Assistant Commissioner of Incometax/Wealth tax, Bangalore V. M R Padmavathy(Trust), Bangalore

CO 86/BANG/2014

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0327 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-03-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-03-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 30-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Principle of natural justice; Additional evidence; Cost of acquisition; Date of conversion; Revised return
• Section: 143(3); 2(14); 147; 148; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SMT. P. MADHAVI DEVI , JUDICIAL MEMBER A ND SHRI ABRAHAM P GEORGE , ACCOUNTANT MEMBER SL. NO. WTA NO. & ASST. YEAR APPELLANT RESPONDENT 1. 16/BANG/2014 2005 - 06 ASST. COMMISSIONER OF WEA LTH - TAX, CIRCLE 6(1), BANGALORE. M/S.M.R.PADMAVATHY TRUST, GOKULA HOUSE, GOKULA, MATHIKERE, BANGALORE. PAN:AAATM3493K 2. 17/BANG/2014 2005 - 06 - DO - SMT.M.R.PADMAVATHY(INDL.), GOKULA HOUSE, GOKULA, MATHIKERE, BANGALORE. PAN:ACZPP0933A 3. 18/BANG/2014 2005 - 06 - DO - M.R.JAYARAM (HUF), GOKULA HOUSE, GOKULA, MATHIKERE, BANGALORE. PAN: AACHM1949Q 4. 19/BANG/2014 2005 - 06 - DO - M.R.ANANDARAM (HUF), GOKULA HOUSE, GOKULA, MATHIKERE, BANGALORE. PAN: AABHM9891G 5. 20/BANG/2014 2005 - 06 - DO - M.R.ANA NDARAM(INDL.) GOKULA HOUSE, GOKULA, MATHIKERE, BANGALORE. PAN: ABNPA3135A 6. 21/BANG/2014 2005 - 06 - DO - M.R.JANAKIRAM(HUF), GOKULA HOUSE, GOKULA, MATHIKERE, BANGALORE. PAN: AAEHM0685F 7. 22/BANG/2014 2005 - 06 - DO - SHRI M.R.JANAKIRAM(INDL), GOKULA HOUSE, GOKULA, MATHIKERE, BANGALORE. PAN: ABPPJ6899N 8. 23/BANG/2014 2005 - 06 - DO - M.R.KONDANDARAM (HUF), GOKULA HOUSE, GOKULA, MATHIKERE, BANGALORE. PAN:AABHM9893E 9. 24/BANG/2014 2005 - 06 - DO - SHRI M.R.KODANDARAM (INDL.)GOKULA HOUSE, GOKULA, MATH IKERE, BANGALORE. PAN:ADIPK7939H 10. 25/BANG/2014 2005 - 06 - DO - M.R.SAMPANGIRAMAIAH (HUF)GOKULA HOUSE, GOKULA, MATHIKERE, BANGALORE. PAN:AABHM9892F W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 2 OF 42 11 26/BANG/2014 2005 - 06 - DO - M.R.SAMPANGIRAMAIAH (INDL.)GOKULA HOUSE, GOKULA, MATHIKERE, BANGALORE. PAN:AGDPS5885J 12. 27/BANG/2014 2005 - 06 - DO - M.R.SEETHARAM (HUF), GOKULA HOUSE, GOKULA, MATHIKERE, BANGALORE. PAN:AAHHS7342J 13. 28/BANG/2014 2005 - 06 - DO - SHRI M.R.SEETHARAM (INDL.), GOKULA HOUSE, GOKULA, MATHIKERE, BANGALORE. PAN:AGDPS5886M 14 . 29/BANG/2014 2005 - 06 - DO - SHRI M.R.JAYARAM (INDL.) GOKULA HOUSE, GOKULA, MATHIKERE, BANGALORE. PAN:ABPPJ6898P AND SL. NO. CROSS OBJECTION NO. ARISING OUT OF WTA NO. & ASST. YEAR CROSS OBJECTOR RESPONDENT 1. 86/BANG/2014 16/BANG/2014 2005 - 06 M /S.M.R.PADMAVATHY TRUST, BANGALORE. ASST. COMMISSIONER OF WEALTH - TAX, CIRCLE 6(1) BANGALORE. 2. 87/BANG/2014 17/BANG/2014 2005 - 06 SMT.M.R.PADMAVATHY (INDL.), BANGALORE. - DO - 3. 88/BANG/2014 18/BANG/2014 2005 - 06 M.R.JAYARAM (HUF), BANGALORE. - DO - 4. 8 9/BANG/2014 19/BANG/2014 2005 - 06 M.R.ANANDARAM (HUF), BANGALORE. - DO - 5. 90/BANG/2014 20/BANG/2014 2005 - 06 M.R.ANANDARAM(INDL.) BANGALORE. - DO - 6. 91/BANG/2014 21/BANG/2014 2005 - 06 M.R.JANAKIRAM(HUF), BANGALORE. - DO - 7. 92/BANG/2014 22/BANG/2014 2005 - 06 SHRI M.R.JANAKIRAM (INDL), BANGALORE. - DO - 8. 93/BANG/2014 23/BANG/2014 2005 - 06 M.R.KONDANDARAM(HUF), BANGALORE. - DO - 9. 94/BANG/2014 24/BANG/2014 2005 - 06 SHRI M.R.KODANDARAM (INDL.),BANGALORE. - DO - 10. 95/BANG/2014 25/BANG/2014 2005 - 06 M.R.SAMPAN GIRAMAIAH (HUF), BANGALORE. - DO - W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 3 OF 42 11. 96/BANG/2014 26/BANG/2014 2005 - 06 M.R.SAMPANGIRAMAIAH (INDL.), BANGALORE. - DO - 12. 97/BANG/2014 29/BANG/2014 2005 - 06 SHRI M.R.JAYARAM(INDL), BANGALORE. - DO - A SSESSEE S BY: SHRI S.CHANDRASHEKAR, ADVOCATE. RE VENU E B Y: SHRI C.H.SUNDAR RAO, CIT(DR). DATE OF HEARING : 0 2 /0 3 /2015 . DATE OF PRONOUNCEMENT: 31 /03/2015 . O R D E R PER BENCH: THE APPEALS BY THE REVENUE AND THE CROSS OBJECTIONS BY THE ASSESSEE S ARE DIRECTED AGAINST THE IDENTICAL ORDERS OF THE C IT(A) FOR THE ASSESSMENT YEAR 2005 - 06. 2. BRIEF FACTS RELATING TO ALL THESE APPEALS ARE THAT THE ASSESSEE S ARE ALL OWNERS OF LAND LOCATED IN AKKALENAHALLI - MALLENAHALLI VILLAGES. ALL THE ASSESSEES HAD FILED THEIR RETURNS OF INCOME AS WELL AS WEALTH - TA X RETURNS FOR THE RELEVANT ASSESSMENT YEAR. DURING THE INCOME - TAX ASSESSMENT PROCEEDINGS OF ALL THE ASSESSEES , THE RELEVANT ASSESSING OFFICER S (AO S ) NOTICED THAT ALL THE ASSESSEE S HA VE TRANSFERRED LAND DURING THE RELEVANT PREVIOUS YEAR AND THEREFORE LONG TERM CAPITAL GAIN HAS ARISEN ON SUCH TRANSFER AND THAT THE ASSESSEE HAS ALSO OFFERED THE SAME FOR TAXATION , AND THAT S UBSEQUENTLY, THE ASSESSEES HA VE FILED REVISED RETURNS OF INCOME CLAIMING THE ENTIRE CAPITAL GAIN ADMITTED IN THE ORIGINAL RETURNS OF INCOM E FILED, AS EXEMPT ON ACCOUNT OF TREATING THE LANDS TRANSFERRED AS W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 4 OF 42 AGRICULTURAL LAND. THE AO VERIFIED THE WEALTH - TAX RETURNS FILED BY THE ASSESSEES AND OBSERVED THAT THE ASSESSEES HAVE NOT INCLUDED THE VALUE OF THE URBAN LAND IN THE IR WEALTH - TAX RETURN S FOR THE RELEVANT ASSESSMENT YEARS EVEN THOUGH THE ASSESSEE S W ERE HOLDING THE LAND AT AKKALENAHALLI - MALLENAHALLI VILLAGE. THE AO, THEREFORE, SOUGHT TO REOPEN THE ASSESSMENT S BY ISSUING NOTICE U/S 17 OF THE WEALTH - TAX ACT, 1957 ( WT ACT FOR SHORT). IN RE SPONSE TO THE SAID NOTICE, THE ASSESSEE S FILED COPIES OF THE IR WEALTH - TAX RETURNS FILED EARLIER WITH A REQUEST TO TREAT THE SAME AS WEALTH - TAX RETURN S FILED IN RESPONSE TO THE NOTICE U/S 17 OF THE WT ACT. THEREAFTER, THE ASSESSEE S ALSO REQUESTED THE AO TO SUPPLY COPIES OF THE REASONS FOR REOPENING OF THE ASSESSMENT. THE AO, HOWEVER, DID NOT SUPPLY THE REASONS AND PROCEEDED TO CONSIDER THE LAND HOLDINGS OF THE ASSESSEE S AS URBAN LAND AND BROUGHT IT TO TAX. 3. AGGRIEVED, THE ASSESSEES PREFERRED A PPEALS BEFORE THE CIT(A) CHALLENGING BOTH THE VALIDITY OF THE REOPENING ON THE GROUND THAT THE REASONS FOR REOPENING WERE NOT GIVEN TO THE ASSESSEES AND ALSO ON MERITS OF BRINGING THE LAND HOLDING OF THE ASSESSEE S TO TAX UNDER THE WT ACT. THE CIT(A) GRANT ED RELIEF TO THE ASSESSEE BY SETTING ASIDE THE RE - ASSESSMENT ORDER, BUT HOWEVER, CONFIRMED THE ADDITION MADE BY THE AO ON MERITS. AGGRIEVED BY THE RELIEF GIVEN BY THE CIT(A) AGAINST THE VALIDITY OF REOPENING OF THE ASSESSMENT, THE REVENUE IS IN APPEAL BEF ORE W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 5 OF 42 US WHILE THE ASSESSEE IS IN APPEAL BEFORE US AGAINST BRINGING THE LAND TO TAX UNDER THE WT ACT. 4. COMING TO THE REVENUE S APPEALS, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF THE AO AND SUBMITTED THAT THE REOPENING OF ASSESSME NT HAS BEEN CONSEQUENT TO THE INCOME - TAX PROCEEDINGS IN THE ASSESSEE S OWN CASE AND THE FACT THAT THE ASSESSEE HAD PARTICIPATED IN THE PROCEEDINGS BEFORE THE AO BY FILING DETAILED OBJECTIONS BEFORE THE AO IN TREATING THE LAND AS URBAN LAND CLEARLY SHOWS TH AT THE ASSESSEE WAS AWARE OF THE REASONS FOR REOPENING. THEREFORE, ACCORDING TO HIM, THERE WAS NO JUSTIFICATION IN SETTING ASIDE THE ASSESSMENT ORDER BY THE CIT(A) . IN SUPPORT OF HIS CONTENTION, HE PLACED RELIANCE UPON THE FOLLOWING JUDGMENTS: I. (2014) 221 TAXMAN 25 ( KAR .) ARU G TOPPANNAVAR VS. C IT, BELGAUM, WHEREIN IT WAS HELD THAT REOPENING IS VALID WHERE DETAILED ORDER IS PASSED BY THE AO IN WHICH REASONS WERE RECORDED FOR REOPENING OF THE CASE ; II. 8 ITD 141 (MDS ) II WEALTHTAX OFFICER VS. SURESH KHANNA ; III. 1 10 ITD 24 ( DATAMATRICS. VS. ACIT ) 5 . THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE HON BLE SUPREME COURT IN THE CASE OF GKN DRIVE S HAFTS (INDIA) LTD. VS. ITO (259 ITR 19) HAS CLEARLY HELD THAT WHERE THE ASSESSEE , AFTER FILING RETURN OF INCOME PURSUANT TO THE NOTICE FOR REOPENING OF THE ASSESSMENT , ASKED FOR THE REASONS RECORDED, W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 6 OF 42 THE AO HAS TO SUPPLY THE REASONS FOR SUCH REOPENING AND IF THE ASSESSEE FILES OBJECTIONS TO SUCH REOPENING, THE AO HAS TO DISPOSE OF THE SAME BEFORE PROCEEDING WITH THE RE - ASSESSMENT PROCEEDINGS. HE SUBMITTED THAT IN THE CASE BEFORE US, THOUGH THE ASSESSEE HAS ASKED FOR REASONS FOR REOPENING OF THE ASSESSMENT, THE ASSESSEE WAS NOT SUPPLIED WITH THE SAME THEREB Y VIOLATING THE PRINCIPLES OF NATURAL JUSTICE AS HELD BY THE HON BLE SUPREME COURT IN THE CASE OF GKN DRIVE S HAFTS (INDIA) LTD. (SUPRA) AND IN SIMILAR SET OF FACTS, THE TRIBUN AL AT BANGALORE IN THE CASE OF SUEZ TRACTEBLES S.A HAS SET ASIDE THE RE - ASSESSMENT AS INVALID AND UNSUSTAINABLE IN LAW. COP Y OF THE SAID JUDGMENT IS FILED BEFORE US. 6 . HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT IT IS NOT DISPUTED BY THE REVENUE THAT THE ASSESSEE HAD FILED A LETTER ASKING TH E AO TO TREAT THE ORIGINAL RETURNS FILED BY THEM AS RETURNS IN RESPONSE TO THE NOTICE U/S 17 OF THE WT ACT . IT IS THE CASE OF THE ASSESSEE THAT THEREAFTER , THE ASSESSEE HAS REQUESTED THE AO TO SUPPLY THE REASONS FOR REOPENING. IT IS ALSO NOT IN DISPUTE T HAT THE REASONS WERE NOT SUPPLIED TO THE ASSESSEE. THE ARGUMENT OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT SINCE THE ASSESSEE WAS AWARE OF THE REASONS FOR REOPENING IN THE INCOME - TAX PROCEEDINGS, THE ASSESSEE HAS NOT BEEN SUPPLIED WITH THE REASONS FO R REOPENING MORE PARTICULARLY SINCE THE ASSESSEE WAS AWARE OF THE REASONS FOR REOPENING AS IS EVIDENT FROM THE DETAILED OBJECTIONS FILED BY W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 7 OF 42 THE ASSESSEE, DURING THE RE - ASSESSMENT OF WEALTH - TAX PROCEEDINGS , IS NOT TENABLE AND THEREFORE W E ARE UNABLE TO AGRE E WITH THIS CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE. THE INCOME - TAX PROCEEDINGS MAY BE A BASIS FOR REOPENING OF THE ASSESSMENT IN THE WEALTH - TAX PROCEEDINGS. BUT SINCE THE WEALTH - TAX ACT PROVIDES SEPARATE PROVISIONS FOR REOPENING OF THE WEA LTH - TAX ASSESSMENT AND ONE OF THE CONDITIONS PRECEDENT FOR INITIATING THE RE - ASSESSMENT PROCEEDINGS IS ISSUANCE OF NOTICE U/S 17 OF THE WT ACT , THE AO IS BOUND TO FOLLOW THE PROCEDURE LAID DOWN FOR REOPENING OF THE ASSESSMENT S . WE FIND THAT THE DECISIONS CITED BY THE ASSESSEE AS WELL AS THE REVENUE HAVE BEEN EXTENSIVELY DEALT WITH BY THE A BENCH OF THIS TRIBUNAL IN THE CASE OF M/S.SUEZ TRACTABLES S.A. , TO WHICH BOTH OF US I.E. JUDICIAL MEMBER AND THE ACCOUNTANT MEMBER ARE SIGNATORIES, BEFORE COMING TO TH E CONCLUSION THAT THE RE - ASSESSMENTS ARE INVALID. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREUNDER FOR READY REFERENCE: 14.3 IT IS A WELL SETTLED POSITION OF LAW AS HELD BY THE HON'BLE APEX COURT IN THE CASE OF GKN DRIVESHAFTS (INDIA) LTD. (SUPR A) THAT ONCE A NOTICE UNDER SECTION 148 IS ISSUED, THE ASSESSEE HAS TO FILE THE RETURN OF INCOME IN RESPONSE THERETO AND THEREAFTER MAY REQUEST THE ASSESSING OFFICER TO FURNISH THE REASONS RECORDED FOR INITIATION OF PROCEEDINGS UNDER SECTION 147 / 148 OF T HE ACT WHICH THE ASSESSING OFFICER IS BOUND TO PROVIDE WITHIN A REASONABLE PERIOD OF TIME SO THAT THE ASSESSEE COULD FILE ITS OBJECTIONS THERETO W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 8 OF 42 AND WHICH THE ASSESSING OFFICER HAS TO DISPOSE OFF BY WAY OF A SPEAKING ORDER THEREON. 14.4 IN THE CASE ON HA ND, WE FIND THAT THE ASSESSEE HAD FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2002 - 03 ON 28.10.2002. IN RESPONSE TO THE NOTICE UNDER SECTION 148 OF THE ACT DT.31.3.2005, THE A.R. OF THE ASSESSEE VIDE LETTER DT.27.4.2005 REQUESTED THE ASSESSING OFFICER TO TREAT THE RETURN FILED ON 28.10.2002 AS HAVING BEEN FILED IN RESPONSE TO THE NOTICE ISSUED UNDER SECTION 148 OF THE ACT AND THEREIN ALSO REQUESTED FOR PROVISIONS OF THE REASONS RECORDED FOR INITIATING PROCEEDINGS UNDER SECTION 148 OF THE ACT. THE FAILU RE OF THE ASSESSING OFFICER IN PROVIDING THE ASSESSEE WITH THE REASONS RECORDED FOR INITIATION OF PROCEEDINGS UNDER SECTION 148 OF THE ACT, WITHIN A REASONABLE PERIOD OF TIME SO THAT THE ASSESSEE COULD EFFICIENTLY REPRESENT / FILE OBJECTIONS TO THE SAME IS , IN OUR OPINION, AMPLY EVIDENT BEYOND ANY DOUBT FROM THE FACTS ON RECORD AND OUR OBSERVATIONS THEREON. THE FACT OF NON - PROVISION OF THE REASONS RECORDED FOR INITIATION OF PROCEEDINGS UNDER SECTION 147 / 148 OF THE ACT BEFORE THE COMPLETION OF ASSESSMENT PROCEEDINGS FOR THE RELEVANT PERIOD AND THE FURNISHING OF THE SAID REASONS RECORDED AT THE APPELLATE STAGE BY THE LEARNED CIT(APPEALS) WILL RENDER THE ORDER OF ASSESSMENT DT.31.3.2006 FOR ASSESSMENT YEAR 2002 - 03 INVALID AND UNSUSTAINABLE IN LAW. 14.5 THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. SYNOPSYS INTERNATIONAL LTD. V DDIT (INTERNATIONAL TAXATION), TO WHICH ONE OF US IS PARTY TO, AFTER CONSIDERING THE DECISIONS OF THE HON'BLE APEX COURT IN THE CASE OF GKN DRIVESHAFTS (INDIA) LTD. (SUPR A); OF THE HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF VSNL (SUPRA) AND OF THE BANGALORE TRIBUNAL IN THE CASE OF K.V. VENKATASWAMY REDDY (SUPRA) AND OF THE ITAT, MUMBAI IN THE CASE OF TATA INTERNATIONAL LTD. V DCIT (ITA NO.3359 TO 3361/MUM/2009 W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 9 OF 42 DT.29.6.201 2), HAS RECORDED ITS FINDINGS AT PARA 4.1.5 OF ITS ORDER WHICH ARE EXTRACTED AND REPRODUCED HEREUNDER : 4.1.5 FROM THE DISCUSSION IN PARAS 4.1.1 TO 4.1.4 OF THIS ORDER (SUPRA), IT IS CLEAR THAT THE SETTLED PROPOSITION OF LAW, AS LAID DOWN BY THE HON BLE APEX COURT, HON BLE HIGH COURT OF MUMBAI AND AS FOLLOWED BY THE TWO DECISIONS OF THE COORDINATE BENCHES OF THE TRIBUNAL (ALL CITED SUPRA), IS THAT THE REASONS AS RECORDED BY THE ASSESSING OFFICER ARE REQUIRED TO BE FURNISHED TO THE ASSESSEE WITHIN REAS ONABLE TIME OF THEIR BEING RECORDED AND CERTAINLY PRIOR TO THE COMPLETION OF ASSESSMENT. IN THE INSTANT CASE, THE UNDISPUTABLE FACTS ON RECORD ESTABLISH BEYOND DOUBT THAT THE REASONS RECORDED FOR INITIATION OF PROCEEDINGS UNDER SECTION 147/148 OF THE ACT W ERE NEVER FURNISHED TO THE ASSESSEE BY THE ASSESSING OFFICER BEFORE COMPLETION OF THE ASSESSMENT PROCEEDINGS ON 29/12/2008, 33 MONTHS AFTER THE REQUEST WAS MADE BY THE ASSESSEE BY LETTER DATED 16/4/2007. THE SUBSEQUENT FURNISHING OF THE REASONS RECORDED T O THE ASSESSEE BY THE LEARNED CIT(A) BY LETTER DATED 28/1/2010 DOES NOT ACHIEVE ANY PURPOSE OR MITIGATE THE ILLEGALITY OF THE ACTION OF DEPRIVING THE ASSESSEE ITS RIGHT TO RAISE OBJECTIONS AGAINST THE INITIATION OF PROCEEDINGS UNDER SECTION 147/148 OF THE ACT. IN THIS VIEW OF THE MATTER, WE HOLD THAT THE ORDER OF ASSESSMENT PASSED UNDER SECTION 143(3) RWS 148 OF THE ACT DATED 29/12/2008 FOR THE ASSESSMENT YEAR 2005 - 06 WITHOUT THE ASSESSING OFFICER FURNISHING THE RECORDED REASONS FOR INITIATION OF PROCEEDIN GS UNDER SECTION 147/148 OF THE ACT TO THE ASSESSEE WITHIN REASONABLE TIME AND PRIOR TO THE COMPLETION OF THE ASSESSMENT PROCEEDINGS, RENDERS THIS ORDER OF ASSESSMENT INVALID AND UNSUSTAINABLE IN LAW. W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 10 OF 42 THE ABOVE REFERRED DECISION OF THE CO - ORDINATE BENCH O F THIS TRIBUNAL IN THE CASE OF SYNOPSYS INTERNATIONAL LTD. (SUPRA) IS SQUARELY APPLICABLE TO THE FACTS OF THE INSTANT CASE OF THE ASSESSEE. IN THE CASE ON HAND ALSO, THE REASONS RECORDED BY THE ASSESSING OFFICER FOR INITIATING PROCEEDINGS UNDER SECTION 147 / 148 OF THE ACT WERE NOT FURNISHED TO THE ASSESSEE BY THE ASSESSING OFFICER DURING THE PENDENCY OF ASSESSMENT PROCEEDINGS, IN SPITE OF BEING REQUESTED TO DO SO BY THE ASSESSEE'S LETTER DT.27.4.2005, 22.6.2005 AND 27.3.2006. THE REASONS AS RECORDED B Y THE ASSESSING OFFICER WERE FURNISHED TO THE ASSESSEE BY THE LEARNED CIT(APPEALS) BY LETTER DT.13.2.2009 AS RECORDED IN HIS APPELLATE ORDER AT PARA 4.3 AT PAGE 11 THEREOF. IN VIEW OF THE UNDISPUTABLE FACT THAT THE REASONS RECORDED BY THE ASSESSING OFFICE R FOR INITIATING PROCEEDINGS UNDER SECTION 148 OF THE ACT FOR ASSESSMENT YEAR 2002 - 03 WERE NEVER FURNISHED TO THE ASSESSEE BEFORE THE COMPUTATION OF ASSESSMENT PROCEEDINGS, THE SUBSEQUENT FURNISHING OF THE SAID REASONS RECORDED BY THE LEARNED CIT(APPEALS) BY LETTER DT.13.2.2009, ABOUT 45 MONTHS AFTER THE REQUEST WAS MADE BY THE ASSESSEE, DOES NOT ACHIEVE ANY PURPOSE OR MITIGATE THE ILLEGALITY OF THE ACTION OF DEPRIVING THE ASSESSEE ITS RIGHT TO RAISE OBJECTIONS AGAINST THE INITIATION OF PROCEEDINGS UNDER SE CTION 148 OF THE ACT. IN THIS VIEW OF THE MATTER AND FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SYNOPSYS INTERNATIONAL LTD (SUPRA), WE HOLD THAT THE ORDER OF ASSESSMENT PASSED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT ON 31.3.2006 FOR ASSESSMENT YEAR 2002 - 03 TO BE INVALID AND UNSUSTAINABLE IN LAW. SINCE THE FACTS AND CIRCUMSTANCES BEFORE US ARE SIMILAR, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) WHO HAS FOLLOWED THE DECISION OF THIS TRIBUN AL IN THE CASE OF M/S . SUEZ TRACTEBLE S A VS. DCIT (INTL. TAXN,) REPORTED IN 143 W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 11 OF 42 ITD 614 I N GRANTING RELIEF TO THE ASSESSEE. THE REVENUE S APPEALS ARE THEREFORE DISMISSED. 7 . COMING TO THE CROSS - OBJECTIONS AGAINST TREATING THE LANDS OF THE ASSESSEE AS URBAN LAND EXIGIBLE TO WEALTH - TAX, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ITAT IN THE ASSESSEES OWN CASE FOR RELEVANT ASSESSMENT YEAR IN THE INCOME - TAX PROCEEDING S , HAS CONSIDERED THE ISSUE AND HAS HELD THE SAID LAND TO BE AGRICULTURAL LAND. COPY OF THE SAID ORDER IS FILED BY HIM AT PAGES 4 8 TO 90 OF THE PAPER BOOK FILED BEFORE US. THE LEARNED DEPARTMENTAL REPRESENTATIVE, HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 8 . HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M.R.SEETHARAM FOR THE ASSESSMENT YEAR 2008 - 09 IN ITA NO.1654/BANG/2012 HAD CONSIDERED AS TO WHETHER THE LANDS PERTAINING TO THE ASSESSEE WHICH ARE SUBJECT MATTER OF APPEA L BEFORE US ARE CAPITAL ASSETS U/S 2(14) OF THE INCOME TAX ACT. THE TRIBUNAL HAD EXAMINED AS TO WHETHER THE LANDS WERE CAPITAL ASSETS IN TERMS OF THE DISTANCE FROM THE MUNICIPALITY AND ALSO THE NATURE OF THE LAND AND THE ACTIVITIES CARRIED ON BY THE ASSES SEE ON THE SAID LAND. AFTER EXAMINATION OF THE RELEVANT DETAILS, THE TRIBUNAL , AT PARA GRAPHS 7 TO 9 (ON PAGES 9 TO 42) , HAS COME TO THE CONCLUSION THAT THE LAND IS NOT A CAPITAL ASSET W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 12 OF 42 U/S 2(14) OF THE IT ACT. T HE RELEVANT PORTION IS REPRODUCED HEREUNDE R: 7. AGGRIEVED, THE ASSESSEE HAS COME UP BEFORE US WITH THE PRESENT APPEAL. DURING THE COURSE OF HEARING, THE SUBMISSIONS MADE BY THE LEARNED AR ARE SUMMARIZED AS UNDER: THAT THE AGRICULTURAL LANDS TO AN EXTENT OF 6 ACRES AND 1 GUNTA SITUATE D AT AKKALENAHALLI MALLENAHALLI OF DEVANAHALLITALUQ WAS CONVERTED. HOWEVER, THE ASSESSEE CONTINUED TO CULTIVATE THE CROPS AND WAS EARNING AGRICULTURAL INCOME FROM IT. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SOLD THE SAME TO M/S . ETL CORPORATE SERVICES PRIVATE LIMITED, FOR A SUM OF RS.45,58,12,500/ - ; THAT THE SUBJECT LAND WAS A PART OF AROUND 600 ACRES OF LANDS KNOWN AS GOKULA FARM BEING JOINTLY CULTIVATED BY THE FAMILY CONSISTING OF 10 CHILDREN OF LATE SRI M.S. RAMAIAH; AND THA T THE FARM WAS A FULLY GROWN ORCHARD COMPRISING VARIOUS FRUIT BEARING TREES BESIDES SEASONAL CROPS SUCH AS TOMATO, PEPPER, RAGI, PADDY ETC., AND THE INCOME ADMITTED BY THE ASSESSEE AS AGRICULTURAL INCOME FOR THE AYS 2004 - 05 TO 2009 - 10 AS ACCEPTED BY THE D EPARTMENT; THAT THE CAPITAL ASSET AS DEFINED IN S. 2(14) OF THE ACT MEANS PROPERTY OF ANY KIND BUT DOES NOT INCLUDE AGRICULTURAL LANDS. THE INCOME - TAX ACT HAS ALSO NOT DEFINED THE AGRICULTURAL LAND. VARIOUS COURTS HAVE RECOGNIZED THAT THE LANDS MUST NOT ONLY BE CAPABLE OF BEING USED FOR AGRICULTURAL PURPOSES BUT SHOULD HAVE BEEN ACTUALLY USED AS SUCH; AND THAT IF A LAND WAS ORDINARILY USED FOR THE PURPOSES OF AGRICULTURE OR FOR PURPOSES OF AGRICULTURE OR FOR PURPOSES SUBSERVIENT TO OR ALLIED TO AGRICULTUR E, IT WOULD BE AGRICULTURAL LAND. IT WAS AN UN - DENYING FACT THAT IN THE SUBJECTED LANDS, AGRICULTURAL ACTIVITIES DERIVING AGRICULTURAL INCOME WAS CONDUCTED AND, THUS, THE SAID LAND WAS PUT TO USE FOR EXTENSIVE AGRICULTURAL PURPOSES. THEREBY, THE SUBJECT LAND WAS NOT A CAPITAL ASSET WITHIN THE MEANING OF S. 2(14)(III) OF THE ACT; THAT IN THE SAID LANDS, THE AGRICULTURAL INCOME DERIVED WAS IN ACCORDANCE WITH S. 2(1A) OF THE ACT; THAT THE SAID LANDS WERE CONVERTED FOR NON - AGRICULTURAL PURPOSES IN THE YEAR 20 04 - 05; THAT ONE OF THE MANDATORY CONDITIONS STIPULATED IN THE ORDER OF CONVERSION WAS THAT IF THE CONVERTED LANDS WERE W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 13 OF 42 NOT USED FOR THE PURPOSE FOR WHICH IT WAS CONVERTED WITHIN A PERIOD OF TWO YEARS, THE ORDER OF CONVERSION STANDS CANCELLED. THAT IT WAS NOT IN DISPUTE THAT THE SUBJECT LANDS WERE NOT USED FOR ANY OTHER PURPOSES OTHER THAN AGRICULTURAL AND THE SAME WAS BORNE OUT FROM THE RECORDS OF THE REVENUE THAT THE ASSESSEE HAS BEEN CARRYING ON AGRICULTURAL ACTIVITIES ON THE SAID LANDS AND THE AGRICULTU RAL INCOMES EARNED WAS NOT DISPUTED. THUS, AS ON THE DATE OF TRANSFER, THE SUBJECTED LANDS WERE STILL HELD TO THE AGRICULTURAL LANDS; THAT NEITHER THE CIT (A) NOR THE AO WAS DISPUTING THE FACT THAT EVEN AFTER THE CONVERSION OF THE AGRICULTURAL LANDS FOR NON - AGRICULTURAL PURPOSES, THE ASSESSEE WAS CARRYING ON THE AGRICULTURAL ACTIVITIES AND ALSO DECLARING INCOME FROM SUCH AGRICULTURAL ACTIVITIES IN ITS RETURNS OF INCOME; THAT THE AO IN THE ASSESSMENT ORDER HELD THAT ONCE THE AGRICULTURAL LANDS WERE CONV ERTED INTO NON - AGRICULTURAL, EVEN THOUGH THE AGRICULTURAL ACTIVITY CONTINUES, THE LANDS CANNOT BE CONSIDERED AS AGRICULTURAL LANDS. HOWEVER, WITHOUT PREJUDICE, AS PER THE MANDATORY CONDITIONS IN THE CERTIFICATE OF CONVERSION, SINCE THE SUBJECT LAND WAS NO T PUT TO NON - AGRICULTURAL USE WITHIN A PERIOD OF TWO YEARS FROM THE DATE OF CONVERSION ORDER, THE CONVERSION BECOMES NULL AND VOID. SINCE THE LAND CONTINUED TO BE FOR AGRICULTURAL PURPOSES AND, THUS, THE SAID LAND WAS NOT PUT TO NON - AGRICULTURAL USE AND, THEREBY, THE LAND HAS RETAINED ITS ORIGINAL NATURE OF BEING AN AGRICULTURAL LAND; RELIES ON THE FOLLOWING CASE LAWS: (I) H.S.VIJAYAKUMAR V. ACIT ITA NO.108/BANG/2005 DATED 28.11.2006; (II) HINDUSTAN INDUSTRIAL RESOURCES LTD V. ACIT 221 CTR 710 (DEL); & (III) M.S. S RINIVASANAICKER V. ITO 292 ITR 481 (MAD) THAT THE CASE LAWS, NAMELY, (I) C HANUMANTAPPA, S/O CHINNAPPA V. STATE OF KARNATAKA 2007[4KAR LJ 394] AND (II) THE JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT IN W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 14 OF 42 MADHAVBHANDOPANTHKULKARNI&ANR V. THE LAND TRIB UNAL, BELGAUM &ORS [5 KAR LJ 13] RELIED ON BY THE CIT (A) WERE DISTINGUISHABLE AS THE FACTS OF THE ABOVE CITED CASES WERE NOT COMPARABLE TO THE ASSESSEE S CASE AS THE ASSESSEE HAS BEEN CARRYING ON AGRICULTURAL ACTIVITY EVEN AFTER THE CONVERSION OF LAND; TH AT WITHOUT PREJUDICE, THE SUBJECT LAND WAS AN AGRICULTURAL LAND AND WAS NOT A CAPITAL ASSET WITHIN THE MEANING OF S 2(14); ASSUMING BUT NOT CONCEDING, IF ONE WERE TO ACCEDE WITH THE REASONING OF THE CIT (A) THAT ONCE THE LAND WAS CONVERTED, IT BECOMES A CA PITAL ASSET, THEN THE COST OF LAND FOR THE PURPOSE OF INDEXATION SHOULD BE THE GUIDELINE VALUE ISSUE BY THE GOVERNMENT OR THE MARKET VALUE OF THE SAID PROPERTY AS ON THE DATE OF CONVERSION AND NOT THE ORIGINAL VALUE CLAIMED BY THE ASSESSEE IN ITS COMPUTATI ON OF INCOME. ASSUMING, ON THE DATE OF CONVERSION THE AGRICULTURAL LANDS BEING AN EXEMPTED ASSET BECOMES A CAPITAL ASSET AND, THUS, A NEW ASSET SPRINGS UP. THEREFORE, THE COST FOR SUCH LANDS FOR THE PURPOSE OF COMPUTING CAPITAL GAINS SHOULD BE THE MAR KET VALUE AS ON THE DATE OF CONVERSION AND INDEXATION SHOULD BE ALLOWED ON THE SAID MARKET VALUE. IT WAS NOT APPROPRIATE TO ADOPT THE COST OF LAND AS IT APPLIES TO AGRICULTURAL LAND AS ON DATE OF ACQUISITION WHILE TREATING THE ASSET AS CAPITAL ASSET BEING CONVERTED LAND IN WHICH AGRICULTURAL OPERATIONS WERE CARRIED ON; THAT IF THE ASSESSEE WERE TO BE HELD TO HAVE SOLD CONVERTED LANDS ON ACCOUNT OF IT BEING CONVERTED, THEN IT WOULD BE INAPPROPRIATE TO TAKE 1981 VALUE OF AN AGRICULTURAL LAND AS THE ASSET SOL D WAS HELD TO BE NON - AGRICULTURAL IN CHARACTER; AND UNDER SUCH CIRCUMSTANCE, THE MARKET VALUE OF CONVERTED LAND IS TO BE TREATED AS ON THE DATE OF CONVERSION AS THE BASIC COST OF THE ASSET AND THE SAME BE INDEXED UP - TO THE YEAR OF SALE IN ORDER TO COMPUTE CAPITAL GAINS; WITH REGARD TO THE AO S STAND THAT THE SUBJECT LAND WAS WITHIN THE JURISDICTION OF BIAAPA AND THE LAND CEASED TO BE AN AGRICULTURAL LAND AND THE CIT (A) S REASONING THAT THE BIAAPA WAS A MUNICIPAL BODY AS PER THE REQUIREMENTS OF S. 2(14)(III )(A) AS IT (I) PERFORMS MUNICIPAL FUNCTIONS AND (II) MUNICIPALITY NEED NOT NECESSARILY BE AN ELECTED BODY ETC., IT WAS SUBMITTED THAT (I) THE AO WAS NOT JUSTIFIED AS TO HOW ANY LAND FALLING WITHIN THE JURISDICTION OF BIAAPA WOULD LOSE THE W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 15 OF 42 CHARACTER OF AGRIC ULTURAL LAND AND THAT THE LAND WAS ALREADY ACQUIRED BY THE STATE GOVERNMENT WHICH WAS FAR FROM FACTS; (II) WITH REGARD TO THE REFERENCE OF ARTICLE 243A OF THE CONSTITUTION OF INDIA, IT WAS CONTENDED THAT THE CIT (A) HAD FAILED TO APPRECIATE THAT THE ACCOMMODAT ION OF THE DEFINITION WAS AVAILABLE ONLY IN THIS PART VIZ., PART IX - A WHEREAS THE ACCOMMODATION OF THE DEFINITIONS CANNOT BE EXTENDED TO OTHER PARTS OF CONSTITUTION. IN OTHER WORDS, THE DEFINITIONS PROVIDED IN PART IX - A, DEALING WITH MUNICIPALITIES CANNOT BE EXTENDED TO INCLUDE THE DEFINITIONS PROVIDED IN PART IX DEALING WITH PANCHAYATS AND THAT THE DEFINITIONS OF EACH OF THE REFERRED PART OF THE CONSTITUTION HAS TO BE STRICTLY INTERPRETED; THAT THE CIT (A) HAD FAILED TO APPRECIATE THAT BOTH PANCHAYATS AN D MUNICIPALITIES PERFORM SIMILAR FUNCTIONS VIZ., MUNICIPAL FUNCTIONS. IF ALL BODIES PERFORMING MUNICIPAL FUNCTIONS WERE TO BE TREATED AS MUNICIPALITIES, THEN THERE WOULDN T BE ANY LAND EXCLUDED FROM THE DEFINITION OF S. 2(14) OF THE ACT AS (IN THE COUNTRY) LANDS WILL FALL EITHER UNDER MUNICIPALITY OR PANCHAYAT BOTH OF WHICH PERFORM MUNICIPAL FUNCTIONS; WITH REGARD TO THE CIT (A) S ASSERTION FROM THE BYE - LAWS OF BIAAPA THAT IT IS ENTRUSTED WITH SEVERAL MUNICIPAL FUNCTIONS, PARTICULARLY, IN RELATION TO LAND USE, ZONING, TOWN PLANNING ETC., IT WAS CONTENDED THAT BIAAPA PERFORMS ONLY PLANNING AND ZONING FUNCTIONS AND DOES NOT PERFORM ANY OTHER MUNICIPAL FUNCTIONS. OTHER MAJOR MUNICIPAL FUNCTIONS WERE REQUIRED TO BE PERFORMED BY THE RESPECTIVE MUNICIPALITIES/PA NCHAYATS WITHIN THE AMBIT OF THE AREA COVERED BY BIAAPA AND, THUS, BIAAPA WAS A MERE PLANNING AUTHORITY; DISPUTING THE CIT(A) S AVERMENT THAT MUNICIPALITY NEED NOT NECESSARILY BE AN ELECTED BODY, IT WAS CONTENDED THAT ARTICLE 243P(E) OF THE CONSTITUTION DE FINES MUNICIPALITY MEANS AN INSTITUTION OF SELF - GOVERNMENT CONSTITUTED UNDER ARTICLE 243Q AND ARTICLE 243R REQUIRES THAT ALL THE SEATS IN A MUNICIPALITY SHALL BE FILLED BY PERSONS CHOSEN BY DIRECT ELECTION FROM THE TERRITORIAL CONSTITUENCIES IN THE MUNIC IPAL AREA. THUS, A MUNICIPALITY HAS TO ESSENTIALLY BE AN ELECTED BODY. BIAAPA IS NOT AN W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 16 OF 42 ELECTED BODY AND IS AN APPOINTED BODY AND, HENCE, BIAAPA DOES NOT QUALIFY TO BE CONSIDERED A MUNICIPALITY. RELIES ON THE CASE LAW IN CIT V. MURALI LODGE [194 ITR 125 (KER)] ; WITH REGARD TO THE CIT (A) S STAND THAT THERE WERE LOCAL BODIES REFERRED TO IN SUB - CLAUSE SUCH AS NOTIFIED AREA COMMITTEE, TOWN AREA COMMITTEE ETC., WHICH MAY NOT BE COMPRISED OF ELECTED REPRESENTATIVE AND MAY ALSO BE CONSTITUTED BY STATUTORY APP OINTMENT, IT WAS CONTENDED THAT TO TEST IF IT IS A NOTIFIED AREA COMMITTEE OR TOWN AREA COMMITTEE OR TOWN COMMITTEE ASS REFERRED TO IN S. 2(14)(III)(A), THE SAME HAS TO BE CONSTITUTED UNDER THE MUNICIPALITIES ACT WHEREAS BIAAPA HAS BEEN CONSTITUTED BY VIRT UE OF A NOTIFICATION UNDER KARNATAKA TOWN AND COUNTRY PLANNING ACT, 1961 AND NOT UNDER THE KARNATAKA MUNICIPALITIES ACT 1964; IN RESPECT OF THE CIT (A) S STAND THAT THE LANDS WOULD BE CAPITAL ASSETS WITHIN THE MEANING OF S. 2 (14)(III)(A) OF THE ACT, IT W AS ARGUED THAT THE CIT (A) HAD NOT CONSIDERED THE FACT THAT THE SAID SECTION REQUIRES THE MUNICIPALITY WITHIN WHICH THE LAND SITUATED SHOULD HAVE A POPULATION NOT LESS THAN 10,000 ACCORDING TO THE LAST PRECEDING CENSUS OF WHICH THE RELEVANT FIGURES HAVE B EEN PUBLISHED BEFORE THE FIRST DAY OF THE PREVIOUS YEAR. AS PER THE CENSUS REPORT 2001 BEING THE LATEST CENSUS RELEVANT TO THE AY UNDER DISPUTE, THERE WAS NO MENTION OF BIAAPA AND EVIDENTLY BIAAPA WAS NOT A MUNICIPALITY IN 2001. IN THE ABSENCE OF SUCH