COMMISSIONER OF INCOME TAX PANCHKULA V. SUNIL KUMAR SOOD

ITA/230/2012

AI Insights

The case involves multiple appeals by the Commissioner of Income Tax, Panchkula, against Sunil Kumar Sood concerning the taxability of income derived from the sale of agricultural land. The primary legal question was whether the income from these transactions should be classified as business income or agricultural income. The ITAT had previously ruled in favor of the respondent, stating that the land was agricultural and the sales did not amount to a business venture. The High Court upheld this decision, emphasizing the agricultural nature of the land and the lack of evidence to support the claim that the transactions were conducted as a business.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 729329 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 27-10-2014
• Assessment Year: misc
• Other Referred Cases: Indian Hume Pipe Co. Ltd. v. CTR 195 ITR 386(Bom), CIT v. Smt. Bilkishbai 225 ITR 570 (MP), Cit v. Sushila Devi Jain 259 ITR 671, CIT v. Sushila Devi Jain 259 ITR 671
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: RAVISHANKAR
• Assessee Lawyers: YOGESH PUTNEY
• Keywords: Adventure in the nature of trade; Agricultural income; Business income; Capital asset; Income from sale and purchase of lands
• Section: 142(1); 143(2); 143(1); 2(14)(iii); 2(13)

Judgement Text

"ITA No. 230 of 2012 (O&M) -1- IN THE HIGH COURT OF PUNJAB & HARYANA, CHANDIGARH (1) ITA No. 230 of 2012 (O&M) Date of decision: October 27, 2014 Commissioner of Income Tax, Panchkula ....... Appellant Versus Sunil Kumar Sood ........ Respondent (2) ITA No. 231 of 2012 (O&M) Commissioner of Income Tax, Panchkula ....... Appellant Versus Sunil Kumar Sood ........ Respondent (3) ITA No. 288 of 2012 (O&M) Commissioner of Income Tax, Panchkula .......Appellant Versus Sunil Kumar Sood ........ Respondents (4) ITA No. 289 of 2012 (O&M) Commissioner of Income Tax, Panchkula ....... Petitioner Versus Sunil Kumar Sood ........ Respondent ARCHANA ARORA 2015.01.09 16:48 I attest to the accuracy and authenticity of this document ITA No. 230 of 2012 (O&M) -2- (5) ITA No. 175 of 2014 (O&M) Commissioner of Income Tax, Panchkula ....... Appellant Versus Sunil Kumar Sood ........ Respondent (6) ITA No. 176 of 2014 (O&M) Commissioner of Income Tax, Panchkula ....... Appellant Versus Sunil Kumar Sood ........ Respondent CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA AND HON'BLE MR. JUSTICE AMIT RAWAL Present:- Mr. Yogesh Putney, Advocate for the appellant. Mr. Ravi Shankar, Advocate for the respondent. **** RAJIVE BHALLA, J (ORAL) By way of this order we shall decide ITA Nos. 230,231,288,289 of 2012 and 175 and 176 of 2014 as they relate to the same assessee but to different assessment years but raise common questions of law. The facts are being taken from ITA No.230 of 2012. The question that arises for adjudication and has been framed as a substantial question of law by the revenue reads as under:- ITA No. 230 of 2012 (O&M) -3- Whether on the facts and in the circumstances of the case the learned ITAT is justified to hold the income from sale and purchase of lands as agriculture income as against the findings recorded by the Assessing Officer. and duly concurred by the CIT (A) that the assessee is a dealer in the purchase and sale of agricultural lands without putting the lands to agriculture use and hence income derived is the business income in the nature of adventure in the nature of trade of dealing in purchase and sale of agriculture land?” Counsel for the revenue submits that sale of separate parcels of land by the assessee, should be construed as an adventure in the nature of trade as defined by Section 2(13) of the Income Tax Act, 1961 (hereinafter to be referred to as 'the Act') and his stock in trade and, therefore, a capital asset. As a consequence, profit and gain arising from the sale of separate parcels of land is the assesses' business income, exigible to tax. Counsel for the revenue further submits that whether the land was agricultural or not or whether it was put to agriculture use or not or whether the assessee derived agricultural income or not is not germane to the issue in hand. The question that should have been answered by the Tribunal was whether purchase and sale of land in short intervals of time, admittedly sold to industries, is exempted from capital gain. Counsel for the revenue submits that apart from the aforesaid argument, as the Assessing Officer and the CIT(A) had recorded ITA No. 230 of 2012 (O&M) -4- concurrent findings