/NON-AGRICULTURIST. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL RENDERED IN THAT CASE ARE EXTRACTED HEREUN DER FOR THE SAKE OF REFERENCE:- ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 14 OF 29 7.2. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMIS SIONS, PERUSED THE RELEVANT MATERIALS ON RECORD AND ALSO THE VARIO US JUDGMENTS OF JUDICIARY ON A SIMILAR ISSUE RELIED ON BY EITHER OF THE PARTY. THE ASSESSEE-HUF HAD SOLD LANDS SITUATED AT AKKLENAHALL I AND MALLENNAHALLI VILLAGES OF DEVANAHALLI TALUK TO AN EXTENT OF 6 ACR ES AND 1 GUNTA FOR A TOTAL CONSIDERATION OF RS.45,58, 12,500/ - VIDE A REGISTERED SALE DEED DATED 12.4.2007 AND, ACCORDINGLY, ADMITTED AN INCOM E OF RS.14, 17,87,795/ - AS CAPITAL GAINS FROM THE ABOVE TRANSACTION IN IT S ORIGINAL RETURN OF INCOME FURNISHED TO THE DEPARTME NT. SUBSEQUENTLY, IN ITS REVISED RETURN OF INCOME DATED 15.6.2009, THE A SSESSEE HAD ADMITTED INCOME OF RS.22,90,570/ -, ON THE GROUND THAT THE CAPITAL GAINS WHICH AROSE ON THE SALE OF THE SAID LANDS WAS WRONGLY OFF ERED IN THE ORIGINAL RETURN IN AS MUCH AS THE SAME WAS EXEMPT FROM TAX B EING AGRICULTURAL LANDS AND HENCE EXCLUDED FROM THE DEFINITION OF 'CA PITAL ASSET' AS PER THE PROVISIONS OF S. 2 (14)(III) OF THE ACT. 7.2.1. THE PRIME ISSUES FOR CONSIDERATION BEFORE U S ARE TWO-FOLD, NAMELY: (I) WHETHER THE LAND CAN BE TREATED AS AGRICULTURA L LAND EVEN AFTER CONVERSION OF AGRICULTURAL LAND FOR NON- AGRICULTURAL/RESIDENTIAL PURPOSE? (II) WHETHER THE AUTHORITIES BELOW WERE JUSTIFIED IN TREATING 'BIAAPA' AS A MUNICIPALITY? 7.2.2. BEFORE ANALYSING THE ARGUMENTS OF THE ASSE SSEE ON THE ISSUE, WE SHALL NOW PROCEED TO DEAL WITH THE SEQUENCE OF E VENTS WHICH APPARENTLY TOOK PLACE, CHRONOLOGICALLY, AS UNDER: 7.2.3. THE ASSESSEE HAD IN ITS POSSESSION CERTAIN ACRES OF AGRICULTURAL LANDS, OUT OF WHICH, LANDS TO THE EXTE NT OF 6 ACRES AND 1 GUNTA SITUATED AT AKKALENALLY AND MALLENAHALLY CONVERTED AS NON- AGRICULTURAL VIDE CONVERSION ORDER NO.ALN(D) SR 30/ 2004-05 DATED 19.7.2004 [SOURCE: PAGE 88 TO 92 OF PB AR] WERE SOL D TO M/ S. ETL CORPORATE SERVICES PRIVATE LIMITED FOR A SUM OF RS. 45.58 CRORES. THE SUBJECT PROPERTY WAS A PART OF AROUND 600 ACRES OF LANDS KNOWN AS 'GOKULA FARM' WHICH WAS ORIGINALLY PURCHASED BY LAT E SRI M.S.RAMAIAH, THE FATHER OF SRI M.R. SEETHARAM - HUF - WAY BACK IN 1951 [SOURCE: PAGE 6 OF SALE DEED DT.12.4.2007]. TH E SAME HAS BEEN JOINTLY CULTIVATED BY THE FAMILY, COMPRISING OF 10 CHILDREN OF LATE M.S.RAMAIAH. THESE LANDS WERE, SUBSEQUENTLY, PARTIO NED IN 1970 AND AFTER THE DEATH OF SRI M.S. RAMAIAH, THE LANDS WERE FURTHER PORTIONED ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 15 OF 29 [REFER: PARA 3.2. OF THE ASST. ORDER]. EVEN THOUGH, THE SUBJECT PROPERTY, AMONG OTHERS, WAS CONVERTED AS NON-AGRICULTURAL LAN DS WAY BACK IN 2004, AGRICULTURAL ACTIVITIES, DERIVING AGRICULTURA L INCOME FROM THE SAID LANDS, WERE CONTINUED UNABATEDLY BY THE ASSESSEE AN D INCOMES ADMITTED BY IT FROM SUCH OPERATIONS WERE ACCEPTED BY THE REV ENUE FROM THE AYS 2004-05 TO 2009-10, THE DETAILS OF WHICH ARE AS UND ER: ASST. YEAR AGRL. INCOME [IN RS.] 2004-05 22,00,000 2005-06 22,00,000 2006-07 16,50,000 2007-08 16,50,000 2008-09 16,50,000 2009-10 16,50,000 7.2.4. THOUGH THE SAID LAND WAS CONVERTED INTO NO N-AGRICULTURAL PURPOSES IN THE YEAR 2004-05 AND ONE OF THE MANDATO RY CONDITIONS SPECIFIED IN THE CONVERSION ORDER DATED 19.7.2004 W AS THAT IF THE CONVERTED LAND WAS NOT USED FOR THE PURPOSE FOR WHI CH IT WAS CONVERTED WITHIN A PERIOD OF TWO YEARS FROM THE DATE OF CONVE RSION, THE ORDER OF CONVERSION STANDS CANCELLED. APPARENTLY, THE ASSESS EE HAD CONTINUED THE AGRICULTURAL OPERATIONS IN THE CONVERTED LANDS ALSO WHICH IS EVIDENT FROM THE FACT THAT INCOMES DERIVED FROM SUCH AGRICU LTURAL OPERATIONS ON THE SAID LANDS DECLARED BY THE ASSESSEE IN ITS RETU RNS OF INCOME WERE ACCEPTED BY THE REVENUE FOR THE AYS 2004-05 TO 2009 -10 (SUPRA). NO EVIDENCE WAS BROUGHT ON RECORD BY THE REVENUE TO SU GGEST THAT THE SUBJECT LANDS WERE UTILIZED FOR ANY OTHER PURPOSES OTHER THAN THAT OF CULTIVATION AFTER CONVERSION. THIS IS EVIDENT FROM THE FACT THAT THE INCOMES DERIVED FROM SUCH LANDS DULY DECLARED BY TH E ASSESSEE WHICH WERE ACCEPTED BY THE REVENUE. 