A NOTIFICATION, BIAAPA CANNOT BE CONSIDERED FALLING WITHIN THE EXCLUSION CONTEMPLATED IN S. 2 (14)(III)(A) OF THE ACT. THE POPULATION OF ANNESHWARA GRAM PANCHAYAT WITHIN WHICH THE SUBJECT LAND SITUATED HAD A TOTAL POPULATION OF 4,607 AS PER THE CENSUS REPOR T, 2001 AND, THUS, THE SUBJECT LAND CANNOT BE A CAPITAL ASSET AS DEFINED IN S. 2(14)(III)(A) OF THE ACT; THAT NEITHER THE AO NOR THE CIT (A) HAD DISCUSSED AS TO HOW THE SUBJECT LAND SITUATED WITHIN THE JURISDICTION OF A GRAMPANCHAYATBE REGARDED AS SITUATE D WITHIN MUNICIPALITY. PANCHAYATS AND MUNICIPALITIES ARE DISTINCT BODIES. PANCHAYAT OPERATES IN APANCHAYAT AREA AS DEFINED IN ARTICLE 243(D) OF THE CONSTITUTION WHEREAS A MUNICIPALITY OPERATES WITHIN THE MUNICIPAL AREA AS DEFINED IN W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 17 OF 42 ARTICLE 243P(D) OF TH E CONSTITUTION. AS THERE WAS A CLEAR DEMARCATION OF THE AREAS, ANY LAND FALLING WITHIN A PANCHAYAT AREA CANNOT BE A PART OF THE MUNICIPAL AREA, AND, THUS, THE DISPUTED LAND WAS NOT A CAPITAL ASSET WITHIN THE MEANING OF S. 2(14)(III)(A) OF THE ACT RELIES ON THE FOLLOWING CASE LAWS: (I) K PARAMESHWARAN V. ITO - 7 TTJ 194 ITAT, CHENNAI; (II) ITO V. VENKATARAMANA 46 TTJ 706 ITAT, HYDERABAD; (III) CIT V. P J THOMAS 211 ITR 897 (MAD) IN CONCLUSION, THE LEARNED AR PLEADED THAT (I) THE SUBJECT LAND WAS AN AGRICULTURAL LAND AND, THUS, NOT LIABLE TO TAXATION; (II) THE CIT (A) HAD FAILED TO APPRECIATE THAT THE CONVERSION OF LAND DOES NOT AFFECT THE CHARACTER OF IT BEING AGRICULTURAL LAND AND MORE SO WHEN AN EXTENSIVE CULTIVATION WAS BEING CARRIED OUT AND INCOME FROM AGRICULTURE DERIVED FROM THE SAID LAND HAS BEEN ACCEPTED BY THE DEPARTMENT; (III) WITHOUT PREJUDICE, THE COST OF ACQUISITION IN TERMS OF S. 49 OF THE ACT OUGHT TO HAVE BEEN TAKEN AS ON THE DATE OF CONVERSION AND INDEXED UP - TO THE DATE OF SALE; (IV) THE BIAAPA WAS NOT A MUNICIP ALITY AND IT WAS MERELY A PLANNING AUTHORITY; & (V) THE SUBJECT LAND WAS SITUATED IN ANNESHWARA GRAM PANCHAYAT AND, THEREFORE, DOESN T FALL WITHIN THE JURISDICTION OF A MUNICIPALITY; 7.1. ON THE OTHER HAND, THE SUBMISSIONS MADE BY THE LEARNED DR ARE SUMMED UP AS UNDER: THAT THE LANDS IN QUESTIONS WERE LOCATED WITHIN 8 K.MS FROM DEVANAHALLI MUNICIPAL LIMITS; THAT THE LANDS WERE LOCATED WITHIN THE JURISDICTION OF BIAAPA WHICH IS AN AUTHORITY AS PER THE DEFINITION OF ASSET IN S. 2 (14) OF THE A CT; THE LANDS WERE LOCATED WITHIN 8 K.MS OF BBMP LIMITS AS THE CROW FLIES; W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 18 OF 42 THAT THE LANDS WERE ALREADY CONVERTED AS NON - AGRICULTURAL LANDS BEFORE THE DATE OF SALE AND WERE SOLD AS CONVERTED LANDS; THAT THE LANDS WERE PURCHASED BY COMPANIES AND AS PER THE KARNATAKA LAND REFORMS ACT, NO COMPANY IS PERMITTED TO PURCHASE AGRICULTURAL LAND AND, THUS, THE LANDS WERE, IN FACT, NON - AGRICULTURAL; DISTINGUISHING THE FINDINGS OF THE EARLIER BENCH OF THIS TRIBUNAL IN ITA NO.108/B/05 IN THE CASE OF H.S. VIJAYAKUMAR V. ACIT, IT WASCONTENDED THAT NOT ONLY HAS THE SAID CASE BEEN DISTINGUISHED BY THE CIT (A) ON SEVERAL COUNTS BUT BOTH THE AO/CIT(A) IN THE PRESENT CASE HAVE INVOKED SEVERAL GROUNDS AS AGAINST THE LIMITED ISSUES ARISING IN THE CASE OF H.S. VIJAYAKUMAR WHICH N EEDS TO BE CONSIDERED. THIS IS BESIDES THE FACT THAT THE LAND UNDER REFERENCE IN THE CASE CITED BY THE ASSESSEE IS SITUATED IN HASSAN AND NOWHERE IN THE VICINITY OF INTERNATIONAL AIRPORT. IN FURTHERANCE, IT WAS CONTENDED ON BEHALF OF THE REVENUE THAT EVE N THOUGH THE ASSESSEE HAD CLAIMED THAT THE LAND TRANSFERRED WAS NOT A CAPITAL ASSET BEING A RURAL AGRICULTURAL LAND ETC., THE SAME CANNOT BE ACCEPTED IN VIEW OF THE PRINCIPLE LAID DOWN BY THE CBDT VIDE INSTRUCTION NO.90 DATED 1.8.1969. TO ILLUSTRATE FURTH ER, IT WAS HIGHLIGHTED THAT THE PRINCIPLE LAID BY THE BOARD IS VERY CLEAR THAT ONCE THE LAND IS CONVERTED, IT BECOMES A CAPITAL ASSET LIABLE FOR TAXATION. IT WAS, FURTHER, ARGUED THAT THOUGH THE INSTRUCTION WAS WITHDRAWN WITH RESPECT TO THE MODE OF COMPUT ATION OF THE COST OF ACQUISITION. COUNTERING THE ASSESSEE S ASSERTION THAT THE ORDER OF CONVERSION HAD LAPSED AFTER TWO YEARS AFTER THE CONVERSION ORDER, THE REVENUE HAD RELIED ON THE JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF MALLIK ARJUN CO - OPERATIVE . V. STATE OF KARNATAKA [ILR 1995 KAR 2230, 1995 (6) KARLJ 46 DT. 5.7.1995]. WITH REGARD TO BIAAPA, THE REVENUE HAD PLACED ITS STRONG RELIANCE ON THE JUDGMENT OF THE HON BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. SMT RANI TA RA DEVI (2013) 214 TAXMAN 321 [P & H] WHEN THE AGRICULTURAL LAND BECOMES A CAPITAL ASSET. W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 19 OF 42 7.2. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT MATERIALS ON RECORD AND ALSO THE VARIOUS JUDGMENTS OF JUDICIARY ON A SI MILAR ISSUE RELIED ON BY EITHER OF THE PARTY. THE ASSESSEE - HUF HAD SOLD LANDS SITUATED AT AKKLENAHALLI AND MALLENNAHALLI VILLAGES OF DEVANAHALLITALUK TO AN EXTENT OF 6 ACRES 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 INCOME OF RS.14,17,87,795/ - AS CAPITAL GAINS FROM THE ABOVE TRANSACTION IN ITS ORIGINAL RETURN OF INCOME FURNISHED TO THE DEPARTMENT. SUBSEQUENTLY, IN ITS REVISED RETURN OF INCOME DATED 15.6.2009, THE AS SESSEE 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 OFFERED IN THE ORIGINAL RETURN IN AS MUCH AS THE SAME WAS EXEMPT FROM TAX BEING AGRICULTURAL LANDS AND HENCE EXCLUDED FROM THE DEFINITION OF CAPITAL ASSET AS PER THE PROVISIONS OF S. 2 (14)(III) OF THE ACT. 7.2.1.THE PRIME ISSUES FOR CONSIDERATION BEFORE US ARE TWO - FOLD, NAMELY: (I) WHETHER THE LAND CAN BE TREATED AS AGRICULTURAL LAND EVEN AFTER CONVERSION OF AGRICULT URAL 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 ASSESSEE ON THE ISSUE, WE SHALL NOW PROCEED TO DEAL WITH THE SEQ UENCE OF EVENTS 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 EXTENT OF 6 ACRES AND 1 GUNTA SITUATED AT AKKALENALLY AND W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 20 OF 42 MALLENAH ALLY 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 SOLD TO M/S. ETL CORPORATE SERVICES PRIVATE LIMITED FOR A SUM OF RS.45.58 CRORES. THE SUBJECT PROPERTY WAS A PART OF ARO UND 600 ACRES OF LANDS KNOWN AS GOKULA FARM WHICH WAS ORIGINALLY PURCHASED BY LATE 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]. THE SAME HAS BEEN JOINTLY CULTIVATED BY THE FAMILY, COMPRISING OF 10 CHILDREN OF LATE M.S.RAMAIAH. THESE LANDS WERE, SUBSEQUENTLY, PARTIONED IN 1970 AND AFTER THE DEATH OF SRI M.S. RAMAIAH, THE LANDS WERE FURTHER PORTIONED [REFER: PARA 3.2. OF THE ASST. ORDER]. EVEN THOUGH, THE SUBJECT PROPERTY, AMONG O THERS, WAS CONVERTED AS NON - AGRICULTURAL LANDS WAY BACK IN 2004, AGRICULTURAL ACTIVITIES, DERIVING AGRICULTURAL INCOME FROM THE SAID LANDS, WERE CONTINUED UNABATEDLY BY THE ASSESSEE AND INCOMES ADMITTED BY IT FROM SUCH OPERATIONS WERE ACCEPTED BY THE REVEN UE FROM THE AYS 2004 - 05 TO 2009 - 10, THE DETAILS OF WHICH ARE AS UNDER: ASST. YEAR AGRL. INCOME [IN RS.] 2004 - 05 2005 - 06 2006 - 07 2007 - 08 2008 - 09 2009 - 10 22,00,000 22,00,000 16,50,000 16,50,000 16,50,000 16,50,000 7.2.4. THOUGH THE SAID LAND WAS CONVERTED INTO NON - AGRICULTURAL PURPOSES IN THE YEAR 2004 - 05 AND ONE OF THE MANDATORY CONDITIONS SPECIFIED IN THE CONVERSION ORDER DATED 19.7.2004 WAS THAT IF THE CONVERTED LAND WAS NOT USED FOR THE PURPOSE FOR WHICH IT WAS CONVERTED WITHIN A PERIOD OF TWO YEARS FR OM THE DATE OF CONVERSION, THE ORDER OF CONVERSION STANDS CANCELLED. APPARENTLY, THE ASSESSEE HAD CONTINUED THE AGRICULTURAL OPERATIONS IN THE CONVERTED LANDS W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 21 OF 42 ALSO WHICH IS EVIDENT FROM THE FACT THAT INCOMES DERIVED FROM SUCH AGRICULTURAL OPERATIONS ON TH E SAID LANDS DECLARED BY THE ASSESSEE IN ITS RETURNS 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 SUGGEST THAT THE SUBJECT LANDS WERE UTILIZED FOR ANY OTHER PURPOSES OTH ER THAN THAT OF CULTIVATION AFTER CONVERSION. THIS IS EVIDENT FROM THE FACT THAT THE INCOMES DERIVED FROM SUCH LANDS DULY DECLARED BY THE ASSESSEE WHICH WERE ACCEPTED BY THE REVENUE. 7.2.5. INCIDENTALLY, THE SUBJECT PROPERTY WAS INSPECTED 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 HAVE NOTICED THAT THE SUBJECT PROPERTY WAS A PART OF LARGE TRACK OF LAND HAVING AGRICULTURAL OPERATIONS WHICH CONSIST OF FULLY GROW N UP FRUITS - YIELDING TREES SUCH AS MANGOES, SAPOTA, COCONUT, JACK - FRUIT, APPLE, GUAVA ETC., APPEAR TO BE EXISTING IN THE SUBJECT PROPERTY EVEN ON THE DATE OF SALE. THIS CLEARLY ATTRIBUTES THE ASSESSEE S ASSERTION THAT EVEN ON THE DATE OF TRANSFER, THE SU BJECT LAND WAS HELD TO BE AGRICULTURE. IN THIS REGARD, WE WOULD LIKE TO REFER TO THE CERTIFICATE OF SENIOR ASSISTANT DIRECTOR OF HORTICULTURE (ZILLAPANCHAYAT) DEVANAHALLI, GOVERNMENT OF KARNATAKA, DATED 23.4.2014 WHEREIN IT HAS BEEN CERTIFIED AS UNDER: THIS IS TO CERTIFY THAT M.R.SEETHARAM, S/O (OF) LATE M.S. RAMAIAH RESIDING AT GOKULA HOUSE, DR M.S. RAMAIAH ROAD, GOKULA, BANGALORE, HAVE, IN THEIR LAND SITUATED IN AKKELENAHALLI MALLENAHALLI VILLAGE, KASABAHOBLI, DEVANAHALLITALUK 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, COCONUT, 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 TER MS THAT EVEN AFTER THE W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 22 OF 42 CONVERSION OF THE LAND FOR NON - AGRICULTURAL PURPOSES, THE ASSESSEE HAS BEEN CARRYING ON AGRICULTURAL OPERATIONS AND ALSO ADMITTING INCOMES FROM SUCH LANDS IN ITS RETURNS OF INCOME. THE AO S STAND THAT ONCE THE AGRICULTURAL LANDS WER E CONVERTED INTO NON - AGRICULTURAL, EVEN THOUGH AGRICULTURAL ACTIVITIES CONTINUED; THE LANDS CANNOT BE TERMED AS AGRICULTURAL LAND IS, IN OUR VIEW, NOT THE CORRECT PROPOSITION OF LAW. THIS IS APPARENT FROM THE FACT THAT ONE OF THE MANDATORY CONDITIONS CONT AINED IN THE CONVERSION ORDER 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 ENGLISH TRANSLATION) OF PB AR] . 