of fact that the land in dispute is not agricultural land, the ITAT had no jurisdiction to reverse these findings and then also without assigning clear and cogent reasons. Admittedly, the assessee purchased the land and then immediately sold it to industrial houses. The failure of the assessee to prove any agricultural income proves that the land in dispute was not being put to agricultural use and therefore was acquired by the assessee, as a part of his business thereby partaking the nature of an adventure or concern in the nature of trade or commerce. The assessee has no right to claim that as the land is agricultural, it is not exigible to capital gain tax and income derived from these sales cannot be construed as income from business. Counsel for the assessee, however, submits that the question that is germane to the controversy is not whether the land was stock in trade or that the sale and purchase was an adventure or concern in the nature of trade but whether the land in dispute was agricultural land. A perusal of the jamabandi, the chart prepared by the Assessing Officer and the report obtained by the Assessing Officer from the concerned Tehsildar reveals that the land is agricultural in nature. The Assessing Officer has himself recorded that maize and vegetable crops grow on the land but strangely enough, proceeded to hold that it is not agricultural land as neither 'lagan' nor 'land revenue' is paid. The payment of any rent, lagan, batai or land revenue, is irrelevant for determining the nature of land. The jamabandi clearly records the land as 'barani abal' that is land which is not irrigated by any canal or river but is generally irrigated by ITA No. 230 of 2012 (O&M) -5- rain or by other means of irrigation. It is further submitted that at no stage of the proceedings whether before the Assessing Officer, CIT (A) or the ITAT was a question based upon the definition of business, as provided under Section 2 (13) of the Act raised and therefore, cannot be raised for the first time before this Court, particularly, when the assessing officer and CIT(A) have passed orders by holding that the land in dispute is not agricultural land. The order passed by the ITAT is legal and valid and as the substantial question of law as framed does not arise for adjudication the appeal may be dismissed. We have heard counsel for the parties, perused the impugned order as well as orders passed by the Commissioner of Income Tax(Appeals) and the Assessing Officer. The assessee filed a return of income on 30.10.2007, declaring a total income of Rs.24,04,503/-. The return was processed under Section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') and, thereafter, taken up for scrutiny. A notice under Section 143(2) of the Act was issued to the assessee on 26.09.2008 and served upon the assessee on 29.09.2008. A notice under Section 142(1) of the Act along with a detailed questionnaire was issued to the assessee on 30.10.2009. In response to these notices, a representative of the assessee attended the proceedings. The assessee claimed that land, which was subject matter of the transactions, was agricultural land situated in a rural area of Himachal Pradesh and, therefore, its sale would not invite capital gains tax. The Assistant Commissioner of Income Tax, Panchkula Circle, Panchkula, held that the land is not ITA No. 230 of 2012 (O&M) -6- agricultural as the assessee is a practicing Chartered Accountant, who has purchased and sold a number of properties and, the sale under the head “business income” earned from business activities of purchase and sale of land and, therefore, has to be treated as business income of the assessee. The Assessing Officer computed the total income of the assessee as Rs.1,38,27,700, Rs.24,04,503 and Rs. 51,12,533. The assessee filed an appeal, which was dismissed by the Commissioner of Income Tax (Appeal), Panchkula. Aggrieved by these orders, the assessee filed an appeal. The Income Tax Appellate Tribunal, Chandigarh Bench 'B', Chandigarh, vide the impugned order allowed the appeal, set aside the order passed by the CIT(Appeal) and the Assessing Officer, by holding that as per the revenue record the land, in question is agricultural land assessed to land revenue and as the assessee had not taken any steps to convert agricultural land to non-agricultural use, it does not fall within the definition of capital asset, as clarified under Section 2 (14)(iii) of the Act. On the question of adventure in business and business income from sale of the land, the Tribunal held as follows:- “14. The