7.2.5. INCIDENTALLY, THE SUBJECT PROPERTY WAS I NSPECTED ON 10-4-2014 BY US ACCOMPANIED BY THE LEARNED DR, THE AO AND THE LEARNED AR OF THE ASSESSEE. DURING THE COURSE OF INSPECTION, WE H AVE NOTICED THAT THE SUBJECT PROPERTY WAS A PART OF LARGE TRACK OF LAND HAVING AGRICULTURAL OPERATIONS WHICH CONSIST OF FULLY GROWN UP FRUITS-Y IELDING TREES SUCH AS MANGOES, SAPOTA, COCONUT, JACK-FRUIT, APPLE, GUAVA ETC., APPEAR TO BE EXISTING IN THE SUBJECT PROPERTY EVEN ON THE DATE O F SALE. THIS CLEARLY ATTRIBUTES THE ASSESSEE'S ASSERTION THAT EVEN ON TH E DATE OF TRANSFER, THE SUBJECT LAND WAS HELD TO BE AGRICULTURE. IN THIS RE GARD, WE WOULD LIKE TO REFER TO THE CERTIFICATE OF SENIOR ASSISTANT DIRECT OR OF HORTICULTURE ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 16 OF 29 (ZILLA PANCHAYAT) DEVANAHALLI, GOVERNMENT OF KARNAT AKA, DATED 23.4.2014 WHEREIN IT HAS BEEN CERTIFIED AS UNDER: 'THIS IS TO CERTIFY THAT M.R.SEETHARAM, S/O (OF) LA TE M. S. RAMAIAH RESIDING AT GOKULA HOUSE, DR M. S. RAMAIAH ROAD, GOKULA, BANGALORE, HAVE, IN THEIR LAND SITUATED IN AKKELENAHALLI - MALLENAHALLI VILLAGE, KASABA HOBLI, DEVANAHALLI TAL UK BEARING SY NOS. 29, 30/1, 30/2, 37/1P, 37/4P, 37/6P, 37/7P, 37/10P, 37/13P, 37/ 16P, FRUIT YIELDING MANGO, SAPOTA, COCO NUT, CASHEW, COCO, JACK-FRUIT, ROSE APPLE, GUAVA TREES AGED 25 - 30 YEARS.' 7.2.6. OSTENSIBLY, NEITHER THE AO NOR THE CIT (A) HAD DISPUTED THE FACT IN CLEAR TERMS THAT EVEN AFTER THE CONVERSION OF THE LAND FOR NON- AGRICULTURAL PURPOSES, THE ASSESSEE HAS BEEN CARRYI NG ON AGRICULTURAL OPERATIONS AND ALSO ADMITTING INCOMES FROM SUCH LAN DS IN ITS RETURNS OF INCOME. THE AO'S STAND THAT ONCE THE AGRICULTURAL L ANDS WERE CONVERTED INTO NON-AGRICULTURAL, EVEN THOUGH AGRICULTURAL ACT IVITIES CONTINUED; THE LANDS CANNOT BE TERMED AS AGRICULTURAL LAND IS, IN OUR VIEW, NOT THE CORRECT PROPOSITION OF LAW. THIS IS APPARENT FROM T HE FACT THAT ONE OF THE MANDATORY CONDITIONS CONTAINED IN THE CONVERSION OR DER THAT '10. THE LAND SHOULD BE USED FOR THE SAID PURPOSE WITHIN TWO YEARS FROM THE DATE OF THIS ORDER [REFER: PAGES 88 TO 92 (INCLUDING ENG LISH TRANSLATION) OF PB AR]'. 7.2.6. AS A MATTER OF PERCEPTION, S. 2(14) DEFIN ES 'CAPITAL ASSET'. CAPITAL ASSET DOES NOT INCLUDE AGRICULTURAL LAND. H OWEVER, AGRICULTURAL LAND SITUATED WITHIN ANY MUNICIPALITY, NOTIFIED ARE A COMMITTEE, TOWN AREA COMMITTEE, TOWN COMMITTEE WILL CEASE TO BE AN AGRICULTURAL LAND. WHETHER THE SUBJECT LAND IS AGRICULTURAL OR OTHERWI SE IS ESSENTIALLY A QUESTION OF FACT. IN COMING TO A DEFINITE CONCLUSIO N, A NUMBER OF TESTS WILL HAVE TO BE UNDERTAKEN AS LAID DOWN BY THE HON' BLE SUPREME COURT IN THE CASE OF SARIFABIBI MOHAMED IBRAHIM V. CIT RE PORTED IN 204 ITR 631 (SC). THE TESTS PRESCRIBED BY THE HON'BLE SUPRE ME COURT AS UNDER: (I) WHETHER THE LAND WAS CLASSIFIED IN THE REVENUE RECORDS AS AGRICULTURAL AND WHETHER IT WAS SUBJECT TO THE PAYM ENT OF LAND REVENUE? (II) WHETHER THE LAND WAS ACTUALLY OR ORDINARILY U SED FOR AGRICULTURAL PURPOSES AT OR ABOUT THE RELEVANT TIME ? ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 17 OF 29 (III) WHETHER SUCH USER OF THE LAND WAS FOR A LONG PERIOD OR WHETHER IT WAS OF A TEMPORARY CHARACTER OR BY ANY S TOP GAP ARRANGEMENT? (IV) WHETHER THE INCOME DERIVED FROM THE AGRICULTU RAL OPERATIONS CARRIED ON IN THE LAND BORE ANY RATIONAL PROPORTION TO THE INVESTMENT MADE IN PURCHASING THE LAND? (V) WHETHER THE PERMISSION UNDER LAND REVENUE CODE WAS OBTAINED FOR THE NON-AGRICULTURAL USED OF THE LAND , IF SO , WHEN AND BY WHOM [THE VENDOR OR THE VENDEEJ ; WHETHER SUCH PERMISSION WAS IN RESPECT OF THE WHOLE OR A PORTION OF THE LAN D; 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 MATERIA L DATE ; (VI) WHETHER THE LAND, ON THE RELEVANT DATE, HAD C EASED TO BE PUT TO AGRICULTURAL USE, IF SO, WHETHER IT WAS PUT TO AN ALTERNATIVE USE; WHETHER SUCH CEASER AND / OR ALTERATIVE USER W AS OF A PERMANENT OR TEMPORARY NATURE; (VII) WHETHER THE LAND, THOUGH ENTERED IN THE REVE NUE RECORDS, HAD NEVER BEEN ACTUALLY USED FOR AGRICULTURE, THAT IS, IT HAD NEVER BEEN PLOUGHED OR TI LL ED; WHETHER THE OWNER MEANT OR INTENDED TO USE IT FOR AGRICULTURAL PURPOSES? (VIII) WHETHER THE LAND WAS SITUATED IN A DEVELOPE D AREA; WHETHER ITS PHYSICAL CHARACTERISTICS, SURROUNDING S ITUATION AND USE OF THE LANDS IN THE ADJOINING AREA WERE SUCH AS WOU LD INDICATE THAT THE LAND WAS AGRICULTURAL? (IX) WHETHER THE LAND ITSELF WAS DEVELOPED BY PLOT TING AND PROVIDING ROADS AND OTHE R FACILITIES; (X) WHETHER THERE WERE ANY PREVIOUS SALES OF PORTI ONS OF THE LAND FOR NON-AGRICULTURAL USE? (XI) WHETHER PERMISSION UNDER TENANCY AND AGRICULT URAL LANDS ACT WAS OBTAINED BECAUSE THE SALE OR INTENDED SALE WAS IN FAVOUR OF NON-AGRICULTURIST, IF SO, WHETHER THE SALE OR INTENDED SALE TO SUCH NON - AGRICULTURIST WAS FOR NON-AGRICULTURAL OR AGRICULTURAL USER? ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 18 OF 29 (XII) WHETHER THE LAND WAS SOLD ON YARDAGE OR ON A CREAGE BASIS? & (XIII) WHETHER AN AGRICULTURIST WOULD PURCHASE THE LAND FOR AGRICULTURAL PURPOSES AT THE PRICE AT WHICH THE LAN D WAS SOLD AND WHETHER THE OWNER WOULD HAVE EVER S O LD THE LAND VALUING IT AS A PROPERTY YIELDING AGRICULTURAL PRODUCE ON THE BASIS OF ITS YIELD?' 7 . 2.7. IN VIEW OF THE NORMS PRESCRIBED BY THE HON'BL E SUPREME COURT IN ITS JUDGMENT (SUPRA), WE ARE OF THE VIEW T HAT THE FACTS MAKING IN THE PRESENT CASE, THE ISSUE REQUIRES TO BE DECID ED AS TO WHETHER THE SUBJECT LAND WAS AN AGRICULTURE LAND. THE LAND IN Q UESTION WAS INHERITED BY THE ASSESSEE (HUF), AMONG OTHERS, AS THE SAME HA VING BEEN PURCHASED BY HIS FATHER AS AN INVESTMENT. AS COULD BE SEEN FROM EARLIER DOCUMENTS OF PURCHASE WHICH EXPLICITLY EXHIBIT THAT THE SUBJECT LAND HAD PUT TO EXCLUSIVE USE FOR AGRICULTURAL PURPOSES ONLY AND IN FACT A GROVE [ORCHARD] HAD BEEN GROWN WITH FRUITS-YIELDING TREES SUCH AS MANGOES, SAPOTA, COCONUTS, JACK-FRUITS, ETC., INCID ENTALLY, THE SURROUNDING LANDS WERE ALSO SUBJECTED TO AGRICULTUR AL ACTIVITIES AS IN THE CASE OF THE PROPERTY UNDER DISPUTE. THOUGH THE PRES ENT ASSESSEE BECAME THE LEGITIMATE OWNER OF THE SUBJECT PROPERTY ON INH ERITANCE/IN A PARTITION/FAMILY ARRANGEMENT AS THE CASE MAY BE, TH E NATURE OF THE LAND USE HAD NOT, HOWEVER, UNDERGONE ANY CHANGE. WHETHER THE LANDS WHICH WERE USED AS AGRICULTURAL L A N DS EVEN AFTER ITS CONVERSION LOOSE ITS CHARACTER OF AGRICULTURA L L ANDS ? 7.3 . THE STAND OF THE AO WAS THAT ONCE THE AGRICULTURAL LANDS WERE CONVERTED INTO NON-AGRICULTURAL, EVEN THOUGH A GRICULTURAL ACTIVITY CONTINUES, THE LANDS CANNOT BE CONSIDERED AS AGRICU LTURAL LANDS. COUNTERING THE AO'S ASSERTION, THE LEARNED AR HAD A RGUED THAT AS PER THE MANDATORY CONDITIONS MENTIONED IN THE CERTIFICA TE OF CONVERSION, IF THE SUBJECT LAND WAS NOT PUT TO NON-AGRICULTURAL US E WITHIN A PERIOD OF TWO YEARS FROM THE DATE OF CONVERSION ORDER, THE CO NVERSION ITSELF WILL BECOME NULL AND VOID. IN THIS CONNECTION, THE LEARN ED AR HAD PLACED STRONG RELIANCE ON THE JUDGMENT OF THE HON'B L E JU R ISDICTIONAL HIGH COURT IN THE CASE OF CIT V. SMT. K.LEELAVATHY (SUPR A). 7 . 3.1. IT IS A FACT THAT THE LAND WHICH WAS HITHER TO AGRICULTURAL LAND DOES NOT AUTOMATICALLY BECOME A CAPITAL ASSET UPON A MERE FACT OF ITS ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 19 OF 29 CONVERSION TO NON-AGRICULTURAL PURPOSE. THE LAND EV EN THOUGH CONVERTED FOR NON-AGRICULTURAL PURPOSE, CONTINUES T O BE AGRICULTURAL LAND AND DOES NOT BECOME A CAPITAL ASSET U/S 2 (14) OF T HE ACT, IF AGRICULTURAL ACTIVITIES WERE BEING CARRIED OUT ON SUCH A LAND AS ON THE DATE OF ITS SALE DESPITE A FACT THAT THE LAND STANDS CONVERTED FOR N ON-AGRICULTURAL PURPOSE. 7.3.2. IN THE PRESENT CASE, AS ALREADY DISCUSSE D, EVEN THOUGH THE SUBJECT PROPERTY WAS CONVERTED FOR NON-AGRICULTURAL PURPOSE VIDE CONVERSION ORDER DATED 19.7.2004, THE ASSESSEE CONT INUED THE AGRICULTURAL OPERATIONS IN THE CONVERTED LANDS WHIC H WAS EVIDENT ON OUR SITE VISIT AND ALSO FROM THE FACT THAT INCOMES DERI VED FROM SUCH AGRICULTURAL OPERATIONS ON THE SAID LANDS DECLARED BY THE ASSESSEE IN ITS RETURNS OF INCOME WHICH WERE ACCEPTED BY THE REVENU E FOR THE AYS 2004-05 TO 2009-10. 