7.2.6. AS A MATTER OF PERCEPTION, S. 2(14) DEF INES CAPITAL ASSET . CAPITAL ASSET DOES NOT INCLUDE AGRICULTURAL LAND. HOWEVER, AGRICULTURAL LAND SITUATED WITHIN ANY MUNICIPALITY, NOTIFIED AREA COMMITTEE, TOWN AREA COMMITTEE, TOWN COMMITTEE WILL CEASE TO BE AN AGRICULTURAL LAND. WHETHER THE SUBJECT L AND IS AGRICULTURAL OR OTHERWISE IS ESSENTIALLY A QUESTION OF FACT. IN COMING TO A DEFINITE CONCLUSION, 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 REPORTED IN 204 ITR 631 (SC). THE TESTS PRESCRIBED BY THE HON BLE SUPREME COURT AS UNDER: (I) WHETHER THE LAND WAS CLASSIFIED IN THE REVENUE RECORDS AS AGRICULTURAL AND WHETHER IT WAS SUBJECT TO THE PAYMENT OF LAND REVENUE? (II) WHETHER THE LAND WAS ACTUALLY OR ORDINAR ILY USED FOR AGRICULTURAL PURPOSES AT OR ABOUT THE RELEVANT TIME? (III) WHETHER SUCH USER OF THE LAND WAS FOR A LONG PERIOD OR WHETHER IT WAS OF A TEMPORARY CHARACTER OR BY ANY STOP GAP ARRANGEMENT? (IV) WHETHER THE INCOME DERIVED FROM THE AGRICULTURAL O PERATIONS CARRIED ON IN THE LAND BORE ANY RATIONAL W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 23 OF 42 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 T HE 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 M ATERIAL DATE; (VI) 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 CEASER AND / OR ALTERNATIVE USER WAS OF A PERMANENT OR TEMPORARY NATURE; (VII) WHETHER THE LAND, THOUGH ENTERED IN THE 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? (VIII) WHETHER THE LAND WAS SITUATED IN A DE VELOPED 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? (IX) WHETHER THE LAND ITSELF WAS DEVELOPED BY PLOTTING AND PROVIDING ROADS AND OTHER FACILITIES; (X) WHETHER THERE WERE ANY PREVIOUS SALES OF PORTIONS OF THE LAND FOR NON - AGRICULTURAL USE? (XI) WHETHER PERMISSION UNDER TENANCY AND AGRICULTURAL LANDS ACT WAS OBTAINED BECAUSE THE SALE OR INTENDED SALE WAS IN FAVOUR OF NON - AGRICULTUR IST, IF SO, WHETHER THE SALE OR INTENDED SALE TO SUCH NON - AGRICULTURIST WAS FOR NON - AGRICULTURAL OR AGRICULTURAL USER? (XII) WHETHER THE LAND WAS SOLD ON YARDAGE OR ON ACREAGE BASIS? & (XIII) WHETHER AN AGRICULTURIST WOULD PURCHASE THE LAND FOR AGRICULTU RAL 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? W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 24 OF 42 7.2.7. IN VIEW OF THE NORMS PRESCRIBED BY THE HON BLE SUPREME COUR T IN ITS JUDGMENT (SUPRA), WE ARE OF THE VIEW THAT THE FACTS MAKING IN THE PRESENT CASE, THE ISSUE REQUIRES TO BE DECIDED AS TO WHETHER THE SUBJECT LAND WAS AN AGRICULTURE LAND. THE LAND IN QUESTION WAS INHERITED BY THE ASSESSEE (HUF), AMONG OTHERS, AS TH E SAME HAVING 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., INCIDENTALLY, THE SURROUNDING LANDS WERE ALSO SUBJECTED TO AGRICULTURAL ACTIVITIES AS IN THE CASE OF THE PROPERTY UNDER DISPUTE. THOUGH THE PRESENT ASSESSEE BECAME THE LEGITIMATE OWNER OF THE SUBJECT PROPERTY ON INHERITANCE/IN A PARTITION/FAMILY ARRANGEMENT AS THE CASE MAY BE, THE NATURE OF THE LAND USE HAD NOT, HOWEVER, UNDERGONE ANY CHANGE. WHETHER THE LANDS WHICH WERE USED AS AGRICULTURAL LANDS EVEN AFTER ITS CONVER SION LOOSE ITS CHARACTER OF AGRICULTURAL LANDS ? 7.3. THE STAND OF THE AO WAS THAT ONCE THE AGRICULTURAL LANDS WERE CONVERTED INTO NON - AGRICULTURAL, EVEN THOUGH AGRICULTURAL ACTIVITY CONTINUES, THE LANDS CANNOT BE CONSIDERED AS AGRICULTURAL LANDS. COUNTE RING THE AO S ASSERTION, THE LEARNED AR HAD ARGUED THAT AS PER THE MANDATORY CONDITIONS MENTIONED IN THE CERTIFICATE OF CONVERSION, IF THE SUBJECT LAND WAS NOT PUT TO NON - AGRICULTURAL USE WITHIN A PERIOD OF TWO YEARS FROM THE DATE OF CONVERSION ORDER, THE CONVERSION ITSELF WILL BECOME NULL AND VOID. IN THIS CONNECTION, THE LEARNED AR HAD PLACED STRONG RELIANCE ON THE JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. SMT. K.LEELAVATHY (SUPRA). W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 25 OF 42 7.3.1. IT IS A FACT THAT THE L AND WHICH WAS HITHERTO AGRICULTURAL LAND DOES NOT AUTOMATICALLY BECOME A CAPITAL ASSET UPON A MERE FACT OF ITS CONVERSION TO NON - AGRICULTURAL PURPOSE. THE LAND EVEN THOUGH CONVERTED FOR NON - AGRICULTURAL PURPOSE, CONTINUES TO BE AGRICULTURAL LAND AND DOES NOT BECOME A CAPITAL ASSET U/S 2 (14) OF THE 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 NON - AGRICULTURAL PURPOSE. 7.3.2. IN THE PRESENT CASE, AS AL READY DISCUSSED, EVEN THOUGH THE SUBJECT PROPERTY WAS CONVERTED FOR NON - AGRICULTURAL PURPOSE VIDE CONVERSION ORDER DATED 19.7.2004, THE ASSESSEE CONTINUED THE AGRICULTURAL OPERATIONS IN THE CONVERTED LANDS WHICH WAS EVIDENT ON OUR SITE VISIT AND ALSO FROM THE FACT THAT INCOMES DERIVED FROM SUCH AGRICULTURAL OPERATIONS ON THE SAID LANDS DECLARED BY THE ASSESSEE IN ITS RETURNS OF INCOME WHICH WERE ACCEPTED BY THE REVENUE FOR THE AYS 2004 - 05 TO 2009 - 10. 7.3.3. AT THIS JUNCTURE, WE WOULD LIKE TO REFER TO T HE FINDINGS OF THE EARLIER BENCH OF THIS TRIBUNAL IN THE CASE OF H.S.VIJAYA KUMAR V. ACIT, HASSAN IN ITA NO.108/BANG/05 DATED 28.11.2006. AFTER TAKING INTO ACCOUNT THE RIVAL SUBMISSIONS OF AN ALMOST IDENTICAL ISSUE TO THAT OF THE PRESENT ISSUE UNDER DISPUT E, 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 ASSESSEE PRIOR TO THE SALE OF THE SAID LAND. IT IS OBSERVED THAT PERMISSION HAS BEEN ACCORDED FOR RESIDENTI AL PURPOSES AND WHEREAS THE SALE HAS BEEN MADE TO INDIAN OIL CORPORATION FOR PUTTING UP A SERVICE STATION. THIS CONTRADICTION ITSELF GOES TO SHOW THAT THE PERMISSION ACCORDED DOES NOT MILITATE AGAINST THE LAND BECOMING NON - AGRICULTURAL LAND. THE FIRST APP ELLATE AUTHORITY ALSO WENT BY THE FACT THAT THE LAND WAS SOLD ON YARDAGE BASIS TO INDIAN OIL CORPORATION. THIS SINGLE CIRCUMSTANCE IN OUR CONSIDERED OPINION DOES NOT W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 26 OF 42 CHANGE THE CHARACTER OF THE LAND FOR THE REASON THAT NO LAYOUT PLAN WAS OBTAINED, NOR THE LAND HAD BEEN SUBJECT TO ANY CHANGE IN PHYSICAL CHARACTERISTICS. A PERSON CAN OBTAIN HIGHER AMOUNT BY ADOPTING A PARTICULAR METHODOLOGY OF VALUATION AND THIS BY ITSELF DOES NOT RESULT IN AN ASSET BECOMING A CAPITAL ASSET. NON - PAYMENT OF LAND REVENUE FO R A PERIOD OF ONE MONTH AND 10 DAYS FROM 8.2.99 TO 20.3.99 CANNOT ALSO BE A CIRCUMSTANCE WHICH CAN BE HELD AGAINST THE ASSESSEE. THIS IS TOO SHORT PERIOD AND IT IS NOT THE CASE OF THE REVENUE THAT LAND REVENUE HAS (HAVE) NOT CONSCIOUSLY LEVIED AGRICULTURA L LAND TAX. NO ADVERSE INFERENCE CAN BE DRAWN. THE LD. COUNSEL FOR THE ASSESSED TRIED TO DEMONSTRATE THAT AS PER THE KARNATAKA LAND REVENUE ACT, 1964, SECTION 83(2) READ WITH SEC. 95(2) MANDATES THAT THE 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 REVENUE AUTHORITIES HAVE REFUSED TO LEVY LAND REVENUE BY SHOWING THE REASON OF CONVERSION OR FOR THE REASON THAT TH E ASSESSEE HAS REFUSED TO PAY SUCH LAND REVENUE. THE AO HAS RECORDED A FINDING THAT THE LAND REVENUE RECORDS TO SHOW THAT RAGI AND HORSE GRAM WERE GROWN ON THE SAID LAND. THE REASONS RECORDED BY THE ASSESSING OFFICER AS WELL AS THE CIT (A), TO OUR MIND, 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 MATTER OF DISPU TE IN MANY A CASES. IN EACH OF THE JUDGMENTS BROAD OUTLINES HAVE BEEN GIVEN AND IT IS SUFFICE TO SAY THAT THE UNANIMOUS VIEW 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 FACT S OF THE CASE CLEARLY POINT OUT THAT THE LAND IN QUESTION CONTINUED TO BE AGRICULTURAL LAND AND WAS PUT TO USE AS SUCH, PRIOR TO SALE TO INDIAN OIL CORPORATION, DESPITE THE PERMISSION OBTAINED 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 OF A PARTICULAR LAND WO ULD 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 ROADWAYS W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 27 OF 42 AND RAILWAY S. AFTER IDENTIFYING PARTICULAR AREAS, THE GOVERNMENT NOTIFIES THAT A PARTICULAR AREA WOULD BE USED FOR NON - AGRICULTURAL PURPOSES. IT IS THEREAFTER ONLY THAT THE ACQUISITION START AND ACCORDINGLY THE LAND OF FARMERS ARE ACQUIRED. IT WOULD BE TRAVESTY OF JUSTICE, IF A VIEW HAS TO BE TAKEN THAT WHEN ONCE A NOTIFICATION IS GIVEN BY THE GOVERNMENT, THE AGRICULTURAL LAND BECOMES NON - AGRICULTURAL LAND I.E., EVEN PRIOR TO THE ISSUE OF ACQUISITION NOTICES. AS LONG AS THERE IS NO CHANGE IN THE PHYSICAL CHARACTERI STICS OF THE LAND IN QUESTION, WE CANNOT BE HELD THAT THERE IS A CONVERSION. 7.3.4. THE JURISDICTIONAL HIGH COURT IN THE CASE OF CITG V. SMT 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 WITH SECTIONS 45 AND 48 OF THE ACT. BRIEFLY, THE SUBSTANTIAL QUESTIONS OF LAW RAISED BY THE REVENUE BEFORE THE HON BLE COURT WAS THAT 1. WHETHER THE APPELLATE AUTHORITIES WERE CORRECT IN HOLDING THAT THE LAND WHICH IS THE SUBJECT - MATTER OF SALE IS AGRICULTURAL LAND AS ON THE DATE OF SALE WITHOUT TAKING INTO CONSIDERATION 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 SE CTIONS 45 AND 48 OF THE ACT? 7.3.5. AFTER TAKING INTO ACCOUNT THE SUBMISSIONS OF THE EITHER OF THE PARTY AND ALSO THE PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW, THE HON BLE COURT HAD HELD AS UNDER: 5. WE FIND FROM THE RECORD THAT THE A PPELLATE COMMISSIONER 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 PERMISSIO N FOR CONVERSION AS THE CUT - OFF LINE TO W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 28 OF 42 DECIDE AS TO WHETHER THE LAND WAS AN AGRICULTURAL LAND OR OTHERWISE. 