revenue has failed to bring material on record to demonstrate that the assessee is a dealer in lands. The assessee has shown the lands in his audited balance sheet as fixed assets and this factum remained un-rebutted by the revenue, and is a relevant factor in unfolding the intention of the assessee. Mere frequency of purchase and sale of land is not a conclusive evidence of carrying on ITA No. 230 of 2012 (O&M) -7- business activities as trader or dealer in land. The Hon'ble Bombay High Court, in the case of Indian Hume Pipe Co. Ltd. v. CTR 195 ITR 386(Bom) held that where no development has been carried out, to make the land readily marketable and sale of the plot of lands during different years, would not constitute transactions as a trader. Similarly, Madhya Pradesh High Court in the case of CIT v. Smt. Bilkishbai 225 ITR 570 (MP) held that repeated sales and purchases of agricultural land is not adventure in nature of trade, as no systematic business activities involve. Therefore, the surplus on sale of land cannot be assessed as business income. Similar view has been held by the jurisdictional High Court, in the case of Cit v. Sushila Devi Jain 259 ITR 671. 15. Having regard to the fact-situation of the present case, it is evident that the present lands in question do not constitute capital asset within the meaning of Section 2(14)(iii) of the Act. Therefore, surplus realized on sale of such lands cannot be taxed as capital gains u/s 45 r.w. Section 10(37) of the Act. The provisions of Section 10(37) were inserted by the Finance Act 2004 (No.2) w.e.f. 1.4.2005. The revenue merely made an assertion and treated the surplus realised from the sale of ITA No. 230 of 2012 (O&M) -8- rural agricultural lands as business profit, which don't fall u/s 2(14) of the Act. Therefore, having regard to the fact situation of the present case, relevant record and judicial verdicts, the surplus realised on sale of such land, is not taxable receipts. In view of the above legal and actual discussions, we are of the considered opinion that findings of the CIT(A), based on bare assertions, in the face of documentary evidence, filed by the assessee, to support his claim, as discussed above, cannot be upheld. Accordingly, appeal of the assessee is allowed.” A perusal of the revenue record reveals that the relevant jamabandi, records that the land is “Barani Abal”, i.e. agricultural land which is not irrigated by a canal or a river but is rain fed or is irrigated by other means. Admittedly, the land is situated in a rural area, beyond municipal limits. A presumption of truth is attached to an entry in a jamabandi. The entry in the jamabandi describing the land as “Barani Abal”, raises a presumption of truth as to its nature namely, that it was rural agricultural land. This apart the Tehsildar, Nalagrah, District Solan, Himachal Pradesh, in response to information sought, addressed a letter dated 07.01.2008 to the Assistant Commissioner of Income Tax, Panchkula, which reads as follows:- “To Asstt. Commissioner of Income Tax, ITA No. 230 of 2012 (O&M) -9- Panchkula Circle, Panchkula. On the above cited subject refer your office letter No.ACIT/PKL/Cir/Pkl/07-08/IA/3073, dated 31.10.2007, and in this regard, we have got investigated the information from our field employees and the report is as under:- 1. Copy of jamabandi of land bearing khasra 1341/3, 1341/2-1338-1339-1336-1337-1335-1319- 1345/1, 1347/1, in village Bhatoli Kalan is prepared and submitted. 3(a) The above land does not fall under M.C. Corporation, NAC. (b) Nagar Panchayat Baddi to above khasra (land) the distance is approx, 10 K.M. (c) Distance of land is more than 8 K.M. 4. The land is away from Nagar Panchayat. The details of census are not available. 5(a) The above sold land was used for agricultural purposes before selling. (b) The above said land was used for agricultural purposes regularly. (c) Not applicable and not related to our records. (d) Himachal Agriculturist does not require any permission from Government while buying or selling of land but if the purchaser is non-agriculturist then it is a necessity that he he has to obtain permission ITA No. 230 of 2012 (O&M) -10- from Govt. u/s 118 of H.P. Tenancy and Land Reforms Rules, 1972. The above said land was agricultural land at the time of purchase and sale. (f) On relevant date the above land was agricultural land and the purchase has purchased this land for setting up an industrial undertaking and when the industry is set up on khasra number then land become non-agriculture land. (g) The above said