7.3.3. AT THIS JUNCTURE, WE WOULD LIKE TO REFER TO THE FINDINGS OF THE EARLIER BENCH OF THIS TRIBUNAL IN THE CASE OF H.S.V IJAYA KUMAR V, ACIT, HASSAN IN ITA NO.108/BANG/05 DATED 28.11.2006. AFTE R TAKING INTO ACCOUNT THE RIVAL SUBMISSIONS OF AN ALMOST IDENTICA L ISSUE TO THAT OF THE PRESENT ISSUE UNDER DISPUTE, THE TRIBUNAL HAS HELD AS UNDER: '6.4. IN THIS CASE ALSO VARIOUS CONDITIONS IMPOSED BY THE DEPUTY COMMISSIONER, HASSAN WERE NOT FULFILLED BY THE ASSE SSEE PRIOR TO THE SALE OF THE SAID LAND. IT IS OBSERVED THAT PERM ISSION HAS BEEN ACCORDED FOR RESIDENTIAL PURPOSES AND WHEREAS THE S ALE HAS BEEN MADE TO INDIAN OIL CORPORATION FOR PUTTING UP A SER VICE STATION. THIS CONTRADICTION ITSELF GOES TO SHOW THAT THE PER MISSION ACCORDED DOES NOT MILITATE AGAINST THE LAND BECOMIN G NON- AGRICULTURAL LAND. THE FIRST APPELLATE AUTHORITY AL SO WENT BY THE FACT THAT THE LAND WAS SOLD ON YARDAGE BASIS TO IND IAN OIL CORPORATION. THIS SINGLE CIRCUMSTANCE IN OUR CONSID ERED OPINION DOES NOT CHANGE THE CHARACTER OF THE LAND FOR THE R EASON THAT NO LAYOUT PLAN WAS OBTAINED, NOR THE LAND HAD BEEN SUB JECT TO ANY CHANGE IN PHYSICAL CHARACTERISTICS. A PERSON CAN OB TAIN HIGHER AMOUNT BY ADOPTING A PARTICULAR METHODOLOGY OF VALU ATION AND THIS BY ITSELF DOES NOT RESULT IN AN ASSET BECOMING A CAPITAL ASSET. NON-PAYMENT OF LAND REVENUE FOR A PERIOD OF ONE MON TH AND 10 DAYS FROM 8.2.99 TO 20.3.99 CANNOT ALSO BE A CIR CUMSTANCE WHICH CAN BE HELD AGAINST THE ASSESSEE. THIS IS TOO SHORT PERIOD AND IT IS NOT THE CASE OF THE REVENUE THAT LAND REV ENUE HAS (HAVE) NOT CONSCIOUSLY LEVIED AGRICULTURAL LAND TAX. NO AD VERSE INFERENCE CAN BE DRAWN. THE LD. COUNSEL FOR THE ASSESSED TRIE D TO ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 20 OF 29 DEMONSTRATE THAT AS PER THE KARNATAKA LAND REVENUE ACT, 1964, SECTION 83(2) READ WITH SEC. 95(2) MANDATES THAT TH E LAND HOLDER SHOULD CONTINUE TO PAY THE LAND REVENUE EVEN AFTER CONVERSION. WE NEED NOT GO INTO THIS ASPECT FOR THE REASON THAT THE PERIOD IS TOO SHORT A PERIOD AND IT IS NOT A CASE WHERE THE R EVENUE AUTHORITIES HAVE REFUSED TO LEVY LAND REVENUE BY SH OWING THE REASON. OF CONVERSION OR FOR THE REASON THAT THE AS SESSEE HAS REFUSED TO PAY SUCH LAND REVENUE. THE AO HAS RECORD ED A FINDING THAT THE LAND REVENUE RECORDS TO SHOW THAT RAGI AND HORSE GRAM WERE GROWN ON THE SAID LAND. THE REASONS RECORDED B Y THE ASSESSING OFFICER AS WELL AS THE CIT (A), TO OUR MI ND, ARE NOT RELEVANT FOR COMING TO THE CONCLUSION AS TO WHETHER A PARTICULAR ASSET IS A CAPITAL ASSET WITHIN THE MEANING OF SEC. 2 (14) OF THE INCOME-TAX ACT. THE ISSUE WHETHER A PARTICULAR LAND IS AGRICULTURAL LAND OR NOT HAS BEEN THE SUBJECT MATTE R OF DISPUTE IN MANY A CASES. IN EACH OF THE JUDGMENTS BROAD OUTLIN ES HAVE BEEN GIVEN AND IT IS SUFFICE TO SAY THAT THE UNANIMOUS V IEW OF ALL THE HON'BLE COURTS IS THAT THE ISSUE SHOULD BE DECIDED ON THE FACTS AND CIRCUMSTANCES OF THE CASE. AS WE FIND THAT THE FACTS OF THE CASE CLEARLY POINT OUT THAT THE LAND IN QUESTION CO NTINUED TO BE AGRICULTURAL LAND AND WAS PUT TO USE AS SUCH, PRIOR TO SALE TO INDIAN OIL CORPORATION, DESPITE THE PERMISSION OBTA INED FROM THE CONCERNED AUTHORITIES, WE ACCEPT THE CONTENTION OF THE ASSESSEE AND HOLD THAT AGRICULTURAL LAND IN QUESTION ARE NOT A CAPITAL ASSET AND, THUS, THE LEVY OF CAPITAL GAINS IS BAD IN LAW. 6 . 5 . BEFORE PARTING , WE FEEL THAT MERE EVIDENCES OF GOVERNMENT NOTIFICATION OR ORDERS ON A LIKELY USE O F A PARTICULAR LAND WOULD NOT IPSO FACTO AFFECT OR ON THE SAME DAY CHANGE THE CHARACTER OF THE LAND. FOR EXAMPLE, THE GOVERNMENT HAS NOTIFIED MANY AREAS FOR SETTING UP OF SPECIAL ECONOMIC ZONES OR INDUSTRIAL PARKS OR FOR INFRASTRUCTURAL DEVELOPMENTS SUCH AS ROAD WAYS AND RAILWAYS . AFTER IDENTIFYING PARTICULAR AREAS , THE GOVERNMENT NOTIFIES THAT A PARTICULAR AREA WOULD BE USED FOR N ON-AGRICULTURAL PURPOSES. IT IS THEREAFTER ONLY THAT THE ACQUISITION START AND ACCORDINGLY THE LAND OF FARMERS ARE ACQUIRED. IT WO ULD BE TRAVESTY OF JUSTICE, IF A VIEW HAS TO BE TAKEN THAT WHEN ONCE A NOTIFICATIO N IS GIVEN BY THE GOVERNMENT, THE AGRICULTURAL LAND BECO MES NON- AGRICULTURAL LAND I.E., EVEN PRIOR TO THE ISSUE OF ACQUISITION NOTICES. AS LONG AS THERE IS NO CHANGE IN THE PHYSICAL CHARACTERISTICS OF THE LAND IN QUESTION, WE CANNOT BE HELD THAT THERE IS A CONVERSION. ' ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 21 OF 29 7 . 