6. IT APPEARS, THE TRIBUNAL HAD OPINED THAT THE LAND RETAINED ITS AGRICULTURAL CHARACTER TILL THE DATE OF ORDER PERMITTING NON - AGRICULTURAL USE AN D, THEREAFTER, IT IS NOT AN AGRICULTURAL LAND AND, THEREFORE, CAN BE TREATED AS CAPITAL ASSET. 7. THE APPELLATE 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: CONVERSION NOTIFICATION NO. AND DATE SY.NO. EXTENT OF AREA DATE OF SALE SALE CONSIDERATION NO.ALNSR/94/98 - 99 DT.29.4.1999 NO.ALNSR/8/2004 - 05 DT.10.5.2004 TOTAL 75 77 15.15 16 17 86.1 87 3A 38G 3A 00G 0A 10G 4A 14G 2A 17G 5A 31G 5A 12 G 23A 22G 7.4.2004 2.6.2004 RS. 50,00,000 RS.1,82,50,000 RS.2,32,50,000 IN RESPECT OF THE SALE TRANSACTION DATED JUNE 2,2004, IT WAS TAKEN AS A SALE OF CAPITAL ASSET AS THIS SALE WAS AFTER THE DATE OF PERMISSION FOR NON - AGRICULTURAL USE GRANT ED BY THE ASST. COMMISSIONER, VIZ., AFTER MAY 10,2004, WHEREAS THE EARLIER SALE TRANSACTION DATED APRIL 7, 2004, IS HELD TO BE IN RESPECT OF AN AGRICULTURAL LAND. WE DO NOT FIND THE REASONING AND THE PRINCIPLE ENUNCIATED BY THE TRIBUNAL FOR MAKING A DIST INCTION 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 VIOLATING ANY STATUTORY PROVISIONS AND, THEREFORE, WE DO NOT FIND ANY ILLEGALITY IN THE FINDING RECORDED BY THE APPELLATE COMMISSIONER AND THE TRIBUNAL. 7.3.6. IN THE CASE OF M. THIMMEGOWDA [(I) SRI M. THIMMEGOWDA, (II) SRI M.N. MANJUNATH, (III) SRI DASAPPA, (IV) SRI T. SURESH GOWDA , (V) SRI T. PRASANNAGOWDA]V. DEPARTMENT OF INCOME - TAX, THE EARLIER BENCH OF THIS TRIBUNAL, IN ITS FINDINGS IN ITA 1464, 1465/B/08; 177,178,262 & 305/B/09 DATED 30.12.2009, HAD DEALT WITH AN IDENTICAL ISSUE TO THAT OF THE PRESENT ISSUE UNDER W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 29 OF 42 CONSIDERATION. THE MAIN ISSUE BEFORE THE EARLIER BENCH WAS: WHETHER THE LAND SOLD BY THE A SSESSEE WAS AGRICULTURAL IN NATURE OR NOT? AFTER DULY ANALYSING THE RIVAL SUBMISSIONS AND ALSO VARIOUS JUDGEMENTS OF JUDICIARY AS MENTIONED IN ITS FINDINGS AND ALSO DELIBERATING UPON THE SECTIONS 80 AND 84 OF THE KARNATAKA LAND REFORMS ACT, 1961, THE EARL IER BENCH HAD RECORDED ITS FINDINGS AS UNDER: 37 ..(ONPAGE 2 2) . 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 INTENTION AND PURPOSE OF THE SALE IS FOR THE USE OF TIBETAN CHILDRENS VILLAGE FOR THE SETTING UP OF EDUCATIONAL INSTITUTIONS AND OTHER RELATED PURPOSES. ACCORDING TO THE ASSES SEE, THE LAND IN HIS HANDS HAD RETAINED THE AGRICULTURAL ITA 1464, 1465/B/08; 177,178,262 & 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 DEPARTMENT HAD ESTIMATED THE AGRICULTURAL INCOME AT RS.53 LAKHS FOR 2004 - 05 AND ESTIMATED AGRICULTURAL INCOME OF THE GROUP AT RS.56 LAKHS. THEREFORE, IT IS DIFFICULT TO COME TO THE CONCLUSION THAT IN THE HANDS OF THE ASSESSEE, THE CHARACTER OF THE LA ND HAD CHANGED. MERELY BECAUSE THE ORIGINAL OWNERS HAD MADE APPLICATION TO CHANGE THE CHARACTER OF THE LAND FROM AGRICULTURAL TO NON - AGRICULTURAL AND CERTIFICATE WAS ISSUED TO THAT EFFECT. EVEN FOR THE REVENUE, THERE IS NO CASE THAT THE LAND HAS BEEN USE D 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) 127 ITR 664, THE HON BLE HIGH COURT HELD THAT THE POTENTIAL NON - AGRICULTURAL US E DOES NOT ALTER THE CHARACTER OF THE LAND. THIS WAS A CASE WHEREIN THE LAND WAS PURCHASED IN 1954 AND, SUBSEQUENTLY, SOLD IN 1969. THE ENTRIES IN THE REVENUE RECORDS SHOWED THAT THE LAND WAS AGRICULTURAL CONTINUED TO BE SO. THE LAND REVENUE PAID WAS FO R AGRICULTURAL USE, BUT PERMISSION FOR NON - AGRICULTURAL USE WAS OBTAINED BUT NOT BEFORE THE DATE OF THE SALE. IN THESE CIRCUMSTANCES, THE HON BLE HIGH COURT UPHELD THE W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 30 OF 42 PRESUMPTION THAT ITA 1464, 1465/B/08, 177, 178, 262 & 305/B/09 PAGE 48 THE LAND IS AG RICULTURAL. THE HON BLE HIGH COURT CAME TO THE ABOVE CONCLUSION IN SPITE OF THE FACT THAT THIS LAND 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 TH AT THE USE OF THE LAND AS NON - AGRICULTURAL IS TOTALLY IMMATERIAL. ENTRIES IN THE RECORD OF RIGHTS ARE GOOD PRIMA FACIE EVIDENCE REGARDING LAND BEING AGRICULTURAL AND IF THE PRESUMPTION RAISED EITHER FROM ACTUAL USER OF THE LAND OR FROM ENTRIES IN REVENUE RECORDS IS TO BE REBUTTED, THERE MUST BE MATERIAL ON THE RECORD TO REBUT THE PRESUMPTION. THE APPROACH OF THE FACT - FINDING AUTHORITIES, NAMELY, THE INCOME - TAX AUTHORITIES AND THE TRIBUNAL, SHOULD TO CONSIDER THE QUESTION FROM THE POINT OF VIEW OF PRESUMPT ION ARISING FROM ENTRIES IN THE RECORD OF RIGHTS OR ACTUAL USER OF THE LAND AND THEN CONSIDER WHETHER THAT PRESUMPTION IS DISLODGED BY OTHER FACTS IN THE CASE. WHILE COMING TO THE ABOVE CONCLUSION, THE HON BLE HIGH COURT CONSIDERED THE FOLLOWING FACTS. T HE PRESUMPTION FOR NON - AGRICULTURAL USED WAS OBTAINED BY THE ASSESSEE BEFORE THE SALE OF THE LAND. COMING TO THE FACTS IN THE INSTANT CASE, THE PREVIOUS OWNER MADE AN APPLICATION FOR CONVERSION, OBTAINED THE PERMISSION, BUT WITH THE CONDITION THAT THE LAN D SHOULD BE USED FOR THE INTENDED PURPOSE WITHIN TWO YEARS, OTHERWISE THE ORIGINAL CHARACTER OF THE LAND, I.E., AGRICULTURAL NATURE, WOULD BE RESTORED. THEN THE ASSESSEE OR THE SUBSEQUENT PURCHASED HAS ITA 1464,1465/B/08, 177, 178, 262 & 305/B/09 PAGE 4 9 TO PAY PENALTY AND MAKE A FURTHER APPLICATION TO OBTAIN PERMISSION TO REVIVE THE LAND FOR INTENDED PURPOSE. THE ASSESSEE HAS NOT DONE THIS EVEN ACCORDING 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 PRODUCED BEFORE US IN THE FORM OF RTC SHOWING AGRICULTURAL INCOME ETC., IS 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 ASSESSEE WAS AGRICULTURAL REVENUE. THE NON - AGRICULTURAL REVENUE WAS PAID BY THE SUBSEQUEN T PURCHASER AFTER MAKING AN APPLICATION 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 CHILDRENS VILLAGE. IN THE W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 31 OF 42 CASE DECIDED BY THE HON BLE HIGH COURT, IT WAS HELD THAT THE CORRECT TEST TO BE APPLIED WAS WHETHER ON THE DATE OF SALE OF THE LAND WHETHER THE LAND WAS AGRICULTURAL OR NON - AGRICULTURAL AND NOT THE INTENDED PURPOSE AND HOW THE PURCHASER WAS GOING TO USE LAND. ITA.305/BANG/2009 BY THE REVENUE IN THE CASE OF T. SURESH GOWDAAY 2005 - 06 53. THE REVENUE HAD TAKEN AN ADDITIONAL GROUND THAT IS WITH REGARD TO TAKING FRESH ADDITIONAL EVIDENCE FILED BY THE ASSESSEE WITHOUT GIVING OPPORTUN ITY TO THE ASSESSING OFFICER. IN THIS CASE, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD SOLD LAND MEASURING 40 ACRES AND 20 GUNTASAT SESHAGIRIHALLI FOR RS.4,50,00,000/ - ON 7.4.04 TO TIBETAN CHILDRENS VILLAGE AND CLAIMED EXEMPTION FROM CAPITAL GAI NS WHICH WORKED OUT TO RS.3,68,01,771/ - ON THE GROUND THAT THE LAND SITUATED IN A RURAL AREA I.E., 8 KMS AWAY FROM THE LIMITS OF BANGALORE MAHANAGARAPALIKE 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 CONVERTED FOR RESIDENTIAL PURPOSE BEFORE THE SALE AND, THEREFORE, IT IS IMMATERIAL WHETHER THE LAND WAS SITUATED OUTSIDE THE CITY LI MITS OR BEYOND 8 KMS. HE FURTHER HELD THAT THE CULTIVATION OF LAND TILL DISPOSAL IS ALSO IRRELEVANT. HE FURTHER HELD THAT NO DOCUMENTARY EVIDENCE WAS PRODUCED TO THE EFFECT THAT THE LAND CONVERTED WAS TREATED AS AGRICULTURAL LAND WITHIN THE MEANING OF S. 2 (14)(III)(B). .. 54. ON SIMILAR ISSUES IN THE CONNECTED CASE, WE HAD HELD THAT THE EVIDENCE PRODUCED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER AND COMMISSIONER OF INCOME - TAX (A) TO THE EFFECT THAT ASSESSEE WAS DOING CULTI VATION 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 REFORMS RULES, 1966. WHILE COMING TO THE ABOVE CONCLUSION WE ALSO HELD THAT THIS IS A DOCUMENT MAINTAINED BY THE GOVERNMENT OFFICIALS AND TREATING THE SAME AS NOT VALID IN THE ABSENCE OF STRICT EVIDENCE TO THE CONTRARY CANNOT BE UPHELD. ITA 1464,1465/B/; 177,178,262 & 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 W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 32 OF 42 REASONS GIVEN IS APPLICABLE IN THE INSTANT CASE OF THE ASSESSEE AS THE FACTS ARE IDENTICAL . 7.3.7. THE FACT THAT THE ASSESSEE HAD CONTINUED THE AGRICULTURAL OPERATIONS UNABATED IN THE SUBJECT PROPERTY ON THE DATE OF SALE EVEN THOUGH THE SAID LAND WAS CONVERTED FOR NON - AGRICULTURAL PURPOSES BY A CONVERSION ORDER OF THE STATE GOVERNMENT WAY BAC K IN 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 ACTI VE CULTIVATION FOR AGRICULTURAL PURPOSE ONLY. THIS IS EVIDENT FROM THE FACT THAT WHEN 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, T HE CONVERSION ORDER DATED 19.7.2004 HAD LOST ITS SANCTITY SINCE THE SAID PROPERTY WAS NOT PUT USE FOR NON - AGRICULTURAL PURPOSES WITHIN TWO YEARS FOR WHICH CONVERSION WAS GRANTED. 7.3.8. FINALLY, THE MOST IMPORTANT ASPECT WHICH REQUIRES TO BE CONSIDERED IS THAT AGRICULTURE IS A STATE SUBJECT AND DIFFERENT STATES HAVE DIFFERENT REFORMS (LAWS) AS TO WHO CAN PURCHASE/OWN AGRICULTURAL LANDS IN THE RESPECTIVE STATES. TO ILLUSTRATE FURTHER, IN KARNATAKA, NON - AGRICULTURISTS AND INDUSTRIAL COMPANIES ARE PROHIBIT ED FROM PURCHASING OF LANDS WHICH ARE CLASSIFIED AS AGRICULTURAL IN THE REVENUE RECORDS. IF AN AGRICULTURIST INTENDS TO SELL HIS AGRICULTURAL LANDS TO A COMPANY/NON - AGRICULTURIST FOR THE USE OF NON - AGRICULTURAL PURPOSES, HE MUST POSSESS A CONVERSION ORD ER OBTAINED FROM THE REVENUE AUTHORITIES TO UTILISE THE SUBJECT LAND FOR NON - AGRICULTURAL PURPOSES. HOWEVER, THE SAME LAW/RULE IS NOT PREVALENT IN THE NEIGHBOURING STATES OF TAMIL NADU, ANDHRA PRADESH OR IN MAHARASHTRA, DELHI ETC. IN W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 33 OF 42 OTHER WORDS, THE AGRI CULTURISTS OF THE SAID STATES ARE FREE TO SELL THEIR LANDS AS SHOWN IN THE REVENUE RECORDS TO NON - AGRICULTURISTS/CORPORATES WITHOUT OBTAINING A CONVERSION ORDER. 