land was regularly used for agricultural purposes. (h) The above land falls under rural area and at that time was not developed and all the lands surrounding these were used for agricultural purposes. (i) Above land has not developed into any plots and roads. (j) No. (k) The permission for purchase of land is obtained by non-agriculturist purchaser. (l) The land was sold according to the bighas biswas and not by yards. (m) The land is purchased and sold on the basis of average value.” A perusal of the report reveals that it is clearly recorded that the land was regularly used for agricultural purposes before it was sold. The Income Tax Appellate Tribunal, has also ITA No. 230 of 2012 (O&M) -11- noticed that khasra girdhwaries from 2002 to 2007, contain complete details of land, area, name of owner, khasra numbers and the crop sown on this land were available with the Assessing Officer but were ignored. The jamabandis and the khasra girdawaris in our considered opinion, prove that the land was used for agricultural purpose during the relevant period and was rural agricultural, before it was sold. The revenue conscious of this legal flaw has tried to bring the income to tax by asserting that the land is not agricultural as it was never subjected to agricultural operations. The findings with due deference to the two officers concerned is contrary to the revenue record, the certificate issued by the Tehsildar, the jamabandies and the khasra girdwaries which prove with a degree of certainty the agricultural nature of land. Counsel for the revenue despite our repeated request to refer to any material to the contrary to rebut the presumption of truth attached to entries in a jambandi is not in a position to refer to any evidence much less any material that would enable us to hold that the land was not agricultural. The land being rural agricultural land situated beyond a municipal area and beyond prescribed limits from the boundaries of a municipal area, could not possibly have been held to be a capital asset. The Assessing Officer and the CIT(A) in their apparent zeal to bring the transaction to taxation discarded or should we say intentionally ignored the revenue record and interest without discussing the revenue record, particularly the jamabandies, the khasra girdwaries and the information made available by the Tehsildar, proceeded to ITA No. 230 of 2012 (O&M) -12- erroneously hold that the land is not agricultural. The Tribunal therefore rightly held that the land purchased and sold by the assessee is rural agricultural land. The Assessing Officer and the CIT(A), though, conscious of the fact that the land is agricultural in nature, made an attempt to side track the issue and treated the income from the sale of agricultural land as trade from business and brought the same to taxation. Counsel for the revenue, therefore, asserts that the sale of land to industrialists, who thereafter set up industries proves that the assessee was a dealer who purchased and sold land, derived income from these sales and therefore these transactions partake nature of business income in the nature of an adventure in trade. We have considered the argument but in the absence of any evidence much less an assertion that the assessee sold anything other than agricultural land or that at any stage sought conversion of the land, for industrial use or carved out separate plots for sale, hold that as at the time of sale the land was agricultural and was sold as such. The fact that the land was sold to industries would not alter the transaction into an adventure in business, or partake the nature of business income. It would be appropriate to point out that the land, in dispute, was sold by the assessee and purchased by the vendees as agricultural land. Whether the purchaser, used it for commercial or industrial purposes is irrelevant for determining the nature of the transactions in the hands of the assessee. We therefore find no error in the opinion recorded by the ITA No. 230 of 2012 (O&M) -13- Tribunal that the land, in dispute is rural agricultural land and is consequently not a capital asset. The assessee having sold agricultural land, though, admittedly, to various industrial units, has merely sold agricultural land and, therefore, cannot be held to be a dealer in agricultural land nor can the land, in dispute, be held to be stock and trade and, therefore, business income. Consequently the question of law is answered against the revenue and the appeal is dismissed. (RAJIVE BHALLA) JUDGE October 27 , 2014 (AMIT RAWAL) archana/nt JUDGE "