3.4 . TH E JURISDICTIONAL HIGH COURT IN THE CASE OF CITG V. SM T K. LEELAVATHY REPORTED IN (2012) 21 TAXMANN . COM 148 (KAR) DATED 2.1.2012 HAD AN OCCASION TO ANALYSE THE PROVISIONS OF S. 2 (14) READ W ITH SECTIONS 45 AND 48 OF THE ACT. BRIEFL Y, TH E SUBSTANTIAL QUESTIONS OF LAW RAISED BY THE REVENUE BEFORE TH E HON'BLE COURT WAS THAT - '1. WHETHER THE APPELLATE AUTHORITIES WERE CORRECT IN H OLDING THAT THE LAND WHICH IS THE SUBJECT-MATTER OF SALE IS AGRICULTURAL LAND AS ON THE DATE OF SALE WITHOUT TAKING INTO CONSIDERATI ON THE CONVERSION OF LAND TO NON-AGRICULTURAL PURPOSE AND CONSEQUENTLY RECORDED A PERVERSE FINDING? & 2. WHETHER THE APPELLATE AUTHORITIES WERE CORRECT I N HOLDING THAT THOUGH THE LAND IS CONVERTED INTO NON-AGRICULTURAL, IN VIEW OF THE CULTIVATION OF THE LAND TILL THE DATE OF SALE, THE LAND SHOULD BE TREATED AS AGRICULTURAL LAND AND THE SAME IS EXEMPT FROM CAPITAL GAINS IN VIEW OF SECTION 2(14) READ WITH SECTIONS 45 AND 48 OF THE ACT?' 7.3 . 5. AFTER TAKING INTO ACCOUNT THE SUBMISSIONS OF TH E E ITH E R OF THE PART Y AND ALSO THE PERUSAL OF THE ORDERS OF TH E A UTHORITIES BELOW , THE HON ' BLE COURT HAD HELD AS UNDER: '5. WE FIND FROM THE RECORD THAT THE APPELLATE COMM ISSIONER AS WELL AS THE TRIBUNAL FOLLOWED AN EARLIER RULING OF THE TRIBUNAL RENDERED ON DECEMBER 30 , 2009, IN THE CASE OF T. SURESH GOWDA [ITA NO . 262 / BANG / 2009] WHEREIN IT APPEARS , THE QUESTION WAS RESOLVED BY LOOKING INTO THE DATE OF PERMISSION FOR CONVERSION AS THE CUT-OFF LINE TO DECIDE AS TO WHETHER THE LAND W AS AN AGRICULTURAL LAND OR OTHERWISE. 6 . IT APPEARS , THE TRIBUNAL HAD OPINED THAT THE LAND RETAINED ITS AGRICULTURAL CHARACTER TILL THE DATE OF ORDER P ERMITTING NON- AGRICULTURAL USE AND , THEREAFTER , IT IS NOT AN AGRICULTURAL LAND AND , THEREFORE , CAN BE TREATED AS CAPITAL ASSET . 7. THE APPELLAT E COMMISSIONER AS WELL AS THE TRIBUNAL HAS APPLIED THIS NORM AND WHILE THEY DID HOLD THAT THE SALE TRANSACTION IN RESPECT OF THE FOLLOWING EXTENT OF LAND : ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 22 OF 29 CONVERS ION NOTIFICATION NO. SY.NO. EXTENT OF DATE OF SAL E AND DATE AREA SALE CONSIDERATION NO.ALNSR/ 94/ 98-99 75 3A 38G 7.4.200 RS. 50,00,000 DT.29.4.1999 77 3A 00G 4 NO.ALNSR/ 8/ 2004-05 15.15 OA 10G RS.1,82,50,000 DT.10.5.2004 16 4A 14G 2.6.200 17 2A 17G 4 86.1 5A 31G 87 5A 12G 23A 22G TOTAL RS.2,32,50, 000 IN RESPECT OF THE SALE TRANSACTION DATED JUNE 2,200 4, IT WAS TAKEN AS A SALE OF CAPITAL ASSET AS THIS SALE WAS AFTER T HE DATE OF PERMISSION FOR NON-AGRICULTURAL USE GRANTED BY THE A S ST. C O MMISSIONER, VIZ., AFTER MAY 10,2004, WHEREAS THE EAR L IER SALE TRANSACTION DATED APRIL 7, 2004, IS HELD TO BE IN R ESPECT OF AN AGRICULTURAL LAND. WE DO NOT FIND THE REASONING AND THE PRINCIPLE ENUNCIATE D BY THE T RIBUNA L FOR MAKING A DISTINCTION AS TO WHETHER THE LAND WAS AGRICULTURAL LAND OR OTHERWISE IN THE CASE OF T. SURESH (SUPRA) APPLY TO THE PRESENT CASE TO BE OBNOXIOUS OR VIOLAT ING ANY STATUTORY PROVISIONS AND, THEREFORE, WE DO NOT FIND ANY ILLEG ALITY IN THE FINDING RECORDED BY THE APPELLATE COMMISSIONER AND THE TRIB UNAL.' . 7.3 . 6. IN THE CASE OF M. THIMMEGOWDA [(I) SRI M. TH IMMEGOWDA, (II) SRI M.N . MANJUNATH, (III) SRI DASAPPA, (IV) SRI T . SURESH GOWDA , (V) SRI T . P RASANNAGOW D A V. DEPARTMENT OF INCOME-TAX, THE EARLIER BENC H OF THIS TRIBUNAL, IN ITS FINDINGS IN ITA 1464, 1465 /B/08; 177, 1 78,262 & 305 / B/09 DATED 30.12.2009, HAD DEALT WITH AN IDENTICAL ISSUE TO THAT OF THE PRESENT ISSUE UNDER CONS I DERAT I ON. THE MAIN ISSUE BEFORE THE EARLIER BENCH WAS: WHETHER THE LAND SOLD BY THE ASSESSEE WAS AG R ICULTURAL IN NATURE OR NOT? . AFTER DULY ANALYSING THE RIVAL SUBMISSIONS AND ALSO VARIOUS JUDGEMENTS OF JUDICIAR Y AS MENTIONED IN ITS FINDINGS AND ALSO DELIBERATING UPON THE SECTION S 80 AND 84 OF THE KARNATAKA LAN D REFORMS ACT, 1961, THE EARLIER BENCH HAD RECORDED I TS FINDINGS AS UNDER: '37 ............................................... .................................... ................ .......... (ON PAGE 22) ............................................... ............. COMING TO THE INSTANT CASE OF THE ASSESSEE , IT IS NOT DISPUTED THAT IN THE REVENUE RECORDS, THE ENTRY IS NOT CHANGED , IT CONTINUES AS AGRICULTURAL LAND. ACCORDING TO THE REVENUE, THE IN TENTION AND ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 23 OF 29 PURPOSE OF THE SALE IS FOR THE USE OF TIBETAN CHILD RENS' VILLAGE FOR THE SETTING UP OF EDUCATIONAL INSTITUTIONS AND OTHE R RELATED PURPOSES. ACCORDING TO THE ASSESSEE , THE LAND IN HIS HANDS HAD RETAINED THE AGRICULTURAL ITA 1464, 1465/ B/ 08; 17 7,178,262 & 305/B/09 PAGE - 47 CHARACTER TILL THE DATE OF SALE, FOR THE REASON THAT THE ASSESSEE WAS DOING AGRICULTURAL ACTIVITY. WE HAVE HEREINABOVE IN PARA 34 MENTIONED THAT THE DEPARTMEN T HAD ESTIMATED THE AGRICULTURAL INCOME AT RS.53 LAKHS FO R 2004-05 AND ESTIMATED AGRICULTURAL INCOME OF THE GROUP AT RS.56 LAKHS. THEREFORE , IT IS DIFFICULT TO COME TO THE CONCLUSION THAT IN T HE HANDS OF THE ASSESSEE , THE CHARACTER OF THE LAND HAD CHANGED. MERELY BECAUSE THE ORIGINAL OWNERS HAD MADE APPLICA TION TO CHANGE THE CHARACTER OF THE LAND FROM AGRICULTURAL TO NON- AGRICULTURAL AND CERTIFICATE WAS ISSUED TO THAT EFF ECT. EVEN FOR THE REVENUE, THERE IS NO CASE THAT THE LAND HAS BEEN US ED FOR THE INTENDED PURPOSE. 38. IN THE DECISION OF GUJARAT HIGH COURT RELIED UPON BY THE DR, IN THE CASE OF GORDHANBHAI KAHANDAS DALWADI V. COMMISSIONER OF INCOME-TAX (1981) )27 ITR 664, THE HON'BLE HIGH COURT HELD THAT THE POTENTIAL NON-AGRICULTURAL USE DOES NOT ALTER THE CHARACTER OF THE LAND. THIS WAS A CASE WH EREIN THE LAND WAS PURCHASED IN 1954 AND, SUBSEQUENTLY, SOLD IN 19 69. THE ENTRIES IN THE REVENUE RECORDS SHOWED THAT THE LAND WAS AGRICULTURAL CONTINUED TO BE SO. THE LAND REVENUE P AID WAS FOR AGRICULTURAL USE, BUT PERMISSION FOR NON- AGRICULTU RAL USE WAS OBTAINED BUT NOT BEFORE THE DATE OF THE SALE. IN TH ESE CIRCUMSTANCES, THE HON'BLE HIGH COURT UPHELD THE PR ESUMPTION THAT ITA 1464, 1465/ B/ 08, 177, 178, 262 & 305/ B/ 09 PAGE - 48 THE LAND IS AGRICULTURAL. THE HON'BLE HIGH COURT CA ME TO THE ABOVE CONCLUSION IN SPITE OF THE FACT THAT THIS LAN D WAS SITUATED IN AN INDUSTRIALLY DEVELOPED AREA WHERE THE POTENTIAL USE OF THE LAND AS NON-AGRICULTURAL LAND WAS VERY HIGH BUT THE HON' BLE HIGH COURT HELD THAT THE USE OF THE LAND AS NON-AGRICULT URAL IS TOTALLY IMMATERIAL. ENTRIES IN THE RECORD OF RIGHTS ARE GOO D PRIMA FACIE EVIDENCE REGARDING LAND BEING AGRICULTURAL AND IF T HE PRESUMPTION RAISED EITHER FROM ACTUAL USER OF THE LAND OR FROM ENTRIES IN REVENUE RECORDS IS TO BE REBUTTED, THERE MUST BE MA TERIAL ON THE RECORD TO REBUT THE PRESUMPTION. THE APPROACH OF TH E FACT-FINDING AUTHORITIES, NAMELY, THE INCOME-TAX AUTHORITIES AND THE TRIBUNAL, SHOULD TO CONSIDER THE QUESTION FROM THE POINT OF V IEW OF PRESUMPTION ARISING FROM ENTRIES IN THE RECORD OF R IGHTS OR ACTUAL ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 24 OF 29 USER OF THE LAND AND THEN CONSIDER WHETHER THAT PRE SUMPTION IS DISLODGED BY OTHER FACTS IN THE CASE. WHILE COMING TO THE ABOVE CONCLUSION, THE HON'BLE HIGH COURT CONSIDERED THE F OLLOWING FACTS. THE PRESUMPTION FOR NON-AGRICULTURAL USED WA S OBTAINED BY THE ASSESSEE BEFORE THE SALE OF THE LAND. COMING TO THE FACTS IN THE INSTANT CASE, THE PREVIOUS OWNER MADE AN APPLICATIO N FOR CONVERSION, OBTAINED THE PERMISSION, BUT WITH THE C ONDITION THAT THE LAND SHOULD BE USED FOR THE INTENDED PURPOSE WI THIN TWO YEARS, OTHERWISE THE ORIGINAL CHARACTER OF THE LAND , I.E., AGRICULTURAL NATURE, WOULD BE RESTORED. THEN THE AS SESSEE OR THE SUBSEQUENT PURCHASED HAS ITA 1464,14651 EL 08, 177, 178, 262 & 3051 EL 09 PAGE - 49 TO PAY PENALTY AND MAKE A FU RTHER APPLICATION TO OBTAIN PERMISSION TO REVIVE THE LAND FOR INTENDED PURPOSE. THE ASSESSEE HAS NOT DONE THIS EVEN ACCORD ING TO THE REVENUE. THIS WAS DONE BY THE SUBSEQUENT PURCHASER I.E., TIBETAN CHILDRENS' VILLAGE, WHICH COMPELS TO CONCLUDE THAT WHAT THE ASSESSEE HELD AT THE TIME OF SALE WAS AGRICULTURAL LAND. IT IS TRUE THE FACTS IS ON BORDER LINE, BUT THE EVIDENCE PRODU CED BEFORE US IN THE FORM OF RTC SHOWING AGRICULTURAL INCOME ETC., I S IN ASSESSEE'S FAVOUR. SECONDLY, THE HON'BLE GUJARAT HIGH COURT CONSIDERED THE LAND REVENUE PAID WAS FOR AGRICULTURAL USE OF THE LAND. IN THE INSTANT CASE OF THE ASSESSEE ALSO WHAT WAS PAID BY THE ASSE SSEE WAS AGRICULTURAL REVENUE. THE NON-AGRICULTURAL REVENUE WAS PAID BY THE SUBSEQUENT PURCHASER AFTER MAKING AN APPLICATIO N FOR THE SECOND TIME TO REVIVE THE NATURE OF THE LAND WHICH IS EVIDENCED BY THE LETTER DT 1.3.2005 WHICH WAS WRITTEN TO THE SECRETARY, MANCHANAYAKANAHALLY GRAM PANCHAYAT BY THE TIBETAN C HILDRENS' VILLAGE. IN THE CASE DECIDED BY THE HON'BLE HIGH CO URT, IT WAS HELD THAT THE CORRECT TEST TO BE APPLIED WAS WHETHE R ON THE DATE OF SALE OF THE LAND WHETHER THE