7.3.9. THUS, IT IS EVIDENT FROM THE FACT THAT THE AGRICULTURISTS IN OTHER STATES CAN SELL T HEIR AGRICULTURAL LANDS WITHOUT GETTING THE SAME CONVERTED WHEREAS THE AGRICULTURISTS IN KARNATAKA CANNOT DO SO DUE TO THE LAND REFORMS ACT PREVAILING IN THE STATE. AS SUCH, AN AGRICULTURIST IN KARNATAKA IS ON A DIFFERENT FOOTING FROM HIS COUNTERPARTS IN O THER STATES. IF ONE WERE TO CONCLUDE THAT SINCE THE PRESENT ASSESSEE HAD OBTAINED A CONVERSION ORDER TO ENABLE IT TO SELL ITS LANDS TO A NON - AGRICULTURIST (A CORPORATE), THE SUBJECT LAND CEASED TO BE A NON - AGRICULTURAL AND, THUS, BECOME A CAPITAL ASSET, T HOUGH THE SUBJECT LAND REMAINS AN AGRICULTURAL LAND, THE ASSESSEE THEN STANDS DISCRIMINATED IN THE EYES OF LAW VIS - - VIS ITS COUNTER - PARTS IN OTHER STATES. HAD THE STATE REFORMS ACT PERMITTED THE ASSESSEE TO SELL ITS AGRICULTURAL LANDS WITHOUT CONVERSION TO A CORPORATE AS IN THE CASE OF OTHER STATES (SUPRA), THE ASSESSEE WOULD NOT THEN BE REQUIRED TO GET THE LAND CONVERTED MERELY TO FACILITATE ITS SALE TO A CORPORATE AND THE GAINS ARISING FROM SUCH SALE WOULD NOT HAVE BEEN EXIGIBLE TO CAPITAL GAINS TAX WHI CH IS THE SUBJECT OF A CENTRAL ACT (INCOME - TAX ACT).IN THE INSTANT CASE AS MENTIONED EARLIER EVEN AFTER CONVERSION, ASSESSEE WAS CARRYING ON AGRICULTURAL OPERATION AND CONVERSION WAS DONE ONLY TO FACILITATE SALE OF SUBJECT PROPERTY TO A CORPORATE ENTITY/ N ON AGRICULTURIST. IN SUBSTANCE, THE INCOME - TAX ACT A CENTRAL ACT IS TO BE ADMINISTERED IN SUCH A MANNER 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 DISC USSED IN THE FORE - GOING PARAGRAPHS AND ALSO IN W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 34 OF 42 CONFORMITY WITH THE JUDICIAL PRONOUNCEMENTS ON THE ISSUE (SUPRA), WE ARE OF THE VIEW THAT THOUGH THE SUBJECT LAND WAS CONVERTED INTO NON - AGRICULTURAL PURPOSES, CULTIVATION OF THE LAND FOR AGRICULTURAL PURPOSES TILL THE DATE OF SALE WAS CONTINUED UNABATED AND AS SUCH, THE LAND SHOULD HAVE BEEN TREATED AS AGRICULTURAL LAND AND, THUS, EXEMPT FROM CAPITAL GAINS IN VIEW OF S. 2 (14) OF THE ACT. IT IS ORDERED ACCORDINGLY. WHETHER THE BIAAPA CAN BE TREATED AS A MUNI CIPALITY AND, CONSEQUENTLY, THE ISSUE FALLS WITHIN THE AMBIT OF S. 2 (14)(III) (A) OF THE ACT? 8. FURTHER, THE AO TOOK A STAND THAT (I) THE SUBJECT LANDS WERE LOCATED WITHIN 8 KMS FROM MUNICIPALITY; (II) THE SAID LANDS WERE LOCATED IN BIAAPA WHICH WAS AN AUTHORITY AS PER THE DEFINITION OF ASSET IN S. 2 OF THE ACT; AND (III) THE SAID LANDS WERE LOCATED WITHIN 8 KMS FROM BBMP AS THE CROW FLIES OR A PERSON WALKS IN A STRAIGHT LINE (BEING THE SHORTEST DISTANCE) AND, THEREFORE, ASSETS A S PER THE DEFINITION OF ASSET IN SECTION 2 (14)(III)(B) [REFER: PARA 4 ON PAGE 4 OF THE ASST. ORDER]. 8.1. THE CIT (A) WAS ALSO OF THE VIEW THAT IT MAY BE NOTED THAT BIAAPA IS IDENTIFIED IN ITS BYE - LAWS AS A LOCAL PLANNING AREA WITH ITS ZONAL REGULA TIONS PREPARED UNDER CLAUSE (III) OF SUB - SECTION (2) OF SECTION 12 OF THE KARNATAKA TOWN AND COUNTRY PLANNING ACT, 1961. WHILE JUSTIFYING THE NEED FOR THE ZONING REGULATIONS ENFORCEABLE BY BIAAPA, IT IS STATED THAT THE SAME ARE INTENDED TO PROMOTE PUBLIC HEALTH, SAFETY AND THE GENERAL SOCIAL WELFARE OF THE COMMUNITY , AND TO ENSURE THAT MOST APPROPRIATE, ECONOMICAL AND HEALTHY DEVELOPMENT OF THE TOWN TAKES PLACE IN ACCORDANCE WITH THE LAND USE PLAN AND ITS CONTINUED MAINTENANCE OVER THE YEARS. [SOURCE: PARA 4.6.1 OF THE CIT (A) S ORDER]. W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 35 OF 42 8.1.1. DURING THE COURSE OF HEARING, THE LEARNED DR HAD PLACED STRONG RELIANCE ON THE JUDGMENT OF THE HON BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT V. SMT RANI TARA DEVI (2013) 214 TAXMAN 321 (P & H). 8. 2. IN ITS REBUTTAL, THE ASSESSEE DIFFERED FROM THE VIEW TAKEN BY THE PUNJAB & HARYANA HIGH COURT IN AS MUCH AS THE HON BLE COURT HAD COME TO THE CONCLUSION THATIT HAD ON THE PREMISE THAT THE EXPRESSION BY ANY OTHER NAME APPEARING IN ITEM (A) OF CLAUSE ( III) OF S. 2 (14) HAS TO BE READ EJUSDEM GENERIS WITH THE EARLIER EXPRESSION I.E., MUNICIPAL CORPORATION, NOTIFIED AREA COMMITTEE, TOWN AREA COMMITTEE. IT WAS, FURTHER, SUBMITTED THE FACT THAT THE LEGISLATURE TOOK A CONSCIOUS DECISION TO SPECIFY THE WORDS WHETHER KNOWN AS MUNICIPALITY, MUNICIPAL CORPORATION, NOTIFIED AREA COMMITTEE, TOWN AREA COMMITTEE, TOWN COMMITTEE OR ANY OTHER NAME IN BRACKETS. THIS MEAN, IT WAS ARGUED, THAT THE BODY REFERRED TO MUST ESSENTIALLY BE A MUNICIPALITY EVEN THOUGH IT MAY BE KNOWN BY ANY OTHER NAME. THE MUNICIPALITY HAS BEEN DEFINED IN THE CONSTITUTION AND ONE NEED NOT AND SHOULD NOT LOOK ANY FURTHER FOR ITS DEFINITION. THE CONSTITUTION, IT WAS AVERRED, DEFINES MUNICIPALITY TO BE AN ELECTED BODY FOR THE PURPOSES OF SELF - G OVERNANCE. 8.2.1. IN CONCLUSION, IT WAS PLEADED THAT IN THE PRESENT CASE, BIAPPA IS NOT AN ELECTED BODY FOR THE PURPOSE OF SELF - GOVERNANCE AND, CLEARLY, IS NOT A MUNICIPALITY AS CONTEMPLATED BY S. S. 2 (14) OF THE ACT. 8.3. WE HAVE CAREFULLY CONSIDER ED THE REASONING OF THE AUTHORITIES BELOW AND ALSO THE DIVERGENT CONTENTIONS OF EITHER OF THE PARTY ON THE ISSUE. INDEED, BIAAPA PERFORMS ONLY PLANNING AND ZONING FUNCTIONS, BUT, DOES NOT PERFORM ANY OTHER MUNICIPAL FUNCTIONS AS CANVASSED BY THE W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 36 OF 42 REVENUE. OTHER MAJOR MUNICIPAL/PANCHAYAT FUNCTIONS ARE REQUIRED TO BE PERFORMED ONLY BY AN ELECTED BODY, NAMELY, THE RESPECTIVE MUNICIPALITY/PANCHAYAT WITHIN THE AMBIT OF THE AREA COVERED BY BIAAPA, BUT, NOT BIAAPA WHICH IS, ADMITTEDLY, A MERE PLANNING AUTHORITY. WE ARE ALSO DIFFER WITH THE INTERPRETATION OF THE CIT (A) THAT MUNICIPALITY NEED NOT NECESSARILY BE AN ELECTED BODY. IN THIS CONTEXT, WE REFER TO THE ARTICLE 243P(E) OF THE CONSTITUTION OF INDIA WHICH EXPLICITLY DEFINES MUNICIPALITY MEANS AN INSTITUT ION OF SELF - GOVERNMENT CONSTITUTED UNDER ARTICLE 243Q AND ARTICLE 243R REQUIRES THAT ALL THE SEATS IN A MUNICIPALITY SHALL BE FILLED BY PERSONS CHOSEN BY DIRECT ELECTION FROM THE TERRITORIAL CONSTITUENCIES IN THE MUNICIPAL AREA AND, THUS, CLEAR THAT A MUNI CIPALITY HAS TO NECESSARILY BE AN ELECTED BODY WHEREAS BIAAPA WAS NOT AN ELECTED BODY, BUT, AN APPOINTED BODY AND, THEREFORE, BIAAPA DOES NOT QUALIFY TO BE CONSIDERED AS A MUNICIPALITY. 8.3.1. TO STRENGTHEN THE ABOVE VIEW, IT IS APPROPRIATE TO REFER TO T HE JUDGMENT OF THE HON BLE KERALA HIGH COURT IN THE CASE OF CIT V. MURALI LODGE REPORTED IN (1992) 194 ITR 125 (KER). THE ISSUE BEFORE THE HON BLE COURT WAS WHETHER THE LAND IN QUESTION SITUATED WITHIN GURUVAYUR TOWNSHIP CAN BE TREATED AS A CAPITAL ASSET WITHIN THE DEFINITION OF SECTION 2(14) OF THE I.T. ACT? AFTER HAVING CONSIDERED THE FACTS OF THE ISSUE AND ALSO IN CONFORMITY WITH THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF GARDEN SILK WEAVING FACTORY V. CIT [(1991) 189 ITR 512 (SC)], THE HON BLE KERALA HIGH COURT HAD, COMPREHENSIVELY, DEALT WITH THE ISSUE OF WHETHER THE LOCAL AUTHORITY IS A MUNICIPALITY? AS UNDER: (ON PAGE 127) ...... FROM THE PLAIN AND UNAMBIGUOUS LANGUAGE EMPLOYED IN THE SECTION [2(14)(III)(A)] , IT IS CLEAR THAT, IF THE AGRICULTURAL LAND IS SITUATED OUTSIDE THE JURISDICTION OF A W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 37 OF 42 MUNICIPALITY THEN NO TAX ON ANY PROFITS OR GAINS ARISING FROM THE TRANSFER OF SUCH LAND WILL BE CHARGEABLE UNDER THE HEAD CAPITAL GAINS . THE QUESTION, THEREFORE, IS: WHETHER THE AGRICULTURAL LAND OF THE ASSESSEE SOLD IN PUBLIC AUCTION CAN BE SAID TO BE SITUATED IN AN AREA WHICH IS COMPRISED WITHIN THE JURISDICTION OF A MUNICIPALITY. THE CASE OF THE REVENUE IS THAT IT IS, BECAUSE THE GURUVAYURTOWNSHIP IS A MUNICIPALITY WITHIN THE MEANING OF THAT WORD IN THE SECTION. ON THE OTHER HAND, COUNSEL FOR THE ASSESSSEE SUBMITS THAT THE GURUVAYURTOWNSHIP, THOUGH A LOCAL AUTHORITY CANNOT BE SAID TO BE A MUNICIPALITY AND, THEREFORE, THE AGRICULTURAL LAND IN DISPUTE CANNOT BE SAID TO BE SITUATED IN AN AREA WHICH IS COMPRISED WITHIN THE JURISDICTION OF A MUNICIPALITY. THE WORD MUNICIPALITY USED IN THE SECTION CONSIDERED IN THE LIGHT OF THE VARIOUS EXPRESSIONS USED IN THE BRACKETS, NAMELY, WHETHER KNOWN AS A MUNICIPALITY, MUNICIPA L CORPORATION, NOTIFIED AREA COMMITTEE, TOWN AREA COMMITTEE, TOWN COMMITTEE, OR BY ANY OTHER NAME MUST BE HELD TO TAKE IN ITS FOLD A TOWNSHIP ALSO, COUNSEL FOR THE REVENUE SUBMITS. OF THE VARIOUS WORDS INCLUDED IN THE BRACKETS, LEARNED COUNSEL FOR THE REV ENUE LAID EMPHASIS ON THE WORDS BY ANY OTHER NAME . THESE WORDS, COUNSEL ARGUES, TAKE COLOUR FROM THE PRECEDING WORDS, AND, IF THAT BE THE POSITION, THE GURUVAYURTOWNSHIP ALSO CAN BE CALLED A MUNICIPALITY. MAY BE THAT THE GURUVAYUR TOWNSHIP CAN BE CALLE D A LOCAL AUTHORITY. BUT ALL LOCAL AUTHORITIES CANNOT BE CALLED MUNICIPALITIES. ONLY THOSE LOCAL AUTHORITIES WHICH HAVE ALL THE TRAPPINGS OF A MUNICIPALITY CAN BE TREATED AS A MUNICIPALITY WITHIN THE MEANING OF THE SECTION. THEREFORE, TO FIND A SOLUTION TO THE PROBLEMATIC DISPUTE, WE HAVE TO GIVE A MEANING TO THE WORD MUNICIPALITY WHICH STANDS UNDEFINED IN THE ACT. GENERALLY UNDERSTOOD, MUNICIPALITY MEANS A LEGALLY INCORPORATED OR DULY AUTHORISED ASSOCIATION OF INHABITANTS OF A LIMITED AREA FOR LOCA L GOVERNMENTAL OR OTHER PUBLIC PURPOSES [BLACK S LAW DICTIONARY]. THE ABOVE DEFINITION MORE OR LESS IS REFLECTED IN THE PROVISIONS CONTAINED IN CHAPTER III OF THE KERALA MUNICIPALITIES ACT, 1960. THE COUNCIL CONSTITUTED UNDER SECTION 7 WITH THE ASSISTANC E OF THE STANDING COMMITTEE OF THE COUNCIL, CHAIRMAN, COMMISSIONER, ETC., WILL ADMINISTER THE PROVISIONS OF THE ACT. THE COUNCIL CONSISTS OF SUCH NUMBER OF MEMBERS AS ARE PRESCRIBED. THEY ARE CALLED COUNCILLORS. THEY ARE ELECTED BY THE RESIDENTS OF THE AREA COMING WITHIN THE JURISDICTION OF THE MUNICIPALITY. THE CHAIRMAN AND VICE - CHAIRMAN OF THE MUNICIPALITY ARE ELECTED BY THE MEMBERS OF THE COUNCIL. THE COMMISSIONER IS APPOINTED BY THE GOVERNMENT IN CONSULTATION WITH THE W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 38 OF 42 COUNCIL. IT IS THE DUTY OF TH E COMMISSIONER TO CARRY INTO EFFECT THE RESOLUTIONS OF THE COUNCIL UNLESS IT BE THAT THE SAID RESOLUTION IS SUSPENDED OR CANCELLED BY THE GOVERNMENT. THE MUNICIPALITY CONTEMPLATED UNDER SECTION 2(14)(III)(A) MUST BE ONE WHICH SATISFIED THE ABOVE REQUIREME NTS. ALL THE LOCAL AUTHORITIES INCLUDED IN THE BRACKETS MUST SATISFY THE ABOVE REQUIREMENTS TO BE KNOWN AS A MUNICIPALITY . THE POSITION, HOWEVER, WOULD HAVE BEEN DIFFERENT HAD THE SECTION CONTAINED A DEFINITION WHICH TAKES IN ITS FOLD THE LOCAL AUTHORI TIES INCLUDED IN THE BRACKETS, NAMELY, MUNICIPAL CORPORATION NOTIFIED AREA COMMITTEE, TOWN AREA COMMITTEE, TOWN COMMITTEE OR SUCH OTHER SIMILAR LOCAL AUTHORITY . IN THAT EVENT, THE GURUVAYUR TOWNSHIP CAN BE SAID TO BE A MUNICIPALITY. THE PLAN LANGUAGE EMPLOYED IN THE SECTION, HOWEVER, MAKES IT CLEAR THAT THE INTENTION OF THE LEGISLATURE IS NOT TO TREAT EVERY LOCAL AUTHORITY AS A MUNICIPALITY; BUT, ON THE OTHER HAND, ONLY THOSE LOCAL AUTHORITIES WHICH HAVE ALL THE TRAPPINGS OF A MUNICIPALITY AS STATED A BOVE CAN BE SAID TO BE MUNICIPALITIES WITHIN THE MEANING OF THE SECTION. THE GURUVAYUR TOWNSHIP, CONSTITUTED UNDER THE GURUVAYUR TOWNSHIP ACT, CONSIDERED IN THIS BACKDROP, CANNOT BE SAID TO BE A MUNICIPALITY. THE GURUVAYUR TOWNSHIP IS NOT AN AUTONOMOUS B ODY LIKE A MUNICIPALITY. IT IS CONSTITUTED BY THE GOVERNMENT BY A NOTIFICATION ISSUED UNDER THE GURUVAYUR TOWNSHIP ACT. TO PUT IT DIFFERENTLY, THE MEMBERS OF TOWNSHIP COMMITTEE ARE NOT ELECTED REPRESENTATIVES OF THE RESIDENTS OF THE AREA. THAT THE CENTRA L GOVERNMENT ALSO HAS UNDERSTOOD THE POSITION THUS IS OBVIOUS FROM THE DRAFT NOTIFICATION DATED FEBRUARY 8, 1991, PUBLISHED IN THE GAZETTE ISSUED UNDER SECTION 2 (14)(III)(B) OF THE INCOME - TAX ACT 8.3.2. WE HAVE, WITH DUE REGARDS, PERUSED THE JUDGMEN T OF THE HON BLE P & H HIGH COURT IN THE CASE OF CIT V. SMT. RANI TARA DEVI (SUPRA) AS RELIED ON BY THE LEARNED DR. THE ONLY ISSUE BEFORE THE HON BLE COURT WAS: WHETHER THE LAND OWNED BY THE ASSESSEE WHICH WAS ACQUIRED UNDER THE PROVISIONS OF THE LAND AC QUISITION ACT, WAS AN AGRICULTURAL LAND OR A CAPITAL ASSET WITHIN THE MEANING OF S. 2 (14) OF THE ACT IN ORDER TO DETERMINE THE TAXABILITY OF AMOUNT OF COMPENSATION RECEIVED BY THE ASSESSEE? W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 39 OF 42 A FTER TAKING INTO ACCOUNT THE RELEVANT FACTS OF THE CASE, THE HO N BLE COURT WAS OF THE VIEW THAT IT WAS TO BE REGARDED AS A CAPITAL ASSET WITHIN THE MEANING OF S. 2 (14) OF THE ACT FOR THE FOLLOWING REASONS: (I) THAT THE ACQUIRED LAND WAS SITUATED BETWEEN THE DEVELOPED SECTORS OF PANCHKULA ON ONE SIDE AND ON THE OTHER SIDE, IT WAS 1 KM FROM THE DISTRICT HEADQUARTERS; (II) THAT THE LAND WAS EXTENSIVELY DEVELOPED AREA AND NEARER TO COLLEGES, HOSPITALS, DISTRICT HEADQUARTERS ETC., (III) WITH REGARD TO THE ASSESSEE S CLAIM THAT IN TERMS OF S 2(14) AN AGRICULTURAL LAND W AS EXCLUDED FROM THE CAPITAL ASSET, IF IT WAS NOT A LAND SITUATED IN AN AREA WHICH WAS COMPRISED WITHIN THE JURISDICTION OF MUNICIPALITY ETC., IT WAS HELD BY THE COURT THAT HARYANA URBAN DEVELOPMENT AUTHORITY WAS A LOCAL AUTHORITY IN TERMS OF S. 3 OF THE H ARYANA URBAN DEVELOPMENT AUTHORITY ACT, 1977 AND, THUS THE LOCAL AUTHORITY IN TERMS OF S. 3(31) OF THE GENERAL CLAUSES ACT MEANS A MUNICIPALITY. THEREFORE, CONVERSELY, THE EXPRESSION MUNICIPALITY IN S. 2 (14) OF THE ACT WOULD INCLUDE A LOCAL AUTHORITY; & (IV) IN VIEW OF THE ABOVE, IT WAS HELD THE LAND, SUBJECT MATTER OF ACQUISITION, WAS A CAPITAL ASSET FALLING WITHIN THE SCOPE OF CLAUSE (III) OF S. 2 (14). 8.3.3. IN THIS CONNECTION, WE WOULD LIKE TO POINT OUT THAT THE SAID LAND WAS SITUATED BETWEEN TH E DEVELOPED SECTORS OF PANCHKULA ON ONE SIDE AND ON THE OTHER - SIDE IT WAS WITHIN A RADIUS OF 1 KM FROM THE DISTRICT HEADQUARTERS, COLLEGES, HOSPITALS ETC., WHEREAS IN THE PRESENT CASE, THE SUBJECT PROPERTY WAS SURROUNDED BY LUSH GREEN AGRICULTURAL LANDS. THEREFORE, WE ARE OF THE VIEW THAT THE CASE LAW RELIED ON BY THE REVENUE IS NOT DIRECTLY APPLICABLE TO THE ISSUE ON HAND. 8.3.4. FURTHER, WHILE DECIDING THE ISSUE AGAINST THE ASSESSEE, THE HON BLE COURT HAD DISTINGUISHED THE JUDGMENT W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 40 OF 42 OF HON BLE KERALA HIGH COURT IN MURALI LODGE S CASE (SUPRA) IN AN IDENTICAL ISSUE, WITH THE FOLLOWING OBSERVATIONS: 29. WITH RESPECT, WE ARE UNABLE TO AGREE WITH THE VIEW EXPRESSED BY THE KERALA HIGH COURT IN THE AFORESAID JUDGMENT. THE EXPRESSION BY ANY OTHER NAM E APPEARING IN ITEM (A) OF CLAUSE (III) OF SECTION 2(14) HAS TO BE READ EJUSDEM GENERIS WITH THE EARLIER EXPRESSIONS I.E., MUNICIPAL CORPORATION, NOTIFIED AREA COMMITTEE, TOWN AREA COMMITTEE, TOWN COMMITTEE. THE COURT HAS ALSO NOT CONSIDERED THE SCOPE AN D AMBIT OF SECTION 3 (31) OF THE GENERAL CLAUSES ACT DEFINING LOCAL AUTHORITY. 8.3.5. AT THIS JUNCTURE, WE WOULD LIKE TO POINT OUT THAT THERE ARE TWO VIEWS ON THE ISSUE, ONE IN FAVOUR OF THE ASSESSEE AS HELD BY THE HON BLE KERALA HIGH COURT [I N MURALI LODGE S CASE] AND OTHER AGAINST THE ASSESSEE AS RULED BY THE HON BLE P & H HIGH COURT (SUPRA). APPARENTLY, THERE IS NO JUDGMENT RENDERED BY THE HON BLE JURISDICTIONAL HIGH COURT ON THIS ISSUE. IN THE GIVEN CIRCUMSTANCES, FOLLOWING THE JUDGMENT O F THE HON BLE SUPREME COURT IN THE CASE OF CIT V. VEGETABLE PRODUCTS LIMITED REPORTED IN 88 ITR 192 (SC), WE HOLD THAT WHERE TWO VIEWS ARE POSSIBLE ON AN ISSUE, THE VIEW IN FAVOUR OF THE ASSESSEE HAS TO PREVAIL. ACCORDINGLY, IN CONFORMITY WITH THE JUDGMEN T OF THE HON BLE KERALA HIGH COURT IN MURALI LODGE S CASE (SUPRA) WHICH IS DIRECTLY APPLICABLE TO THE PRESENT CASE, WE HOLD THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN HOLDING THAT THE SUBJECT LAND COULD NOT BE TREATED AS AGRICULTURAL LANDS AND THAT T HE PROCEEDS RECEIVED FROM ITS SALE WAS EXIGIBLE TO TAX UNDER THE HEAD CAPITAL GAINS . IT IS ORDERED ACCORDINGLY. 9. DURING THE COURSE OF HEARING, THE LEARNED DR ARGUED THAT IN THE ORIGINAL RETURN OF INCOME FURNISHED BY THE ASSESSEE, IT HAD CONCEDED THAT IT WAS LIABLE FOR CAPITAL GAINS AND, THUS, THE ASSESSEE CANNOT CHANGE ITS STAND LATER ON AS IT WAS NOT LIABLE FOR CAPITAL GAINS ETC., W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 41 OF 42 9.1. ON THE OTHER HAND, THE LEARNED AR SUBMITTED THAT IN THE ORIGINAL RETURN OF INCOME FURNISHED, THE ASSESSEE HAD INAD VERTENTLY AND DUE TO WRONG ADVICE, IT HAD DECLARED INCOME FROM LON TERM CAPITAL GAINS AGGREGATING TO RS.14.7 CRORES FROM THE SALE AGRICULTURAL LANDS. ON BEING APPRAISED OF THE LEGAL POSITION TO THE EFFECT THAT THE SALE OF LAND WAS UNDER ACTIVE AGRICULTURA L CULTIVATION WHICH WAS EXEMPT FROM TAX AND ALSO EXCLUDED FROM THE DEFINITION OF CAPITAL ASSET AS PER THE PROVISIONS OF S. 2 (14)(III) OF THE ACT, A REVISED RETURN OF INCOME WAS FURNISHED ON 15.6.2009 WITH A DETAILED NOTE EXPLAINING THE REASONS FOR FILIN G OF A REVISED RETURN ETC., IT WAS, THEREFORE, PLEADED THAT THERE IS NO SUBSTANCE IN THE ARGUMENT OF THE LEARNED DR WHICH DESERVES TO BE REJECTED. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT CASE RECORDS. ON A SCRUTI NY OF THE ASSESSMENT ORDER, IT IS NOTICED THAT THE ASSESSEE HAD FURNISHED ITS RETURN OF INCOME FOR THE AY UNDER CONSIDERATION ON 31.7.2008, ADMITTING A TOTAL INCOME OF RS.14.86 CRORES AND, SUBSEQUENTLY, A REVISED RETURN OF INCOME WAS FILED ON 15.6.2009 ADM ITTING AN INCOME OF RS.22.9 LAKHS I.E., WELL BEFORE THE INITIATION OF ASSESSMENT PROCEEDINGS WHICH EVENTUALLY STARTED ONLY ON 19.11.2010. THUS, THE ASSESSEE WAS WITHIN ITS DOMAIN TO REVISE ITS INCOME AND ALSO FURNISH A REVISED RETURN OF INCOME BEFORE THE INITIATION OF ITS ASSESSMENT PROCEEDINGS. THEREFORE, THE ARGUMENT OF THE LEARNED DR DOESN T CARRY ANY CONVICTION AND, ACCORDINGLY, THE SAME IS REJECTED. SINCE THE TRIBUNAL, IN THE ASSESSEE S OWN CASE IN INCOME - TAX PROCEEDINGS WITH REGARD TO THE SAME SUB JECT MATTER, HAS TAKEN THE STAND AND HELD THE LAND TO BE AGRICULTURAL L AND AND THE DEFINITION OF CAPITAL ASSET IN THE INCOME - TAX ACT IS SIMILAR TO THE DEFINITION OF W TA NO S . 16 TO 29 /BANG/2014 & CO.NOS.86 TO 97/BANG/201 4 M/S.M.R. PADMAVATHY TRUST & OTHERS PAGE 42 OF 42 URBAN LAND UNDER THE WEALTH - TAX ACT , WE RESPECTFULLY FOLLOW THE ORDER OF THE CO - ORDINAT E BENCH OF THE TRIBUNAL AND HOLD THE SAID LAND TO BE NOT URBAN LAND EXIGIBLE TO CAPITAL GAINS TAX. 9. SINCE WE HAVE HELD THE LAND TO BE NOT URBAN LAND AND NOT EXIGIBLE TO WEALTH - TAX, THE ISSUE OF VALUATION OF CAPITAL ASSET BECOMES ACADEMIC AND THER EFORE IS NOT ADJUDICATED AT THIS STAGE. 10. IN THE RESULT, THE REVENUE S APPEALS ARE DISMISSED AND THE ASSESSEES CROSS OBJECTIONS ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 31 ST MARCH , 2015. SD/ - SD/ - (ABRAHAM P GEORGE) (SMT. P.MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER EKSRINIVASULU COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE T RIBUNAL BANGALORE