LAND WAS AGRICULTURAL OR NON- AGRICULTURAL AND NOT THE INTENDED PURPOSE AND HOW T HE PURCHASER WAS GOING TO USE LAND. .. ITA.305/BANG/2009 - BY THE REVENUE IN THE CASE OF T . SURESH GOWDA A Y 2005-06 53. THE REVENUE HAD TAKEN AN ADDITIONAL GROUND THAT IS WITH REGARD TO TAKING FRESH ADDITIONAL EVIDENCE FILED BY THE ASSESSEE ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 25 OF 29 WITHOUT GIVING OPPORTUNITY TO THE ASSESSING OFFICER . IN THIS CASE, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD SOLD LAND MEASURING 40 ACRES AND 20 GUNTAS AT SESHAGIRIHALLI FOR RS. 4, 50, 00, 000/ - ON 7.4.04 TO TIBETAN CHILDRENS' VILLAGE AND CLAIMED EXEMPTION FROM CAPITAL GAINS WHICH WORKED OUT TO RS.3,68,01,771/- ON THE GROUND THAT THE LAND SITUAT ED IN A RURAL AREA I.E., 8 KMS AWAY FROM THE LIMITS OF BANGALORE MAHANAGARA PALIKE AND THE LAND IS LOCATED AS NOTIFIED U/ S 2 ( 14)(III)(B) OF THE ACT AS THE TRANSACTION RELATES TO SALE OF ITA 1464, 1465/ B/ 08, 177,178,262 & 305/ B/ 09 PAGE 55 AGRICULTURAL LAND. THE ASSESSING OFFICER OBSERVED THAT THE LAND WAS CONVER TED FOR RESIDENTIAL PURPOSE BEFORE THE SALE AND, THEREFORE, IT IS IMMATERIAL WHETHER THE LAND WAS SITUATED OUTSIDE THE CITY LIMI TS OR BEYOND 8 KMS. HE FURTHER HELD THAT THE CULTIVATION OF LAND T ILL DISPOSAL IS ALSO IRRELEVANT. HE FURTHER HELD THAT NO DOCUMENTAR Y EVIDENCE WAS PRODUCED TO THE EFFECT THAT THE LAND CONVERTED WAS TREATED AS AGRICULTURAL LAND WITHIN THE MEANING OF S. 2 (14)(I II)(B). ................................................... ................................................... ... 54. ON SIMILAR ISSUES IN THE CONNECTED CASE, WE H AD HELD THAT THE EVIDENCE PRODUCED BY THE ASSESSEE BEFORE THE ASSESS ING OFFICER AND COMMISSIONER OF INCOME-TAX (A) TO THE EFFECT TH AT ASSESSEE WAS DOING CULTIVATION OF RAGI ETC., WAS SUFFICIENT TO TREAT THE LAND AS AGRICULTURAL LAND IN THE HANDS OF THE ASSESSEE, PARTICULARLY BECAUSE IN THE DOCUMENT, THE NATURE OF THE LAND HAS BEEN RECORDED AS NON-AGRICULTURAL UNDER THE KARNATAKA LAND REFORM S RULES, 1966. WHILE COMING TO THE ABOVE CONCLUSION WE ALSO HELD THAT THIS IS A DOCUMENT MAINTAINED BY THE GOVERNMENT OFF ICIALS AND TREATING THE SAME AS NOT VALID IN THE ABSENCE OF ST RICT EVIDENCE TO THE CONTRARY CANNOT BE UPHELD. ITA 1464,1465/ B/; 1 77,178,262 & 305/ B/ 09 PAGE - 56. 55. ON SIMILAR SET OF FACTS IN THE CONNECTED OTHER CASES, WE HAVE HELD THAT THE LAND SOLD BY THE ASSESSEE IS TO BE TREATED AS AGRICULTURAL LAND AND THE REASONS GIVEN IS APPLICAB LE IN THE INSTANT CASE OF THE ASSESSEE AS THE FACTS ARE IDENTICAL ... .......... 7.3.7. THE FACT THAT THE ASSESSEE HAD CONTINUED TH E AGRICULTURAL OPERATIONS UNABATED IN THE SUBJECT PROPERTY ON THE DATE OF SALE EVEN THOUGH THE SAID LAND WAS CONVERTED FOR NON-AGRICULT URAL PURPOSES BY A CONVERSION ORDER OF THE STATE GOVERNM ENT WAY BACK IN ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 26 OF 29 2004 [19.7.2004] WITH A RIDER THAT THE LAND SHOULD BE USED FOR THE PURPOSE FOR WHICH THE CONVERSION WAS GRANTED WITHIN TWO YEARS FROM THE DATE OF ISSUE OF THE SAID ORDER. HOWEVER, ON THE DATE OF SALE I.E., ON 12.4.2007,THE SUBJECT LAND WAS UNDER ACTIVE CULTIVA TION FOR AGRICULTURAL PURPOSE ONLY. THIS IS EVIDENT FROM THE FACT THAT WH EN WE INSPECTED THE SAME ON 10.4.2014, THE SAID LAND - A PART OF LARGE TRACK OF LAND - WAS HAVING AGRICULTURAL OPERATIONS WITH FULLY GROWN UP FRUITS-BEARING TREES. THUS, THE CONVERSION ORDER DATED 19.7.2004 HAD LOST ITS SANCTITY SINCE THE SAID PROPERTY WAS NOT PUT USE FOR NON-AGRICULTU RAL PURPOSES WITHIN TWO YEARS FOR WHICH CONVERSION WAS GRANTED. 7.3.8. FINALLY, THE MOST IMPORTANT ASPECT WHICH RE QUIRES TO BE CONSIDERED IS THAT AGRICULTURE IS A STATE SUBJECT A ND DIFFERENT STATES HAVE DIFFERENT REFORMS (LAWS) AS TO WHO CAN PURCHASE / O WN AGRICULTURAL LANDS IN THE RESPECTIVE STATES. TO ILLUSTRATE FURTHER, IN KARNATAKA, NON- AGRICULTURISTS AND INDUSTRIAL COMPANIES ARE PROHIBI TED FROM PURCHASING OF LANDS WHICH ARE CLASSIFIED AS 'AGRICULTURAL' IN THE REVENUE RECORDS. IF AN AGRICULTURIST INTENDS TO SELL HIS AGRICULTURAL L ANDS TO A COMPANY /NON- AGRICULTURIST FOR THE USE OF NON-AGRICULTURAL PURPO SES, HE MUST POSSESS A CONVERSION ORDER OBTAINED FROM THE REVENUE AUTHORIT IES TO UTILISE THE SUBJECT LAND FOR NON-AGRICULTURAL PURPOSES. HOWEVER , THE SAME LAW/RULE IS NOT PREVALENT IN THE NEIGHBOURING STATES OF TAMI L NADU, ANDHRA PRADESH OR IN MAHARASHTRA, DELHI ETC. IN OTHER WORD S, THE AGRICULTURISTS OF THE SAID STATES ARE FREE TO SELL THEIR LANDS AS SHOWN IN THE REVENUE RECORDS TO NON-AGRICULTURISTS /CORPORATES WITHOUT O BTAINING A CONVERSION ORDER. 7.3.9. THUS, IT IS EVIDENT FROM THE FACT THAT THE AGRICULTURISTS IN OTHER STATES CAN SELL THEIR AGRICULTURAL LANDS WITH OUT GETTING THE SAME CONVERTED WHEREAS THE AGRICULTURISTS IN KARNATAKA C ANNOT DO SO DUE TO THE LAND REFORMS ACT PREVAILING IN THE STATE. AS SU CH, AN AGRICULTURIST IN KARNATAKA IS ON A DIFFERENT FOOTING FROM HIS COU NTERPARTS IN OTHER STATES. IF ONE WERE TO CONCLUDE THAT SINCE THE PRES ENT ASSESSEE HAD OBTAINED A CONVERSION ORDER TO ENABLE IT TO SELL IT S LANDS TO A NON- AGRICULTURIST (A CORPORATE), THE SUBJECT LAND CEASE D TO BE A NON- AGRICULTURAL AND, THUS, BECOME A CAPITAL ASSET, THO UGH THE SUBJECT LAND REMAINS AN AGRICULTURAL LAND, THE ASSESSEE THEN STA NDS DISCRIMINATED IN THE EYES OF LAW VIS-A-VIS ITS COUNTER-PARTS IN OTHE R STATES. HAD THE STATE REFORMS ACT PERMITTED THE ASSESSEE TO SELL ITS AGRI CULTURAL LANDS WITHOUT CONVERSION TO A CORPORATE AS IN THE CASE OF OTHER S TATES (SUPRA), THE ASSESSEE WOULD NOT THEN BE REQUIRED TO GET THE LAND CONVERTED MERELY TO FACILITATE ITS SALE TO A CORPORATE AND THE GAINS AR ISING FROM SUCH SALE ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 27 OF 29 WOULD NOT HAVE BEEN EXIGIBLE TO CAPITAL GAINS TAX W HICH IS THE SUBJECT OF A CENTRAL ACT (INCOME-TAX ACT).IN THE INSTANT CA SE AS MENTIONED EARLIER EVEN AFTER CONVERSION, ASSESSEE WAS CARRYIN G ON AGRICULTURAL OPERATION AND CONVERSION WAS DONE ONLY TO FACILITAT E SALE OF SUBJECT PROPERTY TO A CORPORATE ENTITY/NON AGRICULTURIST. I N SUBSTANCE, THE INCOME-TAX ACT - A CENTRAL ACT - IS TO BE ADMINISTE RED IN SUCH A MANNER TO ENSURE THAT AN ASSESSEE IS NOT SUBJECTED TO SUFF ER DUE TO DIFFERENT STATE LAWS. 7.3.10. TAKING INTO ACCOUNT ALL THE ASPECTS AS DIS CUSSED IN THE FORE- GOING PARAGRAPHS AND ALSO IN CONFORMITY WITH THE JU DICIAL PRONOUNCEMENTS ON THE ISSUE (SUPRA), WE ARE OF THE VIEW THAT THOUGH THE SUBJECT LAND WAS CONVERTED INTO NON-AGRICULTURAL PU RPOSES, CULTIVATION OF THE LAND FOR AGRICULTURAL PURPOSES TILL THE DATE OF SALE WAS CONTINUED UNABATED AND AS SUCH, THE LAND SHOULD HAVE BEEN TRE ATED AS AGRICULTURAL LAND AND, THUS, EXEMPT FROM CAPITAL GAINS IN VIEW OF S. 2 (14) OF THE ACT. IT IS ORDERED ACCORDINGLY.' 10. MOREOVER, IN THE INSTANT CASE, THE JDA WAS ALSO FINALLY CANCELLED VIDE DEED OF CANCELATION DATED 5.5.2015 AND COPY OF WHICH IS AVAILABLE AT PAGES 240 TO 254 OF THE COMPILATION AND THE REFUNDA BLE SECURITY RECEIVED BY THE ASSESSEE WAS RETURNED BACK TO THE DEVELOPER. THROUGH JDA, THOUGH IT WAS AGREED TO HAND OVER POSSESSION OF LAN D TO THE DEVELOPER, BUT IN FACT POSSESSION WAS NEVER HANDED OVER TO THE DEV ELOPER FOR FURTHER ACTIVITIES OF DEVELOPMENT. THEREFORE, THERE WAS NO TRANSFER OF ASSET IN FAVOUR OF THE DEVELOPER AT ANY POINT OF TIME. IN T HE INSTANT CASE, UNDISPUTEDLY AGRICULTURAL ACTIVITIES ARE BEING UNDE RTAKEN ON THE DISPUTED LAND TILL DATE. THEREFORE, FROM ANY ANGLE, IT CANN OT BE SAID THAT THERE IS ANY TRANSFER OF CAPITAL ASSET ON WHICH CAPITAL GAIN HAS ACCRUED TO THE ASSESSEES. IN LIGHT OF THESE FACTS, WE ARE OF THE VIEW THAT THE CIT(APPEALS) ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 28 OF 29 HAS PROPERLY ADJUDICATED THE ISSUE AND WE DO NOT FI ND ANY MISTAKE THEREIN. WE ACCORDINGLY CONFIRM THE ORDER OF THE CIT(APPEALS ). 11. THROUGH THE CROSS OBJECTIONS, THE LD. COUNSEL F OR THE ASSESSEES HAS SUPPORTED THE ORDERS OF THE CIT(APPEALS). SINCE WE HAVE ALREADY CONFIRMED THE ORDER OF THE CIT(APPEALS), THE CROSS OBJECTIONS OF THE ASSESSEES HAVE BECOME INFRUCTUOUS AND WE ACCORDINGL Y DISMISS THE SAME. 12. IN THE RESULT, THE APPEALS OF THE REVENUE AND T HE CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF MAY, 2016. SD/- SD/- ( A.K. GARODIA ) (SUNIL KUMAR YA DAV ) ACCOUNTANT MEMBER JUDIC IAL MEMBER BANGALORE, DATED, THE 27 TH MAY, 2016. /D S/ ITA NOS. 1169 TO 1172/BANG/2015 & CO NOS.220 TO 223/BANG/2015 PAGE 29 OF 29 COPY TO: 1. REVENUE 2